Navigating India’s Labour Law : A Comprehensive Regulatory Guide for Startups

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Labour legislations in India find their basis in the Constitution, through the fundamental rights (specifically, the Rights to Equality; to Freedom; and against Exploitation) and the directive principles of state policy (contained in Articles 38, 39, 41, 42, and 43). It is therefore critical for startups to understand that labour laws in India are fundamentally welfare legislations, imposing significant compliance responsibility on employers as a result of a socialist outlook seeking to protect the dignity of human labour.

The labour law framework in India is intricate, often leading to confusion due to the dual roles of the central and state governments. For example, while central laws like the Industrial Employment (Standing Orders) Act, 1946, dictate terms of employment, state-specific Shops and Establishments Acts also prescribe similar conditions but with variations, necessitating detailed assessments to determine applicable compliances.

Moreover, the enforcement of many central laws is managed by state authorities, leading to inconsistencies in application across different states. For instance, the enforcement of the Payment of Gratuity Act, 1972 varies by state, leading to discrepancies in legal compliance across regions. For example, in Karnataka, Telangana, and Andhra Pradesh, specific gratuity requirements are mandatory, but not in other states.

The landscape’s complexity is exacerbated by the legal definitions of terms like “workman” and “employee” (often used interchangeably in common parlance) which differ significantly across laws and affect the applicability of protections and remedies. For instance, where the Minimum Wages Act, 1948 specifically identifies employment which would be protected by the provisions of the act, the Industrial Disputes Act, 1947 prescribes exclusionary criteria to identify persons who cannot seek remedy from the labour courts under the act.

To address these structural issues, the Government of India has proposed a complete overhaul of the labour laws in India. The proposed Labour Codes are the product of a long drawn process initiated around 2016, and aiming to simplify and reduce ambiguities in law enforcement across states, making it easier for startups to understand and comply with labour regulations, thereby fostering a more straightforward regulatory environment conducive to business operations and growth.