Written by Dheer Vasani & Akshat Pundir students pursuing B.A. LL.B (Hons.) at Maharashtra National Law University, Mumbai.
Many individuals studying law engage extensively with the Seventh Schedule of the Indian Constitution without contemplating the rationale behind labor’s inclusion on the Concurrent List initially. The answer is less a result of clear constitutional reasoning and more an indication of authentic discord within the Constituent Assembly regarding the governance of workers in a federal republic. This article explores that inquiry, examines its practical implications over the decades, and contemplates the ramifications of the new labour codes for the future of center-state relations in India.
As we know, Article 246 read with the Seventh Schedule spreads out this law-making authority across three lists, with those conferred to the Parliament included in the Union List, those exclusively under state legislatures in the State List. Simultaneously, there are certain subjects which can be legislated at both, the central and state levels under the Concurrent List. Labor, in its broad sense, sits in the Concurrent List. The main problem arises as labor-related subjects actually fall in all the three lists. The central government, for instance, regulates safety in mines and oilfields through Entry 55 of the Union List, while states have authority over local factories and MSMEs through Entry 24 of the State List.
How Labor Ended Up on the Concurrent List
The debates of the Constituent Assembly of 1949 show a rather genuine tension. Members of the assembly such as Dr. B.R. Ambedkar and K. Santhanam had opposed placing labor entirely under the State List, basis three broad concerns. Initially, states vying for investments may participate in a detrimental competition for labour protections. Secondly, as a founding member of the International Labour Organization (ILO), India required the central government to maintain the authority to execute international agreements, as the implementation of treaties was solely a Union responsibility. Third, labour and capital were transferable across state lines, and a strike in one state could readily impact sectors in another.
Conversely, Hari Pataskar persuasively argues on the remarkable diversity of Indian industrial landscape, citing that uniform application of the same regulatory framework to a Bombay textile mill and a tea estate in Assam is illogical. The apparatus for law enforcement, encompassing local police, resides with the states, rendering a certain level of state control virtually indispensable.
Ultimately, the Assembly deemed it appropriate to place “labour” within the Concurrent List, considering that it would allow both tiers of government to regulate the matters, with central law taking precedence in cases of dispute, as stipulated by Article 254. An exception to this is provided under sub-clause (2), which allows a state legislation, which has received presidential assent, to supersede a conflicting central law, at least provide that the Parliament has not reintroduced a legislation specifically overriding the state amendment.
Central Authority Versus State: An Imbalanced Equation in Practise
There exists a considerable gap between the vision of the Constituent Assembly and the realities that have emerged in practice. The Sarkaria Commission Report (1988) indicated that the Central Government has continually misused its superior power over concurrent list matters, notwithstanding due consultation with the States before relevant legislation is enacted. The Commission specifically recommended that Parliament should make a true effort to consult and take into account the States’ requirements before enacting concurrent law. However, there was little evidence of compliance with this recommendation.
There have been several researchers who have looked at this issue (Mitchell, Mahy and Gahan, 2014) in a comparative manner, and have concluded that India’s constitutional framework does not provide a pluralistic approach to the regulatory environment, and that States have not capitalised on the flexibility given to them by the Constitution. After liberalisation, the focus has shifted to deregulation rather than creating an innovative labour protection system in order to attract investment. The end result has been that India’s labour law regime has become centralised, despite the authority to share powers established in the Constitution.
It’s not only a matter of principle, as the focus of academicians is on how the original legal basis was built on the premise that employers and employees have a natural conflict, which necessitated the role of the state in preventing a lack of equity. Saini (2014) argues that this legal premise restricted governments’ ability to offer the regulatory flexibility that would allow employers to act as they wanted after the LPG policy reforms in 1991.
Two diverse examples demonstrate that this issue exists from polar opposite perspectives – in 2014, the Rajasthan government amended the Industrial Disputes Act to raise the level of required government approval for retrenchment from 100 to 300 employees and obtained the President’s approval to override the federal government’s authority. This has resulted in similar reforms in Haryana, Madhya Pradesh, and Andhra Pradesh, to show that the state constitutional framework for state autonomy is in place, even if it rarely has been used.
Conversely, during the COVID-19 epidemic, Uttar Pradesh enacted an ordinance in 2020 that suspended 35 of 38 labour regulations for nearly a thousand days. Trade unions appropriately condemned this as regarding worker welfare as optional rather than obligatory. It revealed how the adaptability of the Concurrent List may be exploited against the very workers it was intended to safeguard.
The doctrine of ‘pith and substance’ has rather reinforced these constitutional norms and practices, allowing the Courts to uphold central laws trespassing into the ambit of state subjects as valid, provided that the primary objective is labour welfare and the encroachment onto state authority is incidental rather than intentional, enabling welfare legislations to extend to workers without encountering a constitutional impasse whenever a measure traverses jurisdictional fields.
The New Labor Codes: Centralizing Under the Banner of Simplification
During 2019-2020, Parliament brought 4 comprehensive codes through the consolidation of 44 central labor statutes. The objective was to eliminate the ambiguity that arose through different definitions and their interpretations varied from numerous overlapping statutes. Despite receiving presidential assent, these codes remain unimplemented. This is because states are required to form their own rules under these codes for their actual implementation. This implies that the central labor codes and state rules would work hand in hand to build a new workforce ecosystem in India, reflecting the inherent federal and concurrent nature of labor. However, this realization is absent in certain provisions of the codes wherein the balance of power significantly shifts towards the center. For instance, Section 9 in the Code of Wages empowers the central government to establish a ‘floor wage’ grounded in minimal living requirements. States are prohibited from descending beneath this threshold. If a state’s current minimum wage surpasses the federal minimum, the state cannot reduce its wage below its own established level, irrespective of federal regulations. In principle, this appears to be protective but in practice, a consistent national standard eliminates the distinction between a micro, small, and medium enterprise in a rural economy and a huge manufacturer in an industrial corridor. It also poses a risk of imposing fiscal pressure on states if the threshold is set above their economic capacity to maintain.
On contractual employment, Section 84 of the Industrial Relations Code creates a uniform national framework for fixed-term employees, including mandatory extension of gratuity benefits. Previously, states had the space to set their own rules for contractual workers. That space has now been substantially occupied by the center. While the outcome, namely better protection for fixed-term workers, is welcome, the process further compresses what remains of state-level flexibility.
The codes do get one thing broadly right, with respect to gig workers. For the first time, platform workers are explicitly brought within the social security framework. States that have large gig economies can legislate additional protections beyond the central floor. This tiered approach, central minimum plus state discretion for additional coverage, is actually closer to how the Concurrent List should function in theory.
What Genuine Cooperative Federalism Would Look Like
The founding intent behind placing labor in the Concurrent List was not to create a hierarchy with the center at the top, but to ensure that national standards and regional sensitivity could coexist. The current design has drifted far from that intent. A few concrete reforms could change this. First, an inter-state council established for labor legislation would provide states with a formal role in the decision-making process prior to the finalization of codes. Under Article 263 of the Constitution, inter-state councils have been established. In this direction, a specific labour council to consult states in collaboration with the centre on issues relating to labour regulations would be a significant stepping stone. With binding decisions instead of merely advisory resolutions, it would represent a substantial advancement toward the recommendations of the Sarkaria Commission made over thirty years ago.
Second, the notion that all states have the same level of administrative capacity and industrial competence should be abandoned. A tiered regulatory architecture makes more sense structurally. Countries with larger formal sector workforces and a strong administrative apparatus should be granted more authority on matters such as retrenchment thresholds and contractual employment arrangements. States with low industrial capacity would adopt the central codes exactly as stated. States with a large informal sector and insufficient administrative infrastructure would be given targeted central support and extended timetables for their labor force to migrate into the formal economy.
This asymmetrical federalism is not a new concept in the Indian Constitution. The application of asymmetrical regulation to labour would allow for the different industrial conditions in India to be resolved without necessitating acts of Parliament to create the lowest common denominator every time. The historical treatment of Jammu and Kashmir, or special provision for Northeastern states, demonstrates that differentiated regulatory arrangements can be made within the Indian Constitution.
The choice of including labor under the Concurrent list of the Seventh Schedule was not a compromise but a thoughtful and deliberate move by the founding fathers of the Constitution. The governance of a vast and diverse labor sector required local sensitivity along with coherence in law-making. The implementation of newly introduced labor codes in the future will be the litmus test of the cooperative federalism envisioned in achieving labor standards.
The commitment to striving for industrial growth and labor welfare simultaneously would require an understanding that the division of legislative power between the state and the center was not to create a superior or subordinate authority over the other but to ensure that uniformity and regional sensitivity go hand in hand. Moreover, the future would warrant further steps towards co-operative federalism between states and the centre, co-operative federalism, judicial creativity, legislative innovation, and finally appreciating the complexity of the labor market in India, which cannot be regulated by a single government itself.
Caveat: The views, analyses, and information presented in this article are provided in good faith and for general informational purposes only. No representation or warranty, express or implied, is made regarding the accuracy, adequacy, validity, reliability, or completeness of the information. Readers should conduct their own research and seek professional guidance where appropriate. Neither the author nor the publisher shall be held responsible for any loss, liability, or consequence arising from reliance on this content.
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