Analysis of the Labour Code on Industrial Relations Bill – Part II (Standing Orders and Negotiating Agent)

(Editor’s Note: This is second in a series of blog posts on the Labour Code on Industrial Relations Bill. Part I is here. This post is written by Raktima Roy and Arpita Sengupta)


In this post, we comment on matters relating to Standing Orders in Chapter IV of the Labour Code on Industrial Relations Bill, 2015 (‘Draft Code’). This chapter imports the rights and duties of employers and workers set out under the Industrial Employment (Standing Orders) Act, 1946 (‘Standing Orders Act’) with substantial changes.

Increased Ambit of Applicability

The Draft Code greatly increases the ambit of applicability of standing orders, which is a welcome step given that clearly defined contingencies in employment contracts have the potential to reduce unnecessary litigation. S.35 of the Draft Code which deals with applicability, states that all the substantive provisions of the chapter relating to the making of rules and model standing orders by the government, drafting of standing orders by the employer, the procedure for certification and modification of said orders, appeals to the Industrial Tribunal etcetera are applicable to “all such establishments or undertakings” as have employed not less than 100 or more workers on any day during the preceding year. Under the existing Standing Orders Act, the provisions are applicable to a narrow but fragmented list of industries. This extremely fragmented definition has been streamlined and brought into consonance with the remaining legislation by virtue of the single, broad definition of “industrial establishment” under the Draft Code. However, the appropriate government retains its power to exempt establishments from the ambit of applicability. For example, the Karnataka Government can continue to exempt IT industries from having to apply these provisions.

Reduced Executive Discretion to Notify Standing Orders

In line with the Bill’s proposed aim of reducing executive discretion and allowing for greater predictability and transparency, a noteworthy change proposed by the Draft Code is that the provisions of this chapter cannot be made applicable to industrial establishments employing less than 100 workers as they can do now. At the same time, the Draft Code ensures that if such an establishment has already been notified, it will continue to stay in force.

Matters Covered by Model Standing Orders

S. 35 of the Draft Code sets out a list of matters to be covered by Model Standing Orders drafted by the Central Government allowing the scope for inclusion of unspecified matters under its ambit. It is a welcome step because the Draft Code envisages a far more expansive list of specified matters than before and it is especially commendable that it spells out certain acts which are decidedly considered to be acts of misconduct. For instance, in line with the Vishaka judgement, sexual harassment has now been classified as misconduct under the Model Orders. Further, contractual uncertainty and scope for disputes leading to judicial intervention are both reduced by the inclusion of matters such as medical aid in case of accidents in the standing orders.

There is a difference between the matters on which Model Standing Orders should be framed as provided in S. 35 and the matters which are covered under the First Schedule (which lists matters that must mandatorily be covered by Standing Orders). The First Schedule contains two provisions which are missing from the Model Standing Orders and the latter contains a number of provisions not included in the former. The First Schedule contains matters that would mandatorily be included in the Standing Orders while S. 35 sets out additional guidelines for the Model Standing Order that industries should loosely follow. However, the phrase used in S. 35 is “shall make” which seems to impose a positive obligation on industries to include all matters stated in the section in their Standing Orders. In that case, it is unclear as to why there are two separate provisions dealing with matters covered by Standing Orders.

Another issue worth noting here is that the existing statute envisages strict compliance of the Standing Orders with the Model Standing Orders wherever specified it has has been affirmed in Indian Oil Corporation Ltd. v. Joint Chief Labour Commissioner that the Certifying Officer must verify the same. Now, the usage of the phrase “based on” in S. 35 of the new Code implies a degree of derogation from the earlier standards of strict compliance, which allows employers greater flexibility to adopt the standing orders as per their specific needs and hence is a welcome change. However, it makes the Certifying Officer’s duty to check compliance slightly ambiguous. Thus it might be better to insert an express clause indicating that the Certifying Officer shall, while examining the reasonableness and fairness of the provisions of the Standing Orders, also ensure that these provisions are reasonably based on the Model Standing Orders.

Simplified Drafting and Certification and Other Procedural Changes

The procedure for drafting and certification, while remaining largely similar, has been slightly more streamlined. This is a commendable step. There are also certain encouraging procedural changes that the Draft Code proposes. For instance, a time limit has been introduced for completion of investigation and inquiry for suspension. Also, the quantum of subsistence allowance for suspended workers has been increased.

We also recommend that clauses be inserted placing a time limit on employers for submission of draft Standing Orders. Further, it might be advisable to vest the powers of a Civil Court in the Certifying Officer for the purposes of receiving evidence, administering oaths, enforcing the attendance of witnesses and compelling the discovery and production of documents.

Definition of Negotiating Agent

The Draft Code makes several references to a “negotiating agent”. However, it offers no clarity on the definition, identification and precise role of such an agent. This ambiguity may lead employers to arbitrarily designate particular trade unions as the negotiating agent.

The Report by the Second National Labour Commission (hereinafter referred to as the Report) has undertaken a detailed discussion on the definition of a negotiating agent and the need of such an agent. The Report defines a Negotiating Agent as a “registered trade union recognised or certified as such under this Act being the single negotiating agent or a combination or college of more than one registered trade unions and includes a negotiating committee”.

The Report emphasised on the need for a single negotiating agent and reduction in the multiplicity of trade unions so as to avoid fragmentation in collective bargaining power of the workers and prevent inter-union and intra-union conflicts. Thereafter it considered the debates surrounding the manner of recognition of a Negotiating Agent that were taken up by the First National Labour Commission (hereinafter referred to as the Commission). The Commission had looked into two ways in which a Negotiating Agent could be chosen–the secret ballot system and the check off system. The Commission had gone into the recommendations of various committees like the Ramanujam Committee, Shanti Patel Committee and the Sanat Mehta Committee.

The secret ballot system is akin to the secret voting system that is followed in India for Parliamentary elections. This system allows for a democratic form of election of the Negotiating Agent and maintains the confidentiality of the choices that the workers make thereby allowing them the freedom to associate freely. The system however suffers from a lot of vices. There is a need to clarify who could participate in the election process – whether it should be the entire working class in the establishment/industry or whether it should only be the members of a registered Trade Union. Also, if the right to vote is confined only to members of a registered Trade Union, it would largely affect the freedom of association of the workers thereby forcing everyone to join a registered Trade Union. The Report also noted that a secret ballot system would not be a cost effective solution for industries like the railways or a coal mine that has hundreds of workers.

The check off system allows the union to deduct union subscription fees from the wages of the workmen who are a part of the union. This thereby helps in determining the number of workers who are supporting a particular union. The check off system is beneficial in the sense that it ensures continued support of a trade union by the workers unlike a secret ballot system where the workers may secretly support another union. The check off system is more cost effective than the secret ballot system because it largely avoids the administrative costs of an election. The Report, while maintaining that neither of the systems is flawless, sides with the check off system of recognition of a Negotiating Agent. The Second National Labour Commission was of the opinion that the check off system would help in preventing dual membership. The report also sidelined the argument that the check off system would make the workers vulnerable to trade union politics by bringing out their choice in the open. It stated that the multiple legal rights that have been given to workers no longer support the apprehension of exploitation.

Some of the Indian states like Maharashtra, West Bengal, Kerala and Orissa have implemented the concept of a Negotiating Agent or a Recognised Union in their state legislation[1]. Maharashtra has for long had the rule for a recognised union. Chapter III and IV deal extensively with the recognised trade union[2]. Under West Bengal Trade Unions Rules, 1998, the recognised trade union is selected by voting using the secret ballot system. The union securing more than 50 % of the votes would be the recognised union. In case no union secures the majority, a “union securing a minimum of 10 % vote in case of a class of industry and a minimum of 15 % vote in case of any individual industrial unit shall be granted the status of a constituent member of joint bargaining council”.[3] All these statutes have envisaged the identification of a recognized union because of the urgent need to do away with the multiplicity of unions, which increases the transaction costs of collective bargaining to a great extent.

As was held in Balmer Lawrie Workers Union, Bombay v. Balmer Lawrie & Co. Ltd., “a recognised union does not impinge upon the freedom of association – it only reiterates the larger national interest of industrial peace and harmony”. Therefore we appreciate the efforts of the Draft Code to streamline the multiplicity of trade unions by referring to a single negotiating agent, but hope that some clarity will be provided in the final version of the Bill on the mode of recognition and certification of such an agent in order to reduce the scope of arbitrariness in the designation of a Negotiating Agent as well as possible litigation over the same ambiguity.


[1]Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971, West Bengal Trade Unions Rules,1998, Kerala Recognition of Trade Unions Act, 2010 and Orissa Verification of Membership and Recognition of Trade Union Rules, 1994.

[2]Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971, available at http://bombayhighcourt.nic.in/libweb/acts/1972.01.pdf (last visited Jun. 29, 2015).

[3]Bengal introduces new rules for trade union recognition, Indian Express, Dec. 16, 1998, available at http://expressindia.indianexpress.com/fe/daily/19981217/35155514.html.

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