Prologue

The first National Labour Commission 1929, had promised lot in the direction of social security,
social welfare, wages, social insurance, industrial relations, industrial adjudication, collective
bargaining etc,. In sequel to the recommendations made in the report of the first national
commission on labour series of labour enactments were passed.
After the gap of almost 72 years the Second National Labour Commission has been
constituted and submitted its report in the year 2002 to the Government of India. At the outset
the terms of reference to the commission are as under:
1. To suggest rationalisation of existing laws relating to labour in the organised sector, and
2. To suggest an umbrella legislation for ensuring a minimum level of protection to the
workers in the unorganised sector.
Before penning down the report, the Commission followed the following methodology:
a. arrange to consultation / conferences in the major cities of India to get the opinion of the
Industry, public, educationalists and so on institutions';
b. circulated a questionnaire across the industry and the society in terms of the reference
c. surveys conducted both in organised and unorganised sector
The recommendations of the Commission consists of the chapters, namely 1). The terms of
the reference of the Commission 2).Introductory review, 3).Industrial Development and Progress
after independence, 4).Impact of globalisation - in comparison with neighbouring countries,
5).Approach to review laws, 6).Review of laws, 7).Unorganised sector, 8).Social security,
9).Women and Child labour, 10).Skill development, 11).Labour administration, 12).Other
matters.
Only relevant part of important chapters with special reference to the organised sector and
major recommendations of Commission thereof are dealt verbatim herein below:
Recommendations (verbatim)
1. We recommend that the Central Government and the State Government should have a
uniform policy on holidays, only 3 national holidays be gazetted - namely Independence Day,
Republic Day and Gandhi Jayanti Day, two more days may be added to be determined by each
State according to its own tradition and apart from these each person must be allowed to avail
of 10 restricted holidays in the year, Government holidays should be delinked from holidays
under the Negotiable Instruments Act.(5.29)
2. Flexibility in the hours of work per week and compensation for overtime. (5.32)
3. Attempt to change the basis of tenure in all jobs (permanent as well as non-permanent) to
contractual and for stipulated periods, involves a basic change in attitude and notion. If

transforming the basis of all employment is a social necessity because it has become economic
necessity for industrial and commercial enterprises, then, it is equally necessary to create social
acceptability for the change and the social institutions that can take care of the consequences.
(5.34 & 35).
The fundamental change of this type has to be preceded by :
i) evolution of socially accepted consensus on the new perceptional jobs
ii) the evolution of a system of constant up-gradation of employability through training in a wide
spectrum of multiple skills
iii) the setting up of a system of social security that includes unemployment insurance and
provisions for medical facilities; and
iv) the institution of a mandatory system of two contracts - one, an individual contract and two, a
collective contract with workers union.
4. The commission recommends that government may laid down list of highly paid jobs who are
presently deemed as workman category as being outside the purview of the laws relating to
workman and included in the proposed law for protection of non-workmen. Another alternative is
that the Govt. fix a cut off limit of remuneration which is substantially high enough, in the present
context such as Rs.25,000/- p.m. beyond which employee will not be treated as ordinary
"workman". (6.19) wage ceiling of Rs.25000/5. Further the Commission recommended that it would be logically to keep all the supervisory
personnel, irrespective of their wages / salary, outside the rank of worker and keep them out of
the purview of labour law meant for workers. All such supervisory category of employees should
be clubbed along with the category of persons who discharge managerial and administrative
functions. The Commission would also recommend that such a modified definition of worker
could be adopted in all the labour laws. We expect management to take care of the interest of
supervisory staff as they will now be part of managerial fraternity. (6.20) Modified definition of
worker
6. Existing set of labour laws should be broadly grouped into four or five groups of laws
pertaining to:
i) Industrial relations
ii) Wages
iii) Social security
iv) Safety
v) Welfare and working conditions and so on
The Commission is of the view that the coverage as well as the definition of the term 'worker'
should be the same in all Group of laws subject to the stipulation that social security benefits

must be available to all employees including administrative, managerial, supervisory and other
excluded from the category of workmen and others not treated as workmen or excluded from
the category of workmen. (6.21)
7. It is necessary to provide minimum level of protection to managerial and other (excluded)
employees too against unfair dismissal or removal. This has to be trough adjudication by labour
court or Labour Relations Commission or arbitration.(6.22)
8. Central laws relating to the subject of labour relations are currently the ID Act, 1947, The TU
Act, 1926, Industrial Employment (SO) Act, 1946, Sales Promotion Employees (Conditions of
Service) Act, 1976. There are State level legislation too on the subject. We recommend that the
provisions of all these laws be judiciously consolidated into a single law called " The Labour
Management Relations Law" or "Law on Labour Management Relations". (6.26)
9. We would recommend the enactment of special law for small scale unit. We have come to the
conclusion that the reasonable threshold limit will be 19 workers. Any establishment with
workers above that number cannot be regarded as "small". The composite law suggested by us
for small enterprises has provisions for registration of establishment, (provisions pertaining to)
securing safety, health and welfare, awards of work, leave, payment of wages, payment of
bonus compensation in case of lay off, retrenchment and closure, resolution of individual and
collective disputes of workers etc. The law suggested by us also has provisions pertaining to
social security. We are of the view that a composite law will not only protect the interest of the
workers in these enterprises but will make it easier for the small enterprises to comply with the
same. (6.28)
Approaches in drafting the Law on Labour Management Relations :
Firstly, the Commission would prefer the gender neutral expression 'worker' instead of the
currently used word 'workman'.
Secondly, the law will apply uniformly to all such establishments.
Thirdly, we recognise that today the extent of unionisation is low and even this low level is being
eroded, and that it is time that the stand was reversed and collective negotiations encouraged.
Where agreements and understanding between two parties is not possible, there, recourse to
the assistance of a third party should as far as possible be through arbitration or where
adjudication is the preferred mode, through Labour Courts and Labour Relations Commissions
of the type be proposed later in this regard and not governmental intervention. A settlement
enter into with recognised negotiating agent must be binding on all workers.
Fourthly, we consider that provisions must be made in the law for determining negotiating
agents, particularly on behalf of workers.
Fifthly, the law must provide for authorities to identify the negotiating agent, to adjudicate
disputes and so on, and these must be provided in the shape of labour courts and labour
relations Commissions at the State, Central and National levels.
Sixthly, The Commission is of the view that changes in labour laws be accompanied by a well
defined social secuirty package that will benefit all workers, be they in 'organised' or

'unorganised' sector and should also cover those in the administrative, managerial and other
categories which have been excluded from the purview of the term worker.
The commission has avoided the term 'Industry' with a view that the persons engaged
in domestic service are better covered under the proposed type of umbrella legislation,
particularly in regard to wages, hours of work, working conditions, safety and social security.
(6.40)
Modification in the terms like 'strikes', 'work stoppage' etc. and the terms go slow and work to
rule must be regarded as misconduct under Standing Orders and Provisions relating to unpaid
labour practice. (6.41)
Commission has recommended to the withdrawal of essential services maintenance Act (6.49).
The Commission has suggested to identify a bargaining agent on the basis of check-off system,
with 66% entitling the Union to be accepted as a single negotating agent and if no union has
66% support, then Unions that have the support of more than 25% should be given
proportionate representation on the college. (6.66)
Check-off system in an establishment employing 300 or more workers must be made
compulsory for members of all registered trade unions. (6.73)
Commission also recommended that recognition once granted, should be valid for a period of 4
years to be co-terminus with the period of settlement. No claim by any other Trade Union /
Federation / Center for recognition should be entertain till at least 4 years have elapsed from the
date of earlier recognition. (6.76)
Establishment employing 20 or more workers should have Standing Order or Regulations.
There is no need to delimit the issues on which Standing Orders can or need be framed. As long
as two parties agree all manner of things including multi-skilling, production, job enrichment,
productivity and so on can also be added. The appropriate Government may prescribe a
separate Model Standing Orders for units employing less than 50 workers. The Commission has
drafted a draft Model Standing Orders in this regard. (6.77).
Every establishment shall establish a grievance redressal committee consisting of equal number
of workers and employers representatives. The said committee be the body to which all
grievance of a worker in respect of his employment will be referred for decision within a given
time frame (6.80).
Commission's view on Chapter V B (Special Provisions relating to Lay-off, Retrenchment &
Closure in the Establishments employing not less than 100 workmen) of the ID Act : The
Commission has felt that, in the new circumstances of global competition, it may not be possible
for some enterprises to continue and meet the economic consequences of competition. In such
cases, one cannot compel non-viable undertakings to continue to bear the financial burden that
has to be borne to keep the concern going. They should, therefore, have the option to close
down. In these circumstances, the commission came to the conclusion the best and more
honest equitable course will be to allow closure, provide for adequate compensation to workers
and in the event of an appeal, leave it to the Labour Relations Commission to find ways of
redressal - through arbitration or adjudication. (6.87).

Prior permission is not necessary in respect of lay-off and retrenchment in an establishment of

any employment size. Workers will however be entitled to 2 months notice or notice pay in lieu
of notice, in case of retrenchment. The commission also felt that the rate of retrenchment
compensation should be higher in a running organisation than in an organisation which is being
closed. It would however recommend that in the case of establishment employing 300 or more
workers where lay-off exceeds a period of 1 month such establishments should be required to
obtain post-facto approval of the appropriate government. The Commission recommends that
the provisions of Chapter V B pertaining to permission for closure should be made applicable to
all the establishments to protect the interest of workers in establishment which are not covered
at present by this provision if they are employing 300 or more workers. Having regard to the
national debate on the issue and the principles outlined above the commission has
recommended the compensation per completed year of service @ of 30 days on account of
closure in case of sick industry which has continuously running to losses for the last 3 years and
@ 45 days for retrenchment by such sick industry or body where retrenchment is done with a
view to become viable. The commission also recommended higher retrenchment compensation
@ 60 days wages and similarly a high rateof compensation for closure @ 45 days wages for
every completed year of service for profit making organisation . For establishment employing
less than 100 workers, half of the compensation mentioned above, in terms of days of wages
may be prescribed. However, notice is required to be given for both the cases of retrenchment
and closure as that of big industry. (6.88).
The commission has recommended for maintenance of panel of arbitrators by the LRC concern,
to settle the disputes. (6.93).
The matters pertaining to individual workers, be it termination of employment or transfer or any
other matter be determined by recourse to the Grievence Redressal Committee, conciliation and
arbitration / adjudication by the Labour Court. Accordingly, Sec.2 a of the ID Act may be
amended. (6.96)
The system of legal aid to workers and trade unions from Public Fund be worked out to ensure
that workers and their organisations are not unduly handicapped as a result of their inability to
hire legal counsel. (6.98)
Strike should be called only by the recognised negotiating agent and that too only after it had
conducted a strike ballot among all the workers, of whom at least 51% of support the strike.
(6.101).
Workers participation in management - the legislative teeth should be provided. (6.102).
The Commission urges that these recommendations are taken up as a whole and not in a
piece-meal manner that may destroy the context of inter-relation and holistic approach. (6.104).
The provisions in respect of small establishments can be in the form of a separate law name
Small Enterprises (Employment Relations Act) or be included in the general law as a separate
chapter to ensure that the interest of the workers are fully protected, even while lessening
burden on the management and providing them with vigilance in exercising managerial
functions. (6.106)
The Commission has recommended that contract labour shall not be engaged for core
production / service activities. However, for sporadic seasonal demand, the employer may

engage temporary labour for core production / service activity. As mentioned by the commission
that off-loading perennial non-core services like canteen, watch and ward, cleaning, etc. to other
employing agencies has to take care of three aspects - (1) there have to be provisions that
ensure that ensure that perennial core services are not transferred to other agencies or
establishments; (2) where such services are being performed by employees on the payrolls of
the enterprises, no transfer to other agencies should be done without consulting, bargaining
(negotiating) agents; and (3) where the transfer of such services do not involve any employee
who is currently in service of the enterprise, the management will be free to entrust the service
to outside agencies. The contract labour will, however, be remunerated at the rate of a regular
worker engaged in the same organisation doing work of a comparable nature or if such workers
does not exist in the organisation, at the lowest salary of a worker in a comparable grade, i.e.
unskilled, semi-skilled or skilled. (6.109).
The Commission would recommend that no worker should be kept continuously as a Casual or
temporary worker against a permanent job for more than 2 years. (6.110)
The Commission recommends that every employer must pay each worker his one-month's
wage, as bonus before an appropriate festival, be it Diwali or Onam or Puja or Ramzan or
Christmas. Any demand for bonus in excess of this upto a maximum of 20% of the wages will be
subject to negotiation. The Commission also recommend that the present system of two wage
ceilings for reckoning entitlement and for calculation of bonus should be suitably enhanced to
Rs.7500/- and Rs.3500/- for entitlement and calculation respectively.(6.113).
There should be a national minimum wage that the Central Government may notify. This
minimum must be revised from time to time. It should, in addition, have a component of
dearness allowance to be declared six monthly linked to the consumer price index and the
minimum wage may be revised once in five years. The Commission also recommends the
abolition of the present system of notifying scheduled employments and of fixing/revising the
minimum rates of wages periodically for each scheduled employment, since it feels that all
workers in all employments should have the benefit of a minimum wage. (6.114)
There is no need for any wage board, statutory or otherwise, for fixing wage rates for workers in
any industry. (6.118).
The Commission recommended enactment of a general law relating to hours of work, leave and
working conditions, at the work place. For ensuring safety at the work place and in different
activities, one omnibus law may be enacted, providing for different rules and regulations on
safety applicable to different activities. (The Commission have appended a draft indicative law
on hours of work and other working conditions after this chapter, and an omnibus draft indicative
law on safety in the chapter on Labour Administration). Such general law on working conditions
etc. may provide for the following (6.121) :a. The law should have a provision for letters of appointment along with a copy of Standing
Orders of the establishment (in the local language); and issue of a photo identity card
giving details of the name of the worker, name of establishment, designation, and so on.
b. It should specify the maximum number of working hours in a day/week, and payment of
overtime at double the rates of wages. The limitation on employing workers on overtime
needs to be relaxed, and the Commission recommended that the present ceilings be
increased to double to enable greater flexibility in meeting the challenges of the market.

Sub section (2) of Section 64 of the Factories Act contains a provision that the State
Government can give exemptions in certain circumstances. Sub section (2) of Section
64 of the Factories Act contains a provision that the State Government can give
exemptions in certain circumstances. The Commission recommend that the list of such
contingencies may be suitably expanded in consultation with the representatives of the
industry to include more occupations, processes and contingencies.
c. There should be reduced working hours for adolescents, prohibition of underground
work in mines for women workers, prohibition of work by women workers between
certain hours and so on.
d. On the question of night work for women there need not be any restriction on this if the
number of women workers in a shift in an establishment is not less than five, and if the
management is able to provide satisfactory arrangements for their transport, safety and
rest after or before shift hours.
e. No exemptions like EPZ or SEZ from labour laws.
f.

Appropriate government may be empowered to grant exemptions on case to case basis.

g. Establishment having a man power over a specified limit must provide for a canteen.
h. Other refreshment facilities exclusively based on gender be provided
i.

To rope in local bodies, NGOs etc. in creation of amenities, common market etc.

j.

Irrespective of number of women workers, a creche should be provided

Deletion of Employers' Liability Act, 1938, fatal accident act 1855 and relevant provisions of
these Acts may be incorporated into the W.C. Act, 1923. (6.126)
A provision may be made in the Laws that all cases must be disposed of in a span of 3
hearings, disposal in 03 hearings and where this is not possible, the Labour Court should in its
award give reasons for taking more hearings. The Labour Relations Commissions may also be
entrusted with the responsibility to assess the work of the LCs particularly in the matter of
expeditious disposal of cases. With the constitution of an All India Labour Judicial Services that
the commission is recommending with a hope that to have a dedicated and competent set of
man and woman as presiding officers of LCs who will be able to discharge responsibilities
efficiently and expeditiously. (6.139)
The Commission has suggested the recommendations on social security. The main
recommendations amongst the other are stated herein below :

Our Commission accepts the need to consider social security as a fundamental human
right. (8.30)

We recommend a system in which the State bears the responsibility for providing and
ensuring an elementary or basic level of security, and leaves room for partly or wholly
contributory schemes. This will mean that the responsibility to provide a floor will be

primarily that of the State, and it will be left to individual citizens to acquire higher levels
of security through assumption of responsibility and contributory participation. Such a
system will temper and minimise the responsibility of the State, and maximise the role
and share of individual and group responsibility. Thus, there will be three levels in the
system. (8.32)

The Task Force on Social Security recommended that 'wage ceiling and employment
threshold can and should be uniform with a provision for raising the wage ceiling and its
eventual removal and lowering employment threshold and its ultimate removal. The
Commission also agrees with it. (8.93)

The term 'workman' may be replaced by the term 'employee' so as to make the Workers'
Compensation Act applicable to all categories of employees; the term 'employee' may be

Defined to mean any person employed in any employment specified in Schedule II; the
entries in Schedule II may be revised so as to make it applicable to all classes of
employees progressively; and restrictive clauses, wherever they occur in the Schedule,
may be omitted. (8.96)

The Workmen's Compensation Act should be converted from an employers' liability

scheme to a social insurance scheme, its coverage should be progressively extended to
more employments and classes of employees, and the restrictive clauses in Schedule II
of the Act should be removed. (8.97)

The management of ESI Scheme should be professionalised (8.113)

The PF Act be made applicable to all classes of establishment subject to such exception.
(8.117)

The Commission suggests that EPFO organised an enquiry into the working of all
exempted funds by an independent agency and review the entire scheme of granting
exemptions from the provisions of the EPF Act. (8.126)

The Payment of Gratuity Act may be integrated with the EPF Act and converted into a
social insurance scheme. (8.149)

An unemployment insurance scheme could play substantial role in coping with

unacceptable levels of employment resulting from the implementation of structural
adjustment programmes and other economic reforms. (8.175)

The National Renewal Fund (NRF) was established in Feb-92 to provide a form of wage
guarantee which had to be used for re-training, re-deployment, counselling etc. but in
practice, NRF has mostly been utilised for implementing the VRS. There is need to
restructure this fund to serve as a wage guarantee fund. (8.179)

A provision be made for Payment of Educational Allowance to all employees (8.182).

The insurance companies be required to develop too or more plans providing coverage
for major risks faced by people leaving it to individual to choose from among them
according to their capacity. (8.242)

A National Scheme for pension for physically handicap be introduced (8.365).

A National Scheme be drawn up for payment of pension to leprosy affected persons,

mentally sick people on the same lines as the pension for physically handicap person.
(8.380)

Able bodied beggars should be given training and help to get employment. (8.386)

A permanent commission for disaster management should be set up on the lines of

election commission. (8.393)

The Commission strongly recommends the constitution of high powered national security
authority preferably under the Chairmanship of a Prime Minister of India. (8.415).

A social security fund of India and social security of each State may be set up. (8.433)

There will be three kinds of social security schemes : 1) social insurance type of
contributory scheme, 2) subsidised insurance / welfare fund type of partly contributory
and partly socially assisted schems and 3) social assistance scheme which will be
wholly non-contributory. (8.343)

Other Recommendations & Conclusion:

The recommendations on women & child labour :

Recommendations on skill development :

Labour Administration

Workers participation in management

Employment scenario in the country :

Review of wages and wage policy :

Labour statistic and research work :

The Commission in its 2700 pages long report inter-alia has stressed on bilateral agreement,
collective bargaining, identification of parties to bargain and for recognition. Review on existing
provisions in the Trade Union Act with regard to recognition / registration of trade union i.e. 10%
support of the work force with method of identification of parties, consequences - 66% support
to recognise as TU and following suggestions:

Dispute Settlement

Grievance Settlement Committees,

Power to the labour machinery to enforce awards

Disposal of disputes within 3 hearings

Independent from government interference

Self contained code / procedure

Review on strikes and lock outs

Essential Services Maintenance Act should be scrapped

Hire - fire policy, economic necessity

Social acceptability of contract system of appointments

Management (wants) to decide the working force - Sec. 9 A is must

Contract Labour (R&A) Act, 1970 :

No contract labour should be deployed Core functions

The Commission has suggested the above recommendations along-with 7 draft bills so that the
concerned Ministry should not sit over the drafting exercise.
Critics on the Report:The report is not consonance with the National Policy on Industry - some of the parts of the
Report consist number of negative covenants.
a. Inter union revelry - 66% check off system is a myth
b. Validity of 4 years recognition of the Trade Unions
c. Strikes are weapons in the hands of few misled employees - Commission has
recommended ballot system i.e. 51% of voting majority;
d. Employers features not dealt in the Report

CLRA Act - out sourcing not in the employers interest

Closure - 300 is not adequate & is unrealistic

Festival bonus - not in the interest of the employer

Employment generation should be our goal accompanied by social benefit net

Using of the words "outsourcing", "agri business", "small scale industries", "small and
medium scale industries", "manufacturing industry" without defining them.

13 Important
Recommendations by
Second Labour Commission
(India)
In view of economic liberalisation of labour laws. Government of India set up 2nd
National commission of Labour under chairmanship of Mr. Ravindra Varma (a) to
suggest measures about rationalisation of labour laws (b) to suggestumbrella
legislation for ensuring a minimum level of protection to the workers in the organised
sector.
NCL suggested following definition for RationalisationIn our understanding
rationalisation means only making laws more consistent with the context more
consistent with each other, less cumbersome, simple and more transparent.
The commission believes the level of wages depend on economic efficiency of an
undertaking. The commission further adds workers have to be interested in
productivity as the management is.
The interest on work depends upon proper inspiration from management how
management can impose upon the workers work, ethics and culture. It has been seen;
many entities in Indian Work scenario employ a worker for 12 to 15 hours in a day at
this era of LPG. But in terms of wages they have not adequately been compensated.

Moreover, companies should behave in a more transparent manner and follow the
principles of corporate government Mantra. Mrs. Narayana Murthy said properly I feel
that corporate leaders should not use resources of the company for their personal use.
Never before have business leaders lost trust like this.
Some Recommendations of Second Labour Commission are:
1. Commission uses the work worker instead of workman.
2. Commission prescribes separate law for protection of highly paid jobs or other than
worker.
3. Commission feels to give certain level of protection to the managerial employees.
4. For labour Management Relations all settlement clauses should be binding on
everybody.
5. All labour laws should give a well defined social security.
6. Wages to include basic D.A., other perks and even bonus should be under
remuneration.
7. Retrenchment means termination of employment to reduce surplus labour.
8. A contract labour cannot be engaged in production/service activities. Contract labour
should be given remuneration at the regular rate of regular grade. No worker shall be
kept continuously as a casual worker for more than 3 years against a permanent job.
9. Every employee should be paid one months pay as bonus.
10. Every worker should have a right to enjoy minimum wage.
11. Child labour is a crime.
12. Five holidays and restricted leave.
13. No permission for lay off.

The commission should have been more specific towards determination of supervisory
worker. The threshold limit of Rs. 25000 may keep much supervisory level of workers
within ambit of the proper definition of workers.
The commission makes it clear that workers participation in management for the
organisation employing more than 300 people is essential. But they have left out this
organisation whose entities are below 300 peoples.
The commission does not define what is illegal strike or illegal lockout. Strikes and
lockouts are not samething. Some of the commission recommendations are good. But
more debate is necessary before these provisions are incorporated in the provision of
law.

Employment Relations - Contract Labour - Law On Wages - Piece Rate

Wages - Law Relating To Working Conditions, Welfare, and Safety and
Health - Laws Relating to Social Security - Laws Relating to

Miscellaneous Matters