Home » Between The Lines » The changing contours of employment law in India

DISCLAIMER: The material contained in this publication is solely for information and general guidance and not for advertising or soliciting. The information provided does not constitute professional advice that may be required before acting on any matter. While every care has been taken in the preparation of this publication to ensure its accuracy, Vaish Associates Advocates neither assumes responsibility for any errors, which despite all precautions, may be found herein nor accepts any liability, and disclaims all responsibility, for any kind of loss or damage of any kind arising on account of anyone acting/ refraining to act by placing reliance upon the information contained in this publication.

Presently, platform economy is a common occurrence. There is enhanced codification of terms as companies like Zomato, Swiggy, Uber Eats and Grubhub optimise operations and consolidate market share. Serving as ‘aggregators’, they have revolutionised product delivery and ride-sharing sectors. However, the human capital in this sector is seen as contractors rather than workers, resulting in a dichotomy of beneficial classification.

This article will discuss how the gig economy is developing in India and other countries, so that the Indian experience may draw from the lessons learnt by other jurisdictions.

Development of the gig economy in India

The basic understanding of any platform economy is that the platform, using software applications, acts as a digital mediator by matching a large pool of workers and customers. There is a growing ecosystem of freelancers engaged in short-term contracts by companies, also known as the gig economy, sharing economy, collaborative economy, on-demand work or crowd work.

The Associated Chambers of Commerce and Industry of India has projected that India’s gig economy would grow at a compounded annual rate of 17% by 2023. This growth is testament to the fact that the gig-economy has immense advantages. It provides: (i) cheap labour for businesses; (ii) more options, income and autonomy for workers and (iii) cheaper, more immediate services for consumers.

Technology opened the door for the gig economy in India when apps like Uber, Swiggy, Ola and Zomato displaced existing transportation solutions and food delivery services. While there is maximum flexibility provided to manufacturers and traders under this model, there is a flipside from a legal front as well, which employers must be aware of.

Some factors pushing lawmakers and freelancers to dismantle the system are: (i) low job security because workers feel insecure about their tenure; (ii) avoidance of companies in paying employment benefits although not legally required; and (iii) lack of conflict resolution as there is no collective bargaining power or expectation of loyalty.

Classification & Misclassification

Almost all crowd-work terms of service contain clauses wherein workers attest that they are self-employed or “independent contractors”. This designation is particularly important, as many labour rights are tied to employment status.

The Code on Social Security, 2020 (which is enacted but not implemented) (“Code”) confers legal recognition on gig and platform workers. The Code defines a gig worker as ‘a person who performs work or participates in a work arrangement and earns from such activities outside of a traditional employer-employee relationship’. Platform work is defined as ‘a work arrangement outside of a traditional employer-employee relationship in which organisations or individuals use an online platform to access other organisations or individuals to solve specific problems or to provide specific services or any such other activities which may be notified by the Central Government, in exchange for payment’.

Some lessons may be suitably drawn from the international rulings, for example:

  • The State Supreme Court of State of California in Dynamex Operations West, Inc. v. Superior Court of Los Angeles [4 Cal.5th 903], successfully extended the traditionally available protections for labour workers to the gig workers. This was later codified, a measure which addressed the ‘independent contractors’ classification, but required employers to provide them with a healthcare contribution subsidy and 120% of the local minimum wage.
  • The Supreme Court of the United Kingdom (“U.K.”) court, in Uber v. Aslam [(2021) UKSC 5], recognised certain Uber drivers as ‘workers’ under the Employment Rights Act, 1996. The court tried to fit new phenomena into the dated statutory framework which did not envisage workplace digitization.

It is important to note that given the progressive rulings of the courts of the U.K. and the State of California it is expected that Indian courts may adopt a similar approach. The path India has taken (of introducing the Codes) is optimal because the three disadvantages of the gig economy – job insecurity, benefit dilemmas and conflict management – can be resolved at once by enacting progressive legislation.

Fair work

As per Oxford University’s project ‘Fairwork’, Swiggy and Zomato are the most unfair gig work companies in India. They are notoriously unwieldy and dominant. The increase of gig-economy presents a unique opportunity to prevent hurdles in implementing and establishing a robust social security mechanism, better utilising India’s annual expenditure on core social protection and flagship welfare schemes.

Taking cognizance of such reporting and ground realities, the Central Government promises to universalize benefits in health and maternity matters, life and disability cover, etc. and is also in the process of amending the Industrial Disputes Act, 1947, to include gig workers under its purview, while the State Government is supposed to ensure the workers’ benefits like provident fund, skill upgradation and housing are implemented.

Next Steps

It is important for employers to understand how the legal framework will change once the labour codes are in effect. For example, companies that use aggregators for transport and mobility solutions in their day-to-day operations will have to ensure compliance under the labour codes if their service providers are classified as gig-workers.

There are several possibilities to consider – including that of the employment being in the nature of:

(i) Employer – employee
(ii) Employer – contract labourer
(iii) Direct employment.

Depending on the exact delineation of their employment, it remains to be seen who is going to foot the bill for the labour welfare and social security provisions currently envisaged in the Code. If it is the obligation of the employer, such overhead costs will be passed on to the consumer in the form of increased prices and if costs are subsumed by the government, then it may factor such costs into the indirect taxes applicable on availing gig-worker’s services.

Other issues that employers should account for, given the evolving state of the law, include:

Following international precedent: Democratic lawmakers in Washington, U.S.A. called for paid sick leave, enhanced unemployment insurance, food assistance and affordable coronavirus testing and treatment. Practice is tending towards unionization and collective bargaining under International Labour Organization’s Declaration on Fundamental Principles and Rights at Work.

Leveraging the efficiency of technology: Technology can simplify contribution and benefit payments. Uruguay has introduced mandatory social security insurance for all for the self-employed and micro-enterprises starting with taxi drivers.

Facilitated by the Unified Payments Interface (UPI) and Startup India initiatives, newfound synergies can be achieved by companies that adapt in the face of regulatory headwinds.

Introducing standardized employment forms: This is targeted towards platforms where unskilled employment such as food delivery and courier services, is provided. It should seek to secure workers standard legal rights such as preferring trial over arbitration or right to class action lawsuits that would have otherwise been waived.

VA View:

The growth of networked platforms has led to the question of how to modernize employment protections to fit with modern realities. The labour codes in India should strive to get a balanced regulation through the use of thresholds prescribing the daily or monthly hours clocked by the gig workers to ensure that similarly situated workers get to avail social security benefits. Overly stringent regulations can drive out smaller firms as larger companies can absorb compliance costs.

The gig economy, which is a prototype of the future, or at the least, an insight into the infrastructure for decentralized work requires aligning interests and time. Each individual’s specific skill-sets can be put to use in an interdisciplinary set-up on a project-basis. Through progressive legislation, it is expected that the Government will appreciate the realities of the situation and India Inc. will plug the loopholes in the law to ensure coverage of all kinds of workers and bring clarity to the employment obligations of corporates.

For any query, please write to Mr. Bomi Daruwala at [email protected]