Authored by Vashmath Potluri and Shubhranshu, NALSAR University of Law

INTRODUCTION

Punjab’s 2025 amendment to the Shops and Establishments Act (“SEA”) exempts all establishments employing fewer than twenty workers from its scope. Marketed as a measure to ease compliance for small traders and promote the state’s “ease of doing business” agenda, the reform dismantles core protections, including limits on working hours, mandatory overtime pay and baseline health and safety obligations. By simultaneously withdrawing inspection entry points, it further weakens enforcement of child labour laws and occupational safety standards. What appears to be administrative streamlining is in fact structural reconfiguration of labour regulation, shrinking the statutory floor of rights for the majority of workers concentrated in small establishments. This development cannot be viewed in isolation. Karnataka has recently tabled a bill that would introduce similar exemptions under its SEA, signaling that Punjab’s approach is part of an emerging state-level pattern. The convergence points to a deeper principle at stake that: is should labour protections be treated as contingent on establishment size or should there exist a universal, size neutral floor of rights guaranteeing humane hours, fair wages and safe workplaces? By privileging exemption over adaptation these reforms advance a deregulatory logic that risks hollowing out fundamental guarantees in the name of business facilitation.

This article proceeds in two parts. Part I situates Punjab’s amendment within this broader shift toward headcount-based exemptions, highlighting how it entrenches informality and erodes constitutional commitments to decent work. Part II contrasts this approach with global best practices, where leading EOB jurisdictions rely on outcome-based, size-neutral standards rather than blanket exclusions. Together, the analysis shows that Punjab’s reform is not a local anomaly but a critical inflection point in the future of labour regulation in India.

SECTION 13-A: THE UMBRELLA THREHOLD EXEMPTION MODEL

The 2025 amendment inserts Section 13-A into the Punjab SEA, creating a new threshold-based regime. Establishments employing fewer than twenty workers are exempted from all substantive provisions of the Act, with the sole obligation being to submit an intimation of business to the inspector within six months. This shift dismantles the earlier framework which applied uniformly to all establishments regardless of size and instead redefines the reach of labour protections on the basis of headcount. Rights that were once universal now depend on numbers as a worker in a nineteen-person shop has none of the safeguards guaranteed in one with twenty.

This threshold exemption is not a technicality but a structural reorientation of labour governance. It transforms universal safeguards into selective entitlements, producing a two-tier workforce. According to the Punjab government itself, the exemption will cover about 95 per cent of all shops and commercial establishments in the state. Section 13-A therefore excludes the overwhelming majority of Punjab’s workforce engaged in retail and services from statutory protection. The following sections trace how this exclusion plays out in practice normalising overwork, weakening enforcement against child labour, eroding occupational safety, and incentivising informality:

OVERTIME AND OVERWORK

The pre-amendment Act provided all workers, regardless of establishment size, with a statutory floor against overwork. Section 7(1) capped employment at nine hours per day and forty-eight hours per week, while Section 7(2) permitted limited overtime of up to fifty hours per quarter, but only at double the ordinary wage rate. These provisions not only set clear boundaries on work-time but also empowered workers to claim unpaid overtime as a legal right.

Section 13-A, however, withdraws overtime rights for the overwhelming majority of Punjab’s workforce, thereby entrenching precisely the exploitative conditions condemned by the Supreme Court in People’s Union for Democratic Rights v. Union of India. In this case, the Court held that non-payment of minimum or statutory wages, including overtime, amounts to “forced labour” under Article 23 and violates Article 21’s guarantee of dignity. Justices Bhagwati and Islam emphasized that labour laws must be enforced to prevent such practices, even against private contractors, as the state bears a duty to protect workers.

This obligation also resonates with India’s international commitments. Article 7 of the International Covenant on Economic, Social and Cultural Rights (“ICESCR”) requires states to ensure “fair wages” and a “reasonable limitation of working hours. Where the law once prohibited such practices, Section 13-A now legitimises them, normalising forced and unpaid labour.

CHILD LABOUR AND ENFORCEMENT VACCUM

Under the pre-amendment Act, Section 19 empowered labour inspectors to enter establishments, examine records, and enforce compliance, creating a statutory mechanism to detect violations ranging from excessive working hours to the employment of children. By excluding small establishments from the Act’s scope, these inspection powers no longer apply to the largest segment of Punjab’s retail and service economy, leaving them beyond proactive oversight.

The Supreme Court has stressed that preventing child labour demands active enforcement, not mere prohibitions. In M.C. Mehta v. State of Tamil Nadu, it directed states to ban hazardous child labour, create rehabilitation funds, and ensure regular inspections, grounding this in Articles 24, 39(e), and 45 of the Constitution. This principle echoes global norms: Article 25 of the Universal Declaration of Human Rights and the ILO’s Child Labour Conventions, both ratified by India require effective inspection systems. Yet when overtime without pay is legalised and inspections curtailed, enforcement weakens and exploitation grows. After COVID-19, UNICEF and the ILO recorded the first global rise in child labour in two decades driven by poverty and school closures. In India, fragile enforcement and the shutdown of rehabilitation and education centres have produced similar spikes. Therefore, weakening inspection risks amplifying these post-pandemic dynamics, drawing children and adolescents more easily into exploitative work to fill labour gaps at minimal cost.

OCCUPATIONAL HEALTH AND SAFETY RISK

Under the pre-amendment framework, Rule 16(6) required establishments to provide adequate ventilation and safeguards against dust, fumes, and other occupational hazards. These provisions were especially critical in small workshops, where cramped spaces and outdated equipment amplify risks of respiratory illness, chemical exposure, and workplace accidents.

In Consumer Education and Research Centre v. Union of India, the Court held that safe working conditions are integral to the right to life under Article 21, reinforced by Articles 39(e), 41, and 43. Justice Ramaswamy directed asbestos industries to provide health monitoring, insurance, and medical aid, reasoning that failure to protect workers’ health amounts to a violation of fundamental rights.

The international framework points the same way under Article 7(b) of the ICESCR obliges states to guarantee “safe and healthy working conditions,” while the ILO’s Global Strategy on Occupational Safety and Health stresses that small enterprises must not be excluded from regulatory oversight given their disproportionate accident and illness rates. By exempting establishments with fewer than twenty workers from the Act’s coverage, Section 13-A removes this basic floor of protection for precisely the segment of workers most vulnerable to unsafe conditions.

INFORMALISATION AND THRESHOLD MANIPULATION

By conditioning the application of labour rights on a twenty-worker threshold, the amendment alters employer behaviour. It rewards establishments that remain small, split into multiple units, or underreport workforce size. A once-uniform regime now makes avoidance rational and informality profitable.

The India Employment Report finds that nearly 82% of India’s workforce is engaged in the informal sector, and about 90% of total employment is informal, contributing almost half of the gross value added through unregulated establishments. Empirical studies in the apparel and textile sectors indicate that threshold-based exemptions under labour laws have led to a 15–25% rise in contract labour, weakening both wages and job security. The Economic Survey (2018–19) likewise observed systematic underreporting by firms to avoid statutory compliance. The Economic Survey (2018–19) similarly noted systematic underreporting by firms to evade compliance.

The Supreme Court in U. Unichoyi v. State of Kerala upheld the Minimum Wages Act, reasoning that protections must apply regardless of an employer’s capacity, otherwise exploitation would be incentivised. Punjab’s reform creates the exact scenario the Court warned against rewarding firms that cap or disguise size to escape obligations. Such shifts mirror a broader global trend of informalisation, where deregulation and labour flexibility are pursued under the guise of competitiveness, often eroding baseline protections for low-wage workers.

WAY FORWARD: LABOUR RIGHTS CENTRIC EASE OF DOING BUSINESS FRAMEWORK

Punjab is therefore not an outlier but a precedent for a national race to the bottom, where informality is normalised and universal labour protections are steadily eroded. Therefore, to balance ease of doing business with labour rights, the following reforms are proposed:

Embedding a Universal Duty of Care

New Zealand’s Health and Safety at Work Act 2015 and Singapore’s Workplace Safety and Health Act 2006, Part 4 demonstrate that universal duties can coexist with regulatory efficiency. Drawing inspiration, Punjab should embed a “reasonably practicable” duty of care in its SEA that would require: (i) All employers, irrespective of size, must ensure safe, hygienic, and fair working conditions. This includes regulated working hours, overtime pay, basic occupational health standards, and prevention of child labour; (ii) Compliance obligations can be risk-scaled: micro and small enterprises may implement simpler measures, but fundamental protection remains enforceable.

By establishing a universal duty of care, Punjab would shift from a reactive, complaint-driven model to a preventive architecture, ensuring that exploitative practices do not proliferate in small workplaces.

RISK-BASED MONITORING AND TARGETED OVERSIGHT

Hong Kong applies occupational safety standards to all workplaces, and New Zealand links obligations to risk rather than size. Inspired by this, Punjab SEA should: (i) Implement risk-oriented inspections, prioritizing sectors like retail, workshops, and roadside services where violations are prevalent. (ii) Require periodic reporting and self-certification by small establishments, leveraging digital platforms for efficient compliance tracking; (iii) Maintain legal authority for complaint-driven investigations, ensuring that violations of core protections, including child labour and occupational health, remain detectable and punishable.

This approach couples a structural duty of care with intelligent enforcement, thus preventing exploitation before it escalates.

OUTCOME-ORIENTED STANDARDS AND INCENTIVISED COMPLIANCE

Rigid procedural mandates such as annual whitewashing and daily spittoon maintenance impose administrative burdens without materially enhancing safety. Drawing from New Zealand and Singapore, Punjab should transition to outcome focused regulation:  (i) Employers would be responsible for maintaining workplaces that are safe, hygienic and fair, but the means of compliance can adapt to the scale and capacity of the establishment. (ii) Introduce incentives for compliance, including reduced registration fees, access to government schemes or public recognition, to encourage voluntary adherence. (iii) Link statutory benefits and recognition to actual compliance and discouraging workforce fragmentation or underreporting aimed at evading obligations. Outcome based regulation ensures that authorities focus on substantive risks such as unsafe machinery, chemical exposure, excessive working hours rather than cosmetic procedural formalities, while simultaneously encouraging voluntary compliance.