Impact of Labour Codes on listed companies
Do Listed Cos Need Separate stock exchange filing even when disclosure of same is already disclosed to stock exchange as board meeting outcome?
The implementation of the new Labour Codes has opened up an important compliance question for listed entities. The issue is not only whether the new framework changes employee cost, gratuity liability, leave encashment, wage structure or compliance processes, the more immediate question for listed entities is, where the impact due to applicability of new Labour code is material, is it sufficient to disclose the impact as a note to financial results, or should a separate disclosure also be made to the stock exchanges under Regulation 30 of the SEBI Listing Regulations?
Applicability of Labour Codes are a change in regulatory framework for all listed entities?
The four Labour Codes brought into force from 21 November 2025 consolidate and replace several earlier Labour laws. Their effect is not merely procedural. The new framework may alter how entities calculate wages, employee benefits, gratuity, leave obligations, social security contributions, contract Labour compliance and other employment-related costs. The actual impact will differ from company to company, depending on the nature of workforce, wage composition, employee mix, use of contract Labour, accounting policy and actuarial assumptions.
This is where the SEBI Listing Regulations have become relevant. Schedule III, Part A, Para B of the SEBI LODR Regulations specifically covers “effect(s) arising out of change in the regulatory framework applicable to the listed entity.” It is an express disclosure category. Therefore, where the Labour Codes create a material effect on a listed entity, the event fall within this item.
Many regulatory changes apply to an entire industry or to a large class of companies. What is relevant for Regulation 30 is not whether the law is entity specific. The relevant test is whether the regulatory change has a material effect on the listed entity. A general law can still have a specific financial or operational impact on a particular company.
When does the disclosure trigger arise?
The trigger should not be mechanically linked only to the date on which the Labour Codes came into force. The event under Para B item 7 is the “effect” arising out of the regulatory change. Therefore, the relevant point for disclosure may be when the listed entity becomes aware of the material effect. Where a company assesses a significant charge towards additional gratuity or leave obligation due to the revised wage definition, the company has reached a stage where the regulatory change has translated into a financial effect. The culmination of this assessment would be in the board meeting where the financial results would get approved.
So, if the provisioning of impact of the effect of Labour code on financial results of an entity is approved in the board meeting along with the financial results of the company for a quarter or half year or year then, it would be correct on the part of the company to disclose the impact of the effect of Labour code along with financial results as a part of the board meeting outcome under Regulation 30 of LODR.
Does every listed entity need to make a stock exchange disclosure when they are discussed in board meeting of the company along with financials?
As discussed, the disclosure obligation under Para B is based on materiality. A listed entity should first assess whether the effect of change in regulatory framework has a material impact on its financial, operations, employee cost structure, liabilities, business model or compliance burden. It may sometime happen that the change in regulatory framework is applicable across industry or sectors, in that case also material impact needs to be ascertained as the impact on listed entity in each sector or industry would vary. In case of an aviation company, an insider was held liable for insider trading when he traded in shares of an airline stock under presumption that it would be beneficial most due to low fuel prices due to falling crude oil prices globally[1].
If a listed entity carries out an internal assessment and concludes that there is no material financial or operational impact, a separate stock exchange disclosure may not be necessary. However, the basis for this conclusion should be documented internally, preferably through assessment by one or more key managerial personnel under reg. 30(5) of LODR. It also needs to be discussed at the meeting of board of directors that the impact due to regulatory change is assessed and a noting in this regard is taken by board of directors.
On the other hand, if the impact is material, or is likely to be material, the company should evaluate disclosure under Regulation 30 read with Schedule III, Part A, Para B, item 7.
Is separate stock exchange disclosure mandatory for impact of Labour code even when the disclosure of impact of effect of Labour code is being disclosed as outcome of board meeting along with financials of the listed entity?
SEBIs in stock disclosures under regulation 30 of LODR looks at whether the disclosure gave investors a complete and fair picture.
In the Genus Power matter[2], SEBI questioned a disclosure where a large order value was announced but the revenue recognition period was allegedly not disclosed. SEBI’s concern was that investors may be misled if they see a large headline number without understanding that the revenue would be recognized over several years. The company argued that Advanced Metering Infrastructure Service Provider contracts were part of its ordinary course of business, that the standard contract period was available in public domain through government/industry documents, that the disclosure had referred to the company’s total order book, and that the revenue realization period was also discussed in the earnings call transcript filed with the stock exchanges. After considering these facts, the Adjudicating Officer gave the benefit of doubt to the company and held that the alleged violation of Regulation 4(1)(c) and Regulation 4(1)(d) of the LODR Regulations did not stand established. SEBI AO in the matter of Genus Power shows that adequacy of disclosure is fact specific. If the allegedly omitted information is already available in the public domain, has been explained through exchange-filed earnings call transcripts or any other publicly available media forum, is consistent with industry practice, and there is no evidence of misleading investors, SEBI may take a lenient view.
The principle is relevant for Labour Code disclosures as well. If a company recognizes a significant exceptional charge due to the Labour Codes, investors should not be left to guess whether the amount is one-time, recurring, actuarial, cash or non-cash, or whether further impact may follow. SEBI will examine whether investors had access to adequate, accurate and non-misleading information in the facts of the case.
SEBI and SAT have, in certain cases, recognized that information widely reported in mainstream media or otherwise available in the public domain may be “generally available” for the purpose of insider trading analysis[3].
Regulation 30 is built on the principle of equal, timely and formal dissemination through stock exchanges. Therefore, if a listed entity discusses the financial impact of Labour Codes in board meeting along with financial results, then the impact of the Labour code on financials should also be disclosed to stock exchange along with board meeting outcome and no separate disclosure is necessary.
What should the disclosure contain?
For this item, SEBI does not appear to prescribe a detailed event-wise format comparable to certain other Regulation 30 events. That does not mean a company can make a vague disclosure. The disclosure must still satisfy the broader principles of Regulation 30 and Regulation 4. It should be timely, accurate, adequate and not misleading.
A good disclosure should ideally cover the following:
- the regulatory change, i.e. implementation of the Labour Codes;
- the date from which the framework became effective;
- the nature of impact, such as gratuity, compensated absences, provident fund, ESI, wage restructuring, contract Labour or other employee benefit cost;
- the amount of impact, if quantified;
- the financial statement line item where the impact is recognized;
- whether the impact is one-time, recurring, exceptional or still under assessment;
- the basis of computation, such as actuarial valuation, management estimate or auditor-reviewed assessment;
- whether the impact is subject to further rules, clarifications or implementation guidance;
- whether the company expects any further material impact; and
- whether the company will update the stock exchanges if further material developments arise.
The disclosure should not merely say that “the company has assessed the impact of Labour Codes.” If the impact is material, investors should know what has changed, how much has changed, and how it affects the company’s financial position or performance.
Conclusion
So, if a listed entity has discussed impact of effect of Labour code on financials of a listed entity at the board meeting along with financial results, then it would be sufficient if the impact of the same is being disclosed as part of outcome of board meeting.
[1] SEBI AO in the matter of Spicejet Ltd dt: May 29, 2020. –
[2] https://www.sebi.gov.in/enforcement/orders/mar-2025/adjudication-order-in-the-matter-of-genus-power-infrastructures-limited_93152.html
[3] https://www.sebi.gov.in/enforcement/orders/oct-2020/adjudication-order-in-respect-of-gopal-vittal-bharti-telecom-ltd-rohit-krishan-puri-and-sunil-bharti-mittal-in-the-matter-of-trading-by-certain-entities-in-the-scrip-of-bharti-airtel-limited_47950.html and https://images.assettype.com/barandbench/2023-12/1f7f2efa-175f-4dde-b723-528a2330436f/Future_Corporate_Resources_and_ors_v__SEBI.pdf
This Article written by
CS Vallabh Joshi – Associate Director
This article is published on taxmann link below.
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