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Introduction
The drive towards achieving labour flexibility especially numerical flexibility has been a global phenomenon. The standard employment is taken to cover full time, open ended contract with social security benefits and the employments not conforming to these are referred to non-standard employments. Controversies surround even on the usage of the terms, precarious, nonstandard, flexible, informal employment. Employment of labour intermediaries and establishment of triangular relationships have spread to many countries and grown over the years. It is known in different names in different countries, like temping, contract workers, labour dispatch workers, labour brokers and so on. They are essentially disposable jobs. The growth of these disposable jobs is usually explained by factors like labour cost reduction, numeric flexibility, risk aversion, distancing, core competencies, smart human resource management and so on. But two powerful arguments have been advanced to legitimize and institutionalize these jobs. The regulatory system including restrictive labour laws and insiders oriented trade unions creates unemployment. The temporary staffing agencies create jobs and thus contribute to reduction in unemployment and poverty. These jobs constitute gates to the labour market for those waiting at the margin. Further, they not only provide crucial training and exposure and constitute a stage on the way to permanent employment. It is a fine blend of flexibility with protection. The trade unions counter these arguments. The best way to solve unemployment is to increase productive investment and not labour subcontracting. Contract labour system has created
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inequalities in the labour market and intensified insecurity, led to exploitative labour market practices and weakened the bargaining power of trade unions. The arguments that contract labour system is a stage for permanency and builds skills have been belied. The contract workers have been trapped in low quality and insecure jobs for years and do not climb up the skill pyramid. The dominant trend in the labour market has been not to achieve the golden balance between protection and flexibility but growing informalization.
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pressure on the government (central and state) to reform the relevant labour laws to provide for the necessary labour flexibility to sustain and even enhance competitiveness of the firms which is so necessary in the globalized world. In the context of this article, the employers are demanding reform of the Contract Labour (Regulation and Abolition) Act, 1970 (henceforth, the Contract Labour Act) so as to enable them to freely use contract workers in the non-core activities and when necessary in the core activities also. The trade unions are resisting this demand of the employers and instead demand employment security for contract workers among others. The judiciary has delivered conflicting judgements on the issue of regularization of contract labourers upon abolition under the Act. The central government has been holding social dialogue with the social partners and appointed a tripartite committee to go into these issues. In the meanwhile some state governments have introduced reform of the Contract Labour Act. At the same time, the contract workers are being organized and significant struggles and collective agreements with regard to their issues and interests have been reached. Thus, there is a need to review the developments with respect to the contract labour law reform debate, the public policy and social dialogue (i.e. tripartite and bipartite interactions).
and groups in South Africa is arguing for reform of labour broking (towards self regulation) rather than a ban on it arguing that such a proposal would result in higher levels of unemployment and they cite Namibia as an example. The powerful temporary staffing companies lobbied against the legislation (passed in 2007) to ban them in Namibia (see http://cms.iuf.org/?q=print/602) . The Global Unions issued Joint Principles on Temporary Work Agencies on June 14 2010 which among others insist that (a) the primary form of employment should be permanent, open-ended and direct; (b) agency workers should be covered under the same collective agreement that covers the workers in the user enterprise (i.e. the principal employer); and (c) the agency workers should receive equal treatment and there should be no gender gap on wages, social protections and conditions and so on (Global unions agree joint principles on temporary labour agencies, http://cms.iuf.org/?q=print/413, accessed 10 October 2010). In Sweden years of struggle and the threat of a nation-wide strike by Swedish Foodworkers to win a national agreement in April 2010 which does not ban the employment of temporary workers but requires the employers to negotiate with local unions before recruiting them. In the negotiations the interests of the flexibility needs of the employers will be weighed against the interests of the workers and the parties should agree that it is better for the company to employ the temporary workers. But, the wages and work conditions governing the temporary workers should not be less than those for the permanent workers (see Swedish Foodworkers win extensive limitations on temporary agency employment,
http://cms.iuf.org/?q=print/304).
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health and welfare of contract labour (sections 16 to 19 in Chapter V). The Contract workers are also covered under other laws. The Factories Act, 1948 which governs the work conditions among others applies to contract workers as relevant. The Employees State Insurance (ESI) Act which provides for medical insurance applies to contract workers also (vide sections 40 and 41 of the Act). The principal employers are primarily responsible for payment of employers (4.75 percent of total wage bill) and the employees (1.75 percent of wages) contributions to the ESI Fund and the same should be recovered from the contractors (see http://esic.nic.in/contribution.htm) . Similarly the Employees Provident Fund (EPF) Act, 1971 also provides for initial payment of employers and employees provident fund contributions (12 percent by the employers and matching contribution by the employees) and recovery of the same from the contractors (section 8-A of the Act; see also http://
epfindia.nic.in/for_employers.htm).
and litigation abounded. The Supreme Courts observations in an industrial dispute case (Standard Vacuum Refinery Company Vs. their workmen and others, 1960, at http://indiankanoon.org/doc/777307/ , accessed 10 September 2010), the discussions in the tripartite bodies and the recommendations of the First National Commission on Labour (1969) prompted the government to enact the Contract Labour Act in 1970. Indeed, the Supreme Courts observations in the said case provided the basis for the orientation and architecture of the Contract Labour Act the four criteria mentioned in Section 10 (2) of the Act are drawn from this judgement (see
also Upadhyaya 2008:p.6).
The Act provides for prohibition of employment of contract labour and regulation of the conditions of work of contract labour and applies to establishments employing 20 or more contract workers and to contractors employing 20 or more workers. It is not applicable to establishments performing intermittent work, i.e. work performed for less than 120 days and seasonal work performed for less than 60 days. The principal employers should register their establishments and the contractors should obtain license to be eligible to execute work through contract labour. The central or the state government may constitute an Advisory Board (Board) to advise it on matters relating to administration of the Act. The most controversial clause of the Act is Section 10 (1) which empowers the state government to prohibit after consultation with the Board and keeping in mind some considerations (stipulated by the Act) employment of contract labour in any process, operation or other work in any establishment. The appropriate government before issuing the prohibitory orders should consider (1) the conditions of work and benefits provided for the contract workers in the establishment concerned and (2) other relevant factors such as whether (a) the process or work is incidental or necessary for the industry, (b) it is of perennial nature, (c) if it is done ordinarily by regular workers, and (d) it is sufficient to employ considerable number of fulltime workers. The Act also seeks to promote the
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and do not mind strengthening the regulatory aspects of it. However, they are against the principle of parity in wages of regular and the contract workers and the institutional procedures requiring the principal employers to register and assume liability for the contract workers. The trade unions argue that the contract labour system is exploitative as these workers work for long years, are paid low wages, in many cases denied social security and even the minimum wages and work in unfavourable conditions. The SNCL (2002:p.365) observed that the Commission frequently listened to the submissions that the contractors in many instances abscond without depositing either their contributions or the workers contributions they collected from the workers; it is a double-fraud. There seems to be a number of logistical issues with regard to securing EPF code numbers by the contractors (like the EPF code numbers taken by the contractors, the workers covered by them, the use of principal employers sub-code numbers and so on), which is a subject of research and investigation in its own right (see Krishna Murthy 2010). The field survey by Maiti (2009) of 50 units each in Gujarat and West Bengal showed that while none of the contract workers (supplied by the contractors) in the units in Gujarat received social security benefits, a little more than half of them in West Bengal did so. Nearly twothirds of the contract workers interviewed by Rajeev (2006) said that they were not able to retrieve their PF dues because of the poor survival rates of small time contractors who are often unregistered under the Contract Labour Act the number of unregistered contractor agencies was found to be high in Karnataka (Rajeev 2006). The contractors employ a large number of workers and at the time of inspections or queries from the principal employers they show the challans (receipts) of payments made in case of some workers and covers up the issue and the former agencies are illequipped to probe deep into these logistical issues (see Krishna Murthy 2010). On the flip side, some workers do not prefer EPF and ESI deductions in view of the lower take home wages they get. The
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(36.80 per cent), and basic metals (34.31 per cent) industries. In ten out of 24 two-digit industry groups considered here the contract labour share was higher than 30 per cent. In six of them the share was lower than 20 per cent. It was lowest in textiles and printing.
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an administrative exercise (see Sabharwal 2008). The trade unions counter this by complaining that contract workers are hired for performing the socalled non-core activities like gardening but in reality are employed in the core activities on the shop floor. The core and non-core terms entered the debate and discourse on contract labour as the employers began to justify the contract labour system arguing that they in the era of globalization cannot afford to fritter away their energies in taking care of the functions which are not core their business and need to concentrate on the core activities (SNCL 2002: p.364). The Second National Commission on Labour (2002) endorsing these arguments recommended that contract labour shall not be engaged for core production/services activities. (Ibid.). The government of Maharashtra has attempted in vain since 2000 to introduce reforms relating to contract labour. For example, in 2000, it proposed to apply the Contract Labour Act to establishments employing 50 or more workers in the urban areas and those employing more than 99 workers in the backward areas as against the present threshold of a universal 20 workers (see the notification issued by the Directorate of Industries in 2000,
http:www.smallindustryindia.com/policies/statelaw/ maharashtra.htm , for full details). In its Industrial Policy 2001, it proposed to exclude certain activities like cleaning, loading and unloading, canteen, mail distribution, gardening from the coverage of the Act; it also sought to exempt the 100 percent export oriented units from the coverage of the Act (Shyam Sundar 2008). Both these reform measures could not be enacted owing to strident and united opposition from trade unions (cutting across party affiliations) and the coalition political parties (see Shyam Sundar 2008, for further details).
large scale and public sector establishments do not default on the legal claims of the contract workers, it is the small sized firms and contractors who do
(see Rajeev 2009; Shyam Sundar 2010).
The unions have largely focused on two major issues, viz. employment security via regularization of contract workers jobs and payment of minimum wages payable to the unskilled regular workers comparable to the contract workers. They demand suitable changes in the law to regularize jobs upon abolition, for universal application of the law (removing the 20 workers threshold), for inserting suitable provision in the Act the principle of same wages for same work (which is presently in the Rules under the Act), and denial of license for employment of contract labour in perennial jobs and so on (see Shyam Sundar, forthcoming for more details on unions and employers demands). The government has been deliberating on these issues for more than a decade. It has made several attempts to introduce reforms and also held dialogue with the social partners through tripartite institutions. We will briefly review them.
However, the government successfully amended the Contract Labour Act (sections 1 and 10) to deem certain ancillary activities - like canteen, gardening, cleaning, security, courier service, transport of raw material and finished products, or loading
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by contractors and the Bill has been sent for the assent of the President [The Payment of Wages and the Minimum Wages (Maharashtra Amendment) Bill, 2010)]. The recent labour policy note put up on its website http://www.maharashtra.gov.in/ pdf/Draft_Labour_Policy.pdf) talks of a dialogue process to introduce reforms that would satisfy both the social partners. Curiously, it argues that employers must pay a premium (or loading) to achieve flexibility in contract labour hiring and outcompete low cost operators. It aims to afford flexibility to the employers and assure rights to workers, a kind of flexi-curity which would seek to combine fairness and flexibility. The details of rights and fairness are yet to be spelt out, while the flexibility measures are straight forward. The issues involving in calculating the loading, defining the basket of labour rights for the contract workers and determining the extent of flexibility need to be sorted out. Is it going to be a state wide social dialogue agreement as in Europe which would be honoured by local level firms and unions? Given the poor opinion of social dialogue in the country and the state by the social actors, these issues pose daunting challenges though the present dispensation in the Labour Department is keen for a solution to this vexed issue. I highlight this issue because social dialogue at the centre has failed to evolve a solution on these issues.
and unloading of goods performed within the premises of a factory of the establishment in SEZs and the work in the factories and establishments which are declared 100 per cent export units by the government as temporary and intermittent work. This amendment thus takes these activities out of the purview of the Contract Act. The justification provided by the government is that these activities may be performed with more efficiency and at lesser cost on contract basis rather than employing workers on a permanent basis. Further, these helping provisions are expected to aid the exportoriented industries to face tough competition (Bill No. XLI of 2005 printed in Labour Digest, June 2005, pp.248-9). Taking cues from the proposals of the bodies appointed by the central government, the Andhra Pradesh government introduced the core and non-core activities distinction into the law by an amendment in 2003. According to this amending Act, core activity of an establishment means any activity for which the establishment is set up and includes any activity which is essential or necessary to the core activity . By excluding certain activities from the core activity definition, it defines the non-core activities. The latter include sanitation works, including sweeping, cleaning, dusting, and collection and disposal of waste. watch and ward services, canteen and catering services, loading and unloading activities, courier services (as support services to the establishment), civil and other constructional services, gardening and maintenance of lawns, etc., housekeeping and laundry services, transport services and so on. The law allows the use of contract labour even in core activities under certain circumstances (Reddy 2008). The employers in other states demand the A.P. model of contract labour law reform in their states. The government of Maharashtra has recently introduced a Bill to amend the Payment of Wages Act, 1936 to require wage payments to be made through bank instruments like cheque or through bank accounts in order to formalize wage payments and to minimize the fraudulent practices
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India Review
profit and non-production institutions like research and educational institutions) and the reduction in the authorized staff in them led to growth of employment of dispatch workers (Xu 2009). Flexible employment was one of the incentives offered to attract foreign direct investment (FDI). The abuses of the employers like non-issuance of written labour contracts, wage arrears, long cycles of renewals of short term contracts and so on and the massive lay offs (and unemployment led to wide spread labour and even social unrest in the 2000s which led to the passing of the Labour Contract Law (LCL) in 2007 in pursuit of social harmony (see Shyam Sundar 2009). The LCL contemplates five types of employment contracts, viz. fixed term contract (whose termination date is pre-determined), open ended contract (no stipulation of ending date of the contract by both the parties), task-oriented contract (the contract ends as and when the job ends), part time employment, and seconded (dispatch work) employment. It stipulates that open ended contracts should be awarded to the workers with 10 years of continuous employment or ten years of employment and within ten years of retirement with the employer (who adopts the employment contract system newly) or upon second renewal of fixed term contract or not given a written contract within one year of service. For the first time, the law provides for severance pay for termination of fixed term contract, though not for that of the dispatch worker. The LCL recognized four types of employment contracts, viz. The LCL sought to undo many of the wrongdoings created by the earlier legal and institutional framework. It also dealt with temporary work agencies which interest here. It is interesting to note that the original draft of the LCL stipulated that when a dispatched worker worked for one year with the client company for one year and if the corporate client wishes to make use of her services further then that worker will become the employee of the client company and the employment relationship between the dispatch
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in the 43rd ILC held in November 2010 and it reached consensus on less important issues like strengthening the enforcement of the Act, formal mechanisms of payment of wages, compulsory constitution of the Advisory Boards in every state and on the core controversial issues like regularization and same wages for same work, etc. the groups for employers and the workers stuck to their positions. Various writers and the social actors, especially the employers often make a mention of China whenever labour flexibility issues are discussed in India. Hence, it would be instructive to briefly discuss the position in China here.
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flexibility from India, IPPG Discussion Papers, http://www. ippg.org.uk/papers/dp26.pdf, accessed 13 October 2009. y Rajeev, Meenkashi (2006), Contract labour act in India: A pragmatic view, Working Paper 175, Institute for Social and Economic Change, Bangalore. y Ramanujam, M.S. (2004), Contract labour in India: an overview, in M.S. Ramanujam and J.S. Sodhi (eds.), Management of contract labour in India, Shri Ram Centre for Industrial Relations and Human Resources, New Delhi. y Reddy, D.N. (2008), Labour Regulation, Industrial Growth and Employment: A Study of Recent Trends in Andhra Pradesh, Institute for Studies for Industrial Development (ISID), European Union (EU), International Institute for Labour Studies (IILS), and Bookwell, New Delhi. y Sabharwal, Manish (2008), Should contract labour law be liberalized?, Business Standard, October 1, 2008, h t t p : / / w w w. b u s i n e s s - s t a n d a r d . c o m / i n d i a / s t o r y p a g e . php?autono=336036, accessed 5 January 2010. y Second National Commission on Labour (SNCL) (2002), Report of the National Commission on Labour, Vol. I, (Part-I), Ministry of Labour, Government of India, New Delhi. y Shyam Sundar, K.R. (2008), Impact of Labour Regulation on Growth, Investment, and Employment: A Study of Maharashtra, Institute for Studies for Industrial Development (ISID), European Union (EU), International Institute for Labour Studies (IILS), and Bookwell, New Delhi. y y Shyam Sundar, K.R. (2009), Changes in labour institutions in China, Bookwell, New Delhi. Shyam Sundar, K.R. (2010), Non-regular workers and social dialogue in India, Project Report submitted to the ILO Subregional Office, New Delhi. y y Shyam Sundar, K.R. (forthcoming), Contract Labour in India: Battle between Flexibility and Fairness. Tao, Ran (2006), The Labor Market in the Peoples Republic of China: Development and Policy Challenges in Economic Transition, in Jesus Felipe and Rana Hasan (Eds.), Labor Markets in Asia: Issues and Perspectives, Palgrave Macmillan Press & Asian Development Bank, Hampshire, New York. y Upadhyaya, Sanjay (2008), Contract labour and judicial interventions, National Labour Institute Research Studies Series No.085/2008, V.V. Giri National Labour Institute, NOIDA. y Xu, Feng (2009), The emergence of temporary staffing agencies in China, Comparative Labor Law and Policy Journal, Vol.30, pp.430-61, http://www.law.uiuc.edu/ 30-2. publications/Cll&pj/archive/vol_30/issue_2/xuarticle0 pdf, accessed 10 October 2010.
worker and the dispatch agency will be terminated. In Indian parlance, the contract worker will be regularized as a worker of the principal employer. However, this provision was dropped owing to the opposition of the temporary staff companies in China (Xu 2009). The main features of the LCL with respect to staffing employment are: y The staffing firm with at least RMB 500, 000 should be registered under the Company Law and it is the legal employer of the seconded employees. y It should issue written employment contract on a fixed term basis whose tenure should be at least two years. y The seconded employees should generally be used for temporary, auxiliary or substitutable positions (but these are not defined). y They shall have the right to receive equal pay for equal work and also be paid at least statutory minimum wage as compensation during the period of no work. y They will have the right o join unions of their staffing firm or those at the user enterprise. y The user enterprise should implement all relevant labour standards, provide the workers with training necessary for their job positions, pay overtime pay and performance bonuses, etc. While hard labour reform issues like removal of Chapter V-B from the Industrial Disputes Act, 1947 to afford flexibility in firing workers and closing down establishments without prior government permission and flexibility in hiring of contract workers defy solutions both at the national level and in most states, social dialogue seems to be the only institutional action that could lead to some socially and economically optimal outcomes. The optimism may be misplaced give its poor track record especially in recent past: but is there any other alternative in a democracy?
References :
y Maiti, Dibyendu (2009), Institutions, networks and indsutrialisation: field level evidence of fragmentation and
krshyams@gmail.com
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