Reforming the Labour Laws for better Industrial Performance: Is there a way out?
Theme of the Session
With introduction of economic reforms in 1991 India hoped for a dynamic
industrial sector, in particular manufacturing sector. But the sector never took off as it did in other comparable countries (e.g. China). Lack of flexibility in the labour market has been considered as one of the prime reasons for the lackluster performance of Indian manufacturing sector. In particular, certain provisions in the Industrial Disputes Act 1947 (IDA) are said to be market-distorting. On its part, the government is facing an acute dilemma over this issue and labour and managements are at loggerheads with each other, forcing the government to be circumspect in reforming the labour market. Faced with fierce resistance from trade unions, the government is facing difficulty in introducing drastic labour reforms, especially that of providing employers the flexibility to hire and fire workers. In this context, this session focuses on the implications of the existing labour laws on manufacturing performance, the views for and against deregulation of labour market, and the possible way out of the policy logjam. The Issue
• Lack of flexibility in the labour market has been
considered as the prime reason for the lackluster performance of Indian manufacturing sector.
• In particular, the following provisions in the Industrial
Disputes Act 1947 (IDA) are said to be market- distorting. (1) Government intervention:
• IDA confers on government the power to regulate labor-
management relations. • Also, the labour judiciary has predominantly ruled in favor of workers. • In most other countries, government move to intervene only after bilateral negotiations between workers and management break down. (2) Difficulty in changing working conditions:
• Under Section 9A of the IDA an employer must give three
weeks' written notice to a worker of any change in his or her working conditions.
• These changes include (a) changes in shift work, (b)
changes in grade classification, (c) technological change, and (d) changes in employment, occupation, process, or department.
• Worker has right to object to these changes, which may
culminate in an industrial dispute. (3) Difficulty in layoff, retrenchment and closure: • Under Chapter V-B of IDA, it is mandatory for firms with hundred or more workers to seek the permission of the Labour Department for layoff and retrenchment of workers, and closures of industrial units. • The permission is seldom forthcoming. • In addition, notice and compensation has to be issued to workers. • Even when the firm is bankrupt, it must pay its workers out of profits from other operations • Claims of unfair dismissal can be made until 3 years later What about firms of other sizes?
• Firms with 50 to 100 workers does not require official
permission, imposes shorter notice periods, and provides a cap on compensation in cases “where the undertaking is closed down on account of unavoidable circumstances beyond the control of the employer”.
• Firms employing less than 50 workers are not required
to give notice of closures to the government, or to pay compensation for layoffs. • If a firm chooses to employ less than ten workers (twenty if it does not use power) [Note: such firms fall under unorganized sector].
Workers are not covered by most of national labor legislation
It does not have to offer formal employment contracts or the
usual benefits such as paid annual leave, sick leave, or medical and pension benefits.
It can also fire workers without notice and does not owe any severance pay.
Minimum wage regulations may apply, but these are not
vigorously enforced. Labour Reforms Arguments of Industry Arguments of Trade unions • Government/judiciary mostly favors workers • Labour cannot be treated like any other • Difficult to respond quickly to technological commodity changes or changes in demand conditions • Already, Indian industry has been (Section 9A) adjusting its workforce. • Encourages firms to stay small (due to • Increased use of contract labour & Chapter V-B) outsourcing is a proof of flexibility. • Encouraged to adopt capital intensive • Closures through informal routes (non- technologies payment of electricity bills, etc) • More jobs in informal sector (3 out of 4 • Noncompliance with the labour working in non-agri. sector are in informal regulations jobs) • General decline in TU strength • Replacement of regular with contract labour. • Increase in incidence of lockouts and a • Encouraged to outsource activities decline in the incidence of strikes. • Lack of any relationship between • Unemployment could be the result of productivity and wages many other factors • Detrimental effect on the entry of large-scale • Labour mkt. reforms, even in most of firms the advanced capitalist countries, has not been able to contain high unemployment. Video Links
Hunger Strike at Jantar Mantar (8.05 Minutes) https://www.youtube.com/watch?v=LXskgOBEhWg
Questions for Discussion (A) Who is at fault here? Is it industry or workers or government or all together?
(B) Does India need a flexible labour law?
(C) What are the ways to ensure cordial industrial
relations in India? What are the ways to ensure cordial industrial relations in India?
(A) Serve Notice:
Employer should serve notice to the employee to be terminated in order to minimise the element of surprise and shock. It would help the worker to prepare for accepting the separation and to look for alternative job options. (B) Appeal against dismissals: • Create avenues for redressal – Give right to appeal against what employee thinks to be unfair dismissals. • Forums like employment or labour courts, administrative bodies, private arbitration agencies, or special bodies should be created to facilitate the appeal. • Remedies in cases of proven unfair dismissals include reinstatement of the dismissed worker • If reinstatement is impractical, then financial compensation is provided. (C) Severance Pay: It is an allowance paid by the employer for terminating an employee irrespective of the reason for termination Provided where social security is not existent or inadequate. Paid by the employer or by a fund set up specifically for this purpose with employer’s contributions Severance pay may be a fixed amount; but in most cases it is calculated taking into account level of wages and length of service. (D) Role of Government: Many countries require firms to notify the government authorities of workforce reductions.
No explicit requirements for government
authorisation of workforce reductions (E) Fixed term contracts/employment: Refers to employment on the basis of specific projects, seasonal work, replacement of temporarily absent permanent workers (on sickness or maternity leave) and exceptional workload. In other words, an establishment could sign on employees for a specified duration under the assumption that their employment will be ended once the project that they are hired for is finished These workers do not require notice of dismissal and severance pay; it is a flexible arrangement. Use contract labour for conduct of non-core activities and for sporadic and seasonal demands (F) Income/Social Security & alternative jobs:
Consisting of unemployment benefits for a specified
period, provisions for re-training and active assistance for job search
Relocation and re-adjustment of workers within and
among groups of enterprises should be allowed in active consultation with trade unions
Re-training in marketable skills as required by
employers (G) Skilling: • Employers should agree to invest in both the development of workers’ skill and upgradation of technology. (H) Treat contract workers well: • By creating organised sector-like conditions for them.
(I) Simplify and rationalize the labour laws:
• India labour laws are too voluminous and ambiguous to be effective from point of view of either labour or firms. • This only promotes costly litigation and corruption in the • Revoke the statutory obligation to issue notice of change.
• Apply the requirement for prior approval from
government for closure to firms employing 300 or more (say 1000) workers
• Employers should consult trade unions and cough up
more money as compensation to the affected workers
• Principal employer will be responsible for benefits
payable to contract workers. Other ways ……..
• ‘Respect for the individual’ – i.e. respecting the
gender, educational background, and nationalities of all employees. Give equal opportunity to all people, regardless of any of those characteristics (Honda Policy).
• Have direct communication with
associates/employees (Honda Policy).
• Take care of little things: all wearing same uniform
in office, use same canteen, celebrate festivals together (Honda Policy). • Encouraging states to change their labour laws according to their needs and conditions.
• Making use of this opportunity, states like Haryana,
Rajasthan, Madhya Pradesh and Gujarat have introduced labour reforms in their respective states.
• Haryana, Rajasthan & MP reformed their labour law
to allow enterprises with up to 300 employees to lay off workers without the government’s permission. • Gujarat has eased “hire and fire” provisions in special investment regions like the Delhi Mumbai Industrial Corridor (DMIC), export- oriented industrial establishments and some other economic zones.
• In these areas, companies are allowed to lay off workers without
the government’s permission, but wages equivalent to 60 days of work every year have to be paid to the retrenched workers. (Gujarat)
• Industrial employee(s) can arrive at a compromise with the
employer without moving court, in case of an industrial dispute. (Gujarat)
• A workman gets only a year to make an application against his
dismissal, discharge, etc, for raising an “industrial dispute” to the labour court or tribunal, which was hitherto three years. (Gujarat) • Overtime hours for workers in a quarter will be increased from 75 hours to 125 hours. The factories will have to maintain a record of overtime of workers and pay double the wages if the work hours are extended. (MP)
• Women will be allowed to work in night shifts at factories
— they could work from 8 pm to 6 am in morning. (MP)
• Workers in Madhya Pradesh will get the benefit of earned
leave after six months of service, in the same calendar year. Earlier employees are entitled to annual leave after they have worked for at least eight months, but they are able to avail of these in the next calendar year. (MP) • Membership of 30% (earlier 15%)of the total workforce needs to be recorded for a union to obtain recognition (Rajasthan). “At the end of the day, everybody wants higher wages, job security, and the pride of working in a specific company. However, without company development, none of this can be realised. Therefore, all of us are working towards the same target.”
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