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Learning from US gig economy debate

KV Ramaswamy | Updated on July 12, 2020 Published on July 12, 2020

Title: Globalization, Labour Market Institutions, Processes and Policies in India: Essays in Honour of Lalit K. Deshpande Edited by: KR Shyam Sundar Publisher: Palgrave MacMillan Price: $169.99

What are the implications for India in terms of non-formal employment, labour laws and social security?

India is currently experiencing rapid emergence of platform-based services companies in different sectors apart from those in urban transportation (Meru, Ola, Uber, etc.). A large number of start-ups catering to home services have been set up in India in the last few years. These include platform-based companies that provide services such as beauty services, laundry, home cleaning, plumbing, wedding planning, photography and fitness instruction like UrbanClap, Housejoy, and so on.

It has been reported that India is the second country in the world where freelance work is on the rise after the US. In traditional brick and mortar industries, the widespread use of non-standard employment practices by companies in search of flexibility is well documented. Hiring contract workers in order to sidestep obligations of the Industrial Disputes Act 1947 (IDA 1947) have been rigorously proved (Ramaswamy 2015).

Employment relationships

Applicability of labour laws like the IDA 1947 and Contract Labour (Abolition and Regulation) Act 1970 (CLAR 1970) and other related labour laws like Industrial Employment (Standing Orders) Act, 1946, requires the existence of employment relationship. In the case of Internet platform companies in India, for example, Ola (Uber competitor in India), existence of such employment relationship is under dispute. Some problems can be highlighted. First, workers who work for Internet platform companies are designated as partners or consultants with no assurance of fixed pay or earnings or guaranteed number of employment hours. For example, Ola advertisement for driver enrolment says: ‘work at your convenience’. Applicability of definition of ‘workmen’ under the IDA 1947 in such cases could raise difficult problems.

Second, platform-based companies do not take responsibility for any injuries or accidents for workers in the course of performing their duties (drivers in the case of Ola). They are not entitled for any medical benefits or assistance or insurance. Third, how to define and monitor conditions of service? The contract of services agreements signed by the service providers (drivers sign ‘Master of Service’ agreement in the case of Ola) are found to impose unilateral change of conditions of service by the platform company.

Social security benefits

The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF AcT), is a central government legislation, which introduces the schemes for provident funds, pension funds and deposit-linked insurance funds for employees working in factories and other establishments. The EPF Act applies to all factories and institutions where 20 or more persons are employed.

The schemes under the EPF AcT are administered by the Employees Provident Fund Organisation (EPFO). Both the employers and employees are required to contribute to the provident fund at the rate of 12 per cent of the wages of each worker (10 per cent in other specific industries). Those employees with wages of ₹15,000 or less (recently increased to ₹21,000) have the obligation to subscribe to the provident fund. Contributing workers to the provident fund scheme are also eligible for the pension scheme.

Let us first note the problem of employment relationship based on definitions under the EPF Act. An employee under the EPF Act is defined as one who is employed for wages in any kind of work and includes any person employed through a contractor in connection with the work of the establishment. In other words, the EPF Act is applicable to contract workers. An employer is defined as persons having control over the ultimate affairs of the establishment. In short, the applicability of the EPF Act assumes the existence of standard employment relationship.

How to specify the eligibility condition in terms of monthly earnings when the platform workers’ earnings vastly fluctuate month by month? How to define the duration of employment when platform workers switch employers every day? The problem of duration of employment to apply the EPF Act is not yet effectively resolved in the case of building and construction industry workers. This will be much more serious in the case of platform-based workers who are more mobile over time and perhaps spatially as well. Enforcement of EPFO rules to platform-based companies could in all probability lead to litany of court cases on several grounds.

Unorganised services

One could draw attention to the more general problem of the EPF Act in the case of unorganised services sector. Do the current EPF rules and procedures guarantee the deduction of PF and the payment of deducted amount to the account of all types of contract workers? The answer is obviously no because a large majority of workers in the unorganised sector in India work without written contract. A large number of enterprises in the unincorporated non-agricultural sector have been reported to have not registered with the EPFO.

What happens to those with supposedly written contracts or employed by companies using supplier firms or temping firms? The organisations are supposed to ensure that the contractors are registered with the EPFO before awarding contract. Violation of this rule is not uncommon despite circulars issued by the EPFO. It has been recently reported that the Delhi High Court has made certain observations in the case of Group 4 Securitas Guarding Ltd v Employees Provident Fund Appellate Tribunal & Ors and held that when the contractor is an independent legal entity with a large workforce and engaged in providing services to various clients, the onus to make provident fund is not on the principal employer nor will a principal employer be held liable in case of non-compliance (Employment Law Alliance 2013).

Consider the following hypothetical example. Company XYZ (principal employer) has outsourced transport services for its employees and staff to a company EFG (contractor firm). EFG has in turn outsourced it to say 30 different vehicle owners cum drivers (30 independent owner-drivers). The contractor EFG has not hired any manpower, but they have engaged vehicles with drivers to deliver certain services, and it has refused to provide provident fund (PF) or employment insurance benefits under the Employment State Insurance (ESI) scheme to the driver-cum-owners.

At the same time, the principal employer XYZ has not followed the law EPF Act or the CLRA of 1970. It can be argued that in this arrangement, there exists no employment relationship in the legal sense (master-servant) between XYZ and the drivers. Consequently, no payment under the expenditure head ‘wages’ has been incurred. It is therefore only a contract for service but not contract of service. Correspondingly, the company EFG has contract with the drivers, which is only a contract for service. Therefore, PF or ESI deductions need not be made or non-compliance is widespread. The Uber case and the US debate can be very easily seen to emerge as exactly parallel situations.

What do we learn from this ongoing and fractured debate? Two broad conclusions appear to emerge. First, technological change is very likely to weaken employee bargaining strength even further in addition to globalization. Applicability of traditional labour laws is likely to encounter more serious legal challenges in India than in the US context.

Second, social security systems need complete overhaul to accommodate changes in organisation of work due to convergence of technologies.

Edited extracts from the book, with permission from the publisher. Ramaswamy is Professor of Economics,IGIDR.

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Published on July 12, 2020
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