Opinion

The pursuit of too much labour flexibility

KR Shyam Sundar | Updated on November 25, 2019 Published on November 25, 2019

The proposals in the Code on Industrial Relations give employers too much flexibility to toy with and could lead to a race to the bottom in labour standards

There have been news reports that the Union Cabinet has approved the Industrial Relations Code with some significant changes. The fact that the Central government had taken up the reform measures by starting with the so-called workerfriendly wage code reflects the sensitive nature of the Code on Industrial Relations (CIR).

The existing law stipulates that industrial establishments (registered factories, plantations and mines) employing 100 or more workers must secure prior permission from the appropriate government for layoffs and retrenchment of workers and closure. The Central government in the draft CIR (March 2015, https://www.prsindia.org) proposed to change the threshold from 100 to 300, which was objected to vehemently in one voice by all central trade unions (CTUs), including the BMS.

In March 2018, the Centre introduced the fixed-term employment (FTE) contract option through a government notification, which was also criticised by the CTUs. In the meanwhile, a few State governments (Rajasthan and Assam among others) amended the Industrial Disputes Act, 1947 to change the threshold from 100 to 300. It is in this context the proposed reported changes need to be seen.

The proposed CIR retains the present threshold of 100 while empowering the appropriate government for “changing ‘such number of employees’ through notification (executive order).” It is quite evident that the Centre has at one stroke sought to appease both CTUs and the industry.

The industry can look forward to “such government notifications” which do not need legislative processes (which makes lobbying for providing flexibility easier and with low transaction costs) and it will be pleased. The Central government will tell the CTUs that the Central law remains unchanged and since “labour” is on the Concurrent List, the State governments could change the threshold as they deem necessary.

So the labour law reforms battle has shifted from the ‘national’ to the ‘regional’ terrain. The measure is a double-whammy because the proposed hike in the retrenchment/closure compensation (from the current 15 days to 45 days of average salary) will be dropped as there is no change in the threshold in the law and the executive order may or may not provide for it and even if it does it may not be uniform.

The proposal will lead to a “race to bottom” of labour standards. What prevents one State from not altering the threshold more radically than another to provide “labour flexibility sops” to potential and existing investors?

The incentive to do so is strengthened by two institutional factors at the regional level — absence of or very limited use of social dialogue forum; and weak bargaining power of trade unions vis-à-vis the government and the industry (thanks to unbridgeable political differences among the trade unions). Even at the national level, the trade unions seldom coordinate with each other.

The Centre is also proposing to ‘legalise’ FTE with attendant benefits as enjoyed by comparable regular workers. A scrutiny of the existing law on FTE shows that apart from extending proportionate benefits, it is bereft of job security safeguards. For example, there is no bar on the tenure (minimum or maximum) and the number of renewals of FTE contracts: this means that a worker could be on a FTE contract for any tenure and the FTE may be renewed indefinitely which will add to another precarious labour situation — “permanently FTE”.

In several countries, FTE can be used only on certain grounds, say, replacement for pregnant or injured workers or for seasonal business reasons. But in India these conditions are not specified. Thus, the probability of conversion of the “regular vacancies” in the future (as regular workers retire, resign (voluntarily or otherwise)) into FTEs will be higher.

Also to be noted is the amendments made to the Contract Labour (Regulation and Abolition) Act, 1970 by States such as Rajasthan and Maharashtra to apply this law to contractors and the principal employers employing 50 or more workers. Further, the proposed Code on Occupational Safety and Health provides for special work-contracts even if the contractors are not able to comply with requisite qualifications or criteria provided for in the Code (46(1) and (2)). These mean that petty contractors who are more prone to violate labour laws will go unregulated and the poor enforcement mechanism will not have deterrent effects for others.

Hence, even the “good” proposal by the Finance Minister of provision of “gratuity” to the contract workers lacks credibility. Will labour cost-minimising employers prefer FTE to a cheaper (no proportionality rule still in the law) and easily dispensable contract workers? And if contract workers must be provided “gratuity”, then other flexi-category workers will be preferred to contract workers, given higher transaction costs of the latter apart from the rise in labour cost.

The irony is the hierarchical preference of flexible labour in the labour market without being mindful of productivity effects, which the lawmakers miss completely.

Now employers have far too much flexibility to toy with. At the same time, the resultant unemployment (even short-term), underemployment (a FTE in place of a regular “job”), income and social insecurities, etc., arising out of an aggressive flexible labour market will further weaken the aggregate demand even as the economy is on a downward spiral.

It is a moot question whether these will attract more capital and hence more employment, as the research evidence on the negative impact of the so-called rigid labour laws on employment is inconclusive.

The writer is Professor, XLRI, Xavier School of Management, Jamshedpur

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Published on November 25, 2019
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