The social costs of permanent labour

EA Ramaswamy | Updated on January 16, 2018

A law that disallows lay-offs has ironically led to a proliferation of informal conditions. Insecure, underpaid labour is the norm

Our law decrees that an industrial enterprise, once born, cannot die. The proprietor can bring it into being but cannot close it down even if it makes losses, unless the Government deems closure to be in the public interest. This is an impossible condition, since no government would want to take this unpopular decision.

Immortality is also conferred on permanent workers employed by industry. They cannot be laid off or terminated on grounds of redundancy. Recalcitrant workers can be proceeded against, but this is not the real issue. The issue is to match labour supply and demand in a fluctuating product market. The law makes this impossible. Unwanted workers cannot be laid off.

Cherished by labour

This law entered the statute book at the peak of the Emergency as part of Indira Gandhi's effort to regain lost political ground. It has now become the most cherished possession of the labour movement. After all, this is what unions want the world over but hardly ever get.

For employers, it is a thorn in the flesh. They have talked ad nauseam of the need for flexibility in hiring and firing without, getting anywhere. They had hoped that the present government with its penchant for reform would come to their aid. An industrial relations Bill is said to be on the anvil, but for now the Government appears to have passed the buck to the States. States that want to encourage investment are expected to make lay-offs and retrenchments possible by amending the law. Some States have indeed exempted firms employing less than 300 workers from this law, but most have done nothing.

It is now 40 years since chapter V(B) which guarantees absolute security of employment to workers (defined as those engaged in manual, clerical or technical but not supervisory work) entered the Industrial Disputes Act. Do workers truly enjoy the security it promises? How do employers cope with ups and downs in demand for their products and services if they cannot match labour supply with demand? Who gains from this law and at whose cost?

Myth of immortality

The immortal factory has turned out to be a myth. Unproductive plants are being closed all the time. Factories are also being pulled down to make way for malls and apartments. This is achieved by getting the workforce to accept voluntary retirement en masse. It is an expensive process, but definitely not impossible.

How about the immortality guaranteed to the worker? Is it any more real? The permanent worker does benefit, undeniably. The greatest protection is from victimisation, especially victimisation for trade union activity.

Workers can be punished with dismissal for serious offences such as theft, sabotage or wilful defiance, but the misconduct has first to be established through a long and cumbersome process. In practice, most managers would rather put up with a lot of nonsense from permanent workers, especially unionised workers, than embark on this perilous journey.

Behind this obvious and very real benefit of job security lies a dark truth whose consequences for the working class and for the social fabric are generally glossed over. The truth is that permanent workers have become an endangered species. Our industry is awash with insecure and underpaid labour of every description, much of it in defiance of the law.

The new scenario

Contract labour is the most common form. It all started rather modestly, with the employment of contract workers for arduous tasks that permanent hands were unwilling to take on. Fertiliser plants employed them to bag urea and petroleum refineries for LPG bottling. Almost everyone employed them to load and unload trucks. Housekeeping, transportation and security services joined the list before long.

In the next phase they got on to plant maintenance, especially shutdown maintenance. This was followed by utilities. Factories handed over the supply of water, power and steam to contract labour. Now contract labour is everywhere, including core operations — no holds barred. Permanent workers have been reduced to a tiny minority, sometimes barely a tenth of the labour force.

The business of supplying labourers on contract has become sophisticated. I have just chanced on an article that points to the emergence of a formal sector in this informal business. There are large firms engaged in the business of supplying contract workers, the largest with more than 40,000 on call.

The firm supplies workers to all the big names in the city. And it supplies all kinds of skills from the rudimentary to the sophisticated. It can supply whatever number the management wants. The workers get the minimum wage they are entitled to, plus all the statutory benefits. It is more than what old-style contractors give, but far less than what firms pay to their permanent workers.

Youth reigns

And now to the unkindest cut. No one lasts till retirement. Industry wants young workers. After all, even permanent workers are being offloaded through voluntary retirement when they age. Why would any factory want contract workers past their prime? Pushed out of the formal sector before they turn 45, these workers are headed for the informal dump heap where conditions are far worse.

It is clear that the protection of the law guaranteeing permanent employment is available only to a tiny and declining minority. Contract labour is no longer a means to cope with the vagaries of supply and demand but a means to control costs; not a standby but the staple.

There are obvious lessons in all this. The first is that unenforceable laws are worse than the disease they seek to cure. I wonder if contract labour would have assumed such menacing proportions were it not for the law banning lay-offs. The second lesson is that laws don’t function in isolation. Permanent labour cannot be protected unless contract labour is regulated. Finally, laws don’t enforce themselves. It is the job of the union to make sure that workers get what they are promised by statute. But, their priorities seem to lie elsewhere. Currently they are busy opposing the closure of public sector units that are long dead, and waiting for their obsequies.

The writer is a labour relations and HR consultant

Published on October 07, 2016

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