Why Are Trade Unions Opposing Labour Law Reforms?

The Industrial Relations Code Bill is a part of wider government efforts to streamline and simplify labour laws.

Representational image.

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As 10 central trade unions prepare for a nationwide strike on Wednesday, 8 January, the proposed Industrial Relations Code is in their line of fire.

While the government says the code will simplify old and complex labour regulations, improve the business environment and spur employment, unions call the related bill “anti-worker” for allowing employers to hire and fire workers more easily, arguing that it has no safeguards for workers, makes it harder for workers to negotiate better terms and wages with employers, and makes strike actions more difficult.

The Industrial Relations Code Bill is part of wider government efforts to streamline and simplify the plethora of existing and overlapping labour laws by creating four labour codes – each on wages, industrial relations, social security and occupational safety, health and working conditions.

“These codes, including the Industrial Relations code, is pushing us back to the British era,” Amarjeet Kaur, general secretary of the All India Trade Union Congress (AITUC), told IndiaSpend. “It attacks collective bargaining by making trade union leaders vulnerable to punishments and attacks existing labour legislations we have for worker protection.”

The Code on Wages was passed on 2 August 2019, and could have consequences for the lives and livelihoods of millions of India’s migrant workers, as IndiaSpend reported on 17 September 2019. Trade unions are demanding that codification be stopped immediately for at least the three codes that are yet to be passed and that there should be wider consultations, Kaur said.

Why Labour Reforms

Labour law reform is necessary in India – jobs in the manufacturing sector have reduced by 3.5 million between 2011-12 to 2017-18, and economic growth was at a 26-quarter low of 4.5 percent in the July-September 2019 quarter.

Currently, 44 labour-related laws enacted by the central government deal with wages, social security, labour welfare, occupational safety and health, and industrial relations. Labour is on the concurrent list, giving both central and state governments the power to legislate, resulting in more than 100 state labour laws.

Most companies find it impossible to follow this myriad of laws and find ways to subvert them, said Manish Sabharwal, chairman of staffing firm Teamlease.

What Industrial Relations Code Proposes

The Industrial Relations Code would replace three older labour laws – Trade Unions Act, 1926, Industrial Employment (Standing Orders) Act, 1946 and The Industrial Disputes Act, 1947, according to this labour ministry release.

One contentious provision in the bill is fixed-term contracts, which allow companies to directly hire workers for the short term as opposed to hiring workers permanently or through contractors.

This will help sectors that require temporary workers seasonally, such as textiles and manufacturing, industry experts say. But it might be giving too many concessions to employers, said Amit Basole from the Centre for Sustainable Employment (CSE) at Azim Premji University.

While it offers flexibility to employers, it may impact the number of permanent jobs in such establishments, thereby increasing contractualisation in the workforce.

Fixed-Term Work

The total employment in seven years to 2017-18 declined by 9 million to 465 million, “for the first time in India’s history”, noted an October 2019 report by CSE at Azim Premji University. During this period, the share of the manufacturing sector in total jobs declined from 12.6 percent to 12.1 percent of total employment in the country, the report said.

One of the reasons for lower employment, businesses said, was the current Contract Labour Act, which prohibits the use of contract labour in “core” and “perennial” activities of a manufacturing industry. It is difficult to lay off permanent workers – it requires prior permission from the government and entails sizeable compensation, even in the case of business exigencies.

“For a labour surplus country like India this has been stupid, delusional and dysfunctional because our current labour laws choose the old over the young,” said Sabharwal of Teamlease.

By hiring workers for a fixed term, employers would only commit to paying wages and benefits for the duration they really need the workers for. This would reduce human resource costs for a company.

But even as employers and labour consultants have long railed against the difficulty of hiring and firing under Indian employment laws, more and more factories have for decades been employing contract workers instead of permanent ones. Such contract workers have not been eligible for benefits or compensation on retrenchment.

At 8.3 percent, the average growth rate of contract employment was five percentage points more than that of regular jobs, according to a January 2019 report by the Indian Council for Research on International Economic Relations (ICRIER), a think-tank. The share of contract workers in total employment increased from 15.5 percent to 27.9 percent and directly-hired workers fell from 61.2 percent to 50.4 percent in the decade to 2015-16.

This has led to a decline in wages, benefits and work conditions and reduced accountability for companies even as they increased their profits, as IndiaSpend reported in March 2019.

“The issue is that if a firm can hire a contract worker, why would it hire a fixed-term worker who comes at a higher cost to the company? Unless this is resolved, I do not think it will take off,” said Radhicka Kapoor, an economist and senior fellow at ICRIER.

Fixed-term contracts could benefit contract workers who would have to previously work through a middleman and often do not receive social benefits and recognition through employment certification, said MS Unnikrishnan, chairman of the Confederation of Indian Industry’s National Committee on Industrial Relations. “Hiring workers on roll of the company through fixed-term contracts will directly impact productivity and build trust between the workers and industry.”

Reduction in Permanent Jobs

The impact of fixed-term jobs will be “disastrous”, said Amit (he uses only one name), an independent researcher and trade union activist working with labourers in the Neemrana-Gurugram-Manesar belt.

Fixed-term workers would be presumably paid less than permanent employees and there would be no compensation or settlement in case of retrenchment as there is for permanent employees, said Amit.

This code does not have a provision noting that existing permanent worker vacancies cannot be converted into fixed-term employment, said KR Shyam Sundar, professor of human resource management at Xavier School of Management (XLRI). This means that theoretically, a company could hire only contract workers.

Contract work should be slowly regularised, but the government has introduced fixed-term employment which is negating the law for contract labour regularisation, said Kaur of AITUC.

Globally, workers with fixed-term contracts had a significantly higher rate of transition into unemployment or into inactivity as compared to regular workers, suggesting less stability in work or income for workers on fixed-term contracts, according to a March 2015 International Labour Organization (ILO) policy brief.

During the economic downturn, temporary workers are affected more as compared to permanent ones, noted the brief. For example, in the last quarter of 2008 (post recession), in Spain, 2.5 percent of permanent workers lost their jobs, compared with 15 percent of workers on fixed-term contracts.

Clearer Terms for Short-Term Workers

“If fixed-term employment can be designed in a way that it does not exploit workers and improves skill development and benefits industry, that would be useful for improving investments and the economy,” said Kapoor.

Fixed-term jobs need to be regulated, said experts. It must be associated with material and economic reasons which could be seasonality or a spurt due to the festive season demand and must include a minimum and maximum tenure, according to Sundar.

“There should be a cap on the number of cycles a person can be employed as a fixed-term employee. Otherwise the law is being circumvented and the job is not of a seasonal nature,” he said.

This is not the first time that the government has tried to allow fixed-term jobs. Fixed-term employment was introduced by the National Democratic Alliance government in 2003 but was scrapped by the United Progressive Alliance government in 2007 due to opposition from trade unions. The Centre had allowed fixed-term jobs for the apparel industry through an October 2016 notification, citing the seasonal nature of the industry. In March 2018, this was extended to all sectors.

Despite this March 2018 notification, no state government issued any rules; so fixed-term jobs existed only on paper, Sundar told IndiaSpend.

Diluting Worker Rights

In 2011, 13 percent of formal sector Indian employees were members of a trade union, compared to 90 percent and 81 percent in Iceland and Cuba, respectively, the countries with the highest trade union membership, as per ILO data. India’s trade union membership is lower than that in Brazil (19 percent), Russia (31 percent), China (45 percent) and South Africa (28 percent).

The proposed code retains the provisions of the current law on trade unions, which say seven or more members of a trade union can apply to register a union that has a membership of at least 10 percent of the workers or 100 workers, whichever is less, noted a summary of the bill by research organisation PRS Legislative.

The new bill does not simplify the law on trade unions, giving the states the power to decide who can and cannot be part of a trade union, said Amit.

For instance, he explained, in West Bengal, contract and permanent workers cannot form a single union legally, which may be allowed in other states.

The bill also introduces a negotiating union (or sole bargaining agent) of workers to resolve disputes. If the company has only one union, that one becomes the negotiating union or sole bargaining agent. If an organisation has more than one trade union, the union with the support of 75 percent of the workers on the rolls of the establishment would be designated as the sole negotiating union. If there is no trade union with such support, the government or an authorised officer could institute a negotiating council.

This furthers the ease of doing business but not worker’s welfare and interest, said Kaur of AITUC. The 75 percent threshold is unrealistic, said Sundar, and must be revised downwards to half or, at most, two-thirds. “Hardly a handful unions in India or anywhere in the world would be able to satisfy such a high threshold,” he said.

Giving States More Authority on Lay-Offs

Currently, employers in industrial establishments such as mines or plantations with at least 100 workers are required to take prior permission of the central or state government for lay-offs, retrenchment or closure. The central government had planned to increase the limit to 300 workers, but protests by trade unions and activists prevented this change, opposing it as “unilateral and anti-worker”.

The bill allows safeguards that the state governments of Gujarat, Jharkhand, Uttar Pradesh, Haryana, Andhra Pradesh, Maharashtra and Assam utilised – they have amended state laws to set the threshold higher.

In India, the central government has had too much control over labour laws, Sabharwal of Teamlease said, citing “China’s genius” in moving 250 million from farms to cities which “was not driven by Beijing but 200 mayors competing for job creation”. “Labour markets are local and it is best that decisions be made in state capitals, or even better, by city governments,” Sabharwal told IndiaSpend.

Not all experts agreed.

The proposed law “has allowed state governments to revise the thresholds through an executive order”, said Sundar. “It does not involve legislative assembly discussion and the law-making process is rendered null and void.”

“This is not good for workers’ rights,” Amit, the labour activist, said, as there are several firms with less than 300 workers. The bill does not clarify whether fixed-term workers will be included in the threshold number of workers.

Reskilling Fund

The bill requires that the employer of a retrenched worker contribute 15 days’ wages to a reskilling fund, within 45 days of retrenchment.

The reskilling fund is an idea whose time has come, said Sabharwal of Teamlease, as it pays for transitions and solves for a market failure in skill financing. “I think linking the fund to Aadhaar, employment exchange registration and apprenticeship schemes could increase its effectiveness,” he said.

It is a double penalty for employers because they will have to pay for retrenchment and reskilling as well as compensation, said Sundar. “It puts the financial burden on the employer. The state should contribute funds for reskilling.”

This new provision “needs to be clarified”, said Unnikrishnan of CII, pointing out that an enterprise facing closure would find such a contribution unfeasible.

“Our experience is that not even 1 percent of the workforce which was made redundant (post-liberalisation in the 1990s) could get training,” said Kaur, adding that it is impossible to know which skills need to be developed when there are no jobs in the market and the economy is in a bad shape.

(Paliath is an analyst with IndiaSpend.)

(Published in an arrangement with IndiaSpend.)