Suspending labour laws means paving a road to nowhere

Far from bringing in new business, the wholescale suspension of labour laws by some states poses a real danger of unleashing mistrust among factory workers. For the move is fair neither to workers nor to employers

K Ramkumar

[Image by 272447 from Pixabay]  

When I wrote my book in 2015, I was wondering how I should begin it. My book is titled Leveraging Human Capital. It is a practitioner’s perspective on unleashing human potential for productivity and competitiveness.

I finally settled on narrating the 14-hour pitched battle in 1892 at Andrew Carnegie’s steel plant at Homestead, Pennsylvania, which ended with 12 deaths (nine workers and three strike breakers). The backdrop to this was the economic downturn of the 1890s. Steel prices had plummeted by a third. Carnegie and his plant manager Henry Frick saw this as an opportunity to deal a death blow to the union. They overproduced, stocked up and then retrenched workers in big numbers. This led to workers picketing and preventing stocks from moving out. Frick then brought in armed strike breakers from the Pinkerton Detective Company. The armed clash that followed left a trail of death. The state, in the absence of any labour law, sided with Carnegie, charged the union with treason, and arrested the members of the strike committee.

I ended this narrative with a lament from Carnegie: “No pang remains of any wound received in my business career, save that of Homestead. This is the trial of my life (Death's hand excepted). Such a foolish step—contrary to my ideals, repugnant to every feeling of my nature… It is expecting too much of poor men to stand by and see their work taken by others…. The pain I suffer increases daily. The Works (factory) are not worth one drop of human blood.”

I hope that all those who are supporting the suspension of some 35 labour laws by the Uttar Pradesh and Madhya Pradesh governments (many others have followed suit to varying degrees), don’t end up feeling this way a few months or years down the road.

But this move is far from a reform. It is neither labour-friendly, nor industry-friendly

The UP government suspended all but three of the 38 labour laws, believing that it will induce businesses moving out of China to come to UP. Leaders from industry bodies, some prominent voices from the world of business, and influential but ill-informed journalists believe that this is the much awaited labour law reform.

But this move is far from a reform. It is neither labour-friendly, nor industry-friendly.

I am not arguing against formalising reforms. Reforms are necessary to enable our businesses to be globally competitive—the COVID-19 emergency notwithstanding. Indeed, over the past 70 years, India’s labour legislation has failed to keep pace with the changing economic forces, both global and national. Repeated attempts to reform (starting with the Ravindra Verma bill in 1978) have failed, with every government passing the buck to the next one.

However, industry has found its way around the impediments in the last two decades, with the governments and the courts quietly giving leeway on certain provisions, which make businesses competitive. Today, without calling it retrenchment, industry regularly lets go of employees without any court intervention. There is very little judicial activism or government coercion in conferring permanency to contract labour. Even trade unions have made peace with it.

My argument is that making labour laws industry-friendly could be done in a measured manner without wholescale annulment of the laws, which is both unjust and unfair.

The move rolls back by a hundred years employees’ and trade unions’ hard won protections and legal rights

In the following paragraphs I examine the substantive reform issues and why a wholescale suspension of 90% of labour laws will turn out to be counterproductive. In effect, the move rolls back by a hundred years employees’ and trade unions’ hard won protections and legal rights. It is foolhardy to expect that they will play ball.

Bear in mind that ethical and fair-minded businesses are not the entire universe of employers. There are many questionable practices—some downright unethical—in the semi-formal sector, where most contractors and promoters are exploitative and unscrupulous.

But, before I get to the reform issues India must address, there’s a fundamental question at hand: Should constitutional democracies make such draconian moves?

In a constitutional democracy, laws govern the rights and obligations of citizens. However, in an authoritarian regime like China, citizens have literally no rights, only obligations. And the obligations are not normed but operate at the whim of the authorities.

Annulling laws is like destroying a full field of healthy crops because you do not know how to remove the weeds

Now, there is no such thing as a flawless, fair law with full protection from excesses by the authorities. For this reason, we do not annul laws. That is like destroying a full field of healthy crops because you do not know how to remove the weeds.

In a constitutional democracy laws are enacted or rescinded by elected representatives of the citizens through a process of negotiation and socialisation. Only an authoritarian regime annuls, suspends or rescinds laws by the stroke of a pen, with no concern for the unintended consequences.

All laws are evolutionary in nature and have to be in consonance with societal imperatives. They should balance the competing societal pulls and seek to prevent conflicts, or provide for a civilized mechanism to resolve conflicts that are inevitable. This is how anarchy is prevented. Laws also are enacted to protect the weak, the marginalised and the vulnerable. I leave it to your judgment whether a single employee or even a trade union is stronger and less vulnerable than the promoters of businesses, business leaders and contractors. This is not to say the latter do not require protection and enablement through laws. This requires a fine balancing act—of trimming the branches, not chopping the trunk of a tree.

Laws that do not evolve to reflect the contemporary aspirations of different sections of society will become out of date, and hence, decrepit and obstructionist. The inability of society and its government to amend them and align them to the contemporary aspirations and needs of a society cannot be the reason for annulment or suspension by an executive excess—through an ordinance. That a society or a government is incapable or unwilling to use legislative bodies to amend laws also cannot be the reason for using an ordinance to deliver a death blow to internationally accepted benefits and protection given to employees.

When this happens, we have to conclude that the act is an authoritarian and anti-democratic one—no matter the benefits that may flow to certain sections of society. Now, this is where those who myopically cheer it, should be called out for their anti-democratic orientations, whoever they are.

This is as insensitive as flying home one set of privileged stranded citizens under the Vande Bharat mission, and asking the other unfortunate set of citizens to walk thousands of miles in the scorching summer heat to get home, and accusing them of being unreasonable.

So, will this wholescale suspension of the laws unshackle entrepreneurial investment, jobs creation and national wealth creation?

I will save my readers the technical arguments. Let us examine by asking some questions on whether you and I will trade-off these rights, which are being annulled, and accept that the state will arbitrate on them without a law:

  1. Our health and safety at the workplace. That we believe that every employer will take care of it to the standard acceptable in a civilized society, without any law defining it, mandating it, and punishing violations.
  2. We trade-off our one day of rest in the week or a compensatory rest day within say a time frame of two weeks.
  3. We will trust all employers to be socially conscious to take care of our social security needs like provident fund, gratuity, maternity benefits, health insurance, and treatment for workplace accidents and work-related illness. And basic amenities such as clean toilets, separate toilets for women, a hygienic dining space, clean drinking water, etc., without a law. These are privileges which those who work in tin-and-asbestos sheds cannot take for granted, unlike the glass tower-wallas like me who work from offices in swanky skyscrapers.
  4. No employer will fire on a whim without notice and compensation, even when there are no norms or verification system mandated by a law.
  5. Minimum wages will be paid by all employers without any law.
  6. All employers will grant us annual leave and that it will be just and fair in terms of the number of days.
  7. Finally, if we unfortunately have to seek legal redressal, our courts will be able to adjudicate without any law. 

Even the trade union leaders no longer question the need for reforming labour laws

I am sure you will be able to add many more to this list. But the question we have to ask is, “Is no law the answer to bad law or some outdated provisions or excesses by law enforcers?”

I have been at the frontlines of labour law reforms for 35 years. I have been part of various industry bodies and government committees reviewing the laws and identifying what requires reform. I have also engaged with influential national trade union leaders giving them confidence that the reforms identified will not infringe or dilute the just and fair rights of employees. My last major effort was in 2012 under the aegis of the CII Western Region, where we had serious deliberations with business leaders, national trade union leaders, members of Parliament, heads of Human Resource, jurists and social activists. I say this authoritatively: Even the trade union leaders no longer question the need for reforming labour laws.

Everyone agrees that the plethora of labour laws should be rationalised. The blueprint for it has been ready for over 20 years. (Here's a good article (pdf) on the proposals so far.) The issue has been the lack of will with the successive governments. The proposal is to have three comprehensive labour legislations:

  1. Industrial Relations (note, not disputes) Law
  2. Conditions of Work Law
  3. Social Security Law

The Industrial Relations bill has been drafted, is ready and in the public domain. I also know that the other two bills have been drafted, though they are not in the public domain. There is a broad agreement on this even with trade unions. Of course, some trade unionists have issues, but they are all marginalised today and have no credibility. So why can these simplified and rationalised contemporary legislations not be adopted, if the government has so much power to annul almost all labour laws?

So, what are the reforms that every business wants? Reforms that would unshackle entrepreneurship and productivity? I’ve listed them here. They ought not to be blanket freedoms given to business, so I’ve added some checks and balances as well. 

This means pruning existing laws to rationalise them, instead of using a sledgehammer in the form of suspending the laws.  

1. Freedom to close an enterprise due to financial non-viability or obsolescence. It will be irresponsible, foolhardy even, to let this be a self-declared unverified freedom. To confer this sweeping freedom without just, fair and equitable compensation to those who are losing their job will be a travesty of justice. Do we want this without safely winding down and closing a hazardous establishment?

2. Freedom to retrench so that the enterprise can rejig its competitiveness. Should this too be without adequate compensation which is just, fair and equitable to both the employee and the employer? Is it a tall ask for adequate notice to be given to the employee, so that he can prepare for the job loss? If so, why are we screaming about employers letting go of employees in the midst of COVID-19?

3. Freedom to temporarily reduce salaries or lay off employees, until competitiveness is restored or the economy revives. This too should be with subsistence support for a limited period.  

Remember, India, unlike Western economies, has no unemployment dole or social security support. So when we ask for the freedom enjoyed by these countries, it cannot be freedom without any social responsibility or ethical considerations. Freedom without societal accountability will unleash anarchy, and the country will slip back to the 60s and the 70s era of violent strikes. And that will certainly do no good for productivity, competitiveness and wealth creation.

4. Remove the need to make temps and contract labour permanent employees. In an emerging gig economy this is par for the course. But would you want this without minimum wages, social security, safe working conditions? (Think of the garment, leather, metal works, chemical industry, not your steel-and-glass towers.)

5. Remove the restrictions on timings for women employees. A responsible society will do this with adequate safeguards.

6. Remove the requirement to pay a bonus in a year where the enterprise has suffered a loss. Should this not come with the guarantee that in a year of healthy profit, the surplus will be shared by the employer without being exploitative? Do you think that all employers will do it without a law?

7. Maybe there should be a relaxation on the hours of work, which is 9 hours a day with provision to go up to 10-and-a-half hours with breaks for lunch and rest. However, in a three-shift set up, this is unnecessary. In the glass towers and sweatshops of the contractors, most work 14 hours without any claim for overtime. I have not seen any employer receive a notice for this. But formalising this will remove the fear of extortion. That said, in a civilised society, how many hours do we want our employees to work daily?

8. Curtail the excesses of the corrupt and extortionist labour authorities. Would an annulment be the only way to achieve this?

That’s it, friends. If the above eight are done, 95% of the impediments would be gone. Now tell me, if you can pass an ordinance to annul or suspend 35 laws, why can't you pass an ordinance and amend these eight provisions, without denying the employees their other just and fair rights?

Like I said before, the annulment of the labour laws portends serious consequences for employers—it may take us back to the era of violent strikes, with the governments seen as playing a partisan role one way or the other. Make no mistake, electoral compulsions will force the political parties and governments to swing in favour of labour.

Let us look at what the suspension is likely to do to employers’ rights. Let us take the Industrial Disputes Act, Employment Standing Orders Act and Indian Trade Union Act:

  1. Flash strikes without notice will not be illegal anymore.
  2. Strikes cannot be declared illegal ever. Because the current law—where once conciliation is called by the labour department, strikes become illegal—has been suspended. Hence, no work no pay cannot be legally enforced anymore. This was a powerful tool to prevent conflicts spinning out of control. Now it’s rendered waste.
  3. All subsisting bipartite labour settlements and awards of the labour courts are now redundant and labour is free to go back on all productivity-related obligations.
  4. When trade unions do not have legal sanctity, all settlements they have signed on behalf of the employees are no longer binding.
  5. No practice (like picketing) is now an unfair labour practice by employees and trade unions. It is a free-for-all. No court can adjudicate on this because there is no law. The deterrence is gone. Believe me, the legal deterrence worked for 45 years. That is why there has been so little violence in the last 25 years. Pickets during a strike were ominous and violent when I started to work. Do not forget the sit-in strikes and the go-slows, which crippled productivity. Do not believe that when the law goes, these practices will not come back with a vengeance. These practices are now but a distant bad memory for a certain generation, because unfair labour practice calls it out and the consequences deter it, provided the employer has the gumption to invoke it.
  6. The code of conduct as per the approved standing orders will become extinct. So, no employee can be held accountable for any misconduct and no disciplinary action is possible. Punishments will have to be arbitrary, not backed by any legal protection or authority. Imagine enforcing a punishment without any legal sanction.
  7. Finally, all labour departments become defunct and all labour officers have no authority anymore. I certainly do not mourn their unemployment. But who will now be the arbiter on any issue? At least you had this corrupt fellow, who 9 out of 10 times favoured the employer, who in fact had a far better wherewithal to grease palms and more.

My point is, the labour legislations confer rights not only for employees, but also for employers. They don’t only place obligations on employers, but also on employees and trade unions.

In 1993, when we negotiated a wage settlement under the Industrial Disputes Act, at Lipton India’s Kidderpore factory in Kolkata, with three trade unions (CITU, INTUC and NLCC), the unions agreed to as high as 40% productivity improvements in order to make the factory competitive with other modern factories. They also agreed to reduce the workforce by 25% through a voluntary retirement scheme. Hence, to say that trade unions and employees do not cooperate and agree to onerous obligations in order to save a business and employment, is not universally true. 

The labour legislations confer rights not only for employees, but also for employers

As someone who spent 32 years managing trade unions, let me tell you that they by and large played by this norm, barring a few exceptions. Now, it will be free-for-all, every day.

So, in the final analysis, far from enabling entrepreneurs, this ill-thought-through misadventure will disturb industrial peace, unleash conflict of unimaginable proportions, and will demand the state to now become an open militia of the employers to protect them. Above all, it will destroy productivity, value and wealth creation. Unless you have the enforcement power of the local party commissar as in China, I fear for the safety and well-being of many managers.

As they say, when the path to good intention is paved with stupid and naïve assumptions, the Devil visits you. There is a saying in Tamil to the effect, “The cat branded itself to become a tiger and died.” This is what happens when we listen to the Chinese apostles and brand ourselves with scalding red hot iron rods of authoritarianism. I hope other states are wiser in not following the bad example.

It is still not late to make changes in a targeted and calibrated manner. The tragedy is that by acting without thinking, you are sowing huge distrust among the labour. Labour will see this as a betrayal by their protectors—the government and those employers who hitherto were just, fair and responsible. If they do not speak up.

My caution to those who are ecstatic: “Hold your celebrations, for a storm is brewing on the horizon.”

Editor’s Note: How do you expect this will play out? What might the fallout—or rewards—be? We’d love to hear your perspective in the Comments section below.

Still curious? Listen to experts who work at the grassroots on what will it take workers in the informal sectors and small businesses to survive. And how some small business owners in Surat’s textile hub are helping out their migrant workers. 

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Sana Khan on May 17, 2020 10:43 p.m. said

Dear Friends
A simple plan to bring the country’s economy back in track, remove corruption in compliance as well as finish the black economy , get infrastructure working and most importantly revive our industry.

1. Income tax holiday for the next 30 years.

2. 0.3 % banking transaction tax on payments not on receipts(payments are cost)

3. Lands in all the airports and railway junction around the country is given for companies who want to move to India or even local companies.(The land is given On a fixed lease of 200 per year for 15 years for urban areas and 50/- per Year for rural areas). No land hoarding allowed.

There will be checks which can be put in place to ensure that at least 99% of people cannot break the system and whoever does once caught will be publicly shamed as traitor to the people of India.

PS:-Please leave your suggestions and comments. Any other ideas or holes in this logic....
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Sai Prasad Somayajula on May 12, 2020 10:35 p.m. said

Today’s news in US media:

“They gave us no notice': Uber lays off 3,500 employees via a three-minute Zoom call”

This is normal in a country with strong employment insurance backup, but not in India where there are no financial support systems.

Sai Prasad Somayajula on May 12, 2020 3:58 p.m. said

I fully agree annulling 35 laws at one stroke of pen is unjust. That too for a short term (and speculative) move to woo companies from China.

May be if a State or Central law mandates that for every labour law that is being annulled, a substitutive obligation is placed on the state government with a government funded equavalent benefit.

A Canadian example, a government funded employment insurance that assures

(a) 60% of last drawn wage for 16 weeks or till next job is found

(b) government funded reskilling, retraining in more employable skills

Are a few to mention

Rajashekar Iyer on May 12, 2020 7:13 a.m. said

The author says,”I have been at the front lines of labour market reforms for 35 years”. Maybe he should introspect how much progress was achieved in these years in the progress towards better labour laws. Sometimes scrapping something and making a new start is better than labouring to fix something which is broken badly.

Ramkumar Krishnaswamy on May 12, 2020 3:54 a.m. said

The formal sector where entrepreneurs are looking at long term value creation and value reputation. In India this sector is just 5%. Close to 25% is in semi-formal sector, I actually may be over stating it. The issue is in semi formal sector. In west the remedy and redressal for a malafide sacking is covered under common law and the relief is speedy. In the west not paying minimum wages is dealt with severely. Social Security net is funded well and delivered without leakages and patronages. These are the conditions precedent for letting market take over with light regulation. Before we lift regulations the state and the industry should create the eco system for it with the above absolute non negotiable. Then we can reassure the weak, marginalised and vulnerable that they have nothing to fear and from no one. Annulling laws by a stroke of a pen without preparing the eco system is not letting market take over. That is asking a child to fend for itself without the eco system of a family. That is what we all should discuss. The debate is not whether regulations are bad or market is better. It has to be a nuanced approach.

About the author

K Ramkumar
K Ramkumar

Founder and CEO

Leadership Centre

K. Ramkumar is the founder and CEO of Leadership Centre, an institution dedicated to building world-class thought and practice in the domain of leadership consulting, research and development.

He is a retired executive director of ICICI Bank and retired president of ICICI Foundation. He has completed his Post Graduate Diploma in Personnel Management from Madras School of Social Work in 1984. He joined the Board of Directors with effect from February 1, 2009.

Prior to joining ICICI Bank in 2001, Ramkumar served companies such as Hindustan Aeronautics, Brookebond Lipton India Limited (now Hindustan Unilever Limited) and ICI India Ltd. His work in these companies has mainly been in the areas of Human Resources Management and Manufacturing.

While at ICICI Bank, he was passionately devoted to Leadership Development, Succession Management, building a supply chain for the Bank’s human resources requirements, leveraging technology to innovate, and driving operational excellence for world class service quality.

Institute for Finance, Banking & Insurance and ICICI Manipal Academy for Banking & Insurance were conceived and nurtured by him. The partnership Initiatives with SEBI – National Institute for securities management and with NIIT - the NIIT University, were also nurtured by him. He led the CSR project of ICICI Foundation on skilling youth and promoting livelihood. This is done under the ICICI Academy for Skills, which has 21 centers offering 13 skills to 25,000 youth per year.

He writes extensively on a range of topics on his blog www.theotherview.in. He invites you all to be active contributing members of this blog.

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