The Cat and Mouse Game Over Labour Reform Has Begun

Modi's first package of labour reforms is a mix of positive and negative; where he intends to take the process will become clear only later

Welder in an Indian steel factory. Credit: jay Hariani, CC 2.0

Welder in an Indian steel factory. Credit: Jay Hariani, CC 2.0

Amidst rising apprehension on the part of trade unions about the intentions of his government, the Prime Minister told the Indian Labour Conference on Monday that any “changes in labour laws will be made with the concurrence of the unions and the consultation process will continue”.

Though ‘labour reform’ figured in the BJP’s 2014 election manifesto, the party was content last year to let states like Rajasthan take the lead. In March 2015, however, the Centre unveiled its first major initiative, the Labour Code on Wages Bill, 2015 (LCWB), which aims to replace four antiquated labour laws that have spawned and cultured the lucrative “Inspector Raj” since the dawn of India’s labour regulations. Not surprisingly, Modi-style is writ large all over the proposal.

The Minimum Wages Act, 1948 (MWA), Payment of Wages Act, 1936, Payment of Bonus Act, 1965 (PBA) and the Equal Remuneration Act, 1976 (ERA) are all set for the chopping block as the Central government tries to untangle the web of 44 separate pieces of legislation that make labour law compliance a headache for the employer and a happy hunting ground for the enforcers.  As the Prime Minister has already demonstrated, language and style for this government is as important as the substance.  So, Inspectors will now return as “Facilitators” – with a hope that the attitudinal change would follow.

Unequal access to jobs

Public employment in India has been heavily regulated with constitutional guarantees and safeguards. The private sector has remained virgin territory with no equivalence of American anti-discrimination laws in place. The only protection was to be found in the ERA, which prohibited discrimination in pay as well as in the recruitment of men and women. In Section 3 of the LCWB, transgender employees make a welcome and significant debut.  However, while retaining the protection insofar as work allocation is concerned, the LCWB inexplicably drops the pre-employment guarantee against non-discrimination in access to employment to men and women.

The significant change in the minimum wage regime is the delegation of complete power to the states to formulate the wages. The LCWB allows them to “revise from time to time the minimum rate of wages or remuneration … provided that while fixing or revising such minimum wage the state government shall take into consideration any guidelines made by the Minimum Wages Advisory Board constituted by the Central government.”

The Prime Minister’s Jan Dhan yojana gets a fillip with the proposed law stressing that all payments (to the extent possible) be made through electronic means.  The compliances are also facilitated by allowing the filing of e-returns and maintenance of e-registers. In a bold step, the LCWB introduces the concept of “self certification” and paves the way for a “web generated inspection”.  Of course, the PM must now ask his power minister to work overtime to ensure continued supply of power and his telecom minister to ensure e-connectivity so that this regime can truly find its legs.

The LCWB seeks to confer discretion on the government to decide on the eligibility limit for bonus as well as the maximum wage for computation of the bonus.  Bonus too is to be transferred to the bank account of the employee.  In a move that may irk the trade unions, the LCWB drops the provision in the PBA which permitted TUs to seek clarifications from the employer.  In a welcome step though, the LCWB introduces NGOs as disputants who can file claims on behalf of the affected party.  However, TUs can enter the arena only if the employee was a member.

The LCWB makes it the responsibility of the employer to pay the various dues of the employees including disbursal of the wages upon the death of the employee.  The compensation of ten times the dues is also retained. Also, the burden to establish compliance stands placed rightly on the employer.

Comply only if caught

In a statutory innovation, the LCWB introduces the name and shame concept with a “list of defaulters”. However, in an “industry friendly” move, it proceeds to permit “compounding of offences” as well as for an “opportunity to comply” before prosecution – a delightful treat for any recalcitrant employer who could always evade the sanction of the law by “compounding” and “complying” whenever caught.

Bandaru Dattatreya, the Minister of State for Labour, has defended the LCWB as a timely initiative to “simply”, “rationalise” and “amalgamate” the existing labour laws. This is a first in a series of labour law reforms, the next being an “Industrial Relations Code”, to be followed by “codes” on ‘Social Security and Welfare’ and “Safety and Working Environments”.

While the LCWB may pass muster, changing the holy cow of labour laws – the Industrial Disputes Act, 1947 (ID Act) – may be an entirely different cup of tea. If the Gujarat and Rajasthan models are anything to go by, we can expect sweeping changes to the ID Act as well as to the Factories Act and the Trade Unions Act to enhance the present coverage limit of 100 employees facilitating easier retrenchments. This could be sweetened by enhancement of the present retrenchment compensation, which is 15 days for every completed year of service.  The TUs are also in for a shake up as registration of trade unions, grant of protected status, collective bargaining and representation in Industrial Disputes by TUs are set to become more difficult by introducing criteria such as minimum membership from the unit concerned.

Past experience has shown that labour reform has met with the stiffest of resistance from stakeholders cutting across party affiliations. Indira Gandhi with her brute majority in the 1980s amended the definition of industry to checkmate the apex court’s expansive gloss given in the legendary Rajappa case. Yet no government since then has demonstrated the political courage to notify that definition. The Supreme Court has also admitted a challenge to this definition – that covers toilets and temples alike – yet that case has remained in cold storage.

Reforms by stealth

The other method engaged was by the clever Narasimha Rao, who as Prime Minister opened the doors of reform. With his minority government standing on the shoulders of Jharkhand Mukti Morcha MPs, he risked no labour law reform.  He simply co-opted the TUs! Rumours floated that trade union leaders of major trade union federations were sent on international junkets to study how other jurisdictions had adjusted to the structural readjustment dictated by the World Bank.

In the later part of the 1990s, when coalition politics became the order of the day, governments preferred to use the courts to secure law reform and neutralise workers’ rights through judicial pronouncement rather than through the legislative route.

What route the Modi Sarkar will take is anybody’s guess. Singed by the effective propaganda of ‘Suit-Boot’ and eager to shed the pro-rich tag that his advocacy of the land acquisition bill has stuck his government with, the Prime Minister might want go easy on this one. Watch this space.

Sanjoy Ghose is a Delhi-based lawyer