Labour reforms: Will they lead to decent service conditions?

The Industrial Relations Code (IRC) was published in the gazette on September 29, 2020. Much of the commentaries on IRC have concentrated on the provisions relating to labour flexibility, strikes and fixed-term employment. But they have missed out an important amendment made to regulations concerning Standing Orders (SO) in IRC which will have adverse implications for both employers and workers.

The Industrial Employment (Standing Orders) Act (IESOA) was passed in 1946. Prior to the enactment of IESOA, there prevailed unequal power setting industrial relations system (IRS). Most of the employers did not put in place the common (collective) terms of service governing all the workers across the departments/sections in a firm nor did they serve employment contracts to individual workers. As a result, employers discriminated between the workers at will. They resulted in considerable labour unrest and disputes.

The four major objectives of the law as gleaned from several judgements of the Supreme Court are: to cure the unequal bargaining power in the labour market; standardise and universalise terms and conditions of service in a firm; ensure fair and reasonable conditions of employment; and, ensure industrial peace.

The IESOA requires the covered employers to define with “sufficient precision” conditions of employment formally in an SO, get it certified by the government and disseminate it to workers in several ways. The certified SO is a statutory document and overrides the corresponding provisions in the individual contracts.

It covers regulations concerning types of employment (probationers, permanent, casual, temporary etc, tenure of employment, acts of misconduct, inquiry process and punishment for proven misconduct, termination of employment, means of redress for workers against unfair treatment and wrongful exactions by employers, among others. As we see, the SO then is a powerful instrument to protect the rights of both employers and workers and to ensure fairness and justice.

In the initial stages of industrial development in the 1940s and 1950s, it was natural to apply laws to large establishments. Hence, IESOA was applied to industrial establishments employing 100 or more workers.

Section 2-A which has legalised individual disputes, and Section 11-A of the Industrial Disputes Act, 1947 (IDA), empower labour courts to review the fairness and legality of the domestic inquiry process and the punishment meted out by employers to the affected workers. It could even reinstate them if employers’ actions were mala fide, arbitrary, perverse and did not conform to the principles of natural justice. Together, IESOA and IDA provide substantial employment security to workers.

The Second National Commission on Labour (SNCL) recommended application of SOR to establishments employing 20 or more workers and providing for a Model SO for establishments employing 20-50 workers. However, SOR in IRC have increased the threshold from 100-300 or more workers. The Parliamentary Standing Committee (PSC) did not recommend such a measure and hence it is rather shocking.

The government has also amended the threshold in IRC for hire and fire from 100 to 300. These two provisions will leave out around 90% of working factories and around 40% of workers employed therein in the organised factory sector (Annual Survey of Industries, 2017-18).

The Periodic Labour Force Survey (PLFS) results for 2017-18 show that a little more than 70% of regular wage/salaried workers did not have a written employment contract, a condition mentioned by the judiciary in explaining the reason for IESOA. The Occupational Safety, Health and Working Conditions Code (OSHC) contains the statutory duty of employers to serve written employment contracts to workers though logically and structurally it should be contained in IRC. In fact, the lawmakers must include “non-provision of written employment contracts” as a component definition of “industrial disputes” [(2)(q)] in IRC. This will empower the workers to secure the same right. The OSHC does not have corresponding penalty for this non-compliance. The SNCL recommends issuance of appointment letter as a part of SOR.

Redress to workers

The SOR in IRC will result in undesirable outcomes in IRS. For example, employers uncovered by SOR can now discriminate between workers in terms of conditions of employment (say shift working, leave, probation period, or notice period for employment termination), avoid providing means of redress to workers against unfair acts of employers, frame charges against undesirable workers say union leaders or those promoting unions and victimise them by mala fide actions including transfers, suspensions or even dismissals, among others.

Research evidence shows that the probabilities of union presence will be increased and be higher as we move up the size of establishments (measured by workers). In neo-liberal times, as employers adopt union-avoidance or union-busting, trade unions have been waging strikes and legal battles for their acceptance and survival even in larger firms. On the other hand, the OSHC has increased the threshold for regulations governing contract labour employment. Provisions relating to strikes have been toughened up which make legal striking virtually impossible.

Uncovered workers will now be at the mercy of the employers. This will mean absence of decent conditions of employment common to all workers in a firm and much worse employment insecurity. Employers will more likely employ workers on full time equivalent (FTE) and contract workers. Employment insecurity and voice deficits in smaller establishments will usher in an employment regime characterised by informality and precarity.

Apart from the possible adverse outcomes in the IRS, there are other reasons which must compel the government to revisit the clauses concerning SO. Firstly, the objective of law is to prevent not only unilateralism but also opportunistic behaviour on either party to a contract, workers and employers. Secondly, an unregulated IRS will produce sub-optimal outcomes. Thirdly, the lawmakers have not appreciated the fact that SOR will also benefit employers as they would help in creation of disciplined workforce. The law makers have completely lost sight of these three incontrovertible and time-tested propositions and made reforms in blind faith that these will enable ease of doing business.

(The writer is Professor, HRM Area, XLRI, Xavier School of Management, Jamshedpur)