Waiting for fair play


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SUCCESSIVE governments have promised to create a policy environment that would assist the expansion of the manufacturing sector as the ‘engine of growth’ for the country as a whole. Part of this promise has included the creation of jobs in manufacturing as a response to the persistent and endemic problem of underemployment and unemployment. For big business and, in particular, for representatives of large manufacturing companies, it is received wisdom that the laws that govern industrial employment are ostensibly responsible for everything that ails Indian manufacturing, and that employment will only increase if they are freed from existing labour laws – in particular the laws governing the closure of factories or establishments. This demand has been in place since 1991.

In the two decades since, there have been significant efforts to free up the rules of closure, retrenchment and contract labour through amendments to the law, primarily by state assemblies and the rule-making powers that government enjoys. Despite these amendments and a widely recognized collapse of the labour adjudication machinery, factory employment has only increased marginally since the early 1990s. Furthermore, the net new jobs that have been created in manufacturing are not tenured and protected, but irregular jobs. It is by now accepted that half the jobs in Indian manufacturing are those on contract or casual bases, or even as trainees and apprentices. All these forms of employment in place of regular, perennial employment are a violation of the law.

Even so, the year-old BJP Union government has signalled that the ‘reform’ of labour law is high on its agenda as essential for promoting ‘ease of business’, without which it will not be possible to ‘Make in India’. In a leap of faith, Finance Minister Arun Jaitley claimed that the BJP government’s legislative agenda would facilitate the creation of 300 million jobs, or a job for every two out of three members of the working population. The Union government has already moved proposals for changes to labour law and the redefinition of social security provisions. While the driving force for change is stated to be ‘ease of business’, the changes, if pushed through, will only create a layered and obfuscatory regime which will, in the long run, help neither workers nor their employers.


Already, the state government of Rajasthan has introduced changes to labour laws that completely transform the nature of work and industrial relations. The across-the-board changes to labour laws in Rajasthan appear to be a pilot for the Union government’s policy direction – the casualization of work with greater differentiation between types of employment, and fewer safeguards for workers. Rajasthan’s decision to amend the Factories Act, 1948 has turned the clock back two centuries, in terms of what constitute ‘acceptable’ conditions of work in a factory. The battle for universal coverage under what came to be the Factories Act in many countries was first waged during the Industrial Revolution in the 19th century, and came to be incorporated in Indian law from t he early 20th century. Much later, following the 1984 Bhopal gas tragedy, the Factories Act was significantly amended to ensure that employers had higher accountability for health hazards in the workplace, and for workers’ safety.

While overturning basic protections on critical issues such as workplace safety and conditions of everyday work offered by these laws, the Rajasthan amendment raises the floor for the mandatory registration of an establishment engaged in a manufacturing process under the Factories Act from 10 to 20 workers. This means that factories employing 19 or fewer workers will now not have a legally binding responsibility for the safety of their workers inside the factory. The amendment also undermines existing legal protection regarding hours of work, a day off each week, and other rights to decent working conditions.


The amendment to the Factories Act in Rajasthan also comes with amendments to the Contract Labour (Regulation and Abolition) Act 1970, the Apprentices Act 1961 and critical clauses of the Industrial Disputes Act 1948. The amendment to the Contract Labour Act raises the floor for the application of the act to an establishment that employs 50 or more contract workers (from the present 20 or more, as applicable countrywide). It is widely acknowledged that the current environment allows for the severe under-reporting of employee numbers by small and medium enterprises and multiple factory licences at the same address – effectively allowing multiple factories within a single factory. In this environment the amendments would, in effect, enable factories with 100+ workers on their rolls to operate entirely outside the protection provided under the Factories Act and the Contract Labour Act.

The amendment to the Apprentices Act provides for a ‘sharing’ of apprentice compensation between employers and the state government, enhances the freedom of employers to terminate apprentices during the apprenticeship and enables the inclusion of apprenticeships under the categories of temporary and contract workers. Already, apprentices are being employed in large numbers in manufacturing in order to keep wages low and to deny workers the benefits of permanent jobs. Additionally, the threat of being fired in effect denies workers their legitimate right to freedom of association and collective bargaining. The amendments to this act are aimed at providing legal cover for this practice. So while the government talks of creating skilled and employable workers, this amendment effectively places skilled workers outside the definition of workers and places them in the category of apprentices.


The objective of the BJP government in Rajasthan is to change the basic framework of labour law by restricting the protection available to workers in the event of factory closure and in the definition of what can amount to an unfair labour practice under the Industrial Disputes Act 1956 (IDA). The present provisions of Section 25 of the IDA ensure the accountability of employers in the employment of workers in establishments with 100+ workers, wherein they are required to obtain prior permission from the government if they wish to close down a factory or establishment or reduce the number of workers employed. The IDA clearly lays out the conditions under which an establishment covered under Chapter VB can apply for lay-off, retrenchment or closure, two of these being the genuineness and adequacy of the reasons for such action sought by the establishment, and the interests of employed workers.

The Government of Rajasthan seeks to raise the floor for coverage under Chapter VB from establishments employing 100+ workers to those employing 300+ workers, without providing any rationale based on changes in industrial practice or manufacturing processes over time. By implication, all establishments employing 299 or fewer workers will now be governed by Chapter VA, which does not require government approval for the termination, retrenchment or lay-off of workers, or for the closure of an establishment.


The Rajasthan government’s amendments to the IDA include a detailed definition of what constitutes a ‘go slow’ in an establishment under Schedule V – Unfair Labour Practices. If workers are retrenched, laid off or terminated for executing a ‘go slow’ that includes ‘work to rule’ and the failure to achieve a ‘fixed or average or normal level of production or work or output’, the amendment proposes that the workers will not be eligible for any compensation. Taken along with the amendment to Chapter VB, the definition of a ‘go slow’ can open the way to retrenchment without compensation and, therefore, increase the fear of victimization, which today is a palpable threat to the right to form or join unions.

The amendment also effectively repeals a progressive addition of 1958 made by the then Rajasthan government, wherein the definition of workmen was expanded to include contract workers. The exclusion of contract workers – who constitute a continually increasing proportion of the total numbers of workers employed – in computing the number of workers on the rolls of an establishment will only make it easier for employers to show their employment numbers as being below the 299 threshold. The amendment will also raise the threshold for a trade union to be able to claim recognized status from the current requirement of 15% membership to the higher level of 30% membership within an establishment. This will significantly erode workers’ rights to freedom of association and reinforce the way for the creation of employer-promoted unions, which historically have served to advance the interests of employers.

The framework of development over the last two decades has involved a competition for investment between states through the provision of concessions to business in the form of land grants, tax holidays and, in the case of Gujarat, even the handing out of unsecured loans of large sums of monies at virtually no interest. The actions of the Government of Rajasthan now stretch to providing a lower regulatory employment framework that will force down wages and, therefore, further intensify competition between states.


For over two decades the labour rights implementation machinery has been allowed to fall into complete disrepair, particularly as far as workers’ rights are concerned. Furthermore, provisions such as prior permission from the government for the closure of an establishment under Chapter VB of the IDA are automatically granted, barring rare cases. It is a fact that in the present environment, the retrenchment of workers and the closure of establishments has been resisted – and thereafter resolved – only where workers, as part of democratic unions, have been able to organize agitations that have been successful in defending the rights of their membership. Vast numbers of workers today do not have such recourse.

The BJP governments in Haryana, Madhya Pradesh and Maharashtra are, not surprisingly, seeking to replicate the Rajasthan amendments. In Maharashtra, the government has gone one step further; its cabinet has indicated that it is inclined to free establishments employing less than 50 workers from the provisions of the Minimum Wage Act 1948.

In so far as these changes have not yet been legislated at the Centre, the amendments made by the Rajasthan government are, most importantly, in violation of Article 254 of the country’s Constitution – upheld through judicial review – which clearly sets out that the power of states to legislate changes that are at variance with rights protected by national legislation are limited to removing difficulties or for easier explanation unless state legislation enhances the rights of citizens. At the Centre, the Union government has clearly indicated that it is supportive of the course set by the Rajasthan state government. It has already advanced proposals for similar amendments and moved some of them in Parliament. The Union government has, for instance, already amended the Apprentices Act in consonance with the Rajasthan amendments. It has also, importantly, moved an amendment to the Factories Act to allow state governments to freely define the applicability of the act on the basis of the number of employees in an establishment, to double the permissible overtime, to allow for differential days off in the week in different factories in the same industrial area or district, and to allow the employment of women on night shifts without due safeguards.


Alongside these proposals, the Union government has also circulated the Small Factories (Regulation and other Conditions of Service) Bill, 2014, that seeks to free factories with less than 40 workers from the purview of all existing labour law. Crucially, this proposal allows for the dispute resolution machinery to come into force only if an absolute majority of workers agree to it. This would amount to a severe violation of the spirit of the IDA, which recognizes that a dispute can be raised by even a single worker, which in oppressive work environments is a much needed safeguard.

Further weakening the regulatory environment, Parliament has already ratified changes that permit the self-certification of compliance with various labour laws through an amendment to the Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by Certain Establishments) Act, 1988, for establishments employing less than 40 workers. The legislation on self-certification and the Small Factories Bill, taken together with the Rajasthan amendment to the Factories Act and the Union government’s proposed amendment to the Factories Act that is before Parliament, will leave workers open to multiple definitions, jurisdictions and interpretations.


The Union government is also seeking to amend the two key social security laws for workers in the guise of promoting a ‘universal social security system’, while doing exactly the reverse. The amendments would give workers a ‘choice’ between health care benefits under the Employee State Insurance Corporation (ESIC) and private health insurance, and between the Employees’ Provident Fund and the New Pension Scheme. By encouraging workers to ‘choose’ between, on the one hand, health care and retirement benefits that are guaranteed and protected under law, and on the other, low-contribution options in the private sector, the government is playing on the financial hardship of workers ‘below a certain threshold of monthly income’. Private health insurance, for one, does not provide for outpatient care, medicines and, most crucially, compensation, including for wage loss and for workplace injury. Rather than creating a system of universal social security, these amendments discriminate between workers on the basis of their capacity-to-pay and ability-to-pay.

The amendments already made or being proposed by BJP governments at both the Centre and in the states are a clear departure from the fundamental principles of equality and fairness. These changes will create more layers than already exist. Hence, they will contribute to greater discrimination between workers and workplaces, not less. Excluding contract workers from the computation of the total number of workers in an establishment or factory is outright discriminatory, eliminating as it does an entire section of the workforce from work conditions that include basic safeguards and basic protection, including the closure of their workplace without the provision of any protection for them whatsoever.

The changes will also introduce further differentiation between factories and ‘small factories’, and increase the possibility of a growing number of non-registered factories, with unsafe and hazardous working conditions that will be beyond the pale of the law. The changes will allow for practices that could be ‘right’ under one law but amount to unfair labour practices – and, therefore, violations – under another law. So long as there are arbitrary definitions based on size of establishments or types of employment contracts, employers will be encouraged to engage in discriminatory practices to their advantage.


The changes carried out or proposed are designed to allow employers to remain preoccupied with ensuring that they get the law ‘right’, and to ‘incentivize’ them to keep the cost of workers low for short-term profits. They are, perforce, designed to ensure that a majority of workers do not have recourse to collective bargaining, and that those who do are weighed down by the problems, first, of establishing their very existence as workers, and then, of trying to get their unions registered and recognized so that they may be represented by them.

Business, in particular manufacturing, would benefit from simple and easy-to-implement laws, including simple labour laws. The principle of universality is central, not just for equality and fairness but also because it enables the effective implementation of the law. The creation of a dynamic, innovative and technologically autonomous manufacturing sector that can ‘Make in India’ requires manufacturers to invest in skilling workers and engineers. The process of skilling can only be advanced if there is a stable employment environment in which workers and their employers are long-term collaborators in innovation and technological change; where, even as employers make reasonable profits in the long run, workers are compensated fairly for their labour, their working conditions are safe and secure, their retirements are provisioned for and they enjoy the right to be represented at the workplace by a union of their own choice or making.


What are needed are changes to labour law that recognize one common definition for a worker and for conditions of work and safety at the workplace, irrespective of the size and shape of the establishments they work in. This is elemental to creating a fair workplace, to lowering discrimination between workers and, therefore, to reducing the possibilities of disputes between workers and employers. Recognizing this principle of universality would be in line with the conventions that constitute the core labour standards set by the International Labour Organization. India stands out as a country that has refused to ratify most of these core conventions.

India needs a new social contract – a contract that advances equality and fairness – including for how its factories are run and regulated, if it does, indeed, want to ‘Make in India’.