The path ahead

SANJOY GHOSE

back to issue

A caveat to begin with – ‘Indian labour laws’, a mesh of more than 10 major central statutes with each state adding to that number and a plethora of rules, regulations and by-laws, covers barely 10% of the total workforce, as the unorganized sector is by and large given a miss by most labour welfare statutes.1 Despite this, ‘labour law’ is the holy cow for the trade unions, often a headache for employers and definitely a meal ticket for many a labour inspector!

When the slum-underclass rechristened Aam Aadmi Party tried to pitch itself to Delhi’s influential trader community, interestingly it did not offer new laws or deletion of laws, but an end to ‘raids’ and a simplification of compliances. This, the party insisted, would encourage compliance and facilitate business. There is more than a grain of truth in this approach.

The Industrial Disputes Act, 1947 (‘ID Act’) forms the central edifice of industrial law. This provides the basic structure that creates and sustains the industrial dispute resolution machinery. The other statutes are mere satellites.

It is interesting to note that the twin mantras of labour law, ‘reinstatement’ and ‘back wages’, have no statutory origin and the ID Act in its vintage form, made no mention of these concepts which form the ‘heart’ of labour laws, pretty much like the original Constitution did not mention the term ‘political party’. These are ‘judge-made concepts’ as are most aspects of industrial law such as the notions of ‘unfair labour practice’, ‘victimization’, and so on.

The ID Act was also a pre-constitutional legislation, crafted at a time when the colonial economy was reeling under the aftershocks of a devastating world war. It was felt that a legislation that would provide a machinery for resolution of industrial conflict was most necessary.

Early on, the Federal Court (the predecessor of the Indian Supreme Court), in the iconic Western Indian Automobile Association Case,2 set out the contours of this new jurisprudence by distinguishing the forum under the ID Act from civil courts and ruling that, unlike the later, it was empowered to direct ‘reinstatement’ of a terminated employee and not be confined only to awarding damages. Thus the relief of ‘reinstatement’ (a specific performance of a positive covenant which is anathema to civil law, under which a court only grants damages but does not compel a party to specifically perform a service contract) was born. As stated, such concepts, including the relief of ‘back wages’ (on the basis that ‘reinstatement’ meant that the employee was never removed and therefore must be restituted the wages lost out by her in the interregnum) were born, not through statutory enactment but through judicial pronouncement.

 

I have delved on this in detail as I feel it is important to appreciate the significance of decisional laws in the evolution of the corpus of ‘labour laws’. A history of the decisions of the top court would reveal an almost cyclical fascination-aversion with these twin weapons of Indian labour laws. The conservatism of the early decades gave way in the seventies and eighties when courts strictly enforced the rule of reinstatement and full back wages upon concluding a termination to be in breach of law.3 The nineties and the first decade of the millennium saw a reverse swing, with courts concluding that ‘full back wages and reinstatement’ cannot be the natural corollary of invalidation of a termination. The courts weighed in favour of ‘compensation’ in lieu of reinstatement and back wages. Often decades of litigation, in the three-tiered judicial system, concluded with payouts as pathetic as Rs 20,000 to Rs 50,000.

Just as the epitaph of ‘labour laws’ was being written, given that reinstatement and back wages were off the table making a decade long legal battle against illegal termination an economic catastrophe, the cycle saw an upswing for labour as recent judgements reinstated ‘reinstatement’ as the norm and back wages as the consequence of invalidating a termination.4 Interestingly, each cycle is spurred by a handful of individual judges whose jurisprudence has shaped labour laws for that era. Bhagwati-Desai-Reddy-Iyer driven pro-workmen case law saw an onslaught by the Sinha-Payasat-Katju combine in the first decade of the millennium and now the upswing is being led by Singhvi-Mukhopadhya-Gowda.

No study of labour reform can be fruitful if the role of the law courts in the evolution of this jurisprudence is not underscored.

 

A survey of the amendments would indicate that over the decades the amendments made to the ID Act can be broadly classified as follows:

* Restructuring the dispute resolution machinery. An instance of this would be the Industrial Disputes (Appellate Tribunal) Act 1950 which, among other things, established Appellate Tribunals to hear appeals against awards – an experiment which failed and was subsequently jettisoned as it only added another speed-breaker in the justice delivery process. The 1964 amendment introducing Section 33C stipulating instruments and machinery for execution of awards and settlements is one such example as is the 2010 amendment which tweaked this by providing for execution of industrial awards through the machinery available with the civil courts. The 1982 amendment, introducing the largely unsuccessful ‘grievance settlement authorities’, would also fall in this class of legislative amendments. The 2010 amendment, insofar as it introduced a ‘grievance redressal committee’, can also be classified as an amendment in this category.

* Recognition of ‘concepts’ judicially evolved. The 1982 amendment introduced the judge-made concept of ‘unfair labour practice’5 and inserted the important Vth Schedule listing out such practices and making them actionable through prosecution. The 1953 amendment which introduced the rights of retrenchment and layoff also comes to mind; as does the 1956 amendment that addressed workmen in undertakings which were transferred.

* Addressing anomalies created by judgments. The Sundara Money judgement6 of Justice Krishna Iyer gave an expansive definition of ‘retrenchment’ as did the jurist’s broad definition of ‘industry’ in the legendary Rajappa case.7 The 1982 amendment redefined ‘industry’ but it is yet to be notified as law. The 1965 amendment addressed the controversy relating to whether a termination of a single workman would amount to an industrial dispute by inserting Section 2A which removed any doubts on this score. The confusion regarding the status of badli workers rights on lay-off was also addressed by reworking Section 25C. The 1971 amendment was necessitated to restore the role of the Industrial Adjudicator as courts had limited the extent to which a labour court or tribunal could interfere with orders of dismissal. The freshly minted Section 11A conferred upon the adjudicator to not only substitute the view of the employer but also modify the penalty. The 1982 amendments to Section 25-O were brought about to address the decision of the Supreme Court in Excel Wear’s case,8 which frowned upon the power of the state to restrain an employer from shutting shop.

* Routine spring cleaning to address anachronisms. Examples of such amendments include the 2010 amendment to Section 2(s) to revise the cap on supervisory wages from Rs 1,600 to Rs 10,000.

* Policy driven amendments. In this category one might include Indira Gandhi’s socialist amendments, such as the 1972 amendment which included the regime governing industrial exit and closure of establishments. The 1976 amendment which further enforced state stranglehold on matters of industrial retrenchment, redundancy and closure would also fall in this category.

 

A peek into the state level amendments would indicate that in the recent past, many a state has tinkered with the basic structure of industrial adjudication – the ID Act – with motives ranging from making access to justice easier for workmen and access to workmen easier for business. The 2003 Delhi amendment (which facilitated direct disputes to be raised by workmen instead of having to be referred through the labour department) and the 2012 Kerala amendment bill (seeking to include sale promotion employees within the ID Act) are examples of the former, while the 2004 Gujarat amendment (carving out an exclusion from termination of employment in Special Economic Zone) as an example of the latter.

The Rajasthan amendment to the 2014 ID Act, after the massive mandate to the BJP in the general elections, is of signal importance as it provides us a preview of the legislative changes that the ruling party would wish to replicate nationally. It has sought to enforce a three year limitation period to initiating an industrial dispute (though recently the Supreme Court has held that the concept of ‘limitation’ was alien to industrial adjudication). ‘Go Slow’ is made an unfair labour practice. The ID Act has been further amended for Rajasthan state, empowering employers to retrench up to 300 employees without permission of the government. The law stands amended to mandate that a trade union can be formed only if it gets 30% of the total workers as members (increased from 15%). In addition to the ID Act, the Vasundhara Raje government has also effected amendments to the Factories Act (‘FA’) and the Contract Labour (Regulation and Abolition) Act (‘CLRA’).9 The threshold for applicability of the FA has been made 40 (without aide of power) and 20 (with power); CLRA limits stand raised to 50 from 20.

 

If the Rajasthan amendments were a teaser, the Gujarat amendments of 2015 are by far the strongest indicator of the reform agenda of the Modi sarkar! This Gujarat law proposes to amend a bouquet of labour laws such as the ID Act, the Minimum Wages Act 1948 (‘MW Act’), the FA, the CLRA and the Employees’ Compensation Act (‘ECA’). The ECA is proposed to be amended to permit a nominated government officer to lodge a claim in cases where the injured is unable do so within the stipulated period. The amendment to the MWA seeks to plug evasion on account of manipulations in cash payments. Now minimum wages, in firms engaging 20 or more employees, have to be paid into a bank account. This dovetails with the Jan Dhan Scheme framed to encourage banking amongst the underclass. The amendment also seeks to cover employees who are ‘outsourced’.

 

The Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996, is also up for tinkering with the definition of workmen being reworked to cover supervisors with three times the minimum wages. This would cover a number of supervisors working in this sector who were earlier hit by the salary cap of Rs 1600 per month.

In a bold step towards simplification of labour compliances and unification of labour laws, important amendments are proposed to several laws10 for effectuating the ‘Self-Certification cum Consolidated Annual Return Scheme’. Signalling a death-knell to the ‘inspector raj’, and to draw curtains on the system of filing of a plethora of cumbersome returns, the amendments herald a system where only one consolidated annual return would have to be filed (and that too through e-filing) that propose to exempt industry from inspections. Inspections are to be replaced by vigilance through regular audit and by issuing certificates of appreciation and compliance.

The penalogy of labour statutes has so far been under-addressed. In an increasingly brazen society, paltry fines have lost their sting. The violator often does the maths and finds that it makes sound economics to flout the law. Also, for the law-abiding citizen, even a technical infraction leaves him high and dry, and the easiest way is to plead guilty rather than opt for the circuitous and cumbersome process of quashing of the criminal prosecution through the High Court (interestingly, the MP Industrial Disputes Act gives this power of quashing to the Industrial Courts). Not only does the amendment propose to raise the penalty amount (up to Rs 21,000) but also facilitate compounding of the offence after settlement of grievances of the workmen. It also proposes to disburse 75% to 100% of the compounded amount to the affected workers. In cases where workers are not identifiable, the compounded amount will be deposited with the Gujarat State Social Security Board.

The 2015 Gujarat amendment to the ID Act is by far the most sweeping. The twin strategy of balancing worker-employer concerns is evident as the law, while enhancing the compensation for Special Economic Zone (SEZ) workers, expands the ouster from the ID Act from SEZ to also include Special Investment Regions (SIR), 100% export oriented units and National Investment and Manufacturing Zone (NIMZ). Another major change is the waiver of Section 9A notice of change in case of modernization or innovation.

 

So with this backdrop what is the way forward? Our flashback underscores (a) the importance of judge made law in the evolution of this branch of jurisprudence and (b) a history of incremental or ad hoc legislative amendments instead of a comprehensive systemic overhaul. There can be no dispute in the proposition that poverty stricken India has no scarcity of laws. As the UPA regime in its dying embers demonstrated, the easiest tool of administration is to legislate away hunger, write-off illiteracy and abolish unemployment! What we end up with is an unwieldy implementation of ill-thought through legislation.

The basic structure of industrial relations, as it informs the edifice of the ID Act, is the tripartite bond between labour, management and labour enforcement. If the industrial economy is to prosper, labour law reform is essential and the reform must strive to ensure a ‘win-win’ for all the stakeholders.

 

The state, as a crucial intervention agent in resolution of disputes, has failed with conciliation processes rarely being undertaken with urgency and professionalism. In fact, the recent reforms whereby in Section 2A (individual disputes), the individual employee has been permitted direct access to the Industrial Adjudicator, is an admission of the failure of the conciliation system. Conciliation still survives for ‘interest’ disputes affecting a large body of workmen such as bonus, pay revision, modernization, rationalization, and so on. In cases where the appropriate entity is the central government and the party involved is a government department or a public sector unit, the conciliation officers find it hard to resist partisan pressures.

While welcoming the move towards direct dispute settlement, the conciliation machinery cannot be completely uprooted. However, steps must be taken to make this process meaningful and effective. Conciliators should be trained in law and the pleadings and discovery undertaken at conciliation should be directly transmitted to the adjudicator upon failure of conciliation and the process of completion of pleadings and filing of documents (as is now the case) should not be replicated. Efforts must be made to ensure that similar cases/industry/ legal issues are bunched together and conciliated. These measures would greatly improve efficiency and reduce the timelines.

The state also plays an inspectorial role. Here, the Gujarat amendment shows the way. In fact, at the risk of sounding utopian, I would strongly advocate a uniform labour code that redresses the current multiplicity of legislation and complications in legal compliances. This uniform labour code would bring under one umbrella not only the ID Act but also allied laws such as the FA, MWA, the Payment of Bonus Act, 1965, the CLRA, the Payment of Gratuity Act, 1972 as well as the laws dealing with maternity benefit, employees insurance and provident funds.

The single window approvals as well as single form compliance should be the future of any meaningful labour law reform. Also the focus must be on voluntarily compliance rather than coercive compliance.

 

The principal reasons for non-compliance by employers are additional costs (Provident Fund and Insurance), complicated returns, corruption of the Inspector Raj and lack of clarity.

The lack of clarity shall stand addressed by uniformity and simplification of the code. The Inspector Raj shall also be tamed through a single window clearance and single form compliance. Efforts should be made to move to e-applications and e-compliances. It is essential that the Labour Department sets up its own ombudsman with a representative of each of the three classes, i.e., the employers, workers and the labour service.

The additional costs issue has to be dealt head on. The only effective strategy is one which has been adopted in developed countries – making non-compliance bad economics. A simple step in this direction could be to make the retrenchment compensation higher in units which engage less than 20 workers and even higher in case of workers engaged as contract labour. Certain steps proposed by Gujarat, such as payment by bank transfer, will go a long way in eliminating exploitation of labour. It would also kill controversies that routinely bog courts such as actual dates of engagement, period of employment and last pay. Disputes such as payment of severance and whether the statutory compliances qua amount, as well as time stand complied, would also stand addressed by moving to a direct bank transfer system.

 

Most of the time employees have no idea about the terms of employment or the statutory rights available. In case of establishments with more that 100 employees, the labour department must establish workers’ counselling bureaus and the establishment must make it mandatory to secure the counselling of every workman within 30 days of his initial engagement. The trained counsellors not only make the workers aware of their rights but also explain the terms of employment. The Legal Services Authority Act stipulates free legal aid for any industrial workman. I feel this aid should come at a prior stage (pre-termination or termination stage) so that such workmen are not at the mercy of trade unions, some of which are unscrupulous rackets to extract contingency payments from the worker’s settlement amounts. This counselling by the labour department can be built into the conciliation process of the ID Act.

Yes, retrenchment and exit options have to be made easier for the employers and fairer for the workmen. Here too, the time has come to take the bull by its horns. I have referred in detail to the seesaw in jurisprudence dependent on the individual judge. I propose that like the Motor Vehicles Act, a consensus be evolved on a formula for calculating severance computation in the event of (a) a pacific resolution at the pre-conciliation stage, (b) at the conciliation stage, (c) at stage of the reference and (d) any time before the industrial adjudicator delivers the final award. The formula should be so structured as to encourage both parties to settle at the earliest. Also, the statute should clearly set out the circumstances and parameters under which reinstatement is to be granted. India has an ever-expanding workforce and while social security of the redundant employee is a vital concern, the burden cannot be entirely passed on to the employer. Here also there has to be some creative thinking which would incentivize rehabilitation of displaced workers.

 

In conclusion, with due apologies to the Sakya Muni, I propose my own Eight-Fold Path for reform of labour laws:

1. Lucidity: ensuring that the law is clear, unambiguous and can be easily understood.

2. Simplicity: ensuring that processes for obtaining approvals, permission and making compliances are simplified.

3. Minimizing discretion in enforcement: ensuring that labour inspectors and officers are regulated in granting of permission as well as in ensuring compliances.

4. Effective penology: compliance should make good economics and breach the reverse. Penalties and fines need to be revised and reworked to ensure that there is no premium in default.

5. Greater coverage: law reform must encourage increased voluntary coverage and compliance. As discussed above, creative steps are required to make it economically more beneficial to engage a direct employee than a temporary one or outsourcing through a contractor.

6. Win-win exit: ensuring that law reform facilitates an easier exit regime for the industry while at the same time ensuring a fair deal for the workmen. In this process, law reform should put in place a system of determination of entitlements to ensure that parties benefit from quicker resolution of conflict rather than through protracted litigation.

7. Certainty of consequence: I have addressed the cyclical view of the court on consequences of holding a termination to be illegal. This judge-centric approach should pave the way to law reform which would stipulate the consequences of breach with clarity.

8. Revamping labour administration: None of this will be possible unless the entire ‘labour administration’ system, which includes the conciliation machinery as well as the industrial adjudication machinery, is given a complete makeover. This would require provision of greater training and sensitization to the stakeholders as well as making available better infrastructure such as courtrooms, access to legal journals and case law, secretarial assistance, etc. The existing legal aid administration must also be dovetailed with the labour administration to ensure securing effective legal assistance to every industrial workman as well as small entrepreneurs (who may not have the resources).11

 

Thus, remodelling of industrial relations cannot entirely be a legislative enterprise. It requires a re-fashioning of ideas or jettisoning old mindsets so that the ‘win-win’ goal for all the stakeholders is never lost sight of.

 

* With research inputs by Rhishabh Jetley, advocate.

Footnotes:

1. The Unorganised Workers Social Security Act, 2008 for the first time addressed the unorganized sector.

2. 1949[51]BOMLR894.

3. Hindustan Tin Work’s Case where Justice Iyer stipulated that reinstatement and full back wages was the norm.

4. Deepali Gundu v. Kranti Junior Adhyapak Mahavidyalaya (2013 10 SCC 324).

5. Ghatge & Patil Concern’s Employee’s Union v. Ghatge and Patil Transports Private Ltd (AIR 1968 SC 503).

6. 1976 1 SCC 822.

7. 1978 2 SCC 213.

8. 1978 4 SCC 224.

9. This kind of determination was briefly displayed by Chandrababu Naidu in his previous avatar as CEO of United Andhra when he amended the CLRA. The UPA years gave a quiet burial to serious labour reforms.

10. The laws are the FA, MWA, Payment of Bonus Act, 1965 the CLRA and Payment of Gratuity Act, 1972.

11. The Union Labour Ministry is proposing a Labour Code on Wages Bill, 2015 to consolidate four central statutes on wage payments and the ‘Inspector’ is proposed to be replaced by a ‘facilitator’ and his discretion minimized.

top