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Changes to Labour Laws by State Governments WillLead to Anarchy in the Labour MarketK R SHYAM SUNDARRAHUL SURESH SAPKAL

K R Shyam Sundar (krshyams@xlri.ac.in) teaches at the XLRI, Xavier School ofManagement, Jamshedpur. Rahul Suresh Sapkal (rahul.sapkal@tiss.edu) teaches at theSchool of Management and Labour Studies, Tata Institute of Social Sciences, Mumbai.Vol. 55, Issue No. 23, 06 Jun, 2020

The suspension of labour laws will intensify informality in the Indian workforce in severalways. Multiple labour market securities in the formal sector like employment, health andsafety, skills, and income will either be weakened or destroyed. In these difficult times, thecollectivisation of workers is essential to restore stability and solidarity in the workforce tomitigate economic hardships in the post-lockdown period.

On 20 March, the Ministry of Labour and Employment (MoLE) issued an advisory toemployers to not terminate their employees’ contracts and to pay them full wages—aninconsequential move that had no binding effect on employers (MoLE 2020). Numerousmedia reports have shown the plight of workers—job losses, layoffs, non-payment of or cutsin wages, among others. Under the Pradhan Mantri Garib Kalyan Yojana, the centre hasoffered employees' provident fund (EPF) subventions to a minority (16%) of EPF subscribersand has done little to protect and ensure the welfare of the unorganised sector (Jha 2020a).The costs of economic distress have historically been shifted onto workers, and theCOVID-19 crisis is no different. However, the most worrying actions have been the state

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governments’ sweeping changes to labour laws to deny workers their rights. We reviewthese changes in this article.

Labour Laws, Investment, and EmploymentThe call for labour market reforms in India received a boost with research work by Besleyand Burgess (2004). Their labour regulation index was based only on the Industrial DisputesAct (IDA), 1947, and has been used either as is or with revisions in response to powerfulcriticisms levelled against them by Bhattacherjea (2006), though the methodology employedis still defective. The "priors-based" research method used almost always argued that labourmarket reforms would promote industrial progress, generate employment, and even lead to

poverty alleviation.[1] However, critical papers by Bhattacharjea (2019), Storm (2019), andSapkal (2016) have exposed considerable conceptual weaknesses and empiricalshortcomings. On the other hand, micro-level studies—such as Deshpande et al(2004)—have shown that the employers enjoy flexibility in employment and wagedetermination in the organised manufacturing sector despite the continued existence of a“restrictive” legal regime. Labour laws are tough on paper but their enforcement has beenlax due to ineffective inspection and prosecution (See Sundar 2008; Sundar and Sapkal2019). Using a leximetric data set on Indian labour laws between 1970–2006, Sarkar andDeakin (2011) found that the presence of labour legislation led to low unemployment.Upadhyaya and Kumar (2017) did not find evidence that previous labour law reforms inRajasthan and other states had succeeded in attracting investment and boostinginvestment.

According to the “Ease of Doing Business” study published by the World Bank in 2014, onlya little over one-tenth of the respondent firms in India perceived labour regulations as amajor constraint (World Bank Group 2014). Research by Kucera (2002) did not find supportfor the argument that capital chases lower labour standards. He further argued that corelabour standards of the ILO produce better human capital (that is, the elimination of childand bonded workers), greater efficiency through the labour cost-productivity nexus, andmore social and political stability via freedom of association and collective bargaining.Freeman and Medoff (1991) have argued that trade unions contribute to the productiveefficiency of a firm through voice channels and also contribute to equitable outcomes inthem.

Dynamics of Regional ReformsLabour law and governance reform (LLR) has proved to be cumbersome at the national leveldue to the strident protests by a somewhat coordinated working-class movement. During 1991–2020, 19 nationwide strikes occurred in India (Sundar 2019). Thus, the centre haspermitted the state governments to go ahead with labour reforms since labour falls underthe Concurrent List in the Constitution. Moreover, LLRs are easier at the regional level due

to a fragmented working-class movement and the absence of any social dialogue[2] at the

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state level (Shyam Sundar and Sapkal 2019).

The state governments' introduction of LLRs during the COVID-19 pandemic is based on thefollowing grounds. One, due to return migration and stranded migrant workers’ hesitancy toundertake new work, employers have repeatedly complained of "labour shortages." Two,India needs to offer labour flexibility to firms quitting China in order to capture the vacatedproduce market space (Mathew 2020). Three, the suspension of labour laws for the nextthree years will help the industry overcome the present crisis (Press Information Bureau2020). Four, labour laws need to be changed in favour of labour flexibility to allowemployers to generate employment to protect existing jobs as well as to create new jobs forthe returning migrants (Jha 2020a and 2020b).

The foremost economic logic, however, is political. Due to the lockdown and the ensuingrestrictions on public gatherings, regional- and national-level labour protests are virtuallyimpossible. Anticipating a lower growth rate for the economy, employers have seized thismoment to insist upon their long-pending demand for labour flexibility. The next sectionslook at some of the demands put forth by major employers’ organisations duringinteractions with the union labour minister.

Working HoursAlongside Madhya Pradesh (MP) and Uttar Pradesh (UP), several state

governments[3]—Rajasthan, Gujarat, Punjab, Himachal Pradesh, and Odisha—have amendedthe Factories Act, 1948 during the lockdown to increase the maximum number of workinghours per day from eight to 12 and maximum working hours per week from 48 to 72. Whilethe MP government leaves the determination of working hours to employers, the UPgovernment has capped it at 11 hours (see Tables 1 and 2). Sundar (2020) has extensivelycriticised these amendments. These state-level amendments and the employers'organisations demands for "nationalising" a 72-hour workweek violates the cardinalprinciple of a 48-hour workweek, as is mentioned in ILO Conventions C001 and C1919. Limiting working hours to eight per day and to 48 hours per week was acquired afterdecades of struggles from 1881 to 1948. Now under the guise of the pandemic, work hourshave been officially extended, although with statutory overtime pay (except in Gujarat).Moreover, a 12-hour workday means workers will spend more than half of their day awayfrom home, without including time spent in transit. This will reduce female workforceparticipation and will impose a "gender penalty." In fact, the ILO calls for a transition to a'"decent working time" to ensure health and safety, work–life balance, promote genderequality, enhance productivity, and facilitate worker choice and influence over workinghours (Lee et al 2007).

Table 1: Details of Changes in Madhya Pradesh

Serial No Act Reform

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1 Factories Act, 1948

a) Exemption of non-hazardous factories employing upto 50 workers from inspection subject to the submissionof certification by Third Party Certification Agency.b) Even in the case of serious/fatal accidents, inspectioncan be done only with the prior permission of the labourcommissioner.

2 Industrial Disputes Act, 1947

Exemption of all new registered factories for next 1,000days from all the provisions of the Act except ChapterV-A and Sections 25-N (conditions precedent toretrench workers), 25-O (procedure for closure ofestablishment), 25-Q (penalty for lay-off andretrenchment without prior permission fromappropriate government), 25-R (penalty for closure).

3Madhya Pradesh IndustrialRelations Act, 1960

The provisions of the law will not apply to 11 industriesbut this will not affect the cases pending before theLabour Court, Industrial Court, etc.

4Factories Act, 1948

Exempts all registered factories (not clear about newfactories) for 1,000 days from all provisions except fromthe following sections:Section 6: Approval, licensing, and registration offactories.Section 7: Notice by occupier (unclear whether Section7A—duties of occupier and Section 7B—general dutiesof manufacturers, etc, as regards articles andsubstances for use in factories) are included under this.Section 8—Inspectors.Sections 21 to 41—Safety.Sections 41A to 41G—Provisions relating to hazardousfactories.Section 59—Extra wages for overtime.Section 79—Annual leave with wages.Section 88—Notice of certain accidents.

5Madhya Pradesh Shops andEstablishments Act, 1958

Shops and commercial establishments can be open from6 am to 12 pm.

Source: Livelaw (2020).

Table 2: Details of Changes in Uttar Pradesh

Serial No Chapter Provisions

1Chapter IITemporary Exemption

All factories and establishments engaged inmanufacturing processes shall be exempted from theoperation of all labour laws save those mentioned insubject to the following conditions:

1) All workers must be paid the minimum wage.2) Maximum hours of work shall be 11 and the spread-over hours not more than 12 in a day.3) Provisions in various labour laws relating to theemployment of children and women shall be applicable.

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1) The provisions relating to safety and security ofworkers in the Factories Act and Building and OtherConstruction Workers (Regulation of Employment andConditions of Service) Act shall remain applicable.2) For any death or disability due to accident arising outof and in the course of employment conditions shall bepaid according to the Employees’ Compensation Act,1923.3) Violations of the conditions mentioned in Rows 2 and 3will be penalised according to the provisions of existingrelevant laws.

Source: The Uttar Pradesh Exemption from Certain Labour Laws Ordinance, 2020.

Changes in Labour LawsThere is nothing positive in the LLRs to consider them “reforms.” The Gujarat governmenthas also announced a slew of changes, stating that new industrial units will be providedwith relief from all related acts, except minimum wages, industrial safety, and employees'compensation (Nanda 2020).

The International Trade Union Confederation's (ITUC) Global Rights Index 2016–19 gave

India a rating of 5 on a scale of 1-5+, where 5 signifies "no guarantee of rights."[4] Till date,India has ratified 39 ILO conventions (after accounting for denounced and abrogatedconventions) but is yet to ratify the conventions on freedom of association and collective

bargaining—C87 and C98—which the ILO has declared to be "fundamental conventions."[5]

The non-ratification of these and other important conventions concerning occupationalsafety and health are a serious cause for concern. Furthermore, it appears that the stategovernments consulted neither trade unions nor the various employers' bodies beforeannouncing these changes. This violates India's commitment to social dialogue, as wasratified in C144, the Tripartite Consultation (International Labour Standards) Convention,1976. Moreover, issuing these changes via ordinances and not as laws enacted by therespective state assemblies negates the historical struggle for labour rights. We discuss theimplications of these measures below.

Legal IssuesA law must be conceived as and interpreted as an organic whole because health and safetyand labour welfare are connected. In MP, the amendment to the Factories Act includesprovisions relating to safety and hazardous processes (Sections 21 to 41G) and overtime pay(Section 59), among others. The UP ordinance, however, only briefly mentions that theprovisions relating to the safety and security of workers under the Factories Act and theBuilding and Other Construction Workers (Regulation of Employment and Conditions ofService) Act, 1996 will remain applicable without any change—it omits Chapter III of the actwhich regulates the conditions of work, such as disposal of waste and effluents,

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temperature, dust and fumes, artificial humidification, and lighting, all of which could affectthe productivity and health and safety of workers. The extension of work hours by the stategovernments will also have consequences on the health and safety of workers.

While MP has included provisions relating to employment security in Chapters V-A and V-B(see Table 1), it has omitted provisions in Chapter VB regarding the "applicability" ofemployment security (Section 25K) and also the definition of industrial establishmentscurrently covered by these securities (Section 25L). The purview of Chapter V-B, therefore,remains to be seen. It is currently applicable to industrial establishments employing 100 ormore workers, where industrial establishments are defined to include registered factories,plantations, and mines. Further, since the provision relating to laying off workers (Section25M) has also been omitted, employers in MP—irrespective of the size of the industrialestablishments—can lay off workers without prior permission from the government,although they may have to compensate workers accordingly.

These changes will significantly impact labour rights in MP and UP, namely the legalentitlements of trade unions, union recognition (only in MP), collective bargaining, raising ofindustrial disputes, access to state and third-party intervention in industrial disputes(conciliation, voluntary arbitration, and compulsory adjudication by labour courts andindustrial tribunals), decent working hours, basic working conditions, labour welfare,employment security, and the legal right to strike. Additionally, the following rights will bedenied to workers in UP: protection against the arbitrary and unfair dismissal of workers(under the Standing Orders Act, 1946, and Sections 2 and 11-A of the IDA) and illegaldeductions (Payment of Wages Act, 1936), gratuity (Payment of Gratuity Act, 1971),employment security for workers in shops and commercial establishments, and all theprotective provisions that are contained in the 34 labour laws operative in UP. Some ofthese rights will also be denied to employers.

Some Issues and AnswersIn MP, the relaxations provided for under the IDA are for new factories registered in thestate during the next 1,000 days. However, what implications does this have on creating alevel playing field between firms? What happens to employers who have designedproduction and other operations including personpower planning after the stipulated 1,000days? Moreover, if the suspended labour laws/provisions are re-implemented—even thoughthis is doubtful—business and industrial relations policies and practices will have to beconsiderably redefined.

Proponents argue that since labour laws and their provisions have been so poorlyimplemented, their suspension should not make much of a difference. Such thinking,however, is facile. Notwithstanding their non-implementation, labour laws contain a body ofrights that workers and trade unions can exercise to secure denied entitlements eitherthrough negotiations, strikes, or through litigation in the available judicial bodies.

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Furthermore, labour laws not only provide labour entitlements but also create a disciplinedworkforce (say by curbing potential/actual labour indiscipline). If workers and labour unionswere to behave in an unruly manner, then employers would need support from theaforementioned laws to maintain order.

The suspension of labour laws will informalise the formal sector by weakening multiplelabour market securities like employment, health and safety, skills, and income. Flexi-workers with limited skills will either be pushed out of the organised sector or they may behired only for the disposable nature of their labour. Both scenarios will intensify informality.Workers ousted from the organised sector will crowd into the unorganised sector, thusincreasing the supply of labour. In the absence of adequate laws, wages will be driven down.

The Fallout of ‘Reforms’

The near-complete suspension of labour laws in UP and the selective but crucial denials oflabour rights in MP will lead to anarchy in the labour market. These changes will beterrifying for workers, who have fought for labour rights through numerous working-classstruggles since the passage of the Factories Act in 188. The "UP model" may even bereplicated at the national level as employers are reported to have demanded suspension oflabour laws for the next two to three years (Economic Times 2020). The CEO of thegovernment think tank, NITI Aayog, has also endorsed these changes that make the futureof workers’ welfare in India seem ominous (Kant 2020).

End Notes:

[1] See Sundar and Sapkal 2019 for a useful review of the related literature.

[2] The International Labour Organization (ILO) has advocated to employ social dialogue asone of the four pillars for drafting policy responses during the COVID-19 crisis. The ILOdefines social dialogue to include all types of negotiation, consultation, or simply theexchange of information between or among representatives of governments, employers, andworkers, on issues of common interest relating to economic and social policy. See:https://www.ilo.org/ifpdial/areas-of-work/social-dialogue/lang--en/index....

[3] The notification for the amendment to the Factories Act, 1948, for the following statescan be accessed here. Rajasthan: http://labour.rajasthan.gov.in/Notification.aspx; Gujarat:https://labour.gujarat.gov.in/Portal/News/477_1_IMG_0001.pdf; Punjab:https://www.simpliance.in/statutory-notifications/punjab/government-of-p... HimachalPradesh: https://himachal.nic.in/showfile.php?lang=1&dpt_id=14&level=1&lid=20170&...

[4] The full text of the IUTC report can be accessed here:https://www.ituc-csi.org/IMG/pdf/2019-06-ituc-global-rights-index-2019-r....

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[5] The full list of ILO conventions can be accessed here:https://www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:11200:0::NO::P11200_CO....

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Image Courtesy: Modified. Wikimedia Commons/Jorge Royan/CC BY-SA 3.0