Unify Labor Legislation: Nine Principles Will Help


Who has not read Charles Dickens? Hard Times, for example. During the Industrial Revolution, work conditions were tough in the UK. When Indians complain about our Factories Act (FA,1948) or Chapter V of the Industrial Disputes Act (IDA, 1947), they may not realize that their antecedents lay in India’s 1881 Factories Act, which followed similar legislation in Britain. While there was a powerful labour movement within India, legislation (Trade Unions Act, TU, 1926, is another example) was often implanted from London. Life and legislation has moved on there, and other countries that inherited colonial laws like the IDA. A revamp of all labour legislation is over-due. This doesn’t mean tinkering with Chapter V-B of the IDA alone. Stated simply, there is an organized sector, driven by registration under the FA. Measured in employment terms, that means around 8% of our labour force, including the public sector. So, 92% is informal, and there are informal workers (without contracts) in the organized sector too. While 8% are subject to rigid labour laws (stoking high capital intensity), 92% have no protection worth the name. Reforms are about making the former flexible and also protecting the latter (not only because of International Labour Organization norms), not one without the other.

First, all labour laws should be unified, not just those administered by the labour ministry. Four labour ministry codes cover 40 of 54 Union-level statutes on labour. Now, should the Apprentices Act be ignored, for instance, simply because it isn’t administered by the ministry? Shouldn’t a unified view on employment (not labour) also factor in the Mahatma Gandhi National Rural Employment Guarantee Act? Second, the wall between formal and informal must be broken down. Our inherited labour laws didn’t anticipate the advent of services. While manufacturing is covered via the FA, services are covered through state-level Shops and Establishments Acts. For micro, small and medium enterprises, the Centre’s recent economic package recognized that this distinction was futile. The same logic should apply to all labour legislation. Note that unification cuts down the inspector raj and reduces litigation. Third, an employee is an employee, regardless of whether s/he is formal, “part-time”, “work from home” or “migrant”, and must have rights. There must be a system of registration of employees, and incentives for it, perhaps through Aadhaar numbers. At best, one might initially wish to exclude domestic and agricultural workers. In passing, what’s our view on a 17-year-old working? It’s not illegal, but the present Trade Unions Act doesn’t allow him/her to be a member.

Fourth, there must be a similar system of registration for employers, and the responsibilities placed on employers must also devolve on contractors. Fifth, labour conditions differ widely among states. Therefore, though labour is in the Concurrent List of the Seventh Schedule, it is best to have a minimal Union government template through law. A lot can be left to states, with or without Article 254(2). Sixth, amending legislation takes time. Therefore, what should be under “rules” should not be in the body of a statute. Since we don’t have a system of desuetude, legislation should not be open-ended, but have a fixed time-frame, of 25 years, say. At the end of this, unless a fresh review justifies continuation, a law would get repealed. Simple drafting reduces scope for interpretation and consequent litigation. Seventh, an employment contract is a bilateral deal between an employer and employee, stipulating conditions like over-time, work conditions and productivity-linked incentives. Productivity is an individual matter, and at best an enterprise-level issue. Why should it be all-India (read bonus)? Of course, we need avenues of redressal if there are deviations from the contract.

Eighth, on safety and welfare provisions, why is it assumed these must be delivered by an enterprise? Why not by a cluster of establishments collectively? What about makers, dealers and importers of dangerous machines? In case of an accident, which is more important—taking the employee to a hospital, or informing the labour inspector? Should one explicitly allow for class action suits? Ninth, take social security. This covers superannuation schemes and medical, life, accident and occupational disease insurance. One has to decide: (a) How much of the contribution is paid by the employer, employee and government; (b) Should the government pay for only some people, perhaps those who meet deprivation criteria? (c) How do we deploy the collected funds? (d) At the enterprise level, would there be a basket of schemes an employee can choose from? (e) If any of these is privately administered, how does that tie in with regulatory norms? (f) If an employee switches jobs, how does one ensure portability? With answers to these questions, a separate welfare cess and funds for the purpose won’t be needed. But without answers, we can’t proceed.

Ninth, any employee association should be at the enterprise-level, with mandatory registration and an electronic register. The expenditure of such associations should be subject to audit processes, and their funds should not be used for political purposes, nor should non-employees be members, and so on. Employee rights are best served if one decentralizes everything, right down to the enterprise level. A column can’t flesh out all the details of a unified employment code. I have stated some principles to think about. Chapter V-B of the IDA is just a red herring.

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