UP May Scrap Labour Laws Soon: Why Not All Employers Favour It

Not all employers are high-fiving the carte blanche / free-for-all that the government is proposing to hand them.

When Lord Rama’s younger brother had fallen at battle, physician Shusena insisted that only the ‘mrit sanjeevani’ herb found in the distant mountains could revive him. The task fell upon Lord Hanuman. However, he was in a quandary. He could not identify the herb with certainty, and so he transported the whole mountain to Lanka. Lakshmana lived. However, the residents of village Drongiri, in Uttarakhand, who believe once ‘sanjeevani’ grew in their midst, have till this day not forgiven India’s favourite God for his disproportionate reaction.

Labour Laws on Women & Children Might Still Be in Operation

The Uttar Pradesh Cabinet decided to promulgate the Uttar Pradesh Temporary Exemption from Certain Labour Laws Ordinance, 2020 (‘Ordinance’). On the pretext of the COVID pandemic, the Ordinance shall suspend the operation of 38 labour laws with the exception of Section 5 of the Payment of Wages Act, 1936, the Employees Compensation Act, 1932, the Bonded Labour System (Abolition) Act, 1976 and the Building and Other Construction Workers Act, 1996 for a period of three years.

While the final shape of the law is not in the public domain, the note on the Cabinet decision seems to indicate that labour laws on women and children, shall remain in operation.

The impact of this legislative intervention, through the ordinance route, would mean a three-year suspension of the provisions of labour laws which govern a wide array of industrial relations, such as:

• registration of trade unions
• safety and welfare benefits in factories
• terms of employment, retrenchment, lay-offs and termination of workmen
• payment of terminal benefits
• closure of industries

Employers Can Now Exploit, But Thankfully Can’t Legally ‘Enslave’

The most shocking exclusion is that of the Minimum Wages Act, 1948, which failed to make the cut to be included in the ‘Gang of Four’. Even with this law on statute books, most employers observe its mandate – to pay a basic minimum wage to every workman – in breach rather than in compliance. When the law smartened up and mandated that payment be made electronically, the genius of the Indian employer came up with the novel solution of the workman taking out the transferred amount from the bank and returning to his ‘master’ in cash the extra amount to keep this deceit under the radar.

Now, thanks to the Uttar Pradesh government doing away with the Minimum Wages Act completely – as it seems from the description of the proposed Ordinance – the employer does not have to come up with such creative ways to get around the law.

He simply can pay as much as he wants.

Mercifully, as the law on bonded labour makes the cut, he cannot make the labour work for free. This law, as well as the Shops and Establishment Act and the Factories Act contain stipulations on overtime wages, work hours and weekly holidays. Now, with the troika on a three-year suspension, it is free-for-all for the employer to make the labourer work for as many hours as he pleases, with or without any weekly holiday.

It is also astounding that even the right of the parties – both the employer as well as the workman – to move the adjudicatory machinery under these labour welfare statutes, stands suspended.

How Is the Suspension of Workers’ Rights Being Justified?

Let us examine the action from the viewpoint of justifications being given in its support. Some of the usual points which are being highlighted on social media in support of the Ordinance are, as follows:

• Labour laws have created a ‘monstrous’ unorganised sector
• Labour regulation makes labour costly, industry switches to capital
• 90 percent of labour never had any protection in the first place
• The existing laws only served unionised labour, labour inspectors, and ‘champagne socialists’
• The suspension will result in growth as it will free up the industry

There is a little bit of truth in all of the above points. It would be foolhardy for anyone to oppose labour law reform. The trade union movement, sadly, has focused all its attention on the formal sector. It is only in the recent years that unorganised workers, as well as domestic workers, have been unionising themselves. Many have faced great difficulties in getting themselves even registered as Trade Unions. For that matter, the recent amendments in the Trade Unions Act, backed by a tacit government policy in many states, makes it an uphill battle for even workers of the formal sector to get their unions registered.

The deep and pervasive regulation of employment conditions has also encouraged many employers to under-report employment, and also contract-out by outsourcing the work to contract labour.

That being said, the charade of presenting this initiative as a ‘win-win’ for labour and capital must be called out for the contempt that it deserves. In fact, that is a win for neither the workers nor the management. This is what I hope to argue, without getting into the details of statistics and law.

Suspension of Labour Laws Will Allow Employers to Further Exploit

Let us first take the argument of the informal economy and how this ‘bold’ initiative will open up the doors of the formal sector for the unorganised labour. The Parliament, as far back as in 2008, had passed the Unorganised Workers’ Social Security Act, 2008. Till date most states are yet to even frame rules to implement this law.

When the labour laws are suspended, the employers will finally have a chance to remove all the permanent workers without paying any retrenchment compensation and gratuity.

Further, for establishments having over a certain number of workmen, there was a requirement to seek prior approval any industrial action. This check compelled many concerns to try their best to explore revival options as closure was cumbersome and expensive. If the permission to close an industry was rejected by the labour authorities, an aggrieved employer would have to litigate against such a decision. Instead of streamlining the exit policy and making it fair for genuinely floundering concerns, the Ordinance shall remove all roadblocks to exit for all units. Technically, even a perfectly viable entity can use this window to shut its shop without having to pay any compensation.

Therefore, it is rank naivety to expect the management to suddenly abandon its existing exploitative devices such as the use of contract workers, under reporting of employees, creating multiple establishments and to welcome informal sector workers with garlands and bestow permanent jobs upon them.

In fact, fully aware that this is a temporary three-year window, most managements will make optimum use of this time to get rid of all the permanent employees without the headache of having to either obtain prior approvals or comply with usual formalities like notice pay, retrenchment compensation and statutory terminal dues such as gratuity.

It would be unwise for them to replace one set of formal employees with another batch drawn from the pool of the informal economy, only too aware that after three years these same employees would stand protected by the same laws that are being suspended today.

Longterm Impact of ‘Hire & Fire’ Policy

The argument that the formal economy is minuscule and that all laws focus on this tiny segment, is indeed very attractive at first blush. However, given our sheer population, even this ten percent goes into several lakhs of people. Each of these workers can be assumed to support a family of five dependents.

So, when the State permits ‘hire and fire’ for three years, even if it impacts the formal sector, the five-fold amplification will ensure the disruption of lakhs of lives.

The expansive definition of ‘industry’ by the Supreme Court in the Bangalore Water Supply’s Case has ensured that over the years, more and more informal establishments such as temples, shops, taxi stands, chemists and kirana shops have gotten covered by the Industrial Disputes Act (the UP law is almost identical) – and such employees have successfully litigated under this law to get relief in the form of reinstatement, back-wages or compensation.

Therefore, the sudden suspension of the labour laws would impact many people engaged in small establishments which may not traditionally fall under the ‘formal sector’.

While over-regulation of the formal sector may have stymied its growth, the solution again is reform – and not wholesale abandonment. Similarly, if step-motherly treatment of the informal sector is the issue, the solution is the empowerment of the unorganised workforce, and not the wholesale disempowerment of the workers of the formal economy.

It’s In the Interest Of Both Worker & Employer that the Inspector be Kept at Bay

There has been a serious problem of an ‘Inspectorate Raj’. However, let us be clear that both labour and capital are the victims of this machinery. While capital has been forced to part with capital so that the ‘Inspector’ could look the other way, the persons who have suffered on account of this ‘looking the other way’ are the very people whose interests the ‘Inspectors’ were supposed to look out for. Be it non-adherence to safety standards or non-compliance with labour welfare measures or non-maintenance of proper records, the silence of the Inspector has been purchased at the cost of the workmen’s welfare.

So, it is in the interest of both the worker and his master that the ‘Inspector’ be kept at bay.

The question to ask is: was this not precisely what the Industrial Relations Code was set to achieve? This Code, along with the Wage Code and two others, had been in the public domain for years, and it was introduced in Parliament in 2019 by the union labour minister. Would it not have been better to have pressed for an expeditious passage of this law than to do away with all laws completely?

Another response to the misuse argument is the ‘surgeon’s scalpel’ defence. We hear of police brutality and misuse of provisions of the Penal Code almost every other day.

Surely no one would suggest that the Indian Penal Code should be packed off on a three-year sabbatical?

We live in an era of strong governments. What prevents a government from reining in its ‘Inspectors’?

In an era of technology and all sorts of digital applications, why cannot the State empower the employers and workforce alike to highlight any Inspector abuse to a robust vigilance authority?

With No State Aid, How Can Small Businessmen Support Employees?

The freeing up of the economy, as I have highlighted earlier, is also bogus. Instead of granting bailouts, subsidies, loan extensions or incentives to medium and small employers as is being done the world over to help small and medium scale enterprises tide over the pandemic and keep afloat, the State has responded by giving the employer the easy option of getting rid of the employees altogether.

Can an employer who receives no assistance from the State be really faulted if he cashes in on the State’s three-year Hail Mary pass?

If at all, this retrograde move will free up the economy to further contract and opt for ‘exit’ as an easier option that to put in all in the battle to survive.

Are Only ‘Champagne Socialists’ Worried?

The body of labour laws did not only sustain the ‘champagne socialists’ and ‘Trade Union Shops’ as is being argued. Few are aware that the definition of ‘industrial disputes’ are board enough to even cover even a dispute raise by an employer against its own workers or against other employees. If workers of a unit threaten to go on strike or resort to impermissible industrial action such as ‘go-slow’, the employer can also raise an industrial dispute against its own employees, and during the time the authorities attempt to resolve such a dispute the workers are prohibited by law from resorting to such action.

A wholesale suspension of the law takes away these valuable protections for the employer as well.

While the above examples may be too distant to get most employers worried, the utility of the machinery under the Industrial Disputes Legislation to serve as a valve for pressure release in industrial relations has always been appreciated by employers. The prospects of a disgruntled workforce working under a ‘hire and fire’ code, left with no forum to ventilate their disputes but to resort to unrest at the unit, do not warm the hearts of many employers!

What Has Allowed For Wanton Disregard for Historical Rights Of Workers?

There are workmen and workmen, and then there are managements and managements.

In my years as a practicing labour lawyer, I have found that it is always the good and law-abiding workman and the good and law-abiding employer who get the worst out of the system.

Not all employers are high-fiving the carte blanche that the government is proposing to hand out to them. Surprisingly, many are horrified at the sheer audacity of such a Quixotic move!

Ultimately, if the State can so confidently legislate away years of hard-fought workers’ rights in such an audaciously spectacular manner, some of the credit must also be reserved for those who were charged by our Founding Fathers of zealously guarding the rights of the weak and the oppressed, and who short-changed themselves for some ‘hope and trust’. It is their consistent and abject surrender to the Executive that has emboldened it today to act with such wanton disregard for the historical rights of the toiling masses.