National Law University, Jodhpur
National Law University, Jodhpur
Labour Law or the Employment Law concerns the rights, obligations and regulation of workers, their unions and employers at the workplace. In the ongoing narrative over the economic slowdown due to the pandemic-induced lockdown, labour laws are often portrayed as opposing and hindering the economic growth, and thus some relaxations are deemed necessary by some business houses and governments alike to tease back momentum in the economy. To the contrary, an opposing faction argues that such a move is bound to jeopardise the hard-fought battle that has secured the much prized rights to the vulnerable class of the labourers, especially so, when they are already facing widespread lay-offs and unpredictability over lost livelihoods. Here is an attempt at analyzing the much-hyped need for reforms in the labour law regime, as it stands presently, and if at all there is any legitimate requirement, in view of the pandemic, to tweak the laws, what ought to be the viable response to it? Moreover, we also comment on varying paths chosen by several state governments in order to usher in the purported reforms.
Significance of Labour laws for India – A walk through time
Since long before the advent of British Raj, the Indian Society has been characterized by class divisions between the employer and the employees be it based on social structure, influence, affluence etc. The chasm between these two was so pervading and entrenched that it led to exploitation of one by the other, a trend that persists even today, inasmuch as close to 90 per cent of the total workforce is engaged in the informal sector, which is oblivious to the protection accorded by labour laws. According to the Global Rights Index 2019, published by International Trade Union Confederation, India features among the worst countries to work in. Regardless of how clearly the rights have been laid down, these remain largely out of the workers’ reach, and inevitably, they are subject to ‘unfair labour practices’.
Fortunately, concerns over the need to forge an effective social safety net for workers, as highlighted above, had mostly been responsible for the state of labour laws in India, until a shift in perspective was warranted in view of the liberalization policy beginning 1991, and thus emerged the call for ‘labour reforms’. More recently, this approach has graduated to new heights with the introduction of ambitious ‘Make in India’ policy, the purport of which is to provide ground for attracting investments. Another reason for increased clamouring for labour law reforms is the Economic Survey 2019-20 putting the blame on stringent labour regulations for growing unemployment. However, the untoward outcome of providing flexibility to the labour regulations has been: growing insecurity among workers and swelling of the unregulated informal sector.
The Labour Law regime in India is a complicated fabric of close to 100 state laws and 40 central laws, which, for the sake of clarity, can be classified into four categories: (i) laws dealing with conditions of work; (ii) laws providing for wages and remuneration; (iii) laws governing industrial relations and dispute resolution; and (iv) laws dealing with social security. As part of the groundwork in order to give life to its ambitious plan, the central government in 2014 hinted at a major upheaval of the labour law regime, which, if pushed through, would have the effect of consolidating the scattered legislations into four different codes in line with the classification made above and of modernizing the rigorous out-dated legislations.
However, the matrix has changed since the time when these reforms were perceived, the situation posed by the COVID-19 pandemic is unprecedented in its nature and its impact on the economy and the society. On one hand, it can be seen dealing the heaviest of blows to the economy, on the other, the situation of workers and labourers is hitting the rock bottom. Paradoxically, if the labour reforms are pursued in full swing, it ‘may’ resurrect the economic growth but the fundamental rights of employees will be put at stake. Therefore, striking the fine balance between the two is the need of the hour.
Labour reforms Suiting an Unprecedented Setting
The COVID-19 pandemic has indeed exposed the fragility of modern day societal systems around the world, be it healthcare or economy. The pandemic along with it has brought the looming danger of an economic crisis, the likes of which the world does not see very often. India too has not been spared of this economic devastation with the GDP taking a steep fall and one-fourth of the country falling into the ditch of unemployment. It has left us grasping at whatever measures that give us hope of damage control.
One such measure is reforms in labour laws. In a sudden spurt of impulsive decisions, various state governments have decided to dilute labour laws in an attempt to restart the economy. The degree of dilution of these laws varies across states with the state of Uttar Pradesh taking the lead, if it may be referred to as that, by clearing the Uttar Pradesh Temporary Exemption from Certain Labour Laws Ordinance, 2020 (“the U.P. Ordinance”), which stipulates wholesale suspension of the majority of the 35 labour laws in operation in the state for a period of three years and reducing labour costs thereby. On the other hand, the Madhya Pradesh Labour Laws (Amendment) Ordinance, 2020 (“the M.P. Ordinance”) amends two state laws: (i) the Madhya Pradesh Industrial Employment (Standing Orders) Act, 1961 and (ii) the Madhya Pradesh Shram Kalyan Nidhi Adhiniyam, 1982, in order to increase the threshold for the mandatory regulation of conditions of work and to absolve certain establishments and class of establishments notified by the government from the obligation to create a labour welfare fund, respectively. Unlike the changes put forth by the U.P. Ordinance, the changes suggested by the M.P. Ordinance are limited in scope and do not encroach absolutely upon the rights of labourers.
To analyze the efficacy of these reforms one need not look far in future. The State of Rajasthan had first started these reforms at state level as far back as 2014, on the premise that the informal labour market would grow absorbing unemployment. Much limited in their scope as compared with that of Uttar Pradesh, these reforms, inter alia, abolished the required permission of the Government for retrenchment of up to 300 workers; imposed a limitation period of three years for raising a dispute; doubled the threshold of applicability of the Factories Act. Despite not being as much far-reaching and exploitative, the results are still stinging, as the unemployment has only burgeoned since then, the wage rate has slumped and regular workers have increasingly been replaced by contract labour. So the argument that benefits from these relaxations in regulations would ultimately pass on to the labourers and employees is misleading.
It is argued that the flawed approach consisted in using relaxations in labour laws as a tool for incentivizing supply, and overlooking the demand side incentives. The importance of which is highlighted in a survey conducted by the National Sample Survey Office in 2011-12, which estimated that India has a total workforce of 47.41 crore. This is approximately 36% of the total population of the country and therefore they also significantly contribute to the consumer spending in the country. Unemployment during the pandemic rose to 27.11% for the week ended May 3, and no doubt the labour class is the hardest hit. With the country going into lockdown leaving people with no work and no income, they rely on their savings to get by during this time. This has created a negative demand shock which needs to be addressed. With the lockdown extending for almost two months, it has now worsened to a situation of recession.
The above must be kept in mind before deciding on the next move, as there is no second opinion about government intervention in this situation. The only question that begs to answer is how the government should approach this problem. Some of the states have opted for a total suspension or dilution of labour laws to help the economy. This move needs to be analyzed before the Ordinances become the binding law. How would this move affect the economy?
These purported labour law reforms provide flexibility in the labour market, while presuming, however incorrectly, that supply creates its own demand and that if the labour market is flexible the economy will start automatically. Labour deregulation is a form of supply side intervention by the government.
To assess the efficacy of these measures, we have to go back in history when one of the greatest economic crises arose and when this theory was widely accepted. It was the time of the Great Depression of 1929-1933. Conditions of that time and measures adopted then were in consonance with this theory but still it was unable to explain the happenings of the great depression. The labour market then was flexible but still there was abundant unemployment. English economist John Maynard Keynes rejected this theory and argued that it would not work. He asserted that in an economy the main driving force is the demand and not supply; his theory has since revolutionized economic thinking. He argued that any intervention from the government should be aimed at increasing the demand and only that would kick-start the economy. Therefore, it is argued that to re-establish the lost equilibrium in the economy, a demand side intervention is much needed than supply side interventions in the form of labour deregulation.
Another way to describe the purported reforms of labour deregulation is to state that the Government is working in consonance with Say’s Law, which says that income generated by past production and sale of goods is the source of spending that creates demand to purchase current production. Hence, the idea is to boost production which would generate income for the labour class and that income would act as a source of demand. But, what has been overlooked here is that the production has already taken place which met no demand during the lockdown and the income lying with people was spent in essential commodities, at the same time there was no generation of any new income. Simply put, a deadlock has been reached. There is no demand because there was no income generated during the nationwide lockdown; also the past production has not been sold. This very problem has been the criticism of Say’s Law as it does not recognise the possibility of overproduction or a fall in demand which has taken place during these times.
Validity of State Actions remains Unconvincing
Besides being economically unsound, the impugned ordinances shall be faced with a constitutional challenge mounted on fundamental rights of labourers and imputations shall be raised over the violation of international obligations. The primary constitutional challenge to these ordinances shall be based on violation of fundamental rights, most importantly Right to Life under Article 21, with right to health, leisure, safe working conditions falling well within the scope of Right to life and having been given an horizontal effect i.e., enforceability against private employers too. Additionally, Article 23 also denunciates any form of forced labour and makes it an offence punishable by law. It is more likely than not that the present situation can be seen as akin to forced labour with labourers being left with little choice but to work compulsorily, even at the cost of their necessary rights, given the scarcity of options to make their ends meet.
Further, the impugned ordinances without presidential assent cannot be upheld in light of the federal structure of India, for in the event of a conflict between a Central law and a State Law with respect to a subject matter arising out of the concurrent list, the former prevails unless the State law receives the assent of the President. However, without such assent the State law has no constitutional stand. In our humble opinion, States must desist from making such changes to central legislations which eventually undermine their objects and purposes. The premise for introducing concurrent list in the first place was that the States know what is best suited for them. However, giving a free hand to States allowing wholesale suspension of central laws, so much so that it revolts against the object and purpose of the central legislation, should be scrutinized by the Supreme Court. It must also delineate the extent to which States can amend the Central legislation on the items of the Concurrent list, this must be so even if one might argue that the constitution already provides sufficient safeguard by mandating the President’s assent on such attempts, because no one should be considered infallible in one’s judgment.
Moreover, these attempts of the State governments will be put to test against India’s international obligations too. India has ratified a sizeable number of International Conventions regulating health and welfare, hours of work, equal remuneration etc. of workers. These obligations now form part of peremptory norms of international law which no country can derogate from.
Suggestions and Conclusion
It is no doubt that India has a plethora of labour laws that hinders the growth of business to some extent, but does this mean that in times like this the entire legal framework pertaining to labour laws needs to be done away with altogether? Or should these hardships act as a wakeup call for a strategic revamping of age old labour laws that should serve as catalysts in the present time and not as inhibitors? The answers to these questions cannot be in black and white; rather, what is prudent in the present conundrum is striking a fine balance between the rights of employees and the incentives to employers. The present labour law framework is a result of centuries of struggle against exploitation at the hands of the colonial state, the struggle that was fought by the working class to assert their rights; this struggle characterises the national struggle for freedom and to do away with this framework would be a mockery of the hard earned independence. What is rather needed are reforms in labour laws that take this legacy even further by setting an example for the world how business can thrive with rights of workers being well protected. Most importantly, of special concern is the plight of migrant labourers, who would have already reached their villages and homes by the time economic momentum picks up and businesses restart to their capacity, it is indiscreet on the part of the government to give them another reason to have misgivings about returning back to their workplace. The solution rather lies in incentivizing them to return to work and ensuring security of food, shelter and savings to feed those dependent on them, which clearly is not the inclination as suggested by the actions of the State governments.
Above all, since the matter at hand falls in the concurrent list, the Centre should step in to override the ordinances and bring consistency in the laws across the states. In doing so it must learn from the examples set by other countries. To name a few, Canada has come up with a $2.1 billion wage top-up package for low income essential workers, and it also plans to hand out $1400 to all workers and self-employed individuals facing income loss. Similarly, the UK will pay 80% of usual wages of employees laid off for 4 months, moreover, firms can also claim the sick pay for coronavirus patients from March 2020. Measures undertaken by these countries in economic disruption caused by the pandemic follow the Keynesian model of emphasizing on demand creation. Cleary, these governments have adopted a more responsible role which entailed not burdening firms while also protecting the interests of employees. What is required is an economically viable solution which is constitutionally acceptable at the same time.
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