Professional Documents
Culture Documents
Labour Law
Labour Law
REFORM IN INDIA
LABOUR LAW-II
Submitted by:
RUPAK KUMAR
2013094
Submitted to:
MADHU RANA MAAM
SEMESTER V
Table of Contents
ACKNOWLEDGEMENT.........................................................
List Of Abbreviations.........................................................
Labor Issues and Need for Labor Reforms in India.......................................
Abstract...........................................................................
Hypothesis.......................................................................
Research questions:..........................................................
Research methodology......................................................
Introduction......................................................................
Historical Background.......................................................
Labour Laws in India.........................................................
1.Regulations on Wages and Earnings....................................11
MinimumWagesAct1948..............................................................11
2.Regulations of Conditions of Work...................................................13
Factories Act.............................................................................13
Shops and Commercial Establishments Act (SCEA)...................................14
3.Social Security Regulations...........................................................14
4. Job Security and Industrial Relations Regulations.................................16
Contract Labour Act (CLA).............................................................16
Conclusion......................................................................29
2
Bibliography...................................................................31
ACKNOWLEDGEMENT
I have endeavored to attempt this project. However, it would not have been feasible
without the valuable support and guidance of Madhu Rana maam. I would like to
extend my sincere thanks to her.
I am also highly indebted to Damodaram Sanjivayya National Law University
Library Staff, for their patient co-operation as well as for providing necessary
information & also for their support in completing this project.
My thanks and appreciations also go to my classmates who gave their valuable
insight and helping in developing this project.
List Of Abbreviations
Section
Sections
Paragraph
UOI
Union of India
A.P.
Andhra Pradesh
A.C.
Appellate Cases
AIR
Anr.
Another
Bom.
Bombay
CP.C.
K.B.
Kings Bench
Mad.
Madras
n.
Note
Ors.
Others
SC
Supreme Court
SCC
Sd/-
Signed
Supp.
Supplementary
U.P.
Uttar Pradesh
U.S.
United States
U.T.
Union Territory
v.
Versus
approach. One of the primary messages is to move the reform narrative to the
informal sector. Analysts and policymakers have long been pushing the cause of
flexible labor markets in India. On the other hand, such proposals have been met
with staunch resistance from those whose interests are vested in an inflexible labor
market, including employees, trade unions, and the labor ministry. After almost six
decades of impasse on this issue, it is time to find a workable approach that could
be acceptable to both parties as marginal progress is better than a standstill.
Hypothesis: Are Indian Labor Laws totally outdated and out of synch
with present need?
Research questions:
1. How to harmonies the labor reforms between keeping the interest of
workers and industrial growth
2. Whether the latest labor reforms are pro industry or pro Workers.
Introduction
In India, the relationship between economic growth and job creation has often been
6
Inconsistent. To the extent that even when jobs are added to the economy, they have
been mainly in the informal sector. A growing informal sector often affects potential
for business productivity and workforce security, highlighting the shifting
relationship with economic growth. The interaction amongst these arguments can
be clearly illustrated in the Indian context. Informal sector in India can be best
defined in three ways: First, there is a definition in terms of exemptions from
paying indirect taxes. Second, there is a definition in terms of small-scale industry
(SSI), which again is defined in terms of threshold levels of investment in plant and
machinery. Third, there is a definition in terms of labor laws. That is, an enterprise
is unorganized if it uses power and employs fewer than 10 people or does not use
power and employs fewer than 20 people. The last definition is the one that is used
most often. Informal sector workers can be identified by occupations like small
farmers, fishermen, beedi packers, and/or bonded laborers, migrant workers,
contract and casual laborers. Scavengers, loaders and unlades also belong to this
category (Planning Commission, 2001)1. Who are also called informal and
unorganized interchangeably?
Historical Background
There is no doubt that the measures to regulate employment of labourlaws, rules
and conventionshave their origin in India in the recognition of unequal power
1 Planning commission report on informal sector in india
7
balance between labour and capital. Labour has been considered to be a weaker
party vis--vis the employer and therefore susceptible to exploitation and in need
for protection. The motivation to protect labour has been further strengthened by
ideas of equity and social justice that the national movement for Independence
espoused and which were finally also enshrined in the Indian Constitution (Singh,
2003). Establishment of International Labour Organization (ILO) in 1919 was a
landmark event in the annals of labour history internationally, mandating the
necessity of labour legislations to protect the interests of workers. It has developed
conventions
and
recommendations
on
labour
standards
for
facilitating
1880 laying down the minimum conditions of work in terms of hygiene, safety and
hours of work, etc. Several revisions were followed in the pre-Independence period
in 1891, 1911, and so on. The Trade Union Act passed in 1926 set out procedures
for registration of unions and protection of unions from harassment. The pressure
for protection of workers against risks at work and life mounted in the 1920s. As a
result, several legislations were passed regulating work and providing social
security before Independence. The provision of compensation to workmen for any
injury during the course of employment was made in the Workmans Compensation
Act passed in 1923. Payment of Wages Act was passed in 1936, to regulate intervals
between successive wage payments, over-time payments and deduction from the
wage paid to the worker. In the sphere of industrial relations, the Trade Disputes
Act of 1929 aimed to create an institutional framework to settle disputes. 3 The
Great Depression and its effects on the Bombay industry with large-scale wage cuts
and resulting disputes led to some important regulations such as the Bombay
Industrial Dispute Act of 1932. The Act provided that an industrial worker has the
right to know the terms and conditions of his employment and the rules of
discipline he was expected to follow. The general aim of the Bombay legislations
was to allow collective bargaining in a bilateral monopoly situation . Large and
dominant unions were recognised as the sole representatives of the workers. Thus,
the emergence of labour regulations in India can be traced back to the period of
British rule in India. Crucial labour laws governing various aspects of work were,
however, passed in quick succession of each other after Independence. And since
1947, there has been a complete change in the approach to labour legislation. The
basic philosophy itself underwent a change and the ideas of social justice and
welfare state as enshrined in the Constitution of India became the guiding principles
for the formulation of labour regulations (Thakur, 2007). The Constitution made
specific mention of the duties that the state owes to labour for their social
regeneration and economic upliftment. One of the significant duties which has a
direct bearing on social security legislation is the duty to make effective provision
for securing public assistance in the case of unemployment, old age, sickness,
disablement and other cases of undeserved want). In an independent democratic
3 Datta Chaudhuri, Mrinal (1994), Labour Markets as Social Institutions in
India, CDE Working Paper, No. 16, Delhi School of Economics
9
country, it was considered necessary that the rights of employers to hire, dismiss
and alter conditions of employment to the workers detriments were subjected to
judicial scrutiny. Accordingly, the Industrial Disputes Act (IDA) enacted in 1947
provided protection to the workmen against layoffs, retrenchment and closure and
for creation, maintenance and promotion of industrial peace in industrial
enterprises.4 This Act was later amended in 1972, 1976, and in 1982 seemingly
giving progressively greater protection to workers. Factories Act 1948, which
replaced the one passed in 1884, aims at regulating the conditions of work in
manufacturing establishments and to ensure adequate safety, sanitary, health,
welfare measures, hours of work, leave with wages and weekly off for workers
employed in factories defined as establishments employing 10 or more workers
using power and above 20 workers without use of power. Similarly, the Minimum
Wage Act 1948 is the most important legislation that was expected to help
unorganised workers survive despite the lack of bargaining power. The minimum
wages for scheduled employment are to be fixed and periodically revised by the
central and state governments in their respective spheres. The Act may be applied to
every employment in which collective bargaining did not operate and purports to
fix the minimum wages in such a manner as to enable the concerned workers
subsist at least above the official poverty line. Similarly, Industrial Employment
(Standing Order) Act 1956 is another legislation regulating the conditions of
recruitment, discharge and disciplinary action applicable to factories employing 50
or more workers. It requires the employers to classify workers into different
categories as permanent, temporary, probationers, casual, apprentices and
substitutes. The Contract Labour (Regulation and Abolition) Act 1970 regulates the
employment of contract labour and prohibits its use in certain circumstances. It
applies to all establishments and contractors who currently or in the preceding year
employed at least 20 contract workers. The idea behind this Act is to prevent denial
of job security in cases where it is feasible and of social security where it is
legitimate legal entitlement. In the sphere of social security, Employees State
Insurance Act (ESIA) was introduced in 1948, providing compulsory health
insurance to the workers. The Act provides for a social insurance scheme ensuring
4 Anant, T. C. A. and Sundaram, K. (1998), Wage Policy in India: A Review, The
Indian Journal of Labour Economics, Vol. 41, No. 4, pp 815-34.
10
ThemostimportantlegislationonfixationofwagesistheMinimumWagesAct
1948.Industrywisewageboardsandcommitteeswereoftenusedinthepastfor
wage fixation in the organised sector. This practise, however, has now been
virtually given up. The Minimum Wages Act (MWA) requires the appropriate
government, central or state, to fix the minimum wages for certain types of
employment.TheActisapplicabletoanypersonemployedforhireorrewardto
doanywork,skilledorunskilled,manualorclerical,inanemploymentspecifiedin
thescheduleandinrespecttowhichminimumratesofwageshavebeenfixed.This
includesanoutworkertowhomanyarticlesormaterialsaregivenoutbyanother
persontobemadeup,cleaned,washed,altered,finished,repairedorotherwise
processed for sale. Having said this, it should be noted that the MWA is not
applicabletoallworkersandemploymentinthecountry. 5Whilethereisnolimiton
5 (1995), Do Indias Labor Laws Hurt Indian Laborers? A Theoretical
Investigation, Working Paper, No.95- 12, Center for Analytical Economics (CAE),
11
enterprisesizeornatureofworkcontract(permanent/temporaryorregular/casual),
the Act is applicable only to employments that are included in the schedule
appendedtotheAct.TherelevanceoftheMWAfortheorganisedsectorisgreatly
reducedinsofarasenterprisesinthissegmentoftheeconomyaregenerallyfound
topaywageshigherthanfixedundertheAct.1Inotherwords,wagefixationina
largepartoftheorganisedsegmentoftheIndianindustryis,byandlarge,lefttothe
marketatpresent.Consequently,theorganisedindustryhasnoparticularproblem
withthispieceoflegislation.TheActthusisprimarilyrelevantfortheunorganised
sector.Enterprisesintheunorganisedsectoralsodonotappeartohaveanybasic
problemwiththelaw,ifonegoesbytheopinionsexpressedbytheminvarious
surveys,butdofindthewageratefixedundertheActsometimesunrealistically
highItis,however,foundthatthemajorityofworkers,particularlythoseinthe
ruralareasand,women,receivesignificantlylowerwagesthanprescribedunderthe
law fordifferent employments The otherimportant Actrelated towages is the
PaymentofWagesAct(PWA).
Cornell University.
6 Bhattacharjea, Aditya (2006), Labour Market Regulation and Industrial
Performance in India: A Critical Review of the Empirical Evidence, The Indian
Journal of Labour Economics, Vol.49, No. 2, pp. 211-232.
12
on. Other laws like Employees Provident Fund Act (EPFA), Maternity Act (MA)
and the Workmens Compensation Act (WCA) also provide some of the benefits
under the Act.8 In the absence of a comprehensive pension scheme that will take
care of the future of industrial workers on retirement or of the dependents of the
worker in case of early death, a system of provident funds for certain the
government through The Employees Provident Funds and Miscellaneous
Provisions Act, 1952, established category of workers. 9 Under this Act, in certain
establishments, including factories, employing twenty persons and more, workers
and employees are provided with provident fund benefit. Not all industrial sectors
are covered under the Act. The industries/classes in which the Act applies are listed
in the Schedule 1 of the Act. A wage ceiling exists for coverage under the EPF
scheme. WCA provides mainly for relief to the workers against disability and death
arising out of accidents and injury at work. The Act applies to all workmen as
defined in the Schedule 2 of the Act. The central or the state governments may add
to the Schedule 2 of the Act any class of persons employed in any occupation which
it is satisfied is a hazardous occupation. Workers covered under the ESI for similar
provisions are excluded. In most of the schemes of social security, employers make
a contribution, and, therefore, these regulations have a cost to industry. This has,
however, not been a major item of contention between industry and labour,
probably because the social security regulations mostly apply to the organised
sector, where enterprises do not find their cost to be onerous. Still such cost is often
indirectly avoided by employing workers in non-regular, casual and contract basis
which makes them ineligible for such benefits. Workers in the unorganised sectors
are, however, generally outside the purview of social security regulation: according
to the estimate made by National Commission for Enterprises in the Unorganised
Sector (NCEUS) only 6 per cent of the unorganised workers, who constitute 86 per
cent of the total workers, are covered by any social security legislation (NCEUS,
2006).
on the use of contract labour notwithstanding, the extent of contract labour has
significantly increased in Indian industry since early 1990s. According to an
estimate, the share of contract labour in the organised factories sector in the country
increased from about 12 per cent in 1985 to about 23 per cent in 2002 (Pages and
Roy, 2006). In this period the increase in the share of contract labour varied across
states, declining in very few such as Assam and Karnataka, while increasing in most
others. Among the states, Andhra Pradesh had the highest increase in the share of
contract labour in the organised sector, an increase from 33.8 per cent in 1985 to 62
per cent in 2002.12
Factories Act
Applicability
TheFactoriesAct,1948appliestoamanufacturingunitemploying10workersif
theworkisbeingdonewiththeaidofpower,oremploying20workerswithoutthe
aidofpower.
Thislimitwasfixedmorethan60yearsback,andsincethenmanysafeandhazard
free technologies/processes have been developed and are being used. Yet, even
smallerunitsemployingaslowas10workersaresubjectedtothesameelaborate
andharshprovisionsoftheFactoriesAct,1948.
Inordertoescapetherigorousprovisionsofthelegislation,manytimesthesmall
manufacturing units employ less than the threshold limit and employment is
directlyaffected.FICCIthereforerecommendsthatthedefinitionoffactoryunder
section 2(m) of the Factories Act be amended to cover a manufacturing unit
employing20workersifworkingwiththeaidofpoweroremploying40workersif
workingwithoutpower.
ii.
DefinitionofOccupierSection2(n)Occupiershallbeapersonwhohasultimate
controlovertheaffairsofthefactorybutrestrictingthedefinitionofOccupier
onlytoaDirectorinthecaseofPrivatesectorwithmultiplefactories,whomay
not be stationed at the site of the factory all the times, puts unreasonable
restrictions. Rather the definition of occupier need to be extended to any
managerialpersonvestedwiththeultimatecontrolofthefactorybyaresolutionof
theBoardofDirectors.
iii.
AnnualLeavewithWages(Section79) Theproposalforreducingthequalifying
periodofworkeddaysfrom240to90daysforavailingannualleavewithwages
willpromoteunnecessaryabsenteeismamongtheregularworkers.However,the
proposalcanbemadeapplicableforthebaadli/casualworkerbymentioningitina
specificclause.Incaseofregularworkerstheexisting240daysmaycontinue.
19
20
led to a demand that labour be removed from the concurrent list and placed
in the state list (TeamLease, 2006). Not only are the laws numerous, they
overlap, there is multiplicity of laws, detailed and elaborate stipulations and
many definitional and conceptual inconsistencies. Multiplicity of laws often
covering the same subject makes compliance difficult for the employers
and also gives scope for exclusion of many workers. Varying definitions of
key items in different statutes further compounds the problem. Worker,
employee, factory, child, wages, and so on, are defined differently in
different Acts.
the whole debate on labour market reforms is centred on less than 3 per
cent of the workforce in India. While loud protests are made about the
excessive rigidity in the labour use, there is great validity in the less
frequently and rather meekly expressed view that the Indian labour market
is, by and large, completely unregulated!
inrespectoftheaspectsandextentoflabourregulationtobeapplicable.Thus,most
ofthelabourlawsareapplicableonlytounitsthatemploy10ormoreworkers,and
smaller units are exempt from their application. This distinction can, however,
providedisincentivetoenterprisestoexpandbeyondthethresholdsizeandresultin
proliferationofenterprisesbelowthatsizeleadingtoincreaseinemploymentonly
inunregulatedconditions.Letusexaminewhateverempiricalevidenceisavailable
to identify which provisions of regulatory legislation have adversely affected
growthandefficiencyofenterprisesandexpansionofemployment.
Railway and mine workers have faced 1,082 and 32 accidents, respectively, mostly
fatal, while their dependents receive an average compensation of Rs.2.6 lakh and
Rs.9 lakh, respectively. Around 93 per cent of casual workers and 66 per cent of
salaried employees have no written contracts, while only 22.7 per cent have
reported receiving paid leave.
to ensure that they are not transformed into contract labour. MGNREGA should be
restructured and linked to apprenticeship programmes in industry and agriculture.
Women workers require legislation too. Female employees of government schemes
like Indira Kranti Patham or Anganwadi Worker remain out of the purview of laws.
Scheme-based workers should be treated as regular employees and offered decent
wages and social security. Equally, contract labourers must be protected. They
should be covered by the Workmens Compensation Act (1923) for accidents, with
inflation-linked wages and limited social security benefits from the Employees
State Insurance Act (1948) and Maternity Benefits Act (1961) extended to them.
While retrenchments are socially difficult experiences, Indias current labour policy
provides little incentive for industrial employers to hire. Instead, to avoid
complications, hiring contractual labour without social security benefits or
termination protection is encouraged. A modern labour law that encourages
employers to keep more workers in formal roles, with work-linked wages and social
security benefits is vital. Flexibility to undertake layoffs, ensuring adequate benefits
and a reasonable notice period, is needed.
25
Tosafeguardtheinterestofdomesticworkers,theNDAgovernmentisreadyinga
nationalpolicyincorporatingthesefeatures,besidesahostofbenefits,including
socialsecuritycoverandprovisionsagainstsexualharassmentandbondedlabour.
Domesticservants,whostareatanuncertainfuturewhentheygrowweakwithage
andarethrownoutoftheirjob,willnowhavethecushionofasocialsecurity
schemeunderwhichtheemployerwillhavetomakeamandatorycontribution.The
policy envisages the right to domestic helps to pursue education, a safe work
environment and a mechanism for redress of their grievances. Workers and
employerswillalsohavetherighttoformgroupsandengagewitheachotherfor
collectivebargaining.
ThepolicyframeworkisonparwiththestandardsoftheInternationalLabour
Organisation. India has adopted the ILO convention on domestic workers and
thereforewehavetomakeapolicyforthissegmentofthesociety.
Oncethepolicytakeseffect,itwillbemandatoryfortheemployer,theemployee
and the intermediary agency that connects the two, to enter into a tripartite
agreement,whichwillhavelegalsanctity.Thedraftpolicyrecommendsminimum
monthlywageforunskilled,semiskilled,skilledandhighlyskilledcategoriesof
thedomesticworkers.
Highlyskilledandthosegivingfulltimeserviceshouldbeeligibletogetasalary
of at leastRs.9,000 per month, an official said, adding the policy seeks to
empowerdomesticworkersbymakingthislargeworkforceaservicesindustryover
time.
Single Compliance Return for Eight Labour Laws can now be filed by
Companies
Industries from now on will file just one labour compliance return for eight key
labour laws ranging from the Industrial Disputes Act to Minimum Wages Act, the
labour ministry said on 25th April 2015 after easing the compliance process. The
process has been taken online, making it smoother. Until now, industries have had
to file one labour compliance return every year under each of these laws in a
manual process that has involved numerous inspections, leading to delays in
securing government clearances and tying up personnel in paperwork.
27
stategovernmenthasaprovisiontoexemptmicroindustriesfromcomplyingwith
atleastthreecentrallawsandwhetherthestatehaskeptinmindtheInternational
LabourOrganizationssafetyrequirements.
The state govt. has proposed that micro companies with an investment of a
meagreRs.15lakhsshouldbeexemptedfromcomplyingwiththreecentrallabour
lawsTradeUnionAct,ContractLabourActandFactoriesAct.
A single window system for labour law compliance, provident fund (PF)
number portability and a revamped inspection system for companies.
Throughthesinglewindowsystem,companieswillbeabletofilejustonereturn
online for 16 labour laws, replacing the current system where returns are filed
manuallyforeachofthelaws.ThePFnumberportabilityschemeisexpectedto
helpmillionsoforganizedsectoremployees whocontribute12%oftheirbasic
salary to EPFO as part of their retirement savings. The employer matches the
contribution. Once number portability is in place, an employee would get a
permanentPFaccountnumberjustlikeabankaccountanditwillstaywith
themdespitejobchanges.ThiswillalsohelpemployeestracktheirPFcorpusin
realtime.ThePFcontributionandclaimsettlementwillbebecomeautomaticand
online.
Tamilnadu
(1.) Combined annual return for Factories Act, Contract Labour and Regulation
Act Maternity Benefit Act, Payment of Wages Act and Minimum Wages
Act.
(2.) Self-certification under Shops and Establishment Act, Minimum Wages
Act, Payment of Wages Act and Maternity Benefit Act for IT / Software
establishments.
(3.) Software establishments exempted from the provisions of opening and
closing hours and holidays under Shops and Establishment Act.
Karnatka
(1.)
(2.)
Conclusion
Labour market reform is an important yet politically sensitive matter in most
countries. Flexibility and security for employers and employees boosts livelihoods
and the rate of good quality formal sector jobs. However, there are several
stakeholders employees and trade unions who have a vested interest in keeping
the labour market inflexible. Many of them think that a globalising world means a
weakening of their rights for the last two years trade unions have been going on
national strikes to demand permanent jobs and declare an end to contract labour.
This paper identifies several potentially compatible reforms that could enable the
political class to make a strong case for labour market reforms to all the
stakeholders. Reforms are discussed in three areas of the labour market that could
help on this front social security and livelihoods, federal freedom to amend
legislation, and engaging with trade unions resistance: One, extending social
security coverage to the informal sector could be made possible by offering the less
expensive National Pension System to employees. The NPS would serve as a
competitor to poor quality services of the EPF and ESI thereby forcing them to
reform, bring prices down and improve service delivery. This would also enable to
bring down costs from the formality-informality trade-off for businesses. Creating
sustainable livelihoods in the informal sector is a stepping-stone to economic
progress and future expansion of the formal sector, where productivity is often
higher. Two, there is increased evidence that competition between different Indian
states could spur reforms with positive outcomes. However, the presence of labour
legislation in the Concurrent List serves as a boCleneck for States to exercise
complete freedom in amending laws with respect to their prevailing political
economy. Moving such legislation to the State List would not only add context
specificity through State control, but also make labour laws less convoluted. Three,
29
engaging with trade unions is perhaps the most sensitive area of reform. It requires
understanding the latest trends in unionism, encouraging organisation for credible
demands, and designing benefits for employees that making bargaining and
unionising unnecessary in the first place.
This is not a laundry list of reforms but a combination of suggestions to push the
dynamics in the labour market to force regulatory practices to adapt to evolving
structures as without adaptability welfare cannot be advanced. In the face of
sluggish growth rates, a rising fiscal deficit, and a forthcoming demographic
dividend, Indias political elite must remember that boosting good quality jobs is a
maCer of top priority. On the other hand, simply discussing reform of the labour
market in terms of labour law reforms has not brought any results over the years
almost 60 years of reform concentration in the formal sector has not brought many
results. Even if it is the intention of the government to reform in this area, selling
those reforms in a way that compensates the reform losers is an extremely difficult
task. It is time we start a nuanced discussion on how to develop the labour market:
to think about small reforms, which are compatible with the current political
economy, and include the informal sector in the reforms dialogue.
30
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32