India’s Big Government
Page 25
With this kind of background in place, it wasn’t surprising that the Contract Act of 1970 also talked about abolishing contract labour. And this is precisely where things get interesting.
Under Section 10(1) of the Act, the government can prohibit the use of contract workers in any process, operation or other work in any establishment. This can be done by taking several factors into account: a) whether contract workers are being used for perennial work, i.e., work which is carried out daily; b) whether regular workers are doing the same job that contract workers do; c) whether the work is incidental or necessary for the work of the factory.
Over the decades, various central governments as well as state governments have issued notifications which barred the use of contract workers in a factory. This has often led to litigation, primarily because the issue of what happens to the contract workers once the contract work in an establishment has been abolished by the government came to the fore.
The Supreme Court has pronounced several judgements on this issue. In 1974, the Court ruled that the government has the power to prohibit the use of contract labour in an establishment (Gammon India versus the Union of India). In 1997, the court ruled that, in the case of the abolition of contract work in a firm, the erstwhile principal employer needs to absorb the contract workers into permanent jobs (the Air India Statutory Corporation versus the United Labour Union).396
In 2001, the Supreme Court overturned its 1997 judgement. It said that the erstwhile employer wasn’t obliged to offer permanent jobs to contract workers in case of the abolition of contract work at a firm (Steel Authority of India versus National Union Water Front Workers). The reasoning offered by the Court was that “the contract labour[er] is not rendered unemployed, as is generally assumed, but continues in the employment of the contractor, as the notification does not sever the relationship of master and servant between contractor and contract labour[er]”.397
This judgement, along with other reasons (which we shall dwell upon), went a long way in helping firms recruit contract workers for a lot of jobs. The government did not take any action against this, primarily because, even if it were to abolish contract work in a firm, the firm was no longer obliged to offer permanent jobs to the contract workers.398
Along with these judgements, there were other Supreme Court judgements which helped firms in recruiting contract employees. It is important to discuss the observations made by the Supreme Court in two cases where they basically talked about the issue of wage parity between the contract worker and the permanent employee doing the same work.
In the 2002 case of the Uttar Pradesh Rajya Vidyut Utpadan Board versus the Uttar Pradesh Vidyut Mazdoor Sangh, the court said:
[The] nature of work, duties and responsibilities attached thereto are relevant in comparing and evaluating as to whether the workmen employed through [the] contractor perform the same or similar kind of work as the workmen directly employed by the principal employer. [The] degree of skill and various dimensions of a given job have to be gone into to reach a conclusion… [as to whether] the nature[s] of duties of the staff in [the] two categories are on par or otherwise. Often, the difference may be of degree. It is well settled that [the] nature of work cannot be judged by [the] mere volume of work; there may be qualitative difference as regards reliability and responsibility [emphasis added].
What the Court basically said here was that just because two people, a permanent worker and a contract worker, were doing a similar kind of work, it does not mean that they should be paid the same wages. The skill, reliability and responsibility of the workers should also be taken into account when deciding whether similar work being done by a permanent worker and a contract worker can be considered to be at par so that they can be paid the same wages.399
In another case (Hindustan Steelworks Construction Ltd. versus the Commissioner of Labour and Others, 1996), the Court said that the principal employer (i.e., the firm where the contract workers were working) wasn’t liable to make up for the difference in the wages between those of a contract worker and a permanent worker performing the same kind of work.400
This was a sort of a get-out-of-jail judgement for firms employing contract workers. As Hoda and Rai write: “It is extremely difficult to implement the notion of wage parity [by] taking into account the dimension of the level of skills. As a result, wage parity between the two categories of workers is not legally enforceable.”401 The question of whether the skills of two different individuals are the same or not is not at all easy to answer.
In 2003, the erstwhile state of Andhra Pradesh listed out the activities in which contract workers were allowed. The number of core activities was reduced, allowing the use of contract labour in many areas. Furthermore, it allowed the use of contract workers even in core activities if there was a sudden increase in activity which needed completion in a specified time. This basically meant that contract labour could be used for most activities in manufacturing in Andhra Pradesh. Not surprisingly, in 2009-2010, the proportion of contract workers, when it came to employment in manufacturing, stood at 55 per cent in Andhra Pradesh, as against the countrywide figure of 33 per cent.402
What needs to be mentioned here is that, unlike in Andhra Pradesh, the laws in most states do not make the distinction between core activities and non-core activities very clear. Furthermore, firms argue that the distinction between core and non-core activities changes as technologies and corporate strategies change.403
Also, firms have worked their way around this Act in various ways. As Ajeet N Mathur writes in a research paper titled ‘Is “Make in India” Constrained by India’s Labour Market Regulations?’, companies “have used multiple contractors, and often multiple names and identities for the same person”. This is done so as to ensure that contract workers do not demand permanent employment.404
Contractors rotate workers among firms, so that none of the contract workers can end up working at a firm for 240 days at a stretch and thus claim permanent employment. The firms also rotate the contractors, in order to get around the Contract Labour Act.405 This basically means that contract workers do not have the same kind of social security that permanent workers do. Furthermore, they do not get paid the same amount of money that a regular worker doing the same work does.
Also, while private companies use various ways to get around the various labour laws, the public sector companies, owned majorly or totally by the government, cannot do the same. As the economist TN Srinivasan said in a 2003 speech:406
Ironically, although the labour laws are evaded or avoided by private enterprises, albeit at… [the] cost of their competitiveness, the public sector enterprises do not have that option. This has an impact on privatisation—in particular, given that our public enterprises are over-manned, any potential private bidder for such an enterprise would not actually bid if he anticipates that retrenching the excess workers would be impossible if he acquires the enterprise, or, if he did bid, would bid a low enough price for it to account for the costly buy-out of excess workers. In any case, the fact that the public enterprise cannot easily retrench means that its workers would continue to enjoy their privileges, whether or not the enterprise earns a social rate of return on [the] capital invested in it.
Furthermore, state governments also turn a blind eye to the private companies getting around the labour laws in order to not drive away prospective as well as current private investors.
All this has essentially led to two things: a) The number of contract workers in Indian manufacturing has gone up. The number of contract labourers in organised manufacturing has gone up from 1.21 million (12.1 lakh) in 2000-2001 to 3.4 million (34 lakh) in 2011-2012. As far as the proportion is concerned, it has gone up from 20.3 per cent in 2000-2001 to 34.63 per cent in 2011-2012. So, a legal lacuna has helped Indian manufacturing employ more contract workers. b) Using the ‘skills’ lacuna, the wages paid to contract workers are lower than those of permanent workers, even though they may be doing the same job. In 2008-
2009, the wages of contract workers had stood at 68.8 per cent of those of the permanent workers. It jumped to 74 per cent in 2009-2010, before falling to 70.8 per cent by 2011-2012.407
If we look at the data on the number of workers working per factory, we see similar trends. In 2000-2001, the number of permanent workers per factory was more or less around 50. And this is where it stayed till 2009-2010. In 2011-2012, it declined to 45 workers per factory. In 2000-2001, the number of contract workers per factory was just under 10. This increased to 19 in 2009-2010 and then fell to 17 in 2011-2012.408
In fact, there are other interesting trends that need to be pointed out here as well. When it comes to small factories, which have less than 100 workers, the share of the contract workers among the total number of workers increases rapidly as the size of the factory increases. When it comes to medium-to-big factories (factories with 100 to less than 2,000 workers), the share of the contract workers remains more or less constant. The share increases rapidly for large factories (with over 2,000 workers) as the size of the factory increases. When the number of workers working in a factory goes over 5,000 workers, then the share of the contract workers increases to over 35 per cent.409
A possible explanation for this phenomenon may lie in the fact that factories employing more than 5,000 workers tend to be more capital-intensive industries, which use machines for manufacturing. In this scenario, workers are primarily needed for repetitive machine-based work or to carry out repairs and maintenance. This can easily be achieved through contract workers.410
The states that have contributed the most to the increase in the total number of contract workers are Maharashtra, Tamil Nadu, Gujarat, Andhra Pradesh and Uttar Pradesh.411 If we leave out Uttar Pradesh, the other four states can safely be said to be among the most industrialised states in India.
The entire idea behind the Contract Labour Act, as mentioned earlier, was to get companies to recruit permanent workers, but what has happened is exactly the opposite. Interestingly, as TS Papola points out in ‘The Role of Labour Regulation and Reforms in India’, of the workers recruited between 2000 and 2010, nearly “two-thirds are employed through contractors, and are not on the payroll of enterprises either as permanent, temporary or casual workers”. This is the exact opposite of what the government set out to achieve, and so is another glaring example of the unintended consequences of Big Government.
One way to look at this is to realise that “in order to protect the existing employees, potential employees remain unemployed or enter the unorganised sector with no social security”.412 What makes the situation worse is that there are no precise estimates of the total number of contract labourers in the country.413
Hence, this particular labour law, like other labour laws, ends up benefiting those workers who already have permanent jobs. And this has led to significant labour trouble in big factories across the country. Here are a few examples. In September 2008, the CEO of Graziano Transmissioni India, an auto-component maker, was clubbed to death by a group of 200 workers. In 2010, an assistant general manager working for the auto-component maker Allied Nippon was stoned to death by angry workers. In 2011, a deputy general manager of Powmex Steel was killed when his vehicle was set on fire by workers. And then there was the 2012 case of workers rioting at the Manesar Plant of Maruti Suzuki, India’s largest car maker, leaving an HR manager dead and 100 officials in hospital with serious injuries.414
The trouble at the Maruti plant was over the formation of a trade union and the regularisation of the contract workers who worked at the plant. As can be seen from Table 7.1, the number of contract workers at Maruti is only a little lower than their regular manpower.
Table 7.1: Types of Employees at Maruti Suzuki during 2012-2013.
Manpower Category Workforce
Regular Manpower
Assistant Supervisors & above 4,648
Associates/Technicians 3,029
Trainees 1,744
Total Regular Manpower 9,421
Apprentices 936
Contractual Manpower / Temporary Workers 8,554
Total Manpower 18,911
Source: Annual Report of Maruti Suzuki, 2012-2013.
In this scenario, it is but natural that many contract workers would have been doing the same work as regular employees, but getting paid less. Other than getting paid less, contract workers suffer from the lack of job security and social security, and exploitation by both companies and contractors. And this, naturally, leads to trouble.
Data from the International Labour Office suggests that, for the period 2005 to 2008, India was amongst the top five countries in the world when it came to the number of workdays lost per 1,000 employees.415
So, the Contract Labour Act in its current form benefits neither the contract worker nor the company employing him. John Harriss writes in a research paper titled ‘Labour Problem: Recent Developments in India’ that the labour legislation of India “can be held to be dysfunctional both from the perspective of business… and from the point of view of labour”.416
One sector that has suffered a lot due to labour unrest is the automobile sector, particularly in the state of Haryana. Factories of companies like Maruti Suzuki, Hero Motors, Honda Motorcycles and Scooters India, Hyundai, MRF, Sona Koyo Steering Systems and Toyota Kirloskar Motors have had to face labour unrest.417
This sector has tremendous potential when it comes to the Make in India programme, given that many international automobile companies are already operating in India. And some of them, like Hyundai and Maruti Suzuki, do produce cars for the export market. In fact, one estimate suggests that, if the automobile and two-wheeler sectors are to double their revenues in the years to come, they need a flexible workforce and an atmosphere in which companies can hire and fire workers depending on the demand for their cars, trucks, scooters and motorbikes.418
The question is: How can this be achieved? How can companies hire contract employees without being unfair to them or having to resort to shenanigans like they currently do? How can we ensure a situation wherein contract workers, for the period they are working in a company, are paid as much as regular employees doing the same work? Indeed, is there a way out of the mess that currently prevails?
One of the main points that governments (both the central as well as state governments) need to realise is that flexibility is the key to a competitive labour market. This flexibility can be brought about in the labour market by offering fixed-term contracts.
The Industrial Employment (Standing Orders) Act of 1946 categorises workers as permanent, temporary, apprentices, probationers or badlis (substitutes). The Act makes it clear that a temporary workman is one who has been taken on to carry out work which is temporary in nature and is likely to be finished within a limited period.419
In December 2003, the category of ‘fixed-term employment’ was introduced into the classification of workers. A new paragraph (h) was added to the Industrial Employment (Standing Orders) Act of 1946, and this is how it read:
A ‘fixed-term employment’ workman [is one] who has been engaged on the basis of contract of employment for a fixed period. However, his working hours, wages, allowances and other benefits shall not be less than that of a permanent workman. He shall also be eligible for all statutory benefits available to a permanent workman proportionately according to the period of service rendered by him, even though his period of employment does not extend to the qualifying period of employment required in the statute.
This basically allowed the employment of contract workers for a fixed term. The provision also required that the contract workers be paid the same wages and other benefits as the regular ones. Furthermore, the provision did not implement any restriction on the duration of the employment. It also did not say anything about the contract being renewed. Nevertheless, in October 2007, this amendment was deleted. Right now, the legal position of fixed-term employment is unclear.420
In fact, it is interesting to see how fixed-term contracts opera
te the world over. The United States does not impose any restriction on fixedterm contracts. South Korea allows fixed-term contracts for a maximum of two years. In Japan, fixed-term contracts of up to three years can be offered. They can be of up to five years for highly skilled employees and people over sixty years of age. Furthermore, there are no limits to the number of renewals, although after repeated renewals, if an employer refuses a renewal, he must have a valid reason for it.
France allows contract workers only for temporary jobs. Renewal is possible only once, and the maximum duration allowed is 18 months. Germany is more flexible than France is. The country allows fixed-term contracts, with four renewals and a maximum duration of two years.421
Canada also allows workers to be recruited on fixed-term contracts. The law allows the employers to mention the expected duration of employment in the contract and gives them the flexibility to hire directly or through an agency. The contract labourers have access to social security. They are recruited primarily in the areas of construction, healthcare, education and public administration.422
Fixed-term contracts are allowed in Russia as well. The labour laws of the country allow companies to hire workers on contract and do not make a distinction between core and non-core work, as Indian law does. These jobs come with social security and are for a maximum duration of five years.423
The point being that fixed-term contracts are very common all over the world, especially in countries which have done economically much better than India has.
Hence, the fixed-term employment clause needs to be re-introduced to allow companies to hire and fire workers depending on the demand for their products. Also, the Act dealing with contract labour is currently termed as the Contract Labour (Regulation and Abolition) Act of 1970. The term ‘abolition’ needs to be dropped from it because we live in a day and age when the abolition of contract workers is simply not possible.