Article: Adherence to laws is important during change: Venkata Ratnam

Employee Relations

Adherence to laws is important during change: Venkata Ratnam

If the process of change is important for organisations, then being well versed with the legal implications of change management is even more imperative

Responding to change and restructuring often entails downsizing, often also reckoned as rightsizing


Professionally managed organisations try to keep themselves on the right side of law


In today’s competitive scenario, change has become an integral as well as inevitable aspect of an organization. However important change and its implications may be, any sort of change requires a prior notice of 21 days and adherence to processes as laid down in Section 9A of Industrial Disputes Act, 1947. All matters pertaining to terms and conditions of service are to be provided under Industrial Employment (Standing Orders) Act, 1946 section 2(g) and section 2(2). Any change thereof attracts provisions of Section 9A*.

The Fourth Schedule lists the following circumstances require notice of change:

1. Wages, including the period and mode of payment
2. Contribution paid, or payable, by the employer to any provident fund or pension fund or for the benefit of workers under any law for the time being in force
3. Compensatory and other allowances
4. Hours of work and rest intervals; leave with wages and holidays
5. Starting, alteration or discontinuance of shift working otherwise than in accordance with standing orders
6. Classification by grades
7. Withdrawal of any customary concession or privilege or change in usage
8. Introduction of new rules of discipline, or alteration of existing rules, except in so far as they are provided in standing orders
9. Rationalisation, standardisation, or improvement of plant or technique which is likely to lead to retrenchment of workers
10. Any increases or reduction (other than casual) in the number of persons employed or to be employed in any occupation, process, department, or shift, not occasioned by circumstances over which the employer has no control.


Trade unions can raise industrial dispute not only when there is a decline in employment, but also when there is an increase in employment as in this case, their earning potential may come down. Even the introduction of voluntary separation scheme requires notice of change because when, for instance, 10 per cent of employees leave a section or department under the scheme, the remaining 90 per cent have to shoulder the work in that section.

Downsizing/Right Sizing

Responding to change and restructuring often entails downsizing, often also reckoned as rightsizing. Cutting jobs through closure, lay-off and retrenchment entails provisions of Chapter VB of Industrial Disputes Act, 1947 if a company employs 100 or more workers. Chapter VB entails four things: (a) notice; (b) consultation; (c) compensation - half month’s pay for every completed year of service; and (d) prior approval. Generally, employers do not agree for prior approval for the fear that government may use its discretion favour in a manner which protects the interests of the worker at the cost of the continued viability of the enterprise.

Recently, when Jet laid off of 1,900 workers, it did with one stroke without prior notice, consultation or prior approval. Since this was an unfair labour practice, Jet had to immediately withdraw its order amidst widespread public protest organized by political parties (interestingly, not trade unions!).

In Japan, workers are protected from external risks of job loss but once inside the company, the workers have to obey management instructions and agree for doing any duty assigned to them anywhere. Refusal to accept overtime, the Supreme Court of Japan ruled once, qualifies for dismissal. In the USA, there is a hire and fire policy. But when workers are fired, they are entitled for compensation (unemployment insurance) and there is speedy disposal of justice in case of complaints of unfair dismissal. India has neither and therefore, laying off people or adjusting workforce is not easy. Also, it is particularly difficult for employers in large companies in India who want to fire people without any cost to them.

Employer’s Right to Terminate

The International Labour Organization, through one of its recommendations, upheld the right of employers to fire workers in case of structural changes, economic changes, et al. Several countries provide for notice, consultation and compensation. In the last 20 years, over 100 countries have withdrawn the requirement of prior approval as part of deregulation of labour law in the context of market economy. Several countries provide for notice based either on the number of employees affected or the length of service. The higher the number affected or the longer the service of the employee, the longer the notice of severance. In India, the notice period is uniform regardless of number affected or the length of service.

Many countries, including India insist that in case of surplus labour due to changes in the organization context, last in first go (LIFO) principle should be adopted for determining surplus labour. Managements are usually interested in having the right to identify surplus as per their own criteria or through a system of first in first go (FIFO). Older employees in several cases may have obsolete skills and less productive but cost more due to seniority based wage systems.

Behavioural Dimensions of Change Management

Law usually provides for minimal protection and bothers those who want to tread on the fringes of law. Professionally managed organizations try to keep themselves on the right side of the law. Additionally, they focus on behavioural aspects of change management to affect planned change strategies. This means communication and consultation with unions where they exist or in non union situation, giving employees voice and representation. Since the wearer of the shoe knows where it pinches, if you involve workers and their unions, they may suggest that instead of cutting jobs, can’t you cut wages? Alternatively, they will come out with several suggestions on freezing their allowances etc., and defer industrial action and even agree for voluntary lay off (as it happened in Ashok Leyland and Tata Motors in the aftermath of recent slow down when the workers agreed for a shorter work week and automatic application of lay off provisions - 50 per cent wages for the lay off period). In Japan, a few decades ago, when shipbuilding industry was in recession, a company changed its name plate from Shipbuilders and Engineers to Engineers and Shipbuilders and turned its secondary business into main business because engineering fabrication was in growing demand and the company converted a challenge into opportunity.

If workers and unions understand the reasons for change, they will cooperate with the management. Transparent, two way communications holds the key in any change management effort. You cannot manage change only through legal compliance. One needs to build the relationship and forge the synergy where all the stakeholders work with a common purpose towards a common goal. “Together we strive and together we achieve and share the prosperity with the community.” should be the motto.


Section 9A of Industrial Disputes Act, 1947 provides that no employer, who proposes to effect any change in the conditions of service applicable to any worker in respect of any mattr specified in the Fourth Schedule shall effect such change (a) without giving to the workers who are likely to be affected by such change a notice in the prescribed manner of the nature of the change proposed to be effected; or (b) within twenty-one days of giving such notice provided that no notice shall be required for effecting any such change where the change is effected in pursuance of any settlement or award. Section 9B gives power to government to exempt from the provisions of Section 9A in exceptional circumstances where the application of 9A may cause serious repercussions on the industry concerned and if the public interest so requires.


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Topics: Employee Relations, #ChangeManagement, #IndustrialRelations

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