The Contract Labor (Regulation and Abolition) Ac t, 1970 is woefully inadequate to meet the challenges of the present day economic ecosystem
The end result of the government's apathy in coming out with proper reforms is that workers end up suffering because of the fallout of laws
There is a common strand that connects L. K. Chaudhary, Roy J George and Awanish Kumar Dev. Be it the case of Chaudhary who was India division Chief Executive Officer (CEO) and Managing Director at Italian auto parts maker Graziano Trasmissioni Spa, or George who served as Vice-President (HR) at auto instruments maker Pricol Ltd, or more recently that of Dev who was the General Manager, Human Resources at Maruti Suzuki India Ltd; all three – white collar company executives – died at the hands of militant workers on factory premises. These cases bring to fore the ugly face of industrial unrest and labor violence. The continuous and escalating worker-management confrontation are reasons enough to look at the deeper malaise – social, political and economic; the bedrock of the gruesome violence. Common sense would have that the provocation in any of these cases was because of wage disparity, harsh working conditions, ugly union rivalry, frustration with the course of peaceful agitation, increasing number of contractual workers, or non recognition of trade unions. Whatever the provocation, and however justified the workers’ grievances, such instances of violence are deplorable.
Times’ have changed…
Surely we have come a long way compared to the legendary strikes such as those by railway workers in 1974 or Mumbai textile workers in 1982. However, 2005 and 2012 in recent memories present two pictures which are reminiscent of the yesteryears. Earlier in 2005, protesting workers, who were demanding reinstatement of their colleagues dismissed for forming a trade union, of Honda Motorcycle and Scooter India Pvt Ltd’s (HMSI) at its Gurgaon factory in Haryana were brutally beaten up by the police. Cut to the picture in July 2012: the mass violence at Maruti’s Manesar plant charred to death Awanish Kumar Dev and also injured over 100 others, of whom a few are reported to be critical and in intensive care. During a debate on NDTV’s ‘We The People’ on July 29, the chief secretary of Haryana, commenting on the entire episode said, “It was perceived as a simple altercation between a worker and a supervisor, the management could not foresee that it will result in this kind of violence.” According to reports, workers armed with iron rods and wooden sticks rioted through the plant attacking managers, smashing equipment and setting fire to parts of the factory in a seemingly pre-meditated attack. Reports in media also state that during the rampage, the police allegedly remained mute spectators. While nobody can support this kind of mindless violence, the pertinent question is: What drove workers to such extremes that they took the risk of losing their jobs and indulged in mayhem?
While it is true that the Maruti episode has brought to fore the challenges of employer relations and re-opened the debate on the larger issues of labor reforms; the reasons for the recent mob violence are generic in nature and not a point in isolation. There are a few commentators who have succinctly used the veil of social inequity and impatience of the new generation young workers as a justification for the increasing frequency and violence of confrontation and protests. The argument put forth is that the substantial wage differential between permanent and contract employee is a critical reason for the outburst. Aspirations of a new workforce, accentuated by rising visible consumerism around them explain the psyche of the mob. They are less tolerant and aggressive in their expectations and how they want to achieve it. Poor wage hikes and raging inflation have queered the pitch further, resulting in an impatient, militant workforce, which believes in aggressive posturing. A few squarely lay the blame on hard-nosed and cost-focused management, legions of temporary workers without the benefits enjoyed by their tenured colleagues, low wages that have not kept pace with soaring inflation, a trade union movement gone wrong, and not to forget, our very own antiquated labor laws.
The state can not absolve itself of the responsibility completely; a fact aptly referred to by Manish Tewari, spokesperson of the Congress party, during the NDTV debate. In fact, the large scale violence by workers that rocked Maruti Suzuki’s Manesar plant has led the Ministry of Home Affairs to alert the Intelligence Bureau (IB) to probe whether there is any Maoist influence on trade unions in industrial belts in the National Capital Region (NCR). Their argument is that there are reports which state that at least three trade unions active in the region are either fronts of the CPI (Maoist) or are Naxal sympathizers, who want to destabilize the economic environment and create industrial unrest.
The pain points
There is no dearth of reasons – from social inequity to Maoist influence, the question that CEOs and management community at large is facing is as to how to deal with this increasing frequency of confrontations. The various stakeholders need to necessarily think through the pain points that are often cited as reasons for such ghastly and dastardly acts of violence.
One of the common reason of industrial dispute as cited by social activists is the widening disparity between management salaries and workers wages. However, the moot point is whether it makes sense for a shop floor worker to compare their wages to that of a manager in the same plant. Well, conventional economics would say no, for the two are performing different functions. In this light, the charter of demands raised by unions to their respective management does raise some eyebrows. For instance, as per reports the charter of demands placed by the Maruti Suzuki India Workers’ Union at Manesar before the management on April 18 2012, if implemented would imply that a permanent worker of Maruti Suzuki India would see a four-fold hike in gross pay to more than Rs 1 lakh a month. It may sound a bit amateurish; however the general underlying logic of being ambitious ahead of wage settlement negotiation is in line with long standing negotiation tactic of starting high.
However, it does make sense for a contract worker to compare his or her wage to that of a unionized worker more so if they are both essentially doing the same job. Temporary or contract workers typically earn less than half as much as their permanent counterparts, and bear the brunt of a cyclical downswing. This has led to demands of pay parity. Given the levels of consumer price inflation and the disparity meted out to contractual workers, wages are not in accordance with the economic realities so that a worker can afford a decent living. Rekha Sehgal a trade union activist during the NDTV debate argued that, “Wages for contractual workers must be at par with those of permanent workers.” The disparity is certainly a pain point and needs to be addressed. R. P. Singh, Director (HR & Legal) IFFCO, agrees, “It is important to address the extent of differentiation in remuneration between the direct labor and contract labor.”
It is herein that the very concept of minimum wages must be revisited. The Minimum Wages Act, 1948 based on Article 43 of the Constitution does emphasize on a living wage conditions of work ensuring a decent standard of life and full enjoyment of leisure and social & cultural opportunities. While this sounds good in theory, the reality is that the Act does not set out a minimum wage in rupee terms, but merely stipulates that the same be a living wage to be decided by labor department in each state. It is for this very reason that minimum wages vary across the country. Minimum wages should be fixed considering two main objectives. The first being social, to provide sufficient purchasing power to the workers, enabling their basic standard of living and contributing to reduce poverty; and the second being economic, to ensure that industry is competitive in the sectors that contribute heavily to GDP.
Linking the minimum wage to changes in the consumer price index would serve a long way in alleviating the corrosive effect of inflation. Sharad Gangal, Executive Vice President (HR/IR/Admn), Thermax, shares, “The Minimum Wages Act has to be made simpler and transparent; be revised frequently and publicly announced; and should reflect inflation or contraction impact.” At the same time experts are of the opinion that ‘equal pay for equal work’ could perhaps be a fair solution.
The labor unrests and their demand makes it amply clear that corporate India is increasing its reliance on casual and contract labor to get routine operational job done at cheaper costs. This is one of the primary reasons for the increase in labor strife and violence. These workers do pretty much the same work as their ‘permanent’ peers, but are paid a lower salary. It is also argued that contract workers who virtually have no job security are usually denied benefits like gratuity, provident fund and health insurance. They are the vulnerable lot. Add to this their numerical strength, disparity in the pay structure and socio-economic status; these are the perfect ingredients for discontent and have been used by disenchanted groups to incite labor disputes and labor violence.
While it is obvious that companies opt for contractual workers for reasons of cost competitiveness, the ideal use of temporary or contract workers is to manage spikes in demand. But manufacturing companies in India have often been accused of going overboard. Sujoy Banerjee, Group HR & OD, McNally Bharat Engineering Company, shares that over the last few years, the Indian industry across sectors has gone into an overdrive of contractual engagement of workmen with a view to manage their cost of operations. He says, “What started initially as contract workmen being engaged in tertiary, non-core activities of the enterprise have now become all pervasive across operations even in the core areas of the organizations’ operations.” Activists put forth the view that companies hire contract workers for exploitation rather than bringing any flexibility to their production, just because they come cheap. Despite the Contract Labor (Regulation and Abolition) Act, 1970 stating that companies cannot hire a temporary worker to do a permanent worker’s job, but with most state governments quite happy to overlook this, companies use temporary workers for just about anything. Contract workers end up sharing the same work space with and doing the same jobs as the permanent ones.
While archaic Indian laws have been more of a deterrent for companies from retrenching permanent employees in volatile times, the absence of government intervention encourages companies to opt for contractual employees. Besides having to pay less, hiring and firing the contract workforce is easier than doing the same with permanent workers. The Contract Labor (Regulation and Abolition) Act, 1970 is woefully inadequate to meet the challenges of the present day economic ecosystem. As a matter of fact, the necessary amendment drafted by the labor ministry is yet to see the light of the day. The end result of the government’s apathy in coming out with proper reforms is that workers end up suffering because of the fallout of laws originally designed to protect their interests.
It is true that flexibility and liberalization of laws are needed; at the same time contractualization of workforce should not be taken by companies as a means to deprive workers of their legitimate benefits. It is important to look at ways to encourage employment of contract labor without making the employees feel that they are losing out in terms of important benefits.
Labor law reforms
India’s archaic labor laws, rated by the World Bank as among the world’s most rigid, place strict limits on number of hires and conditions for retrenchment, forcing manufacturers to hire more casual workers. India Inc. and investors believe that the existing policies unduly protect the interest of the currently employed and hinder the creation of new jobs. So much that while addressing the 44th Indian Labor Conference in 2012, the Prime Minister stressed on the fact that rigidity in labor laws was hurting employment growth. He said, “Though our government remains committed to protecting the interests of our workers, we must periodically take a critical look whether our regulatory framework has some parts which unnecessarily hamper the growth of employment, enterprise and industry without really contributing significantly to labor welfare.”
Yet, labor law reforms have been on the backburner for years now in the wake of protests from the unions, who believe that flexibility to employers would harm the interest of the workers. Analysis shows findings contrary to such beliefs. Findings from the Labor Bureau’s latest survey of job trends across states have challenged the conventional wisdom that stronger pro-worker policies will protect jobs and ensure higher employment, thereby reinforcing the case for changes in labor laws. The survey showed that states which have actively carried out labor reforms had less unemployment than those perceived to pursue ‘traditional pro-labor policies’. The underlying message is clear: ‘pro-labor’ policies are not enough; the creation of employment opportunities holds the key. As a matter of fact greater flexibility will allow firms to expand when business is booming, knowing that they can shed labor if the going gets tough. This also allows efficient firms to prosper and the not-so-efficient ones to die out, which is a win-win for everyone, including workers. While welfare of the workers is of utmost importance, Gangal says that, “Unions and social activists should realize that we are no more in a command and control economy and there are bound to be dynamics of demand and supply phenomenon which will require a flexible labor market mindset.”
India Inc agrees to the fact that permanent employees have to grow and at the same time they want a degree of flexibility in law which allows them to handle the number of people during cyclical downturns. Clearly there is a need to strike a balance between the needs of a growing economy and the interests of working people. It is evident that there are no second thoughts that there is a need to align labor laws with industrial policies; however owing to political risks, governments over the years have been hesitant in proceeding on these lines. Yet another pain point with labor laws is that it lies in the domain of the Concurrent List of the Constitution of India and there are problems as to how to amalgamate numerous Acts relating to labor into one. The challenge is compounded by the fact that apart from the 44 Central laws, there are also over 100 state laws relating to labor, some of them contradictory.
At a time when the fundamentals of employer-employee relations/industrial relations are at their lows, the mob fury questions the very basics as to why unions exist. Is it to help in effective communication between the workers and the management so that differences of opinion do not turn into major conflicts or is it to shield the perpetrators of the orchestrated violence. Have unions lost their erstwhile clout or is it that in the virtual absence of unions, companies have become either too paternalistic or too dictatorial? Have rioting and vandalizing the very properties that are source of their bread and butter, become the only ways to prove their identity or relevance?
While formation of unions and getting political affiliations are workers’ rights and are allowed under the Indian labor laws, the Trade Union Act needs to be revisited to see to it that necessary checks and balances are embedded into it so that trade unions are not hyper-empowered. Trade union activists reason that a majority of the protests in last 12-13 years in the Gurgaon-Manesar belt are due to companies’ unwillingness to allow formation of labor unions. While companies should not oppose the democratic rights on grounds that political backing and interference might make the obstructive nature of existing labor laws even worse, it is equally important that unions revisit and reorient their operating model and try to engage themselves more constructively and proactively in a changed industrial relations scenario.
Better late than never
The recurring labor unrest makes it all the more important that effective dispute resolution should be a strategic priority for organizations. Interactions with seasoned industry leaders highlight the need for a ‘root cause analysis’ and focus on employee engagement, transparency in communication, trust building measures, and being proactive rather than reactive.
It is clear that one of the reasons for labor dispute and violence is the inability of the workforce to meet their own aspirations in a world of rising consumerism. Bimal Rath, Founder, Think Talent, puts across the point as he says, “The divide between white collar and blue collar in terms of their needs and lifestyle aspirations is becoming smaller. This applies not just to manufacturing or other labor intensive industry but also to most industry with large scale employment of young people.” The question is - are organizations aware of the aspirations of its younger employees and are they doing something tangible to keep the employees engaged, motivated and have they inculcated in their employees a sense of ownership? These issues can be addressed when there is an effective open and transparent dialogue and the employer listens to the concerns as well as ideas of the employees. And yes, dialogue needs to be on a continuous basis. Regular sessions with employees to explain the broader business environment and hence, the limitations because of them, would inspire confidence and keep everyone on the same plane of reference. P Dwarakanath, Director – Group Human Capital, Max India, is of the view that an open and transparent communication with employees (at all levels) makes it easy to build trust. A sustained two-way communication in a transparent environment leaves no scope for mistrust and misunderstandings, thereby minimizing any untoward distress. While technology can always play a role in communication, nothing works better than one-on-one conversation. The employer must empathize with its employees.
Organizations must create a workplace environment based on their employee engagement, employee development and transparent conversation so that employees do not have to seek help from unions. “Inadequate focus by the leadership to proactively listen and respond to workforce issues drives the latter more into the arms of the unions, not all of whom necessarily have the maturity or the right moral intent,” feels Prabir Jha, Senior Vice President & Head- Human Resources, Tata Motors. If employees’ needs and aspirations are taken care of by employee development and engagement initiatives, unions cannot take the management for a ride. If companies fail on this account, then besides hurting productivity and growth, companies will be forced to buy into the demands of the respective trade unions. While there must a robust grievance redressal mechanism, organizations can also focus on ensuring a workplace culture that restores workers’ pride and dignity.
The way forward
Of late, employee relations has come to a tipping point in India and as Sonali Roychowdhury, Country Head-HR, P&G, puts it, “it is time for deep introspection and swift action.” The current situation demands a multi-pronged approach towards developing a comprehensive policy framework which outlines the way ahead, and an integrated and resolute implementation process with the involvement of all key stakeholders, including investment in capability development, not only for management and human resources professionals but also for shop floor workers and union leaders. While there is a need to have a relook at the existing policies as well as laws, maintaining a harmonious industrial relation is indeed a collective effort. In essence, S.Varadarajan, Executive President – HR, Tata Teleservices, says, “For Indian industry, as a whole, the need to create progressive labor-management relationships is imperative for a smoother drive ahead.”
Violence, whatever may be the provocation, can never be the means to a solution. Stakeholders must understand that human values, dignity and respect must stand above all. The fate meted out to L. K. Chaudhary, Roy J. George and Awanish Kumar Dev is a cruel reminder that resorting to violence in the garb of labor dispute is shocking and unpardonable, human regression at its most deplorable nadir – an act that puts an entire nation to shame.