This flexibility, first introduced in the export-intensive garment sector in June 2016, was later extended to the leather industry and put into effect in all sectors via a March 2018 notification issued under the Industrial Employment (Standing Orders) Act, 1946.
The Labour Code on Industrial Relations 2019 providing for full benefit, fixed-term employment of any duration in all industries would not only come in handy for manufacturing units, including MSMEs, to adjust their pay rolls to the seasonality and vicissitudes of their businesses, but will also aid formalisation of jobs.
This flexibility, first introduced in the export-intensive garment sector in June 2016, was later extended to the leather industry and put into effect in all sectors via a March 2018 notification issued under the Industrial Employment (Standing Orders) Act, 1946. Wednesday’s Cabinet decision is to endorse the policy by making it a part of the Labour Code on Industrial Relations 2019, which is being tabled in Parliament in the ongoing Winter Session.
Although a key proposal to allow firms employing up to 300 people — against 100 now — to retrench/lay off workers and/or shut shop without government approval has been removed from the Code, states will have a window to change the employee strength threshold for retrenchment purpose via notification route.
This, according to industry bodies, too, could address a major concern of companies, including MSMEs.
It is, however, not clear if the Code would bar outsiders from becoming office-bearers of trade unions in the organised sector. An earlier version of the Code had proposed this but there were reports that the government was having second thoughts on this, given the opposition from unions. A few other proposals in the initial draft of the Code intended to make unions with negotiating powers more representative, like a stipulation that at lest 10% of workers are needed to form a union, have also been debated afresh.
According to sources, fixed-term workers will be entitled to benefits similar to the permanent workforce like EPF, ESIC, defined working hours, minimum wages, allowances and other statutory dues. “He (fixed-term worker) shall be eligible for all statutory benefits available to a permanent workman proportionately according to the period of service rendered by him even if his period of employment does not extend to the qualifying period of employment required in the statue,” the March notification said, and as stated by finance minister Nirmala Sitharaman, the case would be the same under the Code.
The labour market flexibility will help all players in the economy, but analysts say it would be of particular benefit to the manufacturing sector, which is in the doldrums, despite the tremendous export market opportunity afforded by China ceding its dominance in the key world markets for labour-intensive products.
Of India’s estimated 50 million workforce, hardly 10% is in the organised sector are entitled to social security benefits such as provident fund and benefits like defined working hours, minimum wages, allowances and other statutory dues. Unorganised sector workers are mostly deprived of these benefits. The additional Employess Provident Fund incentives provided by the government for labour-intensive units have contributed to the formalisation drive to an extent and but there is still a long way for the country to go in this regard.
Legitimising fixed-term employment with all these benefits across industries is important to avoid unproductive disputes and litigation and could encourage formal employment over informal employment, analysts said. The move would positively impact influence the economy as it would create more formal jobs while also allaying concerns of the employers of the risk of costly permanency of workforce even while employing workers for project-based, limited-duration requirements.
“This forward movement (in labour reforms) is noteworthy and we hope that with this move we have moved further ahead on having in place balanced labour regulations in the country that take account of the interest of both the employers and the employees,” said Sandip Somany, president, FICCI. According to Anoop K Satpathy, fellow at VV Giri National Labour Institute, the increase in the threshold for retrenchment purpose should also have an accompanying provision for a compensation mechanism. “The government has some kind of flexibility to raise retrenchment threshold from 100 employees to 200 or 300 from time to time,” he said.
“Industry has been arguing that services sector firms, which are outside the purview of this norm, are offering higher wages, social security cover and working conditions,” Satpathy noted.