The biggest problem with labour laws

Industry has been clamouring for core labour law reforms. The demand is for flexibility in terms of freedom to hire contract labour, the freedom to retrench workers and close down undertakings without prior government endorsement, and the freedom to introduce technological changes that involve loss of employment. Further, they want a liberal labour inspection system and a rational and modern system of records compliance.

The employers may have a case, at least with some of the demands. But there are other compelling issues which hurt industrial relations governance at the plant level, the resolution of which would also enhance the competitiveness of the firms. The employers seem to have forgotten this in their quest for labour flexibility. One core issue is the absence of a central law providing for a mechanism to determine the collective bargaining agent.

If there are multiple trade unions fighting for their respective rights it could lead to the worsening of industrial relations governance, even if the employer enjoys labour flexibility. This has been demonstrated by recent industrial conflicts. It is well known that trade unions, under certain conditions, could in fact contribute to the enhancement of productive efficiency and reduce transaction and monitoring costs. The World Bank has endorsed this recently. To the ILO, trade unions are fundamental to a decent and just workplace. To be sure, there are “union bads” as there are “inefficient and fraudulent firms”.

As archaic as any other labour law is the Trade Unions Act, 1926. Cast in the colonial period and constructed along the lines of the then prevailing British law it merely provides for voluntary registration of trade unions, affords certain kinds of protection and regulates rather severely the internal affairs of the trade unions.

With a rather liberal eligibility condition of seven members for formation of a trade union and given the splintered nature of Indian society and polity, these fostered an unbearable multiplicity of trade unions resulting in intra-union splits. It took exactly 75 years to cure this malady! In 2001, the law was amended to raise the eligibility conditions for the formation of trade unions.

The protective clauses of the law were rendered technically superfluous once the Constitution established the fundamental right of association. What was more essential was to provide for mechanisms for “recognition” of trade unions by the employers, lest even a minority trade union shake the foundations of business.

While Bombay Province enacted the controversial Bombay Industrial Relations Act in 1946, the Central Government let slip a couple of opportunities to legislate for union recognition in 1947 and 1950. Maharashtra again led the labour movement by enacting, in 1971, the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act. Meanwhile, violent industrial conflicts broke out in Bombay (as it was called then) and Tamil Nadu, casting their baleful shadow on industrial relations for many years to come. Labour relations in Tamil Nadu took a turn for the worse as labour wings associated with the ruling party sought to superimpose themselves on industry with the connivance of the ruling party. The long and bloody Bombay textile strike in the 1980s rendered around 0.2 million workers unemployed.

Yet, the Central Government remained unfazed, blaming trade unions for not coming to an agreement on how to determine the bargaining agent. In other words, the contention was over the method to be used to determine the primary union, namely the membership verification method, the check-off method (where each member individually sends letters to the management to deduct membership fees in favour of a particular union) and the secret ballot method. The dominance of Intuc and the long rule of its political mentor, the Congress, helped sustain the stalemate. State-level laws and a voluntary code of discipline were considered sufficient to deal with this issue. Several commissions and committees (re)visited these issues, in vain.

Thanks to the fact that Labour is in the Concurrent List of the Constitution, several State governments such as Madhya Pradesh, Rajasthan, Kerala and Bihar, have legislated rules and regulations for the determination of a collective bargaining agent. The long industrial conflict in MRF’s plant in Tiruvallur in Tamil Nadu in 2009 over recognition of the trade union further exposed the inadequacies in the Central law and revealed imbalances in the legal structure on trade unions.

Strangely enough, Central/state government cite the need for labour flexibility to attract foreign investment, without addressing the elephant in the room, as it were: the absence of norms to define which trade union is entitled to make it to the negotiating table. Hence, foreign firms complain that they need a clear cut industrial relations framework at the firm level.

It is another matter that India, unlike its neighbours in South Asia, has not ratified the Fundamental ILO Conventions on freedom of association and the right to collective bargaining even after 65 years of their adoption. The indifference on the part of employers and trade unions on this issue is striking. Trade unions, if only to make themselves attractive in these adverse times, should demand legal mechanisms to set their house(s) in order.

The Government, the employers and the trade unions need to apply their minds on this crucial, in fact basic issue of union recognition, before they consider other reform measures.

The writer is with XLRI