Labour Flexibility in India

Labour Flexibility Debate in India: A Comprehensive Review and Some Suggestions
Author(s): K. R. Shyam Sundar

Source: Economic and Political Weekly, Vol. 40, No. 22/23 (May 28 - Jun. 10, 2005), pp.
2274-2285
Published by: Economic and Political Weekly
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Labour Flexibility Debate in India
A Comprehensive Review and Some Suggestions
This paper seeks to comprehensively study the issues in the debate on labour flexibility.
Section I outlines the arguments for and against labour flexibility and the demands posed by
employers and trade unions respectively in India. It also discusses the theoretical aspects relating
to employment protection. A review of empirical studies on labour market flexibility in India and
abroad is presented in Section II. Section III discusses the recommendations of the Second National
Labour Commission. Section IV describes the enmployment protection practices in other countries.
Finally some suggestions for reformulating employment protection practices are offered.
K R SHYAM SUNDAR
mployers have been noisy advocates for labour marketcountries. Finally I offer some suggestions for reformulating
flexibility in most countries, India included. They argueemployment protection practices.
that flexibility is required to promote economic growth
and generate jobs. It is growing competition between firms and I
countries that makes it essential for firms to organise production
Theoretical Aspects
suiting the changing market conditions. Trade unions point out
that flexibilisation is a strategy to weaken labour rights and toIt is important to note the attributes of an 'inflexible' labour
increase the profitability of firms and their bargaining power, market. A labour market is inflexible "if the level of unemploy-
without any positive impact on the level of employment. Trade ment-insurance benefits is too high or their duration is too long,
unions are demanding more protection as they point out that or if there are many restrictions on the freedom of employers to
insecurity (in all forms) has risen in the wake of liberalisation,
fire and to hire, or if the permissible hours of work are too tightly
privatisation and globalisation processes. The government is in regulated, or if excessive generous compensation for overtime
a fix: it wishes to introduce labour reform measures in responsework is mandated, or if trade unions have too much power to
to pressures from various quarters (employers, multinational protect incumbent workers against competition and to control
firms, international financial agencies), but is kept on hold bythe follow of work at the site of production, or perhaps if statutory
labour protests and its eagerness to maintain its pro-labour image.
health and safety regulations are too stringent" [Solow 1998].
The NDA government sought views from the Second National This rather exhaustive definition of course misses out the generous
Commission on Labour (SNCL); it also appointed other bodies severance pay, costly legal battles, etc. It is necessary to dwell
consisting of pro-reform members and asked for suggestions. on these aspects here. Job security legislation is said to include
Thus it sought to gradually create a climate of social opinion
all the provisions that raise the cost of dismissing a worker and
in support of labour reforms. But all along the employers have
those that regulate hiring particular type of workers. Job termination
been indulging in measures which in effect mean labour reform laws involve some costs, viz, notification (during the period of
exercises; the government has turned a Nelson's eye to these notice the productivity of the worker declines, hence many opt
practices, which prompts the description of these actions toas pay the wages in lieu of the notice period), compensation cost
'reform by stealth' [Bardhan 2002]. In the formal terrain the game
(since this is seen as the employers' full liability), and legal cost
is in a stalemate. The defeat of the NDA government in last year's
(appeal by workers against what they consider as unjust dismiss-
election and the presence of left parties in the present coalition
als and the consequent legal procedure), legal compensation costs
government led by the Congress have further delayed a formal arising out of court verdicts, psychic cost of uncertainty, threats
solution of the stalemate. However, the talk of labour reform of legal action, etc. In the face of adverse shocks employers have
goes on: this year's Economic Survey (2004-05) has pointed out to reduce the workers' strength; but they are not able to do so owing.
that the Indian labour law especially Chapter V B of the Industrial
to the existence of stringent job security provisions. On the other
Disputes Act, 1947 (ID Act) is more restrictive than the legal
hand, when the going is good and the economic circumstances
provisions in China, Brazil or Mexico (p 16). But the finance
are favourable, the firms may want to hire new workers. But they
minister Chidambaram did not make any mention of labour would hire only when they would be able to dispense with workers
reforms in the budget. as and when they need to. Thus, the separation benefits accruing
This paper seeks to comprehensively study the issues in to workers become potential hiring costs for the employers. This
the debate on labour flexibility. Section I outlines the argu-
affects the ability and the wil ingness of firms to create jobs.
ments for and against labour flexibility and the demands posedThe net result is lower employment rates in expansion and higher
by employers and trade unions in India. I also briefly mentionemployment rates in recession [Heckman and Pages 2000] and
here the theoretical aspects relating to employment protection.
lower turnover rate as few are hired and fired. But the theoretical
I make a review of empirical studies on labour market flexibility
analysis is inconclusive: higher firing costs discourage hiring
in India and abroad in Section II. Section III discusses the
during upswing; strict law reduces firings during downswing -
recommendations of the Second National Labour Commission.
then the new impact on unemployment stock is indeterminate
Section IV describes the employment protection practices in other
[Bertola et al 1999; OECD 1999:69].
2274 Economic and Political Weekly May 28-June 4, 2005
Employment protection law (EPL) has both costs and benefits the freedom to contract out operations and employ contract
for both players and to the society [OECD 1999]. The costs of labour; thus remove the prohibitive aspect of the Contract Labour
EPL are: create dualism in the labour market (protected and (Prohibition and Regulation) Act, 1970. Their other demands are:
unprotected), increases the chances of long duration unemploy- permission to include in the standing orders flexi-categories of
ment, lock protected workers into poor jobs as mobility is re- labour, linking pay and bonus with productivity, delinkage of
stricted, no separation from one firm and no recruits in other dearness allowance with consumer price index, relaxation of
firms, a position of stagnancy and absence of dynamism in the labour laws in export processing zones, permission to employ
labour market, lower wages (as a trade-off to job security), etc. women in night shift, and so on.
The benefits are: (a) long-term contracts, (b) enable investments
in technology and workers, (c) force employers to be careful in
Indian Trade Union's Reform Agenda
choosing workers [Amadeo 1997], (d) prompt workers to accept and Arguments
technological changes (if jobs are secure), (e) win workers'
loyalty, tru.,t and commitment, all these translating into higher Trade unions have proposed a number of reform measures
productivity. covering many laws; here I shall note only those pertaining to
employment given by a section of the trade unions. There should
Employers' Reform Agenda not be ordinarily any retrenchment due to introduction of au-
tomation, computerisation and modernisation. However, if sur-
Neo-liberals' arguments against labour market institutions (see plus exists on account of these the factors surplus workers should
Coates 1999 for a good summary of their criticisms) mirror be redeployed by the same firm without affecting the existing
employers' perceptions. The main argument is that legal restric- service conditions [AITUC; AITUC 1997]. More importantly,
tions affect job creation, increase informality, encourage by- if unavoidable surplus labour exists after exhausting all the above
passing of the law, increase capital intensity of production, processes then the surplus workers could be retrenched by giving
relocate production to 'safe' areas, increase in use of non-regular higher compensation [AITUC 1997; Mahadevan 1999a] than
workers, and increased use of bribery [Basu et al; Zagha 1999]. legally specified (say, three months salary for every completed
Employers in India argue that the major impediment to restruc- year). There should be some mechanism to tackle the problem
turing of enterprises is Chapter V B of the Industrial Disputes of default by employers in settling the workers' dues, which
Act (ID Act), which was introduced during the Emergency of occurs frequently (HMS Bulletin, October 2002, 'Second Labour
1975-77; most of the emergency regulations had been removed Commission's recommendations X-rayed', p 10). The current
save Chapter V B - employers never fail to point out that though provisions providing for obtaining permission to lay off, retrench
the emergency was criticised by trade unions, they praise one or closure should be retained. For trade unions Chapter V B
of its legacies, i e, Chapter V B! A company could have been "encompasses the right to livelihood, natural justice and trans-
saved by layoffs or retrenchment but is unable to do so and as parency" [D'Costa]. Layoff compensation should be 50 per cent
a result it reaches the point of closure. This is because of Chapter of wages and allowances for the first month, 75 per cent for the
V B. Removal of this maligned provision would not cause havoc second month and full salary subsequently. Finally, in the case
as unions fear. "This is because employers do not invest money of closures, workers' claims should be settled first. In India there
only to retrench workmen or close the undertakings" [Bharucha]. is no 'right to work' and no general unemployment assistance;
The release of the tied up resources in non-performing assets in such a situation it is not practicable to "give a blank cheque
would be efficiently reallocated to more productive uses and will to the employers - government or private, to operate exit policy"
generate employment. Organised sector workers aided by labour [Mahadevan 1999b:6]. Contract workers should be absorbed as
protective law have become a selfish 'labour aristocracy' and regular workers in the event the contract system is abolished in
enjoy privileges at the cost of employment growth which would a firm - in line with earlier Supreme Court judgments. The
benefit millions of unemployed or underemployed in the informal principal employer should be recognised as the employer for legal
sector [Douglas 2000]. Continuance of Chapter V B means high purposes and he should be liable to bear the provident fund, ESI,
social costs and unemployment. Their principal demand is 're- gratuity, and other benefits. The government should not change
move Chapter V B' from the ID Act. Secondly, it has been argued the definition under the Act from "perennial and permanent jobs"
that employment law (Employment (Standing Orders) Act] and to "core and peripheral jobs", which would enable employers
the judicial process (emphtasising the principles of natural justice) to employ contract labour on peripheral jobs as these constitute
have made difficult removal of even 'bad' workers; it is a case a good majority of jobs in firms. The principle of 'equal pay
of justice hurting efficiency as the difficulties involved in the for equal work' should be applied [Mahadevan 1998]. The trade
process introduce rigidities [Singh 2002]. Thirdly, unions resist unions believe that permission to freely employ contract labour
change on the strength of the existence of items 10 and 11 of would not generate employment as employers promise; instead
the fourth schedule relating to section 9A of the ID Act. Johri it will lead to "unscrupulous exploitation and subhuman con-
(1996:447) argues that this provision "can delay or obstruct all ditions", a return to the past. Freedom to use contract labour would
worthwhile change in technology, workload, manning, shiftwork, eventually result in sacking of regular workers and use of contract
etc". Trade unions' undue reliance on this provision has disenabled labour. It is also pointed out that employers ask for exit policy
the firm to enhance its competitiveness by introducing necessary to close down the unionised firms and take them to backward
technological changes and new skills. Hence, delete items 10 areas to enjoy income tax and sales tax exemptions granted by
and 11 of the fourth schedule appended to section 9A and remove the government - a kind of subsidy [D'Costa and Parekh].
the statutory obligation to issue notice of change under the same D'Costa argues that companies that receive subsidies from the
section. Thirdly, firms need to concentrate on core competencies taxpayers for creating employment should come under social
and contract out other non-core and peripheral activities; this scrutiny for maintaining employment. Employers employ non-
would be least costly and more efficient. Thus, firms should have unionised flexible categories of employment in the backward
Economic and Political Weekly May 28-June 4, 2005 2275
areas and pay them low wages. Many Indian and multinational taken place in the 1990s (see later). Nagaraj (2004) has recently
companies follow this practice. reported that 1.3 million employees (13 per cent of the workforce)
lost theirjobs during the period 1995-96 and 2000-01. The question
II here is not about the impact of liberalisation on employment;
Review of Empirical Studies but variability of employment. It is clear that firms choose to
do what they want, increase or decrease the workforce. Nothing
restrains them.
Macro Studies
It may be instructive to cite international evidence on the impact
The debate on employment generation assumed intensity in on (un)employment. OECD's (1999) analysis of impact
of EPL
view of the peculiar behaviour of job growth in the 1980s. of EPL on unemployment found that "EPL strictness has little
Employment in the manufacturing sector grew rapidly in theeffect on overall unemployment" in OECD countries [see
or no
1970s; it has decelerated since then. More importantly, Nickell
while 1997 also]. EPL could 'slow' the adjustment of employ-
employment grew respectably in the unorganised segment in mentthe to unexpected shocks [Abraham and Houseman 1993].
1980s, it was negative in the organised segment especially during
Secondly, average job tenures in such a system are expected to
1983-88. Employment growth in the organised segment picked be longer, thus entry into employment and exit out of unemploy-
up healthily in the first half of the 1990s while deceleration
ment inis likely to be more difficult. This prolongs the duration
the other segment continued. On the other hand, output in of the unemployed, which makes the unemployment persistent
manufacturing sector grew at an impressive 7 per cent in the- 1980s
it has a social cost: longer the unemployed a person is, faster
as compared to less than 5 per cent growth in the preceding the irrelevance of his skills and greater the hesitancy of employers
decade. Thus, high output growth was unaccompanied bytopoor employ such workers. As Nickell and Layard (1999:3063)
even negative job growth. Several reasons were offered by out, these effects would certainly reduce short term un-
point
analysts and employers. Sharp increase in real wages (inducing
employment (via reduced inflow into unemployment), but would
employers to employ labour substituting capital-intensive raise the long-term unemployment (via reduced outflow from
measures) and stringent job security provisions [Fallon andunemployment).
Lucas They also found no evidence to show that stricter
1991; Lucas 1988:189-90], are two important factors said tolabour
have standards or employment protection lead to higher un-
stunted employment growth. Wage escalation was attributed to
employment. The most recent survey [Betcherman et al 2001]
the increasing bargaining power of unions as reflected !n summarises
the the impact of job security rules as follows: "The
increasing trend in number of workdays lost due to strikes and on employment and unemployment levels are modest
impacts
lockouts [Lucas 1988:189). These analysts customarily cite thein the case of unemployment, often statistically insignifi-
and,
lone study of impact of job security provision (of 1976) on However, the empirical findings are much stronger for
cant...
employment generation done by Fallon and Lucas (1991): thethis
dynamic effects - on labour turnover and job tenure, job
study showed that employment growth in the organised segmentcreation and job destruction, and unemployment duration - and
of manufacturing sector would have been higher by 17.5 peron cent
the types of jobs created... Overall, rules to protect job security
in the absence of rigid provisions on job security. Theseincrease
ideas the number of stable jobs but at the price of more long-
were not uncontested. Sudipta Dutta Roy (1998) analysing theunemployment and non-participation in the labour force and
term
ASI data for the period 1960-61 to 1993-94 found thatjob security
less opportunity for regular employment in the formal sector. This
regulations (both 1976 and 1982 amendments considered)increases have the vulnerability of certain groups of workers including
not been responsible for slow down in employment growth. women and youth, and the unskilled or poorly educated..." [see
Further she pointed out that Fallon and Lucas' "coefficients OECDon 1999 also]. The most consistent explanatory variables of
the dummies for job security regulations were negative inunemployment
only were degree of bargaining coordination [a benign
12 of the 35 industries considered, significantly positive in one
institutional variable reducing unemployment as centralised and
and insignificant in the rest" (p 44). Real wage growth was highly
not coordinated bargaining internalises 'externalities' and
found to be responsible for poor job growth for several reasons;
promote wage restraint [Shyam Sundar 2004c] and the generosity
importantly, high wages or earnings [for Nagaraj 1994] were and aduration of unemployment benefits (malign institutional
result of increases in productivity [Papola 1994] or increase in
variables). The evidence from Latin American countries appears
persondays worked [Nagaraj 1994]. As Lalit Deshpande to etsupport
al the neoclassical theory of negative impact of strict
EPL. Heckman and Pages (2000) reviewing the studies for Latin
point out that even employers have not pointed an accusing finger
at high real wages. It was also pointed out that poor employment
American and Caribbean countries find that strict job security
growth in the 1980s was mainly due to a decline in employment provisions in these countries lead to lower job turnover in the
in two significant labour employing industries such as textileslabour market and lower employment rates; they create a large
and food [Papola 1994:10]. It was pointed out that lockouts proportion of self-employment and a decline in the ratio of wage
were more responsible for workdays to be lost than strikes and
employment to population of young workers. Their own research
this reflects the increase in the bargaining power of employerssuggests that "job security regulations have a substantial impact
[Ghose 1994:159; Nagaraj 1994:180; see also Datt 2003; on employment and turnover rates both in Latin America and
Shyam Sundar 2004a]; Lucas as do most western analysts in did
OECD countries...". They also argue that job security pro-
not consider the distinction between strikes and lockouts. visions reduce the job prospects (and possibly wages) of younger
Goldar (2000) shows that employment in organised manu-and less experienced workers while they protect the jobs and
facturing sector grew at 4.03 per cent per annum during the incomes of other workers; this widens the inequality in the labour
first half of the 1990s; this growth has taken place despite the
market. Thus job security provisions are both inefficient (because
prevalence of unaltered statutory regulations impacting on they reduce the demand for labour) and inequitable (because they
employment decisions of the firms. Micro level studies that existbenefit some and hurt others). The issue then becomes less
support the macro level finding that employment growth hastheoretical and more empirical.
Micro Level Studies that flexible employment has grown since the early 1980s in many
countries. The share of standard workforce (full-time and indefi-
Employment Flexibility nite duration jobs) in total employment declined in many coun-
tries [Ozaki 1999].
There exist three studies, viz, Sudha Deshpande et al (1998)
studying labour flexibility in 1987 and 1988 in Bombay, Sharma Wage Flexibility
and Sasikumar (1996) surveying the firms in Ghaziabad covering
the period 1991-95, and Lalit Deshpande et al (2004) - studying Let us turn to wage flexibility. Sudha and Lalit Deshpande's
labour flexibility practices in 10 states and nine industries in India (1998, 2004) found that the basic wage of unskilled male
surveys
during 1991-98. The main findings could be summarised workeras was largely based on minimum wage law, while collective
follows. Firms increased their total employment during thebargaining
period and compulsory adjudication were not the main
of all the three studies. Specifically, Lalit Deshpande et al'sinstruments
study of determination. It is also known that the minimum
found that total employment grew by about 3 per cent during wage law can be and is by-passed. It is well known that the setting
1991-98, manual employment by 2.29 per cent and non-manual of minimum wages in India suffers from several shortcomings
employment by little over 5 per cent. A good many firms were
such that they are less likely to impose a burden on employers.
able to change employment as they wished. Only 13 per It cent
has been found that minimum wages are not revised frequently.
of the firms did not change employment; 60 per cent increased When revised, the new rates were often lower in real terms than
and a significant 27 per cent decreased jobs [Lalit Deshpande the pre-revision rates; in most cases, the official minimum wages
et al 2004]. The most interesting finding of the three studies is
were below poverty-line wages [ILO-SAAT 1996:35]. This surely
that firms were found to increase employment by increasing is not
the a source of rigidity. Employers complain about dearness
share of non-permanent workers. Size of the firm did not seem
allowance. They point out that the linkage of dearess allowance
to matter, as both small and large firms varied employment. withIn the consumer price index has over time increased its share
fact, it was the medium and large firms - though supposedly in total wages (ranging from 40 to 60 per cent). This "has
constrained by restrictive laws and unions - that increased undermined the role of basic wage as a reward payable for work,
employment more than the small firms [Sudha Deshpande performance
et al or skill of a worker" [EFI 1987:156-57]. It appears
1998:151]. However, Lalit Deshpande et al's study found thatthe two surveys that most firms (three-fourths in Lalit
from
smaller firms increased employment faster than large ones Deshpande
did et al's survey) paid only a consolidated wage, only
- but what is the definition of large is by no means clear. a fewFor(12 per cent, mostly large firms) paid a separate dearness
instance, they found firms employing 200 to 499 workers reg-
allowance. Sudha Deshpande et al note that the employers enjoy
istered largest employment increase. Sharma and Sasikumar also
tremendous flexibility as far as wage determination is concerned
found that small and medium firms were able to increase their (pp 135-36:149). The labour institutions do not impose rigidities
employment (by 39 and 31 per cent respectively), but large firms on wages.
registered a marginal decline in their employment (by about 2
per cent). Flexibility would mean both an increase and decrease Trade Unions and Industrial Relations
- it is not downward flexibility only as some refer. Employers
havebeen able and willing to increase labour employment knowing The campaign against trade unions grew louder in the era of
fully well that they would not be easily allowed to downsize later. liberalisation. Micro-level studies have found that unions are not
And if necessary they do reduce employment, which means thatas pervasive and as numerous in a plant as made out to be. Lalit
they either ignore the law or make ideological noises. They know Deshpande et al's study found union presence in just over one-
well that they can by-pass the law or introduce backdoor flexiblefourth of the firms surveyed. Multiplicity is less prominent. The
measures as they have been doing all these years. Some other post-Bombay textile strike period witnessed more lockouts than
interesting findings emanating from Lalit Deshpande's study are strikes [Shyam Sundar 2004a], the former being an important
worth reporting here. The percentage share of permanent manual managerial strategy to weaken union power and is a flexibility
employmentdecreased during 1991-98; percentage share of casual device. Lalit Deshpande et al found that both unionised and non-
among non-permanent increased; more than one-third of manual union present firms increased their capital intensity. The irre-
employment belonged to the non-permanent category (i e, tem- levance of union presence for labour substitution was also noted
porary plus casual); if contract labour is added then the share by Sudha Deshpande et al's study (p 64). Again, union presence
of non-regular (non-permanent plus contract) is 42 per cent. Large was not a deterrent to changing employment in either direction
firms (1,000 + workers) reported using more non-permanent- specifically, "three of every four firms reporting either an
especially casual labour; large firms employ a lion's share of increase or a decrease in total or manual employment reported
female labour among firms. The macro data offers support to presence of a union" [Sudha Deshpande et al 1998:65]. Sudha
flexibalisation tendencies in the labour market. The share of
Deshpande et al found that unionised firms were more likely to
casual workers in the total workers (even in urban areas where
introduce technological changes, change the product range and
improve the quality of the product (p 137). It has to be submitted
most of the organised sector is expected to be present) enumerated
by the NSSO has been consistently increasing since 1977-78
that union presence was slightly less conducive to growth of
[Deshpande et al 2004:49]. This category of workers does employment
not [Lalit Deshpande et al 2004:146: see also Leonard
enjoy the benefits and privileges that are enjoyed by regular
1992]; it may be that unionised firms may be old firms which
are on decline. Two observations are in order here. Venkata
salaried workers or even the self-employed (who may be better
Ratnam (2004) studying 234 collective agreements struck in th
off than the other two in some cases). The increasing casualisation
of workers indicates decreasing quality of employment. But 1990sthe found that unions were not a hindrance to introducin
question is 'are they outsiders?' kept at bay by insiders, i e,labour
by flexible measures in the firms; and he cited several clauses
of understanding reached between trade unions and managemen
the regular salaried and unionised workers? It is pertinent to note
on this issue. Ozaki (1999) has noted that in recent years trade (d) The commission has attempted to provide some measure of
unions have toned down their resistance to flexibility and have security and some institutional mechanism to instill confidence
come to see flexibility as a means of creating jobs and understand in workers and make employers responsible. The firm should
the inevitability of effecting flexibility in this age of intense clear all dues to workers before effecting retrenchment or closure;
competition (p 108). But unions assert that the flexibility deci- the government has to closely scrutinise employers' actions -
sions should be the result of social dialogue. for example, assess whether the employer effected retrenchment
in the relevant period before closure to scale down the workers'
Ill strength to less than 300 to avoid the obligation to take
Recommendations of the SNCL government's permission (paras 6.87-6.88, pp 350-53).
(e) The commission has tried to take into account both economic
on Labour Flexibility
and social considerations : workers need a higher compensation
The Second National Commission on Labour has recognisedand at the same time the economic conditions of the firms also
matter, hence a differential rates of compensation, lower rate of
the need for providing flexibility to employers in handling labour
to promote competitiveness and efficiency in the current contextcompensation in case of sick firms and higher one for healthy firms.
of globalisation of the economy and rapid technological progress (f) It has recommended use of contract labour for conduct of
non-core activities and for sporadic and seasonal demands it is
made. However, the commission has tried to provide safety net
permissible even for core activities. The commission has created
cushions to workers to lessen the pain of adjustments and imposed
some responsibilities and costs on employers. a new distinction, namely, core and non-core in place of existing
(a) The commission adumbrates the logic that if the employer perennial and non-perennial activities. Secondly, it has allowed
employment of contract labour even for core activities. These
could decide the size of employment at the start of the business,
there is no reason as to why he/she should not do so during theare great strides in restructuring labour market. However the
conduct of the business. It accordingly revokes the statutory commission makes certain other labour-friendly recommenda-
obligation to issue notice of change. tions. It recommends that contract labour be remunerated at the
(b) The commission has recommended full freedom to the same rate as regular workers in the same organisation doing
employers to lay off or retrench workers in all establishments similar work - the principle 'equal pay for equal work' irrespec-
('absolute flexibility'), thus removing the need for getting per- tive of status (and gender) underlies such a prescription. Becom-
mission from the government to effect these which is currently ing aware of unfair practices by contractors relating to social
in vogue (see the comparison between present ID Act and SNCL's security of contract workers, the commission strongly recom-
proposals in Table Al). If the lay off continues for a month then mends that the principal employer will be responsible forbenefits
the employer needs to obtain a post facto permission from the payable to contract workers and also for ensuring implementation
government. of the earlier recommendation. Also, it stipulates that no worker
(c) It has restored the original threshold limit (1976 amendment) can be employed in a non-permanent category against a perma-
for the need to get prior approval from the government for closure, nent post for more than two years.
i e, it requires firms employing 300 or more workers need to Not surprisingly, both trade unions and employers protested,
get prior permission from the government for closure; a case of the former more vehemently. The trade unions' fear stems from
'limited flexibility'. The commission has clearly given the the possibility of abuse of the freedom of the right to 'hire and
employers almost a free hand in handling labour as compared fire' given to the employers; they do not believe in the employ-
to the present restrictive set up (Table Al) ; but employers have ment generation potential of flexibility [D'Costa]; there exists
to consult the trade unions and cough up more money as com- scepticism about the job creating abilities of the manufacturing
pensation to the affected workers and provide longer notice time sector in response to reforms [Debroy 1997]. Even if they did,
and do not rule out the possibility ofjudicial review of employers' they argue that poor quality jobs would only be created. In other
actions. It is seen to be a 'reasonable' recommendation, because words they expect both job and income security to be under threat.
of the radical nature of demands and announcements made by The recommendations would create unemployment adding to
official panels and the finance minister in 2001, Y Sinha. The already alarming levels of unemployment. In fact the S P Gupta
latter in his budget speech in 2001 suggested the applicability committee report had expressed a similar concern and advised
of Chapter V B only to those units employing more than 1,000 against granting the unlimited right to hire and fire. The rec-
workers. This sparked off criticism even from leaders of the ommendations aiding labour market flexibility to employers
labour wing (BMS) of his own party (who denounced the would easily and soon be implemented and this would hurt the
undesirable practice of labour policies laid by him in a budget interests and bargaining power of the workers especially in the
and not by the labour minister). The task force on employment organised sector [Ghosh 2002]. These recommendations have
opportunities (Ahluwalia committee) recommended doing away brought all the onions including those two unions BMS and
completely with the permission clause in all establishments for INTUC, which had their representatives as members of the
all the three employer actions, thus reverting to the pre-1976 commission. In fact, the strong opposition from BMS put the
situation; he argued that applying a permission clause to very NDA government (especially the BJP) in an uncomfortable and
large establishments such as 1,000 + units would hurt employ- embarrassing position.
ment generation as these are labour-intensive industries. The The employers' associations were also not happy with the
commission's recommendations in comparison with the other report for several reasons. They were unhappy that the commis-
two would appear to be more reasonable since it gives protection sion had not raised the cut off limit for applying closure per-
to more firms and workers than the other two (Table A2). This mission clause to 1,000 + as indicated by the then finance minister
weakened the social and political acceptability of this recom- and approved by the cabinet of the NDA government. It was felt
mendation, but this was kept in social memory to manufacture that the commission has not "effectively and squarely dealt with
consensus for a less tough flexibility measure in future. the strategic areas that need labour reforms" (ASSOCHAM
quoted in Business Line, 'Labour panel report not in sync with
Employment Protection Measures
realities', July 5, 2002). However, employers would yet want the in Other Countries
recommendations of the commission to be implemented soon.
The compromise position seems to be the suggestion that Chapter The various aspects relating to employment protection in some
V B should be applicable to 300 + establishments (1976 position); selected countries are given in Tables A3 to A6. I have given
this has been included as a part of its industrial policy by the information relating to individual terminations and collective
government of Maharashtra (www.techno-prneur.net/timein/ terminations for the OECD countries as data are available on
maharashtra/ind-pol/labourlaws.html). The 300 + applicability that basis; for Asian countries the tables relate to termination
has been termed the 'Maharashtra solution'. of employment in a general sense.
IV Notice
International Conventions and
The employer is required to serve notice to the employee to be
Employment Security
terminated in order to minimise the element of surprise and shock.
International conventions framed by the ILO generallyThis applies usually to contracts of indeterminate duration. It is
serve as the basis for framing laws and regulations in the
also to prepare the worker in various ways to accept the separation
member countries of the ILO. The important provisions of and
the to take appropriate action. Notice period depends on (a) length
Termination of Employment Recommendation 1982 help of us
service, (b) basis of wage payment (daily, weekly, or monthly),
draft suggestions for reformulation of labour laws relevant(c) category of workers (manual or otherwise), and (d) age. In
to termination of employment. The basic premise of the con-several countries, a combination of these criteria will be taken
into account to determine the notice period. The administrative
vention is that employment of no worker should be terminated
procedure for notification is mostly written. In many countries a
without a valid reason connected with his capacity or conduct.
A worker should not be terminated for certain reasons such as copy of the notice has to be served on the government administrative
body also. We find from the tables that in most countries single
participation in union activities, on grounds of race, sex, marital
notice period is not followed; notice period varies with service
status, etc. A worker is entitled to defend his position (against
tenure - greater the period of service longer the notice period.
allegations of misconduct), appeal against unjustified dismissals,
receive a reasonable period of notice, get severance pay or In some countries pay in lieu of notice period is provided for.
unemployment benefits or both, and so on. When the employer
attempts terminations for economic, technological reasons, Avenue for Redressal and Reinstatement
he/she should notify and consult the trade unions in the firm;
Protection of workers in cases of unfair dismissals covers
it should also notify the competent authority and give relevant
information relating to terminations - notification may be
avenues for rederessal also. The principle here is that the affected
made in those cases in which the number of workers termi- worker should have the right to appeal against what he/she thinks
to be unfair dismissals. The bodies that enquire into th6se appeals
nated is at least a specified numberor percentage of the workforce
tArticle 14 (2)]. may be employment or labour courts, administrative bodies,
private arbitration agencies, or special bodies created by the
The convention does not speak of prior authorisation by the
collective agreements. Remedies in cases of proven unfair dis-
administrative authority. The recommendation on the same subject
(R166) goes further to suggest several other measures. missals include reinstatement of the dismissed worker. This is
The
employer should consider measures to avoid or minimise ter-
supported by the Termination of Employment Convention, 1982
mination such as internal transfers, training and retraining, [ILO
etc. 2000:23]. Reinstatement of a worker establishes employment
If the terminated workers express a desire to be rehired they security. If reinstatement is impractical, then financial compen-
sation is provided. It is important to note that prior authorisation
should be considered for rehiring, of course within time bounds.
from the statutory body and the right of reinstatement are the
It suggests several measures for mitigating the effects of termi-
two important protections available to trade union representa-
nation: placement of workers in suitable alternative employment
(say, through direct contacts with other employers), provide tives, pregnant women and workers subject to discriminatory
training or retraining, provide income protection, partial or dismissals.
full In some countries the decision to award reinstatement
reimbursement of costs of training, etc. depends on a number of factors such as the size of the enterprise,
In 1992, the Protection of Workers' Claims (Employer Insol- length of service of the affected worker, the effect the dismissal
has had on the employment relations in the enterprise, etc.
vency) Convention (No 173) was passed by the International
Decisions on reinstatement consider two aspects: job protection
LabourConference; this includes clauses on severance pay among
for the affected and the need to preserve harmonious employment
the claims to be protected. The Part Time Work Convention, 1994
relations in the enterprise. It is found that in practice, the rate
(C175) seeks to place part-time workers on a par with full-time
of reinstatement of workers has tended to be low (Table A3).
regular workers in terms their rights to organise, occupational
safety and health, discrimination in employment and occu- Though reinstatement is provided for, it is sparingly awarded;
pation, maternity protection, termination of employment and compensation
so in lieu of it is mostly awarded [ILO 2000:24].
on. Apart from these specific instruments, there are core labour
standards relating to freedom to organise and collective bargain-
Severance Pay
ing, which protect workers against any act of discrimination
(including termination of employment) for trade union member- It is an allowance paid by the employer for terminating an
ship or activity. Similarly Maternity Convention, 1919 (No 3)
employee irrespective of the reason for termination. It is provided
extends employment security to women workers in the process where social security is not existent or inadequate. It is paid by
relation to maternity. the employer or by a fund set up specifically for this purpose with
employer's contributions. Severance pay may be a fixed amount; (Law 30/12/86, nr.86-1320) administrative authorisation was re
but in most cases it is calculated taking into account level of wages quired for collective dismissals in France; it is still required in
and length of service. It varies according to years of service; the Netherlands [Bertola et al 1999]. Thus, a few countries require
different rates are specified for different years of service (Table A3). the employers to obtain prior permission before effecting dis
In some countries minimum and maximum amount of severance missals. Our neighbours Pakistan and Sri Lanka in Asia requir
pay are also specified. Several Latin American countries are prior authorisation for effecting dismissals (Table A5). A few
shifting from employer-liability severance payment systems to words about employment regulation in China are necessary. Th
defined contribution system (e g, Brazil, Trinidad, Tobago, Chile, employer does not have the freedom to terminate employmen
Columbia and Peru). Under the latter system, both employers at will in all cases. Since the early 1980s, the labour contrac
and employees contribute a certain proportion of their monthly system was introduced [SNCL 2002]. The employer may
incomes (employer's share higher than that of employees) to a employ a worker for a period ranging from six months to fiv
fund in the worker's name, portable to any job. In the event of years and may extend it if necessary. The employer is responsible
separation from the firm, the worker can have access to the fund for the workers' welfare only till the expiry of the contract [Shyam
plus the differential (to be contributed by the firm) to make the Sundar 2004]. Some dismissals (workers injured during work
total compensation equal to one month's pay per year of service. those under medical treatment and pregnant women workers) are
The total compensation is spread out over a certain period (say invalid. Summary dismissals are allowed in cases of acts of
five or six months), which would equal the average unemploy- indiscipline; no economic compensation for these dismissal
ment duration in a country (see Guasch 1999 for further details also. For collective dismissals, notice period exists (30 days),
trade unions need to be consulted, and labour departments shoul
and for information relating to the operation of the fund in Brazil).
be intimated; of course, prior authorisation is not necessary. Th
Collective Dismissals employer may reduce workforce if the firm "comes to the brink
of bankruptcy or runs into difficulties in production and man
The economic, social and political effects of mass dismissals
agement" [ILO 2000]; but they have to be proved to be necessary
create government's concern for public order and avoidance of
Economic compensation needs to be paid at the rate of one month'
industrial unrest. These causes include plant closures, suspen-
pay for each year of service for dismissals for economic reason
and collective dismissals; no compensation for dismissals o
sions, production difficulties or cutbacks, phasing out of indus-
trial processes, changes in procedures or jobs and so on. disciplinary
The grounds. The SNCL (2002) clearly asserted that "ther
definition of collective dismissals varies between countries;
were a no special laws or relaxations for the Special Economic
certain number of workers or a certain proportion of themZones in a orthe 'foreign invested ventures' orjoint ventures" (p 109
Again, it scotched the naive assertion by several in India tha
size group is taken as the criteria for defining collective dismissal
(Table A4). The employer is generally expected or required to
a foreign firm can close an enterprise just like that without th
consult the workers' representatives and share information knowledge
to (a) or approval of the government. In sum, it can be sai
find solutions to avoid dismissals and (b) examine the number
that prior authorisation for effecting labour separation and closur
of proposed dismissals. In most countries consultation is is
donethe most significant difference between India and most othe
on alternatives to redundancy, selection standards and ways to
countries; to be sure, it exists in a few countries, but only in a few
mitigate the effects. But notification to government authority is
required in most countries. In most countries no special regu-
Fixed-Term Contracts
lations exist on severance pay for collective dismissals [OECD
1999, Table 2A9, pp 109-14]. Most OECD countries and several developing countries
recognise the use of fixed-term contracts in 'objective' situations,
Dismissals and the State a term which typically refers to specific projects, seasonal work,
replacement of temporarily absent permanent workers (on sick-
A number of countries (31 countries), [ILO 2000:32] require
ness or maternity leave) and exceptional workload. These workers
do not require notice of dismissal and severance pay; it is a flexible
the firms to notify the government authorities of all redundancies
for the above-said reasons - the list includes US, UK, France,
arrangement. The trade off could be like this: keep the protective
Germany and so on. The purpose of notification mayprovisions
be to intact for regular workers and introduce options for
(a) simply inform the government authorities conlcerned employing
so as to flexi-categories [OECD 1999:59]. Its use is generally
unrestricted
know the magnitude of job losses, (b) inform them and get [Table A6; also Betcherman et al 2001: Table 5;
Guasch 1999:Table 6.4].
possible assistance, (c) facilitate the monitoring role of specialised
government agencies to ensure that prescribed rules for separation
are being followed by the firm or not, and (d) obtain in some cases Suggestions
prior authorisation for dismissal - this provision exists in some
The objectives of regulatory exercises (be it via statutes or
countries like Gabon, Greece, Guinea, Mauritius, the Netherlands,
Spain and Portugal. It was found that some 33 countries collective
in 1980 agreements) should be to: (a) facilitate the growth of
had laws requiring employers to notify a government agency the enterprise
in and make it sustainable in the competitive envi-
advance of collective dismissal of workers. The ILO Survey (1980) (b) promote employment; (c) offer sufficient protection
ronment;
found that some 15 countries, mostly developing countries, to workers; and (d) ensure social peace. The case for reform has
required explicit requirements for government authorisation been made
of on the principal point that the labour law by intro-
workforce reductions - Algeria, Chile, Colombia, France,ducingIndia, rigidities in the system has served neither the employers
nor the workers. The two warring labour market actors make
Iraq, The Netherlands, Panama, Portugal, Peru, Senegal, Sri Lanka,
Spain, the Sudan and Zaire (www.wws.princeton.edu/cgi-bin/ noises for reforms suiting their sectional interests which are not
byteserv.prl/-ota/disk2/1986/8619/861910.pdf).Till December reliable
1986 guides for reform exercises. The status quo cannot be
continued knowing fully well its limitations, nor can radical (e) Layoffs should be taken out of the government purview;
re-formulations be made diluting the hard won rights and privileges instead the rates of compensation for layoffs should be progres-
of either. The law should provide flexibility and yet extend sively higher: it should be 50 per cent of wages and allowances
security, a kind of 'flexicurity'. It has to be remembered that for the first month, 75 per cent for the second month and full
labour market institutions exist to offer social protection to salary subsequently. The high cost of layoff itself would discour-
workers and maintain social peace. It is neither desirable nor age the employer from using it frequently and without merit.
feasible to eliminate the rigidities in a wholesale manner [Solow
1998]. The basic premise that informs my suggestions is that Retrenchment
radical departure from the existing legal provisions will not be
acceptable to either party or even both the parties. Chapter V B is to be retained with some modifications. Employers
The contentious parts of the present legal set up is the existence should be required to notify only in case the retrenchment is below
of prior permission from the government agency for labour a certain socially determined proportion of the workers in the
separation and closures and the need to issue notice to unions firm; they should secure permission from the government for
before introducing changes in production. First, let us take prior effecting retrenchment of workers above that proportion. To
authorisation. It has to be recognised that the Emergency regime tackle the possibility of the employer retrenching workers within
in several ways 'disciplined' the working class - introducing the permissible limits in 'batches' and thereby retrench the
punctuality measures, reformed bonus concepts, weakened trade desired number in reality, some counter provisions could be built
unions and protest capabilities, etc - and enacted production into the law. This should take care of unions' objections. In both
enhancing measures: in short, it was employer friendly. It in- cases, informing and consulting with workers' representatives
troduced Chapter V B prompted by rampant use of layoffs, are compulsory.
retrenchments and many closures - "about half a million workers Raise the cost or benefit of resignation by legally allowing the
same amount of separation allowance; this will shift the locus
were laid off after the declaration of Emergency during the period
of June 1975 to December 1975. Besides, more than thirteen of action on to the employee and provide incentive for separa-
thousand workers were retrenched and 76 establishments were tions. Because workers often work towards transforming a quit
closed down rendering about ten thousand workers jobless"into a dismissal to benefit from generous dismissal provisions
[Sharma 1982:167].
The government tried to persuade employers to stop these Appendix
unilateral acts: when these efforts failed, the government brought
Table Al: Differences in Provisions Relating to Layoff
about the amendment to the ID Act to introduce the (in)famous Retrenchment and Closure in ID Act and SNCL
restrictive provisions. Emergency was bad, but this law was good Particulars ID Act SNCL
at least then. Now, this restrictive provision is seen to hurt the
process of employment generation: hence for both sides' interests Scope Factories, Mines and
Plantations All Industries
flexibility is said to be required. But at the same time, the reformNotice period or pay in lieu of it. 30 days 60 days
process has to be gradual and be implemented in a phased manner. Notice to
It is true that very few countries provide for prior authorisation; (a) Affected workers Yes Yes
(b) Negotiating agent No Yes
but to completely remove this protective clause as the SNCL (c) Appropriate government Yes Yes
suggested would only stall the reform process based on social Government permission
dialogue and social consensus. I outline below basic principles required for
(a) Layoff Yes (100 +) No (in all)
and in some cases explicit provisions. (b) Retrenchment Yes (100 +) No (in all)
(a) Item Nos 9 and 10 of the Fourth Schedule can be deleted; (c) Closure Yes (100 +) Yes (300 +)
but special compensation packages can be devised for workers Compensation rates
(No of days' pay per year of
affected by such business decisions - resort may be made to completed service) for
collective bargaining, conciliation or labour court (in the form (a) Retrenchment 15 45-60 (300+)
22.5-30
of an industrial dispute). Workers should be willing to undergo
(Less than 100)
training or retraining at employers' costs and accept redeploy- (b) Closure 15 30-45 (300 +)
ment without loss of current earnings or status; 15-22.5
(b) The notice period duration should be short and differentiate (Less than 100)
Layoff 50 per cent of wages 50 per cent of wages
according to the experience and category of workers; Clearance of dues to workers
(c) Intimation to unions or any workers' body must be compulsory as a pre-condition to closure No Yes
and their opinions and suggestions should be formally
institutionalised; Table A2: Percentage Distribution of Numb
(d) Severance pay prescribed should be treated as 'minimum' Number of Workers by Size of Factori
and the rates can be modified upwards by collective agreements; Employment Range Per Cent Share Per Cent Share of
differential severance pay should exist as in other countries; it of Factories Employment
should vary according to the economic health of the firm, as Less than 50 72.4 16.4
recommended by the SNCL. Constitution of a 'severance fund' 50-99 14.0 14.0
could be thought of with contributions from both employers 100-199 6.8 13.3
200-499 4.5 18.4
(higher rates) and workers. This fund could be used for various 500-999 1.5 13.3
purposes such as retraining, job-placement services, early retire- 1000 and over 0.8 24.6
ment programmes, relocation subsidies, etc. As in the Latin Total 100.0 100.0
American countries they could be used for paying the severance Source: EPWResea
package payments. 1997-98, Bombay.
Table A3: Regulations Relating to Individual Dismissals:
Country Administrative Procedure Notice/Tenure (8) Severance Pay/Tenure (8) Extent of
for Notification Reinstatement
Written (W) To (11) (Scores 0-3)
Oral (O)
(1) (2) (3) (4) (5) (6)
Austria W Work Council Usually 2 weeks 2 months > 3 years, 3 months
> 5 years, 4 months > 10 years,
6 months > 15 years, 9 months
> 20 years, 12 months > 25 years. 1.0
Belgium W or O Worker 7 days < 6 months, 28 days < 20 years,
56 days > 20 years (can be modified
by Royal Decree or by agreement) None 0.0
Denmark W Worker 0 < 9 months, 21 days < 2 years,
28 days < 3 years, 56 days < 6 years,
70 days > 6 years None 1.0
Finland W Trade Union for lack 0 < 4 months, 1 month < 1 year
of work in 30+ units 2 months < 5 years, 3 months < 9 years,
4 months < 12 years, 5 months
< 15 years, 6 months > 15 years None (9) 0.0
France W Labour Inspectorate, 7 days < 6 months, 1 month < 2 years, 1/1 th of a month's pay per year of
Work Council (for 2 months > 2 years service + an additional 1/5th after 10 years. 0.0
economic reasons)
Germany W or O Works Council (2) 4 weeks < 2 years, 1 month < 5 years, No legal entitlement but can be included
2 months < 8 years, 3 months < 10 years, in collective agreements and social
4 months < 12 years, 5 months < 15 years, compensation plans. 1.5
6 months < 20 years, 7 months > 20 years,
(to workers > 25 years of age)
Italy W Worker 2 days < 2 weeks and 6 to 12 days 2/27th of annual salary per year of service
thereafter. (often higher in collective agreements) 2.0
Netherlands W Regional Employment 1 month in the first 5 years of service, None by law, if a
Office (3) extended by one more month for every permission by a Labour C
additional 5 years of services up to a formula roughly may be: 1 mont
maximumn of 4 months. of service for workers < 40 years age,
1.5 for 40-50, 2 months for 50+. 1.0
Norway W Worker 14 days < 6 months, 1 month < 5 years, None by law. Lump-sum to long-serving
2 months < 10 years, 3 months > 10 years, workers (aged 50-55) by collective
>10 years, notice period increases agreement. 2.0
with age, up to 6 months for 60+.
Spain W Worker representative 30 days 2/3rd of a month's pay per year of service
up to a maximum of 12 months. 0.0
Sweden W Trade Union 1 month < 2 years, 2 months < 4 years, No legal entitlement, but occasionally
3 months < 6 years, 4 months < 8 years, included in collective agreements. 1.0
5 months < 10 years, 6 months > 10 years,
Switzerland W Worker 0 < 1 month, 1 month < 1 year, No legal entitlement, except for workers
2 months < 10 years, 3 months > 10 years 50+ age and 20+ service where SP cannot
be < 2 months wages. 0.0
United Kingdom W Trade Union (4) 0 < 1 month, 1 week < 2 years + For redundancy cases with 2 years tenure:
one additional week of notice per year 1/2 a week per year of service (18-21 age)
of service up to a maximum of 12 weeks. 1 week - (22-40), 1.5 weeks - (41-64),
limited to 30 weeks and ?220 per week. 0.0
United States No prescribed No prescribed No legal regulations, but can be included in collective agreements or company
procedure procedure policy manuals. 0.5
Canada No prescribed No prescribed 2 weeks 0 < 12 months, after which 2 days for each
procedure procedure year of service, but with a minimum of 5 days. 1.0
Australia No prescribed No prescribed 1 week < 1 year, 2 weeks < 3 years, None 1.5
procedure procedure 3 weeks < 5 years, 4 weeks > 5 years
These notice periods are increased by one
week if employee is over 45 years old and
has over 2 years of continuous service.
New Zealand W Trade Union (5) None by law. None by law (10) 1.0
Japan Trade Union (6) 30 days Average separation pay (retirement allowance
is almost 1 month per year of service; higher in
case of lay-offs and lower for voluntary qu
Korea W Trade Union (7) 0 < 6 months, 30 days > 6 months Retirement allowance of >30 days per year
of service by law. 2.0
Notes: (1) Information relates to blue-collar workers in cases where separate pro
(2) If works council objects and law suit exists, dismissed has to wait for de
(3) Prior authorisation is required from it except in case of bankruptcy and
(4) Not legally required when few workers are affected.
(5) For redundancy if required by a contract.
(6) The Courts must be satisfied that trade union / employee representatives hav
(7) For dismissals for managerial reasons notification to union or other wor
(8) 7 days < 6 months mean seven days' of notice or severance pay is requi
(9) Dismissed employees of 45+ age and with tenure 5+ years are entitled t
(10) According to survey data, typically 6 weeks for 1st year, and 2 weeks for
(11) The extent of reinstatement is based upon whether, after a finding of unf
wishes of the employer. 0 - when courts cannot order or enforce reinstat
available to the employee; 2 - fairly often made available; 3 - always mad
Source: The details are compiled from OECD (1999). Specifically, for columns (2)
(6) Table 2.2 (pp.55-56). For more details and clarifications see this source.
and keep the option of litigation. Exempt the sick firms from Disinvestment
the permission clause in relation to layoff and retrenchment.
Again some worker protection provisions could be included here. It has been argued that most public enterprises employ more
workers than required thanks to populist political measures [Kikeri
Closure 1998]. Optimisation of employment is said to be required to boost
efficiency of these enterprises. Hence, the strategy has been to
Raise the limit of applicability of permission clause from the reduce the workforce prior to and after privatisation. The former
existing 100+ firms to 300+ firms for partial closures; some safety
makes the sale process attractive. The current practice of attrac-
clauses could be built to avoid phased closure to achieve the tive voluntary exit schemes can be continued both prior to and
objective of full closure; Retain the existing permission clause after privatisation. The government usually inserts a clause in
in the case of 100+ firms for full closures. the sale deed protecting the jobs of workers for a year or so post-
privatisation. The trade unions point out that the agreement is
Contract Labour not usually honoured - the first thing that the privatised firm
does is to go about trimming the workforce; the government does
The recommendations of the SNCL regarding employment ofnot seem to have control over these matters or cleverly turns a
contract labour could be adopted with two qualifications. Thereblind eye. The government should first of all provide for longer
must be check to prevent replacement of regular with contract job protection tenure, say five years in the sale deed; secondly,
labour; the firm should get permission from the government tothe government should insert some penal clauses for violation
use contract labour for 'core' operations ['for sporadic seasonal of agreement clauses; thirdly, the matter of non-employment
demands', SNCL 2002:364]. should be eligible to be brought before labour and industrial
Table A4: Procedures and Standards for Collective Dismissals
Country Definition of Collective Dismissal Notification of Employee Representatives Notification of Public Authorities
Australia Employers planning to dismiss 15 or more employees Obligation to inform and consult with Notification of compet
on economic, technical or structural grounds. employees and trade union, where relevant, authorities.
Austria Within 30 days, 5+ workers in firms with 120-99 General duty to inform the works council Notification of local em
employees; 5 per cent + in firms with 100-599; 30_ about changes affecting the business. office.
workers in firms with >600; 5+ workers > 50 years old.
Belgium Within 60 days, > 10 workers in firms with 20-99 Obligation to inform and consult with works Notification of sub-r
employees;' >10 per cent in firms with 100-300; council or trade union delegation. employment office.
> 30 workers in firms with 300+ employees.
Canada 50 or more employees within a period of 4 weeks in Obligation to inform and consult with Notification of competen
federal jurisdiction, Manitoba, Newfoundland and recognised or certified trade union in less authorities or ministries
Ontario; between 10 or more and 25 or more in most than half of the jurisdictions. jurisdictions.
other jurisdictions.
Denmark Within 30 days, >9 workers in firms with 21-99 Inform and consult with works council or Notification of public employment
employees; >9 per cent in firms with 100-299; >29 trade union delegation. service.
workers in firms with 300+ employees.
Finland >9 workers in firms with >20 employees, in case of Consultation with trade union or personnel Notification of local
dismissal for financial or production-related reasons. representatives. office.
France 10 or more redundancies with 30 days (special Full information to be given to personnel Notification of departmental labour
obligations, similar to those for individual redundancy, delegates or works council and consultation market authorities (DDTEFP).
also for dismissal of 2 to 9 employees). meetings to be held.
Germany Within 30 days >5 workers in firms with 21-59 Consultation with works council. Notification of local employment
employees; 10 per cent or >25 workers in firms with office.
60-499; >30 workers in firms with >500 employees.
Italy In firms with 15 and more employees and over a period Duty to inform employee represen
of 120 days, 5+ workers in a single production unit; and competent trade union and s
5+workers in several units within one province, joint examination committee. depending on size of redundancy).
Japan No special statute on collective dismissal, but Courts usually require information and Notification of public employment
notification requirement in case of 30+ dismissals. consultation with trade union or employee service.
representatives.
Korea >10 workers in firms with <100 employees; >10 per cent Information and consultation with trade Notification to Ministry of Labour
of workers in firms with 100-999; >100 workers in union/employee representatives.
firms with >1000 employees.
New Zealand No special statute on collective dismissal. Duty to inform and consult with trade Not required.
union/employee representatives only if
required by contract.
Netherlands Over 3 months, 20_ workers dismissed by one Duty to inform and consult with works Notification of regional em
employer in one employment service region. council and trade union delegation. office.
Norway 10+ employees within a month Duty to inform and consult with trade Notification of district employment
union/employee representatives. office.
Sweden Collective dismissal governed by regulation on Duty to inform and consult with competent Notification of country lab
redundancy dismissal. trade union.
United Kingdom Within 90 days, 20+ employees. Duty to inform and consult with recognised Notification of Department of Trade
trade union or other elected employee and Industry.
representatives.
United States In firms with 100 or more employees and over a Duty to inform affected workers or labour Duty to notify state and local
period of 30 days, 50+ workers in case of plant closure, unions (where they exist). authorities.
500+ workers in case of layoff; 50-499 workers, if
they make up at least one third of the workforce.
Notes: (1) In most countries consultation is done on alternatives to redundancy, selection standards and ways to mitigate the effects.
(2) In most countries no special regulations exist on severance pay for collective dismissals.
Source: OECD (1999, Table 2 A9:109-14).
courts. The government should also specify the voluntary exit be given exclusive attention. Both trade unions and employers
packages for the privatised firms in case there are preferences do not serve either their sectional interests or social interests by
for voluntary exits after privatisation. sticking to their ideology. A social compromise should emerge,
both taking a step further. Reckless and relentless pursuit of
Flexi-work flexibility by employers could prove to be counter-productive;
it at best becomes an 'ideological' battle rather than constituting
Flexi-work need not be perceived negatively by both unions 'rational' business decisions. Similarly, trade unions ought to
and workers [Shyam Sundar 2003]; they constitute a way out realise that flexible jobs are not 'bad' ones and they are necessary
of unemployment and a bridge to long-term employment and may for some category of workers and to enable the unfortunately
serve as a necessary complement to other productive and repro- placed workers to enter the labour market, a kind of 'gate' so
ductive activities [Eyck 2003]. Non-standard jobs provide a to say. Jobs, any kind of jobs, are required to alleviate unem-
necessary opening to workers who are placed at the margin of ployment. A comparison of employment protective legislative
the labour market. Flexi-jobs are the only chance for the 'out- provisions of various countries has certainly shown that Indian
siders' and vulnerably placed workers to enter the labour market. employment law post-1976 has become more restrictive. As
Zagha (1999:169-70) has pointed out, the procedural require-
A Few Words More ments (notice period and severance pay) in India are not onerous,
it is the permission clause that is the bother. It is socially impossible
This paper has sought to assess the labour flexibility debate
to nullify this highly protective provision benefiting thousands
in a comprehensive manner. It is essential that some balance of
ought
workers at a single stroke; the reform process has to be gradual.
to be maintained between flexibility and security; neitherThere
is to can be healthy trade offs between various tvoes of workers'
Table A5: Some Aspects of Termination of Employment in Countries in Asia
Country Notice Period Prior Permission Severance Pay
Bangladesh 4 months for monthly paid workers, 30 days wages for every year of service, in
2 months for others. No excess of 6 months + pension benefits.
China 30 days No Onemonth'swagesforeveryyearof service.
Hong Kong As per agreement, but not less than 7 days No
Indonesia No statutory provision Yes, collective dismissals of more than 10 One month's pay.
workers regulated by law
Japan No statutory period but usually 30 days No No statutory provision.
Malaysia 4 weeks < 2 years of service No 10 days wages for 1-2 years of service.
6 weeks < 2-5 years of service 15 days wages for 2-5 years
8 week > 5 years of service 20 days wages for > 5 years.
(these are statutory minima)
Pakistan 1 month Yes, from Labour Court for closure or 20 days wages for every year of service, in
termination of employment of more than excess of 6 months.
50 per cent of workers.
Republic of Korea 30 day's notice. Collective dismissals and redundancy 30 days for every year of service.
allowed for 'urgent managerial needs'.
Singapore Governed by contract No Only for workers with more than 3 years of
service; benefits as per agreement.
Sri Lanka 1 month Yes, from Labour Court for workers No statutory prescription; usually6 months
employed in 15_ Units and with service to 5 years' pay.
of more than 6 months permission.
Source: ILO (2000).
Table A6: Regulation of Fixed-term Contracts

Country Valid cases other than 'Objective or 'Material' Situationa
Current Practice Scoreb (0-3)
Australia No restriction in legislation. 3
Austria No restrictions for first contract. 2.5
Belgium Still in principle restricted to objective situations. 2
Canada No restrictions. 3
Denmark Fixed-term contracts allowed for specified periods of time and/or for specific tasks. 3
Finland Permitted for temporary replacements, traineeship, and special business needs. 1
France Restricted to 'objective' situations. 1
Germany Fixed-term contracts are now widely possible without specifying any objective reason. 2.5
Italy Traditionally limited to 'objective' situations and subject to approval by the Employment Office. Since 1987,
fixed-term contracts can be used more widely. 1
Japan Fixed-term contracts under 1 year duration widely possible without specifying any objective reason. 2.5
Korea Fixed-term contracts under 1 year duration widely possible without specifying any objective reason.
Contracts over 1 year still limited to objective situations. 2.5
Netherlands No restrictions. 3
New Zealand No restrictions in legislation. 3
Norway Permitted for specific tasks/projects, the hi
absent employees, and job creation measures. 1
United Kingdom No restrictions. 3
United States No restrictions. 3
Notes: (a) All countries recognise th

replacement of temporarily abs
(b) Scored 0 if fixed-term contract
exemptions apply to situation of
exemptions exist on both the em
Source: OECD (1999, Table 2-A
securities: assure representational, skill, labour market, work ILO (2000): Termination of Employment Digest, ILO, http://www.ilo.org/
public/english/dialogue/ifpdial/downloads/term/digest.pdf..
securities; strengthen income security and gradually offer em-
ILO-SAAT (1996): India: Economic Reforms and Labour Policies, ILO-
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and employers by their social vision should boost the confidence Industrial Policy of Maharashtra (2001): 'Labour Laws and Procedures',
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Johri, C K (1996): 'Industrial Relations as Regulated by Law: Suggestions
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academic spirit is an inspiration to me.] Kikeri, Sunita (1998): Privatisation and Labour: W!hat Happens to Workers
When Governments Disinvest, World Bank Technical Paper No 396,
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Labour Flexibility Debate in India: A Comprehensive Review and Some Suggestions

Author(s): K. R. Shyam Sundar

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Source: ILO (2000).

Table A6: Regulation of Fixed-term Contracts

Notes: (a) All countries recognise th

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