Indian Employment Law: Stasis Redux

By Justin Bharucha & Donnie Dominic George

Posted: 13th May 2013 08:57

The unhappy condition of employment law remains a significant concern for the Indian industry. That legislation is archaic and inadequate to the needs of the modern Indian economy has been underscored by events of the last 18 months.
 
An extreme example of a breakdown in employee relations and the inadequacy of Indian employment law, in this context, was the strike at Maruti Suzuki’s manufacturing unit in Manesar, Haryana. In the months of June, August and September of 2011, workmen at the company’s Manesar unit went on strike to protest against alleged underpayment of wages, large-scale employment of contract (temporary) labour and unreasonable working hours. The workers also claimed that the company had attempted to sabotage the formation of an independent trade union. During this time, Maruti reportedly suffered a production loss of more than 20,000 vehicles and a revenue loss of more than INR 10 billion.
 
In 2012, Maruti’s relationship with its workmen deteriorated further with the company having to declare a lock-out at the Manesar plant from 21 July to 21 August following an attack on its management which led to the death of a senior employee and injuries to nearly 100 others. The lock-out resulted in the company losing almost INR 14 billion in revenues. These episodes are amongst the darkest in the Indian automobile industry and also amongst the most significant industrial action India has witnessed in decades. These issues were finally resolved by management at Maruti taking the lead in finding a solution.
 
Separately, the manufacturing operations of Mahindra and Mahindra, one of the largest commercial and passenger vehicles manufacturers in India, at its Nashik and Igatpuri units in Maharashtra were disrupted due to striking workmen. The strikes were a result of disagreements on wage hikes and the consequent suspension of one of the union leaders. As a consequence of the strike, Mahindra and Mahindra incurred production losses of 500 vehicles. However, following negotiations and the revocation of the suspension, the strike was called off. Media reports indicate that the pro-active stance of the management at Mahindra and Mahindra played a significant part in the relatively quick resolution of this issue.
 
It is telling that the most significant industrial disputes India has witnessed in the recent past were finally resolved without reference to the Industrial Disputes Act, 1947 (IDA), which is the principal statue that applies and merely postulating that the final solution of a dispute cannot be found in statute is to miss the larger issues: Indian employment law allows for regulatory and financial arbitrage: arguably, is the cause of rancour in the workplace: and is inadequate at providing a framework to resolve the issues in the modern Indian economy. It is pertinent that the IDA is based on Bombay Industrial Disputes Act, 1938 as amended by the Defence of India Rules promulgated during the Second World War.
 
The difficulty Indian industry faces is exemplified by the dichotomy between the Sick Industrial Companies Act, 1985 (SICA) and the IDA: SICA operates to assist ‘sick’ industrial companies and requires companies which are ‘potentially sick’ to make filings with the Board of Industrial and Financial Reconstruction. This increases compliance costs and rigour and companies would prefer to ensure that they are not ‘potentially sick’. However, as several of our clients have found, Indian employment law, specifically the provisions of the IDA dealing with temporary ‘lay-off’ of employees, greatly limits an employer’s ability to expeditiously implement such temporary measures to address these problems. The politicisation of industrial disputes only exacerbates these problems.
 
The process of employment law reform in India remains slow. Some significant developments over the last year are:
   
Indian law has recognised the need for safer, more equitable and secure workplace. The lacunae on this front are more those of implementation – statutory law addresses most of these issues and courts stand ready to fill in such gaps as exist.
 
However, longer term employment generation and employee security depend, if only in some part, on employment legislation which recognises the challenges of a modern globalised economy and is geared to help employers and employees address these. The paradigm and procedures for addressing and resolving industrial disputes must be streamlined, balanced and most importantly, effective. The economic uncertainty, which is the ‘new normal’, demands a degree of maturity and balance, presently missing in the Indian employment law. An interesting question is the extent to which vested interests, employers and employees continue to maintain the status quo. That is, of course, a larger discussion for a separate article.
 
Justin Bharucha is a partner and Donnie Dominic George is an associate at Bharucha & Partners. Justin and Donnie advise on transaction mandates principally relating to mergers and acquisitions where foreign investors (strategic as well as financial investors such as private equity firms) are involved and also financing mandates including external commercial borrowings. 
 
Their practice also includes corporate restructuring, corporate compliance, regulatory compliance, telecom, structured finance, employment laws, corporate criminal litigation, power, and real estate.
 
If you have any queries, please contact them via phone on +91 22 2289 9300.

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