In August last year, Maruti was one of the two case studies presented at a Confederation of Indian Industry (CII) seminar on contract labour for the way the automobile company had “engaged with its contract labour”.
It is ironic that less than a year later, the company is in the middle of an indefinite strike by 800 of its workers who are demanding a permanent absorption of contract workers at the Manesar plant, among other things.
Though Maruti has taken a tough stand saying it doesn’t understand what the actual grievance is, the issue brings India Inc’s uneasy relationship with contract workers into sharp focus. The issue is sensitive and India has already seen a violent example of this when a few workers of an Italian company killed the manager of its India plant because he allegedly replaced permanent workers with ones on contract.
To be sure, that was an extreme case. But in the absence of any labour law reforms over the past so many years, even the courts have taken contradictory positions in the recent past. One judgement said priority must be given to absorption of contract labour whenever a new position comes up, while another said no such guarantee can be given by a company because the terms of employment itself talk about a fixed contract.
This only highlights the prevailing confusion. Even as both sides – the management and workers – have taken advantage of loopholes, successive governments have pushed the main issue under the carpet despite recommendations made by several committees and even the Planning Commission. Let’s look at some of the issues raised by them.
The Contract Labour (Regulation and Abolition) Act was originally enacted to regulate the practice of contract labour to avoid exploitation of sweated labour. Section 10 of the Act empowers the government to prohibit contract labour in certain situations at the discretion of the government.
In practice, the Act has been interpreted as requiring the abolition of contract labour for all services that are of a regular nature and are performed on the factory premises. Two Supreme Court judgements in two cases involving the Gujarat State Electricity Board and Air India have had the effect that employers using contract labour to perform regular services on the premises of the employer become liable to absorb such labour permanently. Industry has on several occasions expressed its disappointment at this viewpoint because it defeats the purpose of employing contract labour.
A Planning Commission report on employment opportunities said the role of contract labour has to be seen in the context of a growing trend towards unbundling the production process into parts and outsourcing supply of these to different producing units. This practice will increase with the growth of information technology. If such outsourcing leads to a greater specialisation in the production of these services, with resulting gains in efficiency and reduced costs, it could – rather would – stimulate a larger total demand for these services and, therefore, create employment.
For example, outsourcing of security services could make these services more cost-effective and, therefore, lead to more demand. An important aspect of cost-effectiveness is that the service can be discontinued or contracted on a reduced scale in difficult times.
But the present legal provisions introduce a disincentive to the expansion of contractual services. It’s true that enterprises can freely outsource those services that need not be performed on the premises (for example, laundry and so on). But for services that are of a regular nature and have to be performed on the premises (for examples, work in canteen, cleaning, gardening, loading and unloading and so on), employers outsourcing these run the risk that the labour used in such services may be treated as contract labour, and may have to be absorbed permanently on the payroll.
This obviously discourages employers from using such services freely, and most companies make sure that the outside labour used for such services are changed frequently so that no one makes a claim for permanent absorption. This results in a lot of heartburn. Also, there are numerous examples of companies asking outside workers to do regular work on their premises without any paper work to avoid the legal hassle of giving them contract worker status. These workers get no benefits and are paid much lower than their permanent counterparts for the same amount of work.
The Contract Labour Act, therefore, needs to be amended urgently to allow employers to outsource all peripheral activities to specialised companies, even if it means these employees work on their premises. The legitimate interests of workers engaged in these activities can be easily protected by defining minimum responsibilities for health, safety and remuneration.
The contract labour issue is just one of the two issues (the other being recognition of a union) raised by Maruti’s workers. But if left unattended, we will continue to see the sad spectacle of workers resorting to unreasonable strikes and employers making sure that no one qualifies for the contract labour status as defined by an archaic law.