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Lessons From Wistron

Labour trouble at the plant calls for introspection on the right balance between reforms and Licence Raj
Rukmini Rao & Sonal Khetarpal | Print Edition: January 24, 2021
Lessons From Wistron
"Since the unfortunate events at our Narasapura facility we have been investigating and have found that some workers were not paid correctly, or on time. We deeply regret this and apologise to all our workers" -- Wistron Infocomm Manufacturing

The First Information Report filed at the Vemagal police station, a few kilometres from Wistron Infocomm Manufacturing's facility at Narasapura Industrial estate in Karnataka, details the violence at the factory premises that took place at the break of dawn on December 12. It said around 6 a.m., a mob consisting of workers and outsiders barged into the human resources block wielding iron rods, and went on a rampage destroying valuables and setting ablaze company vehicles. Several items, including iPhone and laptops, were reportedly stolen as well, and the company initially estimated a loss of around Rs 437 crore. According to workers, the reason behind the rampage was an insensitive management, which ran the factory like a sweat-shop, with 12-hour shifts, nearly 80 per cent of the workforce on contract, and an inordinate delay in wage payment and even non-payment in certain cases. The state government swung into action immediately and dispatched teams from the labour department with senior officials, while arresting nearly 300 workers for rioting.

What The Investigation Revealed

Details of the report, as seen by Business Today from the inspections held on December 12 and 13, observed that the company employed 1,343 permanent and 8,483 contract workers. Seven firms, including Innov Source Pvt Ltd, Creative Engineers, Needs Manpower Support Services, Ranstad, Quess Corp Ltd, Adecco Group and United (House Keeping), supplying the required workforce. Preliminary findings suggest that though the total workforce was around 10,500, the HR department did not have personnel with sound knowledge of labour laws, and the faulty attendance system had not been addressed for the past two months. Salaries of workers, which had to be disbursed on or before the 10th day from the last day of the wage period, i.e. 1st of every month in the instant case (wage period being 23rd of the previous month to the 22nd of the next month), was wrongly stated by the HR personnel as payable on or before 10th of every month. "The practices in place with regard to payment of wages and overtime are not in line with the provisions of law, the report said.

There was also a difference in payments paid to contract workers, verification with contracting agencies revealed. The housekeeping contract workers were not paid to date; they were required to work for 12 hours a day for six days a week, but paid only for eight hours a day. The company had not taken necessary permissions for increasing staff strength, and exemptions under the Factories Act 1948 were not implemented in case of overtime. The 12-hour shift was in violation of the provisions of Section 51 and 54 of the Factories Act, 1948. Additionally, construction of huge buildings and other facilities were being carried out without obtaining the previous permission of the department for extension of the factory building, and statutory compliance pertaining to the requisite number of safety officers, welfare officers and medical officers as stipulated under the Factories Act, 1948, were not complied with.

According to a senior bureaucrat in the state government who did not wish to be named, the company which started its operations two years ago at a facility in the Peenya industrial estate in Bengaluru, assembling iPhone SE and 6s, had set up the Narasapura facility in early 2020. Since August 2000, post lockdown, the company increased its workforce substantially. "The company, which had sought permission for 5,000 workers, seems to have moved ahead recruiting more, may be due to a surge in demand and also to make up for production loss due to the shutdown," he added.

On December 15, Wistron Corporation did a U-turn on the extent of damages claimed earlier in a statement to Taiwan's stock exchanges. "Unlike what earlier reports stated, the violence did not cause any material damage to major manufacturing equipment and warehouses, with preliminary estimates of damages in the range of NTD 100 to 200 million (Rs 27-52 crore)," the statement said. However after the labour department's investigation confirmed malpractices, the company issued a statement a week after the incident, admitting to 'mistakes' on its part. "This is a new facility and we recognise that we made mistakes as we expanded. Some of the processes we put in place to manage labour agencies and payments need to be strengthened and upgraded. We are taking immediate action to correct this, including disciplinary action," the statement said.

According to sources, the company also removed Vincent Lee, Vice President, Innovation Business Group of Wistron Infocomm Manufacturing India, and restructured the India team. Managing Director Sudipto Gupta continued in his post. "Our top priority is to ensure all workers are fully compensated immediately and we are working hard to achieve that. We have established an employee assistance programme for workers. We have also set up a 24-hour grievance hotline in Kannada, Telugu, Tamil, Hindi and English to ensure workers can voice any concerns they may have anonymously. We are deeply committed to our business and employees in India," the statement further said.

The Perils Of Contract Labour

The Wistron incident brings into focus the effectiveness of labour laws, especially at a time when industries are increasingly opting for contract labourers to maximise returns with minimum payout. The Contract Labour (Regulation and Abolition) Act was framed to protect contract workers. According to the law, wage payments should be made by the contractor in presence of the principal employer. In case of non-payment by the contractor, the legal obligation falls on the principal employer (the company), who will then recover the due amount from the contractor. However, in practice, principal employers often don't exercise adequate diligence to ensure payments on a regular basis. "In practice, contractors often pay only when they receive payments from companies. In such a structure, even if one party lags, contract labourers suffer," says Atul Gupta, Employment Lawyer and Partner at law firm Trilegal. Also, since the number of contractual workers in India is usually high, they are known to organise on their own. "They might not be recognised as bargaining unions but they do create their own unions and agitate for their cause," says Gupta. It is very common in the auto sector where contractors create their own unions. In fact, the single-biggest reason why the industry opts for contract labour is not the cost, but the flexibility to terminate. According to the Industrial Disputes Act, government approval is required if a manufacturing unit with 100 or more workers (300 in some states) wants to terminate any worker or to shut down the factory. These kinds of restrictions are not something the industry always wants to adhere to, and engaging contract labour provides more flexibility.

The Fault-lines

While the Contract Labour (Regulation and Abolition) Act was meant to regulate and abolish contract labour, the abolition aspect isnt as straightforward in the law. A committee has to be formed and a notification has to be issued from the government that contract labourers cannot be hired in certain activities. There is also no limit on the number of contract labourers that a factory can hire. "These kinds of notifications are not issued on a regular basis," says Gupta of Trilegal. So, industries rely heavily on contract workers even for core roles, instead of full-time employees. This is where the Contract Labour law has failed, adds Gupta. Andhra Pradesh has changed its Contract Labour (Regulation and Abolition) Act to eliminate hiring of contract labourers for core jobs, but implementation remains weak.

In Wistron's case specifically, it seems a failure of labour market governance on part of the government and the principal employer. This is where inspection becomes the big issue. The Karnataka state government had earlier proposed to eliminate surprise inspections dealing with labour. "While the law has not been passed, but if the ruling party has the neo-liberal stance, the labour department will also informally start following those norms and will not conduct inspections," says K.R. Shyam Sundar, Labour Economist and Professor, XLRI-Xavier School of Management, Jamshedpur. Labour market governance mechanisms such as inspections cannot be compromised, though it can be made employer-friendly. "If inspections were taking place, this incident could have been avoided," adds Sundar.

Recently after a visit to the factory, Karnataka Labour Minister Shivaram Hebbar said the unit will commence full-fledged operation in January, and the government will make sure that workers get their dues. Apple meanwhile has put Wistron on probation, refusing to give the company any new business before corrective actions are implemented.

@rukminirao; @sonalkhetarpal7

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