Rebooting Economy 35: Is Fixed Term Employment a boon or bane for India's workforce?

Rebooting Economy 35: Is Fixed Term Employment a boon or bane for India's workforce?

The economic crisis following the pandemic and untimely national lockdown have been used by both the central and state governments to push through unilateral measures that undermine workers' interest by dismantling critical protections

Though the central Code on Wages 2019 mandates payment of minimum wage, it is not in force in the absence of rules under it Though the central Code on Wages 2019 mandates payment of minimum wage, it is not in force in the absence of rules under it

The pandemic induced national lockdown led to massive reverse migration of workers and millions lost their jobs the true extent of which would never be known since the central government did not track it. This should have occasioned better protections for workers; instead, the reverse has happened.

The central government hurriedly passed three new labour codes in September 2020, increasing the thresholds for several legal protections for workers and introducing a new category of employment called Fixed Term Employment (FTE) which can potentially be used to turn permanent workers into temporary (contract) ones.

Before that, about a dozen state governments had issued notifications dismantling many basic protections like payment of minimum wages and minimum working hours, some for a period of the next three years.

Such moves raise serious questions about the true motive of the state apparatus.

Also Read: Rebooting Economy 34: Temporary jobs hurt both workers and economy

Fixed Term Employment (FTE) makes workers more vulnerable

Unbeknownst to many, Fixed Term Employment (FTE) provided in the Industrial Relations (IR) Code 2020 is not a benign move to help contract workers get equal pay, provident fund, gratuity and other social securities at par with permanent employees, as the central government claims. It is much more than just that and will end up harming the workers, as it has already done in Europe.

Here is how.

Firstly, FTE has been included in the Standing Orders (First Schedule of the IR Code 2020) applicable to all industrial establishments, adding a new category of employees to the existing five: permanent, temporary, apprentices, probationers and badlis. It will swell the "temporary" category of workers, though called by a different name.

Secondly, the Central Rules of 1946 under the Industrial Employment (Standing Orders) Act of 1946 provided that "temporary" and "probationers" will become "permanent" after a "period ofthree monthsin the same or another occupation in the industrial establishment".

There is little chance of this being retained in rules to be framed because FTE is now universal in applicability: it is part of the Code on Social Security (SS) 2020; the central government has adopted it for its own hiring and it already exists in the formal private sector for the past two decades.

Thirdly, the gazette notification of March 16, 2018, which introduced the FTE for the first time in the country, had put a restriction on its applicability: "No employer of an industrial establishment shall convert the posts of the permanent workmen existing in his industrial establishment on the date of commencement of the Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018 as fixed term employment thereafter".

This restriction does not find a place in the IR Code 2020 and unlikely to find a place in the rules to be framed. Under the new regime of FTE, a permanent employment can potentially be turned into FTE at any time and fired at will. For those who believe that workers' "consent" matter, there is little choice for them in view of chronic unemployment and massive job loss in recent months.

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A senior leader of the Bharatiya Mazdoor Sangh (BMS), affiliated to the ruling RSS-BJP, says on condition of anonymity that "consent" for Indian workers means "under pressure". He should know because he has been fighting for their cause for decades.

Fourthly, the very concept of FTE comes from Europe which adopted it in the early 2000s. It was meant to provide both flexibility to the industry and act as a stepping stone for young and raw hands to establish their suitability for permanent employment.

But Europe has witnessed a meltdown of a different kind.

Prof. Bas ter Weel of the University of Amsterdam highlighted this in his article "The Rise of Temporary Work in Europe" (published in De Economist on October 22, 2018). While stating that FTE continues to be a stepping stone for young and raw hands, much has changed in five countries he focussed on: the Netherlands, Sweden, France, Spain and Italy.

He listed some significant changes: (i) the transition rate from FTE to permanent employment has been falling over time; (ii) FTE has created duality in labour market with low transition rate and high wage difference (between FTE and permanent workers); (iii) duration of FTE is getting shorter -in Spain, 25% of all new contracts lasts less than a week and 40% last less than a month;(iv)FTE hires are more likely to be low-wage workers, concentrated in the lowest income bracket and (v) FTE is increasing wage volatility and lowering job security.

The European experience should have been a wake-up call for India where 94% of workers are informal with no job security and no social security. The FTEs will cause damage to the rest 6% of formal workers.

A senior BMS leader says FTE is "creating a lawless regime" which should not be in the statute at all. At best, he says, it should be restricted to contract workers in the Occupational Safety, Health and Working Conditions (OSHWC) Code 2020 toensure parity in pay and social security for contract workers with permanent employees. By including it inthe IR Code 2020 (Standing Orders thereunder) as a separate category of workers, it is an invitation to trouble.

Also Read: Rebooting Economy 32: Wage code leaves millions of workers out in cold

Economist Radhicka Kapoor of the Indian Council for Research on International Economic Relations (ICRIER) points out that India first adopted FTE in 2016 in the apparel industry and then extended it to all sectors in the 2018 budget. She welcomes it for providing flexibility to industry (de jure, not de facto), especially in view of the pandemic induced economic crisis, but she also warns against using it to circumvent the hiring of permanent workers.

She argues that a proper framework should be in place to govern FTE which would (i) restrict FTE renewals and facilitate absorption as permanent worker and (ii) restrict it to specific activities outside "core activity" to bring stable employer-employee relationship which is essential for investing in skilling to improve productivity as well as end uncertainty in career and instability in personal life of young recruits.

Given the fact that the traditional contract system exists (hiring through a contractor) and new codes allow employers to hire contract workers directly (definition of employer includes contractor), she wonders if FTE would make any difference to contract employment at all.

As for the flexibility that FTE is supposed to bring, here is an interesting finding.

In 2014, the World Bank carried out a survey of Indian establishments (manufacturing and services) while preparing its "Ease of Doing Business" report (of 2014, published in 2015) to find out how big obstacle labour law "rigidity" in India presented to them.

It found: 35.7% responding firms marked it "minor obstacle"; 17.3% "moderate obstacle" and 10.4% "major obstacle". Clearly, there are far bigger "major obstacles" to ease of doing business in India than its labour laws.

Prof. Kapoor wrote in her policy paper "COVID -19 and the State of India's Labour Market", published in June 2020, thatjust 0.5%of India's total workforce has written contracts of more than 3 years and access to all social security benefits ("a mere 2.2% in regular salaried jobs" out of 24% of total regular wage/salaried category workers). Her estimate is based on the latest data from the PLFS of 2018-19.

It needs no elaboration that employment/wage is the most significant tool for redistribution of wealth and labour laws are critical for both economic and political power to the disadvantaged.

States dismantling even basic workers' rights and protections

State governments are not far behind in undermining the rights and protections of workers. Using the pandemic and the economic crisis, about a dozen state governments suspended them.

The governments of Gujarat, Uttar Pradesh, Madhya Pradesh, Haryana, Uttarakhand, Himachal Pradesh, Assam, Goa, and Rajasthan had done so by May 12, 2020, Maharashtra and Karnataka joined later. Their notifications suspended applicability ofbasic and fundamental legal rights such as payment of minimum wages, minimum working hours and overtime for extra work, not to mention health and safety as well as social security protections (by suspending applicability or increasing thresholds for applicability).

The Uttar Pradesh government suspended, on May 6, 2020, all labour laws for three years except Bonded Labour System (Abolition) Act, 1976; Workmen Compensation Act, 1923; Building and Other Construction Workers Act, 1996 and those relating to women and children.

It later withdrew extending working hours to 12 hours a day (from 8-hour a day), following the Allahabad High Court's notice, but other suspensions, including that of minimum wage, are in force. A petition challenging the suspension of minimum wage is pending before the High Court.

Also Read: Rebooting Economy 31: Will new labour codes protect more workers or less?

Though the central Code on Wages 2019 mandates payment of minimum wage, it is not in force in the absence of rules under it. The Union Labour and Employment Ministry says rules for all four labour codes are likely to be notified together by the end of December 2020. This would mean the Uttar Pradesh workers would be deprived of minimum wages until then.

Limited applicability of SC order in favour of workers

The Supreme Court (SC) received a rare applause on October 1, 2020, when it quashed two Gujarat government notifications exempting all factories from complying with working conditions and overtime payment. These notifications invoked the pandemic to use emergency power granted under the Factories Act of 1948 and extended the working hours to 12 hours with no entitlement to overtime payment.

The top court dismissed the plea that the pandemic threatened India's security in a manner that constituted "public emergency" within the meaning of Section 5 of the Factories Act of 1948 to justify invoking it.

The SC invoked Article 21 (right to life, liberty and equal protection of law) to argue that the "right to life" guaranteed to every citizen under the Constitution includes workers and that denial of humane working conditions and overtime wages provided by law "are an affront to the workers' right to life and right against forced labour that are secured by Article 21 and 23 of the Constitution". (Article 23 prohibits forced labour.)

This law will hold in case of similar modifications under Section 5 of the Factories Act of 1948 in other states but not otherwise.

Some states have changed a host of other laws relating to workers. Uttar Pradesh has issued a series of notifications changing the laws relating to shops and establishments, migrant workers, and many others; Madhya Pradesh changed its Standing Orders of 1961, increasing thresholds from 50 or more workers to 100 or more workers for its applicability.

Also Read: Rebooting Economy XXX: Rural India in far deeper crisis than what govt data claims

All these changes require the central government's approval, labour being a concurrent subject. Ironically, the union labour ministry has no information since no approval was sought from it, says its official spokesman. Instead, these approvals went to the Ministry of Home Affairs (MHA).

While the spokesman couldn't explain why this change, it may have to do with the fact that the MHA invoked the Disaster Management Act of 2005 in March 2020 to micromanage the pandemic, the lockdowns and the unlocking process. The changes in labour laws by the state governments are also premised on the pandemic and its impact.

That the MHA has no domain expertise on labour issues is quite another matter.