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Press Release

FDI must pour in post-IRC Regime: Will it?

05th October, 2020

The objective of the Industrial Relations Code (IRC) gazetted on 29 September 2020 is to rationalize and amalgamate three labour laws: the Trade Unions Act, 1926 (TUA), the Industrial Employment (Standing Orders) Act, 1946 (IESOA) and the Industrial Disputes Act, 1947 (IDA) and to facilitate ease of doing business (EODB) "without compromising" labour welfare and benefits. IRC is an imbalanced amalgam of flexibility to employers and union rights of workers.

IRC is historic as it cures the historical malady that existed in the TUA, viz. absence of a statutory provision regarding trade union recognition. This deadly deficit plagued the industrial relations in numerous firms over the decades as inter-union and intra-union rivalry often destroyed the fabric of industrial relations and even led to closure of business operations. Now, employers will have to recognize a trade union where there is only one and in the cases of multiple unions, a "negotiating agent" or in case of multiple unions a "negotiating council" as per the ratios prescribed in IRC. This is a huge step in not only vesting workers with bargaining rights but also to enable EODB as foreign firms need not bother about who to negotiate with in India if they respect collective bargaining rights of workers.

The lawmakers have prescribed ceiling on the time taken for domestic inquiry to "ordinarily" 90 days which is a welcome change as the inquiry often thanks to delaying tactics of both the parties meanders on for months if not years. Given the variations in the domestic inquiry process IRC could have provided model procedure of it. This would rationalize to a larger extent the procedure.

The IRC is an exercise to afford flexibility to employers though on a generous side. The IRC has liberalized the threshold for regulations concerning 'standing orders' (SO) from 100 to 300. This means a little over 90 percent of working factories and over 40 percent of workers employed therein will be outside its purview. What the lawmakers have failed to appreciate is the good job done by SO. In fact, the High Courts and the Supreme Court have often pointed out the objectives of IESOA like curing inequality in the labour market, standardizing conditions of employment, introducing fairness and promoting industrial harmony. It is also important to recognize that IESOA not only does these but also brings about industrial discipline in the establishments. It protects both employers and workers and prevents labour market opportunistic behavior of both and unilateralism. This crucial fact has escaped the imagination of lawmakers in India.

Employers now can change the conditions of service under more conditions than were provided in the IDA, viz. (a) in case of emergent situation which requires change of shift or shift working, otherwise than in accordance with standing orders, in consultation with Grievance Redressal Committee; (b) if such change is effected in accordance with the orders of the appropriate Government or in pursuance of any settlement or award. The latter clause in (b) is reflective of poor lawmaking as it is already contained in another proviso [(40) (a)] and the Codes contain several such instances.

The industrial justice dispensation system and the institutions require reforms but to enable the disputing parties, employers and workers to get quick and less costly justice. Some of the institutions in IDA like the conciliation board, court of inquiry, were inactive and IRC has done well to remove them. By the same token, given the research evidence of poor performance of works committee it should have altered the provision relating to works committee [Section (3)] as it has copy-pasted the existing provisions in IDA - another instance of unimaginative lawmaking indeed!

But the solution given by IRC in terms of rationalizing the dispute settlement machinery by providing a single Institution of Tribunals may appear good on a superficial reading of it. For example, it has introduced two-members' Tribunal, judicial and administrative. Now, it is common knowledge that several if not many adjudicating institutions often suffer from several issues, viz. the number of courts/tribunals and Presiding Officers are not adequate relative to the total workers in the system, often there is a delay in their appointment. Now with two members, the search costs of these officers will increase and to that extent there will be delay in industrial justice dispensation. The justice dispensation will further be delayed thanks to the provision in IRC where the government will have to add a judicial member from Tribunal B to Tribunal B which suffers from lack of consensus in its decision. This is at best making matters worse and at worst a clumsy arrangement.

Reportedly, 15 states have extended the threshold for Chapter V-B in IDA from 100 to 300 and now IRC has nationalized it. More significantly, it has empowered the states to amend the threshold even higher than 300 which direction is unprecedented in terms of protection of workers' interests. The severance compensation has been kept at the same rates (15 days of wages per completed years of service) while the reforming states have been more generous. Though IRC provides for an equal amount of reskilling allowance, more clarity is required as to its funding.

More crucially, Section 96 empowers the state governments to exempt one or classes of establishments from any or wholesale the entire Code for several reasons, say for new establishments (facilitating EODB) and in "public interest". The exemption for "public interest" is curious and we have to wait for elucidation of what is the "public interest"?

In sum, the IRC extends extensive flexibility to employers. If foreign direct investment does not increase in the next few years, then the government has to in right earnest search for reasons for lower FDI inflows.

Prof. KR Shyam Sundar