Page |1

Labour laws and their implication in the

modern business perspective

Supriya S,
3rd sem MBA
Alliance business Academy.
 Labour laws and their implication in the modern
business perspective

Indian labour law refers to laws regulating employment. There over fifty
national laws and many more state-level laws. Traditionally Indian
Governments at federal and state level have sought to ensure a high
degree of protection for workers through enforcement of labour laws.
These labour enactments are divided into 5 broad categories.

• Working Conditions

• Industrial Relations

• Wages and salaries

• Welfare

• Social Securities

The enactments are all based upon Constitution of India and the
resolutions taken in ILO conventions from time to time. These labour laws
are applicable to organizations registered under both The Factories Act
and Companies Act. The Industrial Employment (Standing Orders) Act
requires every organization to formulate a set of rules and codes of
conduct which governs the employment of every employee in that
organization. These standing orders are formulated in compliance with
other labour laws as well. Any lacuna in any of the above mentioned
areas would lead to unrest within the labour force. This is a cause for
great concern for any management.

However, one can clearly see that some of these labour laws are archaic
(some dating back to 1926). Hence the modern day relevance of these
laws is a debatable issue. Globalization and Liberalization has forced the
government to give a serious thought to our anarchic labour law, which
makes our companies uncompetitive globally and discourages foreign
companies from investing in India. Indian labour laws are among the
most rigid in the world. Some recent data compiled by the World Bank
2|Page
 Labour laws and their implication in the modern
business perspective

collect the level of rigidity of hiring and firing rules in different nations
-100 being the score of the highest conceivable rigidity. India is among
the most rigid countries with a score of 48.

It should be noted that some of the important acts have been last
amended as early as 2001. The business scenario today is very different
from the scenario that existed then.

India’s labour laws rated by the World Bank as among the most rigid,
place strict limits on the number of people that can be hired and how they
can be fired. Prolonged labour unrest in the 1970s and 80s virtually wiped
out the cotton textile industry in Maharashtra and jute and heavy
engineering in West Bengal.

The industrial dispute laws allow for firing of employees on grounds of

indiscipline or non-performance, but a strong culture of trade unionism
means such provisions can rarely be applied.

Right to form a union and strike

Investors have despaired over India’s Trade Union Act of 1926, which
grants the right to form a union and negotiate wages and fringe benefits,
which analysts say raises costs and hurts competitiveness.

Indian laws do not allow unions in sectors such as IT and export-

processing zones that help earn foreign exchange. But even in sectors
such as IT, where layoffs have ticked up in a slowing economy,
employees have tried to form unions.

Employees of public utilities and services such as hospitals, can go on

strike with prior notice to the management.

3|Page
 Labour laws and their implication in the modern
business perspective

A common form of protest by employees barred from a formal strike is to

go on mass sick leave as in the case of Jet pilots. The Jet management
has called the action a ‘simulated strike’.

The recent economic recession and the resultant slowdown in India have
affected every industry and its employees. The IT services sector is one of
the worst hit sectors as a major portion of its business comes from the US
of A. While many small players sank, few others struggled to keep its
head above all the turmoil. The existing labour laws only made this
process a more tedious and often painful one. Numerous companies
doing business in the country complained that its labour laws are
inflexible to current market demands.

Keeping this scenario in mind the government rendered a helping hand by

exempting IT/ITES and software establishments from the provisions of
Industrial Employment (Standing Orders) Act 1946 (Central Act 20 of
1946) for two years.

This Act applies to every industrial establishment wherein one hundred or

more workmen are employed or were employed on any day of the
preceding twelve months. This law is strict on classifying workers, their
working hours and shifts, the wages payable, besides other archaic rules
on leave and attendance.

Following the announcement, Mohandas Pai, Head of HR in Infosys

Technologies told the Economic Times, "We have antiquated labour
regulations, which do not fit the requirement of the knowledge-based
industry. This reform is necessary. We do not want inspector raj here,
what we want is more such reforms across industries."

4|Page
 Labour laws and their implication in the modern
business perspective

The following case excerpt is a recent example of the ineffectiveness of

the existing labour laws.

Labour strike - Nokia’s salary revision irks employees

August 18, 2009 – 6:00 am
BUSINESS & ECONOMY

While the liberalised economy of India has been great for investors, large
corporations and highly skilled professionals, it has not been so great for
the average shop floor worker. Corporations throughout India try to find
some way around the labour laws to pay their workers less than they
should. It is an open secret that every large corporation in India employs a
large number of contract and temporary workers to avoid paying them
the benefits that a permanent worker is entitled to. Also, in the last few
months, there have been reports of labour strikes in industries across the
country.

The latest strike is happening in Nokia, the Finnish mobile phone giant,
that has its plant located in Sriperumbudur. In its state-of-the-art facility,
Nokia runs three shifts, churning out mobile phones that cost between
1,000 INR (20 USD / 15 EUR) and 20,000 INR (415 USD / 290 EUR) which
are sold in India and other markets. The company has over 8,000
employees on its rolls, including 5,500 women. Nokia started operations
in 2006 and recruited a large number of workers who had completed high
school as well as technical diploma holders and trained them. A newly
recruited worker gets around 3,500 INR (75 USD / 50 EUR) a month with
promises of a gradual increase in pay. The company also provides pick-up
and drop facility for all its employees.

Workers have been demanding a raise in pay since August 11. The
management met with workers’ representatives and offered an increase
of 800 INR (17 USD / 12 EUR) for those who had worked one year for the
company, 950 INR (20 USD / 14 EUR) for those who had completed two
years and 1200 INR (25 USD / 18 EUR) for those who had been with Nokia
for three years. Workers on the other hand, have been demanding a
uniform increase of 1,500 INR (31 USD / 21 EUR) for everyone. The
management did not accept this. As a result, the workers had decided to

5|Page
 Labour laws and their implication in the modern
business perspective

go on a flash strike within the facility from August 13. The strike was
started by those who had completed the second shift and they were
joined by others who had come for the third shift.

While we hope the matter would be eventually sorted out amicably and
the employees get their due, the increasing number of strikes across the
country presents a distressing scenario. Large corporations must realise
that employees are a very important part of any company and should give
them their fair share of the pie. Unhappy and disgruntled employees
reduce productivity and can negatively affect the quality and quantity of
goods produced. On the other hand, there can be no greater asset for a
company than a loyal, dedicated and happy workforce. To get these
qualities out of a typical employee, there is only one way - treat him/her
well and pay him/her adequately.

In order to sustain this favorable growth, It would be prudent for the top
management of large corporations to remember this: If you pay
peanuts, you get monkeys.

The above case is an example of the employees’ dissatisfaction

with the wages given to them. According to The Minimum Wages
Act, the government has fixed the minimum daily wage as Rs 80
per day. This would amount a little less than Rs 2000 per month.
This gives employers the freedom to fix low wage rates. With the
recent economic conditions, price hikes and inflation figures, it
becomes impossible for workers to enjoy a comfortable living.

6|Page