2.1 Pre-1920s

As we have already noted, in the early period of industrialization and the gradual shift of labour from rural areas to cities, there was little attention paid to the organization of work by the colonial authorities beyond various penal provisions aimed at securing labour supply and discipline for emerging industries.Footnote ¹⁶ Much of the early British regulation related to workers in the government service, including the military, and “forced labour” for the performance of public works. In this early legislation, the Workmen’s Breach of Contract Act 1859 was of pronounced importance, imposing not merely fines for breaches of employment contracts, but also allowing for orders of specific performance of the service contract.Footnote ¹⁷ These provisions were long-standing and extensively used in labour discipline.Footnote ¹⁸ It is important to note further that at the same time labour organization was also substantially a matter of family, land, and cultural regulation,Footnote ¹⁹ and the relationship of the Masters and Servants laws and other penal provisions, and the idea of the “contract” of employment, with the traditional patterns of regulation grounded in these earlier customs and forms, were complex to say the least.Footnote ²⁰

However, from the 1880s onwards there was a succession of legislative interventions by the colonial government, mainly in relation to the employment of women and children, and concerning hours of work, in factories and mines.Footnote ²¹ Much of this legislation was the result of various government-initiated enquiries.Footnote ²² However, the legislation made only very slight inroads into working practices in these industries, and was of limited impact insofar as it applied only selectively.Footnote ²³ Regulation in the plantation sector was focused principally upon matters relating to labour supply and the problems of the indentured labour system.Footnote ²⁴

2.2 Post-World War I and the 1920s

As we noted, there is some disagreement about the importance of this period.Footnote ²⁵ Several factors had combined to alter the industrial and political landscape, including the emergence of a strong nationalist movement, the rapid development of trade unions (most importantly the formation of the All India Trade Union Congress in 1920), and the emergence of Communist influence in the labour movement following the successful Bolshevik revolution in Russia in 1917.Footnote ²⁶ At the same time, the newly created International Labour Organization began to have an influence on labour policy in India.Footnote ²⁷

Much of the legislation of this period was a continuation of the “factory”-style regulation of the pre-war period, dealing with hours of work, rest periods, female and child protections, health and safety, and so on. Typical protective legislation of the period includes the Factories Act 1922, the Mines Act 1922, and the Workmen’s Compensation Act 1923, much of it responding to the ratification of various relevant International Labour Organization conventions by the colonial Indian government.Footnote ²⁸

However, even if this body of legislation is correctly characterized as “unimportant,”Footnote ²⁹ two further enactments in this period point to what has been described as the emergence of a more modern approach to the regulation of industrial relations: the Trade Unions Act 1926 and the Trade Disputes Act 1929. Footnote ³⁰ The regulatory framework set down in these two provisions continues formally to underpin the collective labour law system of present-day India.

The Trade Unions Act 1926 provided for the registration of trade unions (though registration was not made compulsory), gave unions a legal status, and extended some protections against civil and criminal liability in the course of industrial disputes. The Act was limited in certain respects (for example unregistered unions were excluded from the Act’s protections), and the legislation provided no support for a collective bargaining system as such, insofar as there was no obligation upon employers to bargain with unions (even registered unions) in the course of an industrial dispute, nor, in the case of such bargaining, was there any legal obligation to bargain in good faith. The Trade Disputes Act 1929 placed severe limitations upon the right to strike, and provided for the compulsory reference of industrial disputes to a conciliation board or a court of enquiry. The outcomes of the reference, however, were not binding upon the parties. Both pieces of legislation were strongly criticized by sections of the trade union movement, including the All India Trade Union Congress.Footnote ³¹

2.3 The 1930s

In the context of world economic depression and the associated rise in unemployment, there was also in this period continued agitation for Indian independence in which the All India Trade Union Congress was playing a major role.Footnote ³² Mass dismissals were accompanied by a renewed wave of strikes, especially as the economic depression took hold through 1928 and 1929. Against this background, the British government established the Royal Commission on Labour in India on 4 July 1929. The Commission was effectively boycotted by the Indian labour movement, the All India Trade Union Congress pointing to the British Imperialist government’s “open and brutal attack upon the trade union movement by means of repressive legislation” and its lack of “bona fides” in establishing the Commission.Footnote ³³

The Commission handed down its ReportFootnote ³⁴ in 1931, still a period of continued job cuts, wage reductions, and ongoing industrial unrest and strike action. But during the 1930s, two major factors began to put some further shape on Indian labour law. First, many of the outcomes of the Report of the Royal Commission made their way into a string of new labour legislation between 1933 and 1939. Menon estimates that of 24 pieces of labour legislation introduced by central and provincial governments between 1932 and 1937, 19 arose from the Royal Commission’s recommendations.Footnote ³⁵ Virtually all of this new law was in the nature of protective factory and mines regulation to do with wages, hours of work, and compensation of one sort or another, similar to earlier periods. One exception was the Payment of Wages Act 1936, which empowered the employer to deduct wages of employees absent from work in concert, and without reasonable cause. A further example was the Trade Disputes (Amendment) Act 1938, which authorized provincial governments to appoint conciliation officers to assist in the settlement of disputes.

Second, and potentially more important, were the developments which followed from the Government of India Act 1935. The heightened profile given to provincial autonomyFootnote ³⁶ made possible under these new constitutional arrangements gave rise to popular expectation that more “labour”- or “union”-friendly policies would emerge at the provincial government level,Footnote ³⁷ and this in turn gave rise to further concentrated periods of extensive strike action.Footnote ³⁸

Even prior to the 1935 Act, several provincial governments had begun to experiment with labour law, much of it an important contribution to the development of better working conditions in workplaces.Footnote ³⁹ Not all of this, however, was particularly directed to creating a more favourable environment for combined labour activity. One important instance was the introduction of the Trade Disputes (Conciliation) Act 1934 by the provincial government of Bombay.Footnote ⁴⁰ Whilst novel insofar as it was designed to effect changes to collective labour relations (by providing for the appointment of a Labour Officer to represent the interests and grievances of workers in the cotton mills), the 1934 Act seems to have been aimed mainly at heading off communist influence among the labour movement following many years of decline in the Bombay-based textile industries and a major strike earlier in that year.Footnote ⁴¹

However, more adventurous legislation followed after the election of more popular provincial governments in the wake of the Government of India Act 1935. The introduction of the Industrial Disputes Act 1938 by the Bombay provincial government, for example, among other things made some move towards the imposition of a legal obligation on the part of employers to recognize trade unions.Footnote ⁴² Again, it is necessary to note, however, that these were largely limited measures which were not greeted with general approval by the Indian trade union movement. The All India Trade Union Congress described the 1938 Bombay Bill as “uncalled for, reactionary, prejudicial and harmful to the interest of the workers [and] ‘calculated to create slave unions’.”Footnote ⁴³

In general it appears that the expectations created in the popular election of provincial governments remained largely unfulfilled.

2.4 World War II and the Pre-Independence Period

Regulation in the World War II period appears against the background of considerable industrial unrest and strike action against the conditions and effects of the war itself. These circumstances brought into being several pieces of legislation (at central and state level) designed to secure labour co-operation in support of the war effort. This legislation included passage in 1941 of s. 49A of the Bombay Industrial Disputes Act, granting power to the Bombay government to refer industrial disputes to compulsory arbitration by an Industrial Court, and banning all strikes and lockouts prior to arbitration. Much of this restrictive legislation in the Bombay province was continued after the war ended in the form of the Bombay Industrial Relations Act 1946.Footnote ⁴⁴ Other relevant legislation included the central government’s Essential Services Act 1941, and the Defence of India Rules (Rule 81-A, introduced in 1942, and Rule 56-A, introduced in 1943). Each of these sets of provisionsFootnote ⁴⁵ laid down severe restrictions against strikes, and other forms of industrial action, in the course of industrial disputes, including industrial action on the part of employers in some cases. General and political strikes were also targeted.Footnote ⁴⁶ The provisions of Rule 81-A in particular were continued after the war as part of the Industrial Disputes Act 1947, and, as is noted in subsequent sections of this paper, have remained a core part of the legislation governing industrial disputes and bargaining since that time.

To greater or lesser extent, the Trade Disputes Act 1929, its successor the Trade Disputes Act 1947, and earlier provisions such as the Bombay Act of 1934, were essentially designed to enable government agencies to investigate industrial disputes over relevant terms and conditions of employment, and to settle them in appropriate cases.Footnote ⁴⁷ But generally the terms of this legislation were historically directed more towards the control of labour than towards the settlement issue. Certainly there was little or nothing in these various provisions which facilitated the development of collective bargaining in a British- or American-style model. While strikes and lockouts were strictly controlled, Indian governments, at both central and state levels, exercised strong controls over the circumstances in which disputes might be referred to adjudication, the industries to which the legislation applied, and which unions might be permitted to notify such disputes.Footnote ⁴⁸

The overall impact of this was, then, one of limitation and exclusion. The Industrial Disputes Act 1947, for example, applied (and applies) generally to “workmen” in “industries.” “Workmen” excluded various categories of workers engaged in particular occupations, or in managerial and administrative capacities, and so on.Footnote ⁴⁹ Whereas the term “industry” has now been interpreted quite broadly, many types of employment, including workers in government departments and services, and domestic and agricultural workers, are still excluded. Similarly the Trade Unions Act 1926 also contained important limitations on its coverage.Footnote ⁵⁰ It has been said of the system set up under the Industrial Disputes Act 1947 that “the freedom of industrial action on the part of workers [is] more illusory than real” and that the “provisions of the law [operate] to restrict the options available to the side represented by the workers.”Footnote ⁵¹ What collective bargaining there was, developed without state support and, not surprisingly, evolved almost entirely in the formal (or organized) sectors of the economy.Footnote ⁵² These are largely confined to the public and large corporate sectors and constitute about 3% or less of the workforce in each case.Footnote ⁵³

Most scholars have noted that the path taken in the evolution of labour law in India in the post-1945 period basically followed the pattern established earlier in the restrictive policies of the colonial government and in particular the legislation of the war years.Footnote ⁵⁴ Only in a few states were there exceptions made to the overall discretionary power of government to refer or not to refer disputes for adjudication, and in only a few states did laws emerge which created some sort of obligation upon employers to recognize trade unions. One such provision was the Bombay Industrial Relations Act 1946 which, building upon the earlier (and much criticized) attempts in the Bombay Industrial Disputes Act 1938, distinguished several types of union, and extended to some of those unions the right to represent workers in particular industries and areas.Footnote ⁵⁵

At the same time, however, there was a continued strengthening of the protective regulation applying to an individual worker’s rights during this period. One example is the Industrial Employment (Standing Orders) Act 1946, which required employers to provide their employees with clear terms and conditions of employment according to the items set down in a Schedule to the Act and certified by the relevant authority. Other major statutes of this period included the Factories Act 1948 and the Minimum Wage Act 1948. Much of this body of regulation, as we have noted also in the case of the Industrial Disputes Act 1947, was (and remains) limited in its application because it was applied only selectively to certain kinds of business establishment, and, in respect of some provisions, only to businesses of a certain size as determined by the number of employees. This is a common theme in Indian labour law, with obvious implications for the legitimacy of the labour law system as a whole.Footnote ⁵⁶

2.5 Post-Independence, 1948 Onwards

In the immediate post-war period it was agreed that the Indian central government would be primarily responsible for labour legislation, and the promotion of labour’s interests, reflecting a five-year plan of development “dealing with all phases of the worker’s life, of housing, welfare, work, better working conditions, and fair wages.”Footnote ⁵⁷ Many of these social values were articulated in the Constitution of India 1950, particularly its commitment to economic, political, and social justice in the Preamble, and its general egalitarian conception of national development.Footnote ⁵⁸

Consistent with this socio/political outlook, we have noted the introduction of a raft of protective legislation in the form of the Factories Act 1948, and the Minimum Wages Act 1948. Important also to note are the Dock Workers (Regulation of Employment) Act 1948, which among other things sought to “decasualize” dock labour, the Employees’ State Insurance Act 1948, providing for an insurance system for employees in cases of sickness, maternity, injury, and death, the Plantations Labour Act 1951, which sought to regulate conditions of work and provide welfare measures for India’s high-employment industries in tea and rubber plantations, and the Employees’ Provident Fund and Miscellaneous Provisions Act 1952, one of the most important pieces of legislation in India’s social security system.

It follows from what we have said earlier, however, that this period did not mark out a completely new approach to the issue of labour regulation in India. When it came to the regulation of collective labour relations in particular, the restrictive policies of government control which had characterized the colonial and immediate post-war period continued to hold sway. As various authorities have noted, the major influence on the formation of post-independence labour and economic policy was the priority given to government-directed “nation-building”—in which the need for trade union co-operation in securing industrial peace and labour support for industrialization and economic development (economic nationalism) was paramount.Footnote ⁵⁹

Consequently, the development of labour law in India continued to follow the dual pattern already identified. In support of the state planned and organized economy,Footnote ⁶⁰ the Indian government continued its strong interventionist role in industrial relations. The laws regulating trade unions and industrial disputes remained largely fixed on the model set by the legislation introduced over the period from 1926 to 1947,Footnote ⁶¹ and this in turn had certain implications for the Indian industrial relations system. While trade union organization was legally sanctioned, collective bargaining (at least nominally) “recognized,”Footnote ⁶² and strikes and lockouts to a degree legalized and regulated, the level of state intervention in the actual industrial relations process, and the emphasis given to the maintenance of “industrial peace”Footnote ⁶³ effectively circumscribed the possibility that collective bargaining might develop as the primary form of industrial relations in India:Footnote ⁶⁴ in effect “[c]ollective bargaining was held to be incompatible with economic planning.”Footnote ⁶⁵

Overall, the law on bargaining has changed little since these formative days, although in an important amendment to the Trade Union Act in 2001 it was provided that trade unions were required to have at least 100 members or to represent at least 10% of the workforce in order to secure registration under the Act, thereby making the formation and legalization of unions far more onerous than had previously been the case.Footnote ⁶⁶ As noted earlier, some states did move to provide unions with a right to recognition, and some subsequent legislation made the refusal to bargain on the part of an employer an “unfair labour practice,” more or less making the duty to bargain legally obligatory. Probably the best example of this legislation is the Maharashtra Recognition of Unions and Prevention of Unfair Labour Practices Act 1971, which supplemented the Industrial Relations Act 1946 of Bombay,Footnote ⁶⁷ although that legislation was limited in its application to nine industries only. In 1982, the Indian central government amended the Industrial Disputes Act of 1947, introducing the concept of “unfair labour practice” into national labour law.Footnote ⁶⁸ This legislation outlawed various practices by employers, unions, and workers designed to disrupt the legitimate processes of dispute settlement under the Act. The refusal by an employer to bargain collectively in good faith with the recognized trade union was listed as an unfair practice. Whilst on the face of it this provision might seem to have amounted to a major breakthrough in collective bargaining law in India, it does not appear to be regarded as particularly important by Indian labour law scholars,Footnote ⁶⁹ perhaps principally because it has had little impact in practice. What collective bargaining there is in India, and it does exist at all levels and across many industries,Footnote ⁷⁰ has evolved in a de facto sense, and, as noted earlier, has been largely limited to the public, and corporate,Footnote ⁷¹ sectors of the economy. In the mid-1990s, the proportion of Indian workers covered by collective bargaining agreements was estimated to be lower than 5%.Footnote ⁷²

On the other hand, Indian labour law continued to develop in a second dimension; that is, in respect of the relations between the employer and the individual worker. Here we can identify two main categories of intervention. The first concerns the continued regulation for protective labour standards which took place at both central and state levels.Footnote ⁷³ We have already noted the continuation of this pattern in the post-World War II period, and, as Sundar has pointed out,Footnote ⁷⁴ the ongoing regulation for minimum wages, equal pay, social security and insurance, maternity benefits, health and safety, leave and holidays, housing, and so on, occupied much of the regulatory space which was taken up in the contents of collective agreements in industrialized Western countries.

The second area of development concerns employment security. Originally the termination of, or dismissal from, employment was not an appropriate subject of an individual “industrial dispute” pursuant to the Industrial Disputes Act 1947, and there was thus little limitation on the employer’s right to fire an employee as it saw fit,Footnote ⁷⁵ other than a requirement that appropriate notice be given.Footnote ⁷⁶ Nor did the legislation place limitations upon the power of the employer to retrench or lay off redundant workers. However, pursuant to amendments to the Industrial Disputes Act in 1953, 1976, and 1982, the central government began gradually to introduce important new regulations pertaining to retrenchments, lay-offs, and plant and industry closures. These regulations, including the all important Chapters VA and VB of the Act required, inter alia, permission by the appropriate authorities for mass redundancies and firm closures, minimum notice periods, and further relief in the form of compensation.Footnote ⁷⁷

As far as individual dismissals are concerned, a 1965 amendment to the Industrial Disputes Act created a right in an individual employee to notify an “industrial dispute” over his or her discharge, dismissal, retrenchment, or other form of termination, whether or not that person was represented by a trade union.Footnote ⁷⁸ A subsequent amendment, in 1971, empowered the Industrial Tribunals and the Labour Court to investigate the dismissal of employees, and make appropriate orders, including reinstatement and compensation, where the dismissal was found to be unfair.Footnote ⁷⁹ As a consequence of these legal changes, the Labour Court and other tribunals developed a general broad discretion to review the dismissal of workers and to award relief according to notions of substantive and procedural justice. In 1976, amendments to the Act substantially increased (from one month to three months) the amount of notice required to be given to certain categories of employee who had been in continuous service for at least one year,Footnote ⁸⁰ and prohibited the dismissal of workers by way of retrenchment, lay-off, or industry closure in factories, mines, and plantations employing 300 or more persons (later reduced to 100 or more in 1982) without permission of the appropriate government.

Other legislation introduced in the 1970s and into the 1980s consolidated this evolving protective framework of laws for employees engaged in the regulated (formal)Footnote ⁸¹ sectors of the economy. Aside from further strengthening the law on dismissal, major legislation was introduced by the central government in 1970 which strictly limited and regulated the use of contract and agency labour.Footnote ⁸² Further, the Industrial Disputes (Amendment) Act of 1982, in addition to declaring certain collective behaviours by both employers and unions to be “unfair labour practices,” declared certain hiring practices, such as the continuing employment of workers on casual or temporary contracts with “the object of depriving them of the status and privileges of permanent workmen,” also to be unfair.Footnote ⁸³

Overall, then, the post-Independence period was, at least at the level of the individual worker in the regulated sector, clearly a period of important consolidation in employment protection. Not only the central government, but also several of the state governments, played an important role in this development.Footnote ⁸⁴ In his study of the impact of Indian labour regulation on unemployment, Sarkar notes that in the period from 1970 to 2006 there were changes in only nine of 40 variables used in one quantitative study of Indian labour law.Footnote ⁸⁵ Of those nine changed variables, eight were numerically assessed to have been of advantage to labour and thus of disadvantage to management. Of those eight, seven pertained to the individual employment rights (employment status and security) of workers. What this says about the overall protective strength of Indian labour law is problematic, and we address this issue in Section 2.6 of this paper. But what it does confirm is that in the long sweep of post-war evolution in Indian labour law, Indian governments were concerned principally with the construction and maintenance of a “floor of rights” for certain classes of labour, and at the same time restricting the industrial, if not the political, development of collective labour influence.

2.6 The Struggle for Liberalization: Post-1990Footnote ⁸⁶

Whatever might be said with accuracy about the protective qualities of the Indian labour law system, it is certainly the case that there is a widespread perception that both the extent and content of regulation in the Indian labour market has placed severe restrictions on the capacity of the Indian economy to develop, particularly in the context of economic globalization.Footnote ⁸⁷ References are constantly made to the volume and severity of the regulatory framework and the arcane nature of the rules and institutions constituting Indian labour law.Footnote ⁸⁸ As noted earlier, India has well in excess of 150 separate lawsFootnote ⁸⁹ governing the labour market and the workforce, many of which overlap, deviate from central principles, or are perceived to be simply out of date.Footnote ⁹⁰ This perception of “overregulation”Footnote ⁹¹ has given rise to agitation from many sourcesFootnote ⁹² for the various Indian governments to roll back their regulation of labour and workplaces, particularly those laws which impact upon the capacity of enterprises to hire and fire more easily, and to engage labour on more flexible arrangements,Footnote ⁹³ and those requiring the payment of minimum wages.Footnote ⁹⁴ At the same time, this pressure for reform has been strongly resisted by the labour movement generally.Footnote ⁹⁵

In part this comes down to disagreement over evidence, and in part over ideology.Footnote ⁹⁶ Certainly there are legitimate doubts raised in the literature on the accuracy of the supposed connection between Indian labour law and the perceived “inflexibility” of the Indian labour market: at the very least the evidence is considered slight, ambiguous, or both.Footnote ⁹⁷ However, this question is not a core concern for us here, although we do return to the issue in the Section 3 of this paper. Rather, we are interested in whether, and if so to what extent, labour law in India has undergone a period of modification in response to liberalization, and what form that change might have taken.

The immediate catalyst for action in labour market reform in India is grounded in the state of economic crisis which confronted the country in the late 1980s. It is not necessary for us to detail these problems here, but it is important to note that the government was obliged to accept a readjustment package proposed by the World Bank and the International Monetary Fund which required certain steps to be taken to liberalize the economy.Footnote ⁹⁸ As part of this “New Industrial Policy,” the Indian government was committed to reducing the number of industry sectors under the monopoly or control of the state, abolishing the need for government approval for new investment in specific sectors of the economy, and generally winding back the public sector. Unprofitable state industries were to be wound back or closed down, and a more flexible system for the licensing of new businesses introduced.Footnote ⁹⁹ A shift to a less regulated labour market, particularly in relation to the tight controls exercised (at least in the organized sector) over dismissals and redundancies and the use of contract labour, was inevitably part of this policy.Footnote ¹⁰⁰ Workers were to be disciplined by the market rather than by state control.Footnote ¹⁰¹

Generally, successive governments, through various policy pronouncements, have continued to espouse support for these policies, including those designed to effect adjustment in the labour market and employment relations.Footnote ¹⁰² But the degree to which these policies have achieved real outcomes, and the manner of their doing so, have remained unclear and contentious. Consequent neoliberal reform measures, according to one account, have included policies to “weaken union power, outlaw strikes, individualize labour relations, privatize public enterprises, dilute labour laws, freedom to hire and fire and close undertakings [sic], removal of prohibition of contract labour [sic], freedom to introduce technical changes [sic], repeal of legal provisions relating to bonus [sic] and so on.”Footnote ¹⁰³ But nevertheless, there is considerable caution, if not to say scepticism, over how much progress has been made in following these policies through.Footnote ¹⁰⁴

The main reason for caution seems to be linked with both the political and legal strategies being adopted in the slow liberalization process. By and large the labour reform policies have been pursued not through major legislative change, but through a “less direct” and more piecemeal approach.Footnote ¹⁰⁵ One critical explanation for this lies in the fact that various political and labour alliances across different political parties are usually sufficient to block major labour law reform.Footnote ¹⁰⁶ Put another way: “Labour law reforms have traditionally worked in India when approved through the tripartite route.”Footnote ¹⁰⁷ Traditionally the Indian union movement was very powerful in political terms by virtue of its incorporation into the party political process, and although this power had reached its high point by about the mid-1970s, and membership decline has since impacted upon its capacity to resist change,Footnote ¹⁰⁸ overall most authorities still rank the political influence of the union movement as critical.Footnote ¹⁰⁹

This has led, then, to what has been described as a gradual approach to liberalization.Footnote ¹¹⁰ Although there have been some labour policy initiatives at the central government level,Footnote ¹¹¹ including, for example, various proposals and Bills for the protection of workers in the unorganized sector,Footnote ¹¹² the most important and ongoing movements towards liberalization in labour law have taken place at the state government level. Jenkins has pointed out that India’s federal political structure has lent itself to a more gradual reform agenda in three specific ways. First, competition between the various states for investment has led to legal change on a state by state basis, hence avoiding the need for an all-embracing national reform of labour law. In order to attract investment, often state governments provide assurances to investors that certain inconvenient labour standards will not be enforced. Second, dealing with the issues on a state by state basis also waters down the degree of political resistance from unions and other opposition forces. Third, state reforms may act as models for changes in other states, or even to provide some leadership for reform at the central government level.Footnote ¹¹³

It is important, therefore, in understanding whatever limited progress has been achieved in the liberalization of Indian labour law and regulation, to look closely at the developments in several of the important states. It is first necessary to note that even here many of the bolder proposals for reform have failed to pass into law. The State of Maharashtra is a good case in point, with major reform proposals being presented by the Director of Industries in 2000, and through an Industrial Policy Statement in 2001. Among these proposals were changes to minimum wage laws, retrenchment laws, laws relating to the inspection of work premises, and laws pertaining to the size of plants excluded from regulation. None of these changes were implemented due to opposition from trade union and political interests.Footnote ¹¹⁴ Similarly, attempts by the Maharashtra state government (and other states) to introduce more flexible “hire and fire” laws into the businesses situated in the state’s Special Economic Zones has generally been met with a negative response from the central authorities (although it is necessary to note that in practice labour laws are rarely enforced in these zones, and thus rarely, if ever, restrict market operations, despite the limitations inherent in the formal law).Footnote ¹¹⁵ On the other hand, there are also examples of successful modifications being made to central labour laws by some provincial governments, the State of Andhra Pradesh being a case in point.Footnote ¹¹⁶

In general terms, the liberalization process in the labour laws of the Indian states has included the relaxation of laws against the employment of women at night, greater ease in shift working, and greater freedom for the use of contract labourFootnote ¹¹⁷. According to one source, the use of contract labour, and the subcontracting of non-core activities to other firms, increased substantially during the 1990s, though this increase was more pronounced in some states than others.Footnote ¹¹⁸ On the other hand, despite the general laxity of enforcement in labour law, the laws on retrenchment continue to be comparatively strictly implemented.Footnote ¹¹⁹

Other minor changes include matters such as the minimization of workplace inspections and technical changes to the administration of workplaces and keeping of records required under various pieces of factory legislation and so on.Footnote ¹²⁰ Much of this change has been facilitated through administrative procedure rather than formal legal repeal and enactment.Footnote ¹²¹ According to one recent study, while India’s job security laws have remained fairly stable for regular contracts (i.e. ongoing contracts in the organized or formal sector), the system is now more flexible in relation to temporary and fixed-term contracts. This reflects the fact that “the main area of labour law reform that has come about in recent years, allowing employees to work on temporary work agency contracts to carry out a range of ‘non-core’ activities, a concept that is defined in various ways across states … Standard fixed-term contracts are allowed for white-collar workers as well as, in principle, for regular workers.”Footnote ¹²²

However, despite these shifts in labour law at the state level, it remains the case that the liberalization process has produced modest outcomes at best. An Organization for Economic Cooperation and Development (OECD) study reported by Dougherty examined eight sets of regulatory variables (totalling 50 separate subject areas) for potential reform lightening the regulatory burden upon businesses across 21 Indian states. In keeping with our earlier observations, the largest number of reforms related to contract labour, but even so, there had only been reform in about half of the subject areas pertaining to this form of employment. No state had a score of much more than 50% in terms of change in possible reform areas, and in seven of the 50 subject areas no more than two states had made any reforms at all. Areas of regulation showing little change across the 21 states included collective lay-offs, the regulation of working hours, union recognition, and reductions in the numbers of inspections.Footnote ¹²³

3.1 The Protection of Labour

Both the support ostensibly offered by the Indian state towards labour, and the supposed long-run power and influence of the Indian union movement at large (at least until the mid-1970s),Footnote ¹⁴⁹ would tend to suggest that the Indian labour law framework has provided strong protection for labour vis-à-vis business interests, but in point of fact this issue has been strongly debated for decades, as we noted earlier. Beginning at least with the trade union and industrial disputes laws of the 1920s, through to the wartime legislation of the 1940s and beyond, trade union representatives and labour scholars have tended to characterize much of the Indian labour law framework, and the way that it operates, as highly restrictive, and at times even repressive,Footnote ¹⁵⁰ of labour and its representative institutions. Yet, on the other hand, there is a plethora of legislation designed to construct a floor of minimum rights underneath the employment relationship across Indian industries and occupations widely. The question is: What are we to make of these two apparently mismatched perceptions? It is useful at this point to set out some of this legislative framework in brief detail.

Papola, Pais, and Sahu have characterized the minimum rights legislation in India as “welfare state” inspired; that is to say, that it is designed to protect labour as the weaker party in industrial relations.Footnote ¹⁵¹ The authors group the relevant legislation into four areas—conditions of work, wages and remuneration, employment security, and social security.Footnote ¹⁵²

Among the first set of legislation are included the important provisions of the Factories Act 1948,Footnote ¹⁵³ the Contract Labour (Regulation and Abolition) Act 1970,Footnote ¹⁵⁴ and the various Shops and Commercial Establishments Acts.Footnote ¹⁵⁵ The core purpose of the Factories Act is to ensure the health and safety of workers. It contains specific requirements for factories to be kept clean and sanitary, it regulates hours of work, overtime, and annual leave, and provides for mandatory rest days. The Act also makes special provision for women and children regarding their working conditions. One of the key characteristics of Indian labour law is the density of its regulation, and this is exemplified in the terms of the Factories Act. For example the Act specifically prescribes the minimum workspace for each worker, and specifically mandates the manner of cleaning, repainting, and so on of regulated premises.Footnote ¹⁵⁶ The Act applies to all manufacturing premises that use electricity and employ ten or more workers, and to non-powered premises that employ 20 or more.Footnote ¹⁵⁷

The Contract Labour (Regulation and Abolition) Act, as its title suggests, is designed both to prohibit the use of contract labour in certain industries, and to regulate its use in others. Under the terms of the Act the “appropriate government” (central or state), pursuant to a prescribed procedure set down in the legislation, may prohibit the employment of contract labour in an industry. In the case of the central government, the employment of such labour has been prohibited in certain categories of work in mines, on railways, and port facilities among others.Footnote ¹⁵⁸ The Act otherwise regulates the conditions of work, including payment of wages, hours of work, overtime, leave, and so on, in addition to providing various health and safety measures. The Act applies generally across the whole of India, but is limited in application to establishments or contractors employing at least 20 contractors on any day over the previous 12 months. The provisions may also be extended to smaller establishments pursuant to a procedure set down in the legislation.

The Shops and Commercial Establishments Acts are a series of state-level enactments designed to supplement the central government’s Factories Act through the regulation of shops, restaurants, hotels, places of entertainment such as cinemas, and also small electrical and mechanical repair shops and small manufacturing businesses. Specifically, the legislation does not apply to government offices, public utilities such as power and water, and medical centres. The Acts regulate for hours of work, wage rates, overtime, paid holidays, rest days, annual leave, and termination notice, in addition to some health and safety type provisions. All major states have passed versions of this law,Footnote ¹⁵⁹ with sufficient variation between them to enable a ranking of their protective qualities.Footnote ¹⁶⁰

Two further important pieces of legislation which should be briefly noted here are the Child Labour (Prohibition and Regulation) Act 1986, which abolishes child labour in particular operations and strictly regulates the working conditions where child labour is permitted, and the Bonded Labour System (Abolition) Act 1976, which attempts both to eliminate and rehabilitate bonded labour through strong enforcement mechanisms.

Turning to the matter of “wages and remuneration,” four pieces of legislation should be noted. The Minimum Wages Act 1948 Footnote ¹⁶¹ is a core statute, requiring the appropriate government, whether central or state, to set minimum wages for certain types of employment or industry as specified in the Schedule to the Act. The legislation applies very widely in terms of numbers of workers covered as there is no minimum limit on the number of employees to be employed for the Act to take effect. However, as is the case with other relevant labour standards, the legislation is limited by reference to those types of employment stipulated in the legislation and the Act’s Schedule. The Schedule lists sectors ranging from carpet-making and shawl-weaving to various types of mines, plantations, flour mills, tanneries, and public motor transport. Coverage is further complicated by many state amendments, which both add to and delete from the industries and occupations dealt with.Footnote ¹⁶² Rates of pay vary not only from industry to industry, but from state to state, and from region to region. Rural areas generally have lower minimum rates of pay than urban areas. In keeping with the character of Indian labour regulation generally, the determination of minimum rates under the legislation is quite detailed and complex. The minimum standard is set in two parts, a basic rate, plus special allowances to cater for differences in the cost of living.

A second important regulation is the pre-independence Payment of Wages Act 1936. Footnote ¹⁶³ This Act was designed to deal primarily with a problem common to Indian industrial relations at the time of its enactment, namely the unauthorized deductions by employers from workers’ wages in the form of penalties and fines. Originally the Act was confined to larger establishments in the factories sector and in railways, and, again, only within a certain wage ceiling. However, over time the operation of the Act has been broadened to include other sectors,Footnote ¹⁶⁴ although the wage ceiling remains.Footnote ¹⁶⁵

Two further wage-related provisions of importance are the Payment of Bonus Act 1965,Footnote ¹⁶⁶ which provides for the payment of an annual bonus (the amount of which is prescribed in the legislation) to all employees receiving wages below a specified limit. This legislation applies to virtually all states, but is limited to particular establishments employing at least 20 persons. The Equal Remuneration Act 1976 Footnote ¹⁶⁷ prescribes equal remuneration for males and females performing the same work (and other forms of equal treatment), but, again, is limited in application—in this case to establishments which employ ten or more workers.

The three main sets of regulations providing for various forms of security and welfare benefits are the Employees’ State Insurance Act 1948,Footnote ¹⁶⁸ the Employees’ Provident Funds and Miscellaneous Provisions Act 1952,Footnote ¹⁶⁹ and the Employees’ Compensation Act 1923.Footnote ¹⁷⁰ The first of these introduced the Employees’ State Insurance Scheme, which provides insurance cover for employees in the case of sickness, workplace injury and disablement, and maternity, in addition to death benefits for dependants. The scheme is financed through employer and employee contributions, with medical facilities provided by state governments. Virtually all states are covered by the scheme, but it is limited in application to factories and other establishments (excluding seasonal occupations) employing not less than 20 workers.

The second legislative provision has given rise to three major schemes designed to provide for workers on their retirement or their dependants in cases of early death and so on. Initially the Act set up the Employees’ Provident Fund to which it is compulsory for employers and employees to contribute. The scheme is widespread across most states, but is limited by industrial sector and by establishment size (those employing 20 workers or more). It does not apply to government employees, or to workers earning more than a specified amount. Other schemes subsequently introduced under this legislation include the Deposit-Linked Insurance Scheme of 1976, and the Employees’ Pension Scheme of 1995.Footnote ¹⁷¹

As we noted in Section 2 of this paper, the Employees’ Compensation Act 1923, was one of the earliest pieces of labour reform legislation introduced into India in the post-World War I period under the influence of the newly formed International Labour Organization, and was designed with an objective of improving safety standards in industry generally. Under this legislation employers are liable to pay compensation for death or personal injury suffered by employees as a result of a workplace accident or disease arising from employment, unless the accident is directly attributable to the employee’s use of alcohol or drugs, disobedience, or wilful disregard of safety devices. This legislation applies quite widely, both to regular workers and to those otherwise engaged as part-time, temporary, or casual workers, or as contract labour. However, as we have noted, in the unorganized sectors of the economy, and in many cases even in the organized sectors, implementation of this legislation is poor.Footnote ¹⁷²

Two other pieces of legislation should also be noted. The Maternity Benefit Act 1961 provides both pre-natal and post-natal leave entitlements and wage allowances for female employees. The scheme applies to all establishments covered under the Factories Act, the Mines Act, the Plantations Act, and to some other industries, in addition to all workers covered by the Shops and Commercial Establishments Acts. However it excludes those establishments already covered under the Employees’ State Insurance Scheme. The Payment of Gratuity Act 1972 provides for additional payment in the form of a gratuity to employees who have reached the point of taking their superannuation, retirement, resignation, or death. The entitlements are limited to employees with continuous service of at least five years, and to establishments employing at least ten workers.

This brings us finally to the issue of employment security, which, as we noted earlier, is an area of particular controversy in Indian labour market regulation. In this general area the provisions of the Industrial Employment (Standing Orders) Act 1946, and Chapters VA and VB of the Industrial Disputes Act 1947 in particular, Indian labour law has added a very strong component of protection against, and compensation for, various forms of dismissal, retrenchment, and lay-offs, both individual and collective, although these laws are confined to certain types of worker and to certain types of establishment.Footnote ¹⁷³

Taken at face value this extensive array of labour law suggests a system which is highly protective of labour’s interests. It provides a large number of workplace protections, much of which is formally in line with international standards. But at the same time, as we noted above, there has been a long-standing negative response from labour and independent observers about the real value of the labour law system to workers. Making sense of these apparent incongruities self-evidently requires closer analysis.

One avenue of investigation is provided by the data used by scholars exploring the possible link between a country’s “legal origin” and the protective strength of its labour laws.Footnote ¹⁷⁴ In this research, labour law systems are scored across five sets of variables; the regulation of alternative employment contracts; the regulation of working time; the regulation of dismissal; the regulation of employee representation (including trade union recognition and collective bargaining); and the regulation of industrial action.

Of the five countries examined in the work of Deakin, Lele, and Siems, India appears as the third most “protective” of the labour law systems includedFootnote ¹⁷⁵—ranked above the US and the UK, slightly below the German system, and well below the French—and this position largely held true throughout the entire period surveyed (1970–2005). Additional work by a different group of authors using the same coding system and adding two further countries, Australia and New Zealand, to the analysis, shows that India also ranks above those two countries in terms of their protective strengths in labour law, and again that position largely held true throughout the entire period surveyed, with the exception of New Zealand from about 1974 until the early 1990s.Footnote ¹⁷⁶ Thus of all five common-law origin countries represented in the sample, Indian labour law appears most protective, and, importantly, ranks very close to Germany, which is generally considered to be among the most labour-friendly of capitalist states. These results would lend some credibility to an argument which proposed that the type of state socialist policies adopted by the Indian government from the late 1940s onwards, and its “corporatist” style of economic and labour market regulation, was strongly labour-protective. There are, however, several reasons for suggesting that such an assessment, if not entirely incorrect, nevertheless requires a more nuanced interpretation.

First of all, when Indian labour law is looked at comparatively using the same data but at a sub-aggregate level, a very different picture emerges. What we find is that in relation to the forms of contractual arrangements that can be made, and in relation to dismissal in particular, Indian law is very labour protective, ranking above all six other countries surveyed on dismissal, and above all four other common-law origin countries surveyed in relation to alternative employment contracts. Viewed largely on the basis of the state of the legal provisions, and in respect of these particular dimensions of labour law, this data does suggest, then, that Indian labour law deserves to be categorized, at least among common-law countries, but possibly more widely, as highly labour-protective.

The position is, however, quite different once attention is switched to collective labour rights. Particularly in relation to employee representation through trade union recognition, and support for collective bargaining, India now appears at a relatively low level of protection, grouped among the common-law countries and a long way from the more labour-oriented systems of France and Germany,Footnote ¹⁷⁷ although India’s relative position vis-à-vis some of the other common-law countries has been more volatile throughout the survey period, and certainly has been comparatively strong in relation to the right to take industrial action.Footnote ¹⁷⁸

It is possible, of course, that trade unions have been able to exercise influence in the Indian political economy through political and industrial clout, and, as we have noted, this has sometimes been a theme in the Indian literature. But the data referred to in the foregoing discussion suggests that if labour has been highly protected vis-à-vis the interests of business, it has been through the individual floor of rights constructed by government through legislation rather than through collective rights exercised through trade unions and bargaining, and in this respect the data accords with the views of many authorities.Footnote ¹⁷⁹

Other recent “leximetric” studies of Indian labour law have confirmed this position. In a recent study of the impact of Indian labour law on unemployment, Sarkar has reported that of 40 variables used in the Deakin, Lele, and Siems study, only nine underwent important variation in the period 1970–2006. Of these nine, eight were associated with improvements in the strength of the law protecting workers in cases of agency labour, individual and collective dismissals, and reinstatement. In other words most labour law change was in the area of individual rights and dismissals. Similarly Dougherty’s work using OECD Employment Outlook data records that in respect of both “regular contracts” and “collective dismissals” India’s federal-level labour laws were stricter (more onerous on employers) than virtually all OECD countries (as at 2007).Footnote ¹⁸⁰

All of this evidence suggests that historically the strategy of the Indian state has been to construct a strong floor of wide-ranging rights for individual workers in their dealings with employers. There remain, however, further matters in debate which continue to call into question both the bona fides and the efficacy of such an approach.

One of the difficulties with the coding method generally employed in the “leximetric” approach is that it is often difficult to assess the actual impact of the laws studied: generally the law is scored mainly on the basis of its formal qualities, and this was the case with the Deakin, Lele, and Siems data for India upon which we have relied in this discussion.Footnote ¹⁸¹ But it is well known that such an approach may produce highly misleading outcomes, and it is important therefore to consider other factors which can be expected to affect the integrity of Indian labour law.

One of these factors concerns the very limited application of the various labour laws of India across the Indian economy generally.Footnote ¹⁸² As we have noted in discussion throughout, even much earlier protective provisions applied only in a small proportion of establishments,Footnote ¹⁸³ and this pattern has continued through into most of the modern labour laws. The all-important Industrial Disputes Act 1947 applied (and still applies) only to “workmen” employed in “industries,” and whereas “industry” has been interpreted reasonably broadly by the Supreme Court, the definition still excludes government employees, agricultural workers, and domestic servants.Footnote ¹⁸⁴ More than 50% of the Indian workforce was still engaged in the agricultural sector through the 1990s and beyond.Footnote ¹⁸⁵ Likewise, the Industrial Employment (Standing Orders) Act 1946 applies only to establishments of 100 or more employees, though in some states these provisions have been extended to enterprises employing 50 or more. Many other laws, as we have noted, are limited in application according to size, sector, or other criteria. Most industrial workplaces in India simply fall below the threshold employment limit.Footnote ¹⁸⁶

Further compromising factors include the structure of the Indian economy generally. The vast majority of Indians are employed on the unorganized (informal) sectors of the economy,Footnote ¹⁸⁷ in forms of self-employment, and in casual wage work. As noted above, much of this employment is still rurally based, but in urban areas it includes household workers and servants, and other menial services.Footnote ¹⁸⁸ Since the 1990s there has been a shift in employment away from the organized sectors of the economy to the informal sectors.Footnote ¹⁸⁹ There are only 27 million workers employed in the organized private sector of the economy.Footnote ¹⁹⁰ Between 1991 and 2006, there were 870,000 jobs shed from the public sector.Footnote ¹⁹¹ At the same time there has been an increase in the numbers of persons employed as “contractors” or “casuals,” or where the precise relationship between the worker and the employer is legally uncertain, within the formal sector. Each of these developments inevitably reduces the proportion of the workforce covered by India’s labour laws.Footnote ¹⁹² Furthermore, many workers engaged within the formal sector may still fall beyond the law’s protection. According to Sankaran, in 2005 the total workforce of India was 457 million persons, almost 395 million of whom were engaged in the informal sector. Of those in the formal sector only about 53% were actually covered by the labour laws, the remaining 47% constituting what amounts to “informal” employment in the otherwise “formal” sector. Various figures are advanced, but it is estimated that well over 90% of the employed workforce falls outside the law’s protection.Footnote ¹⁹³

One further issue concerns the question of enforcement and avoidance. We have noted in our earlier discussion that even where the law applies in principle, that is to say in formal terms, it is quite easily ignored or avoided, and thereby its effects are rendered nugatory. There are many different ways in which employers can and do avoid labour regulation, even in the organized sector.Footnote ¹⁹⁴ For example, firms may avoid retrenchment laws, and health and safety provisions, simply by splitting up large firms into smaller units which are not captured by the legislation,Footnote ¹⁹⁵ and through processes of acquisitions and mergers where workers are largely unprotected in practice.Footnote ¹⁹⁶ A loophole in the retrenchment laws is the use of voluntary retirement schemes which are often voluntary in name only.Footnote ¹⁹⁷ Some businesses simply relocate to areas where enforcement is more lax.Footnote ¹⁹⁸ But generally speaking, as we have noted, enforcement is weak everywhere.

It goes without saying that this state of affairs has important implications for the “protective” profile in Indian labour law. The evidence suggests, among other things, that most workers do not receive the legislated minimum wage,Footnote ¹⁹⁹ and that legislation designed to regulate hours of work, and health and safety and many other conditions are either ignored or not enforced.Footnote ²⁰⁰ Notwithstanding the purpose of the Contract Labour Act, contract labour is rife throughout many of India’s most important industries.Footnote ²⁰¹

All of this suggests that the “protective” qualities of Indian labour law are largely ineffective when measured across the Indian economy as a whole. Nevertheless, this has not interfered with the widespread perception that the overly protective nature of Indian labour law has been a major factor in the evident failure of the Indian formal economy to adapt and develop in the globalized world economy, especially the formal sector.Footnote ²⁰²

One major line of investigation has concerned the economic consequences associated with the introduction of the series of amendments to the law during the 1970s and 1980s which, as noted,Footnote ²⁰³ provided for stronger employment protections for workers employed in larger firms. In this line of amendments, the introduction in 1976 of Chapter VB into the Industrial Disputes Act 1947, in particular, introduced quite stringent rules against lay-offs and retrenchments in firms with 300Footnote ²⁰⁴ or more workers.Footnote ²⁰⁵

Early studies, including those by Fallon and Lucas,Footnote ²⁰⁶ Nagaraj,Footnote ²⁰⁷ and Bhalotra,Footnote ²⁰⁸ suggested that these reforms were associated with labour “hoarding” and reduced labour demand, which in turn hampered employment growth, even while economic growth was accelerating in company with productivity growth.Footnote ²⁰⁹ The study of manufacturing employment by Fallon and Lucas over the period 1959/60 to 1981/82Footnote ²¹⁰ reported that the 1976 amendment was associated with a 17.6% decline in employment across the sectors examined in the study, and that the decline in employment in the larger establishments covered by the provisions had not been associated with a proportionate increase in employment in smaller firms exempted from the law’s coverage.Footnote ²¹¹ A later study by the same researchers arrived at broadly similar conclusions.Footnote ²¹² Other studies also attributed negative employment effects to the severity of India’s employment security laws, albeit through different arguments to those employed in the Fallon and Lucas studies.Footnote ²¹³

Some other studies have sought to examine the economic impact of Indian labour law more broadly. For example, a study by Besley and BurgessFootnote ²¹⁴ constructed a measure of key state amendments to the Industrial Disputes Act 1947, covering matters such as strikes and lockouts, the adjudication of industrial disputes, closure of firms, lay-offs, retrenchments, bargaining, and union membership, according to whether they were “pro-worker” or “pro-employer.” The study drew the conclusion that those Indian states which had introduced “pro-worker” reforms had experienced significantly lower levels of growth in output, employment, and investment, and had also experienced lower levels of productivity, when compared with states that had not done so. They also found that there were significant increases in employment in the “unregistered” sector, and increases in urban poverty in those states which had pursued “pro-worker” reforms.Footnote ²¹⁵

Although the Besley and Burgess study has come in for some criticism on methodological grounds,Footnote ²¹⁶ it has nevertheless provided the direction for much subsequent empirical research. This work has generally supported the view that states with “pro-employer” legal reforms experienced faster growth in employment and output than did those states with no reforms or with “pro-worker” reforms.Footnote ²¹⁷ It also points to the fact that other liberalizing reforms, such as de-licensing and tariff reforms, work much more effectively where they are coupled with pro-employer amendments to labour law provisions.Footnote ²¹⁸ Finally, work by Ahsan and Pages, rather than aggregating all labour law constraints, has tested for the possibility of a differential impact of employment security and dispute settlement laws.Footnote ²¹⁹ This research found that reforms in both areas of labour law were associated with negative effects on employment and output. Moreover, the research also showed that where labour law reforms at the state level acted to increase the costs of resolving industrial disputes, this magnified the negative effects of more stringent employment security laws.

Taken as a whole, then, there is a body of evidence in some research, albeit contested, to suggest that the perceived rigidities in the Indian labour law system have had, and are continuing to have, negative consequences for the development of the Indian economy.Footnote ²²⁰ On the other hand, as we have noted, there are serious doubts on the effectiveness of much of the Indian labour market regulation, even across the formalized sectors of the economy,Footnote ²²¹ and, at the same time, much of the research is limited in scope, and the outcomes subject to question and debate.Footnote ²²²

3.2 The Settlement of Industrial Disputes

While it seems that the Royal Commission on Labour had anticipated in the 1930s that industrial peace in India would be constructed on the development of strong trade unions and collective bargaining,Footnote ²²³ as we have noted this was never an accepted policy direction for Indian employers, who continued trenchantly to resist union recognition and legislation supporting that objective. Amendments to the Trade Unions Act, which provided for a procedure for compulsory recognition, were never given legal effect.Footnote ²²⁴ Running parallel with the law on trade unions were the laws pertaining to industrial disputes, which began with the Trade Disputes Act 1929, and were followed by the Bombay Trade Disputes (Conciliation) Act 1934, the wartime legislation, and ultimately the central government’s Industrial Disputes Act 1947, which consolidated the general governance approach to Indian industrial relations.

The main point of all of this legislation was not, as we noted earlier, to promote industrial peace through collective bargaining. Rather it was an attempt to stifle the development of industrial disputes and their prosecution through strikes and other forms of direct action, first by limiting the right to strike, and second by empowering government directly, and through its institutions, to seize control of emergent industrial conflict and orient it towards settlement or suppression. Its state powers in this respect were largely unrestricted. We can now turn to look more closely at the detail of these regulations, before attempting to make an assessment of the system’s impact on Indian industrial relations.

As we noted in Section 2 of this paper, the Industrial Disputes Act 1947 is the core piece of central government legislation underpinning the industrial relations system of India.Footnote ²²⁵ As is the case with so much of Indian labour law, the Act applies only selectively to particular types of worker, and in particular industries and establishments.Footnote ²²⁶ In general terms, the Act establishes a multi-tiered industrial dispute resolution system comprising three stages: negotiation, conciliation, and adjudication.

A principal objective of the Act, at least in formal terms, is to encourage the resolution of disputes through negotiation between the parties. Most collective agreements entered into between unions and employers arise from conciliated settlements pursuant to s. 12(3) of the Industrial Disputes Act 1947 and are binding upon all of the present and future employees of the employer parties to the settlement, including non-union members. Voluntary (i.e. non-conciliated) settlements, on the other hand, are binding on only the individual signatories to the particular agreement concerned.Footnote ²²⁷ However, the Industrial Disputes Act imposes no legal duty upon employers to bargain with trade unions, and as a consequence collective bargaining is not a convention in dispute settlement across Indian industry generally. Various forms of machinery have been introduced into the legislation in attempts to prompt other forms of workplace negotiations or consultations. For example, the Act mandates the establishment of Works Committees in workplaces with 100 or more employees. These Committees of 20 members may be comprised of equal numbers of employer and employee representatives or of fewer employer than employee representatives (there may not be more employer than employee members), and are charged with the duty of promoting and preserving good workplace relations.Footnote ²²⁸ A further example is found in the establishment of in-house machinery for the resolution of individual employment grievances in establishments of 20 or more workers.Footnote ²²⁹ Neither the Works Committees, nor the “Grievance Redressal Machinery,” are intended to obstruct the rights of unions to collective bargaining or the rights of individual workers to raise an industrial dispute.Footnote ²³⁰

A second approach to dispute settlement in the Industrial Disputes Act includes the processes of conciliation and voluntary arbitration.Footnote ²³¹ Pursuant to the provisions of the Act, the government may appoint Conciliation Officers to mediate in or promote the settlement of industrial disputes in specific areas and industries.Footnote ²³² It may also appoint Conciliation Boards.Footnote ²³³ Where it apprehends that an industrial dispute exists, the appropriate government may refer such dispute to a Conciliation Board. Alternatively, the parties to a dispute may apply jointly or separately for a reference to a Board, and if the government is satisfied that the disputants represent a majority of each party it is under an obligation to make the reference accordingly.Footnote ²³⁴ There is also scope under the Act for the parties voluntarily to refer the dispute to arbitration.Footnote ²³⁵

In the case of collective disputes there is no automatic path in the conciliation process to a supervised settlement. The Conciliation Officer or Board may settle the dispute, but in the event that it cannot do so it must send a “failure” report to the government. The government retains the discretion to decide if the case should be referred to a Labour Court or Tribunal for adjudication. Strict limitations apply to the taking of industrial action while these processes are in train.Footnote ²³⁶

The Act also provides for the government to establish Labour Courts and Industrial TribunalsFootnote ²³⁷ for dealing with industrial disputes,Footnote ²³⁸ and for it to constitute Courts of Inquiry “for inquiring into any matter appearing to be connected with or relevant to an industrial dispute.”Footnote ²³⁹ As we have noted, generally speaking the government has a controlling discretion in relation to these matters. In the event of a failure to settle the dispute through the conciliation stage, the government may refer the dispute to a court or a tribunal. Alternatively, the parties to a dispute may apply to the government jointly or separately for a reference of a dispute to a court or tribunal, and, as is the case with the conciliation process, if the government is satisfied that the persons applying represent the majority of each party, it must make the reference accordingly.Footnote ²⁴⁰ The government is not required under the legislation to give the parties any hearing when exercising its discretion either to refer or not to refer a dispute to a court or tribunal. One major exception to the government’s discretion on adjudication concerns the dismissal or retrenchment of individual workers. In such cases a 2010 amendment has provided workers with direct access to a Labour Court or Industrial Tribunal without the requirement of a government reference.Footnote ²⁴¹ Once again, the various processes of adjudication under the Act are accompanied by strict limitations on the rights of all parties to engage in industrial action.Footnote ²⁴²

If, as we have noted in earlier discussion, Indian labour law is not effectively “protective” of Indian labour, the question remains whether it has been more successful in the second of its core objectives; i.e. in facilitating the efficient settlement of industrial disputes and thus constraining the level of industrial action in the day-to-day affairs of Indian industrial relations.

Viewed over its lengthy period of operation, Indian labour law does not appear to have been very successful in engineering industrial peace. While India’s law does not prohibit industrial action per se, the strongly interventionist role of the state, coupled with the highly restrictive and uncertainFootnote ²⁴³ nature of the law on strikes, has given rise to a perception that it is a disordered, disruptive, and heavily politicized dispute settlement process,Footnote ²⁴⁴ with strong negative implications for the Indian economy.Footnote ²⁴⁵ Thus scholars have noted the comparatively high number of working days lost through strikes in India,Footnote ²⁴⁶ the levels of union militancy generally,Footnote ²⁴⁷ and the general failure of the dispute settlement mechanisms and other legal processes to resolve these problems.Footnote ²⁴⁸ While there has been a general decline in the numbers of disputes and strikes in recent decades,Footnote ²⁴⁹ and a consequent decline in the numbers of working days lost due to such action, the impact of this has to a considerable degree been offset by a corresponding increase in the numbers of employer lockouts.Footnote ²⁵⁰

Much of the focus in the literature points to administrative weaknesses in the adjudication system described earlier.Footnote ²⁵¹ One major concern is the sheer volume of disputes to be dealt with by the labour courts and tribunals, which leads to inordinate delays at both the referral and settlement stages of the conciliation and adjudicative process.Footnote ²⁵² A second problem concerns the potential for misuse of the dispute settlement mechanisms. Some scholars have argued that the subjective nature of the referral powers in the legislation has created the conditions through which they may be used for political and other extraneous (or corrupt) purposes, and that in fact such practices do take place, resulting in unjust outcomes for unions and labour in particular.Footnote ²⁵³ One obvious consequence of this is that the number of collective interest disputes coming into the adjudication system has declined substantially in the past two decades as workers tend to accept what the employer has to offer rather than risk taking direct action.Footnote ²⁵⁴ Taken as a whole, then, the weight of evidence suggests that the dispute settlement process in Indian labour law engenders industrial conflict rather than promotes industrial peace,Footnote ²⁵⁵ or at least secures labour compliance under highly unfavourable terms.

One final point to note in this discussion of dispute settlement is the impact that the Indian labour law system has had upon the Indian trade union movement. As we have noted at various points throughout this paper, trade unions have not been as strongly legally incorporated into the regulatory system as in many other countries, and as a consequence their influence through collective bargaining and through the various other dispute settlement mechanisms has been comparatively muted. One illustrative example of this is found in the impact that the delays and costs associated with the disputes referral system has had in cases of anti-union victimization and discrimination by employers.Footnote ²⁵⁶ Perhaps as a consequence of this legal disadvantage, in industrial terms unions are very weak. They are also marked by very low membership,Footnote ²⁵⁷ multiplicity, fragmentation, and rivalry,Footnote ²⁵⁸ and are intensely politicized,Footnote ²⁵⁹ partly as a result of provisions of the Trade Unions Act 1926 which permit executive members of trade unions to be drawn from external, politically allied, bodies. As a result, most of the power of Indian trade unions, which recently has been in decline,Footnote ²⁶⁰ has been derived from their connections with political parties and policies. At the same time, this has made them vulnerable to political appropriation.Footnote ²⁶¹