Contract employees.

AuthorSridhar, R.
PositionIndian labor contract regulations


Post the onset of economic liberalization in the early 1990s, many Indian companies relied on the conventional wisdom that "the only way to succeed in an era of global competition is to take advantage of the benefits of a largely unregulated, non-unionized, and low-wage environment" (Pfeffer, 1998). This conventional wisdom, along with a host of other commonly held beliefs, predicated the employment practices that companies followed in order to leverage numerical labor flexibility. Numerous employment types were deployed to obtain labor cost advantages--temporary, trainee, casual, contract. Fast forward to recent times and we find that these employment practices are now the major cause of labor unrest and industrial strife. While the arguments in favor of deploying multiple employment types are familiar --surplus labor, uncertain market demand, the ambiguity and inconsistencies in the Contract Labor Act--the fact is that employees and unions perceive this practice of multiple employment types as pure exploitation.

While companies should explore the use of different employment modes to allocate work in view of the pressure of achieving both efficiency and flexibility, it is important that a logical and consistent approach be taken to arrive at decisions pertaining to the nature of employment at the company level. It is also appropriate that as with other capital investments, the management of human capital should be categorized into "make" or "buy" decisions. Although the make-or-buy distinction may appear simplistic, the growing number of subtle variations on this theme makes the effective management of employment modes at once complicated, contentious, and more directly related to company effectiveness (Lepak & Snell, 1999).

In this paper, we discuss the logic that companies could use to arrive at an employment policy. We also describe an approach adopted by our company to manage contract employees that is proving effective. We consider contract employees to be an integral part of the workforce contributing to company operations. Moving beyond the immediate benefit of cost arbitrage, an "investment" approach is being adopted for this segment of the workforce. Apart from managing basic issues of compliance, the principles of industrial democracy, equality, and equity are core elements in our management of this segment of employees. Another critical shift in our approach in this area is to partner with specialized agencies (Professional Service Providers) to ensure a more holistic and professional approach towards managing non-core jobs. However, before discussing employment mode selection logic and the management of contract employees, we consider it pertinent to briefly examine India's formidable labor legislative framework and its impact on employment and industrial progress.

Indian Labor Legislation

The World Bank in its India Country Overview (2008) states: "India's labor regulations--among the most restrictive and complex in the world--have constrained the growth of the formal manufacturing sector where these laws have their widest application. Better designed labor regulations can attract more labor-intensive investment and create jobs for India's unemployed millions and those trapped in poor quality jobs. Given the country's momentum of growth, the window of opportunity must not be lost for improving the job prospects for the 80 million new entrants who are expected to join the workforce over the next decade." There are over 50 national laws and many, many more state-level laws. Traditionally, Indian governments at the central and state levels have sought to ensure a high degree of protection for workers. For instance, a permanent worker can only be terminated for proven misconduct or habitual absence and the legal process could, and usually does, take years to complete.

While the Indian legislature fully endorses the general view of employers that the legislative framework requires drastic amendments, the political will to bring about changes has been absent. Indian employers find that efficiency and flexibility are fettered by three labor enactments in particular: The Industrial Disputes Act, 1947; The Trade Union Act, 1926; and The Contract Labor (Regulation & Abolition) Act, 1970.

The Industrial Disputes Act (IDA), though meant to promote industrial harmony by resolving disputes, in reality slows down change and impedes labor numerical flexibility. Particular attention has been paid to its Chapter V-B, introduced by an amendment in 1976, which...

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