Labour Legal guidelines Carry out a Redistributive Perform. Diluting Them Has Critical Penalties.

The three labor laws passed at Lok Sabha last Tuesday are the latest in a long line of labor law reforms recently passed, and more likely to follow in the future. All of these “reforms” have one goal in mind: to dismantle labor rights and the protection of the past, to make the labor market “more efficient” or, more precisely, more flexible.

While this has predictably generated criticism from unions and activists, proponents of the reform argue that Indian labor laws are the remnants of an archaic past – ineffective for workers and unnecessarily burdensome for employers – and should therefore best be dismantled. However, in order for us to properly address the labor reform debate, we should first ask ourselves: what do labor laws actually do, or what are they supposed to do? What role do they play in an economy?

The first, and perhaps most obvious, function of labor law is to protect workers from fluctuations in wages, below-average or dangerous working conditions, and from precarious and insecure employment. But why is this protection needed? Because without them, employees and employers would enjoy unbridled “freedom of contract” as simple buyers and sellers of labor. In itself, this is not undesirable as long as the parties are placed equally. Freedom of contract between two very dissimilar parties, however, would mean that the stronger party could indiscriminately impose its will on the weaker party.

In a completely “free” and “flexible” labor market, a market without occupational safety, discriminatory employment, subsistence level, underage work, etc. could be justified and protected, since “market forces are at play” and a Dickensian dystopia would soon dissolve. By restricting employers’ freedom to negotiate unsatisfactory employment contracts, labor laws such as the Commercial Employment Act (Rules of Procedure) of 1946 to some extent correct inequality between workers and employers in a free market. In other words, they distribute legal power between individual workers and employers.

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Second, labor laws redistribute wealth. Employment is more than just paying people for productive work. Employees share the wealth that they generate through (living wages) and other benefits such as love money, tips, bonuses, pension funds, pensions, etc. Without these statutory obligations, employers would only keep a larger portion of the cake and only transfer what is absolutely necessary to employees as wages. And this division of wealth goes not only to the workers individually, but also to their families and to the workers as a class.

For this reason, for example, the minimum wage is calculated on the basis of a (usually male) member earning for a family of four and includes expenses for goods such as groceries, clothing, rent, and education. Aside from gender policy, the Occupational Safety and Health Act and legal protection against flexible “rent and fire” policies enable the creation of a stable industrial working class in which the children and families of workers can urbanize, gain economic mobility and build social capital.

In this regard, if you look at the Social Security Code 2020, which aims to consolidate existing social security and welfare laws, it leaves large sections of the workforce out of its remit, including migrant workers, and doesn’t even give an appointment for enforce it and impose modest penalties for violations. Ultimately, without adequate safety nets, workers become vulnerable.

Third, labor laws help redistribute economic and political power. Laws against arbitrary termination of employment, collective bargaining, freedom of association and industrial action give workers some degree of bargaining power over their employers. This gives them the ability to enforce the law, negotiate better terms of employment and get involved in running the company. Without this, all other protective measures are superfluous. And that is why the labor relations laws were also at the center of the reforms within labor law. The Labor Relations Code 2020 Act, among other things, prevents workers from going on strike without notice of at least 60 days and allows companies with up to 300 workers (raising the previous threshold of 100 workers) to dismiss their workers without notice through approval the government.

Labor laws therefore do much more than just protect individual workers. They play a crucial redistributive role – they distribute wealth and, above all, bargaining power in an economy. In advanced industrialized countries of Europe, for example, organized labor gained electoral representation through secure standard employment and collective action in the Keynesian post-war decades and was able to shift the economic and political balance of power considerably in its favor.

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For this reason, the watering down of labor rights and protection, an important principle of neoliberal politics, has been accompanied by increasing economic inequality in both rich and poor countries. None other than the International Monetary Fund finds that weak labor market institutions such as lower union density and falling wages have exacerbated inequality. As David Harvey argues, economic “efficiency” in neoliberalism is nothing more than the state-sponsored retaliation of capital for labor.

None of this, of course, means that labor laws in India in their current form do their redistributive work perfectly or that they do not need to be updated given the economic, political and technological changes that have occurred since they came into force. Current “reforms” are not redesigning labor rights, however, but are destroying the low level of labor protection that still remains. This is not a scientific or ideologically neutral economic policy, but basically an act of redistribution, of economic, political and legal power in favor of capital.

In a world already grappling with crippling inequalities, weak labor market institutions will only further fuel economic divisions and create a loose, precarious workforce that will wield little or no power over capital either as individual workers or as unions.

Less than 10% of the workforce is currently formal and informalization was the overwhelming reality in India even before neoliberal reforms. However, this does not necessarily mean that the impact of these changes will be limited to the formal workforce. One of the main differences between formal and informal employment is the applicability of labor law. By gradually dismantling labor rights in the formal sector, the state effectively dissolves the formal into the informal. In other words, it institutionalizes informality.

This means, on the one hand, that it frees itself from the obligation to create formal jobs and further exacerbates the problem of unemployment growth. Second, precarious work, one without occupational safety or protection, will continue to be the new normal. In other words, the problem with the continued watering down of labor laws is only partly that working conditions for some of the workforce are deteriorating. More importantly, it rules out the possibility of demanding better working conditions and instead consolidates the existing status quo and leaves little hope for a better future.

Rashmi Venkatesan is Assistant Professor of Law at India University’s National Law School in Bangalore.