India: The Report Of The Second Indian National Labour Commission-2002: - - An Overview

Last Updated: 5 March 2003
Article by G Shivaji Rao


The first National Labour Commission 1929, had promised lot in the direction of social security, social welfare, wages, social insurance, industrial relations, industrial adjudication, collective bargaining etc,. In sequel to the recommendations made in the report of the first national commission on labour series of labour enactments were passed.

After the gap of almost 72 years the Second National Labour Commission has been constituted and submitted its report in the year 2002 to the Government of India. At the outset the terms of reference to the commission are as under:

  1. To suggest rationalisation of existing laws relating to labour in the organised sector, and
  2. To suggest an umbrella legislation for ensuring a minimum level of protection to the workers in the unorganised sector.

Before penning down the report, the Commission followed the following methodology:

  1. arrange to consultation / conferences in the major cities of India to get the opinion of the Industry, public, educationalists and so on institutions';
  2. circulated a questionnaire across the industry and the society in terms of the reference
  3. surveys conducted both in organised and unorganised sector

The recommendations of the Commission consists of the chapters, namely – 1). The terms of the reference of the Commission 2).Introductory review, 3).Industrial Development and Progress after independence, 4).Impact of globalisation - in comparison with neighbouring countries, 5).Approach to review laws, 6).Review of laws, 7).Unorganised sector, 8).Social security, 9).Women and Child labour, 10).Skill development, 11).Labour administration, 12).Other matters.

Only relevant part of important chapters with special reference to the organised sector and major recommendations of Commission thereof are dealt verbatim herein below:

Recommendations (verbatim)

1. We recommend that the Central Government and the State Government should have a uniform policy on holidays, only 3 national holidays be gazetted - namely Independence Day, Republic Day and Gandhi Jayanti Day, two more days may be added to be determined by each State according to its own tradition and apart from these each person must be allowed to avail of 10 restricted holidays in the year, Government holidays should be delinked from holidays under the Negotiable Instruments Act.(5.29)

2. Flexibility in the hours of work per week and compensation for overtime. (5.32)

3. Attempt to change the basis of tenure in all jobs (permanent as well as non-permanent) to contractual and for stipulated periods, involves a basic change in attitude and notion. If transforming the basis of all employment is a social necessity because it has become economic necessity for industrial and commercial enterprises, then, it is equally necessary to create social acceptability for the change and the social institutions that can take care of the consequences. (5.34 & 35).

The fundamental change of this type has to be preceded by :

i) evolution of socially accepted consensus on the new perceptional jobs

ii) the evolution of a system of constant up-gradation of employability through training in a wide spectrum of multiple skills

iii) the setting up of a system of social security that includes unemployment insurance and provisions for medical facilities; and

iv) the institution of a mandatory system of two contracts - one, an individual contract and two, a collective contract with workers union.

4. The commission recommends that government may laid down list of highly paid jobs who are presently deemed as workman category as being outside the purview of the laws relating to workman and included in the proposed law for protection of non-workmen. Another alternative is that the Govt. fix a cut off limit of remuneration which is substantially high enough, in the present context such as Rs.25,000/- p.m. beyond which employee will not be treated as ordinary "workman". (6.19) wage ceiling of Rs.25000/-

5. Further the Commission recommended that it would be logically to keep all the supervisory personnel, irrespective of their wages / salary, outside the rank of worker and keep them out of the purview of labour law meant for workers. All such supervisory category of employees should be clubbed along with the category of persons who discharge managerial and administrative functions. The Commission would also recommend that such a modified definition of worker could be adopted in all the labour laws. We expect management to take care of the interest of supervisory staff as they will now be part of managerial fraternity. (6.20) Modified definition of worker

6. Existing set of labour laws should be broadly grouped into four or five groups of laws pertaining to:

i) Industrial relations

ii) Wages

iii) Social security

iv) Safety

v) Welfare and working conditions and so on

The Commission is of the view that the coverage as well as the definition of the term 'worker' should be the same in all Group of laws subject to the stipulation that social security benefits must be available to all employees including administrative, managerial, supervisory and other excluded from the category of workmen and others not treated as workmen or excluded from the category of workmen. (6.21)

7. It is necessary to provide minimum level of protection to managerial and other (excluded) employees too against unfair dismissal or removal. This has to be trough adjudication by labour court or Labour Relations Commission or arbitration.(6.22)

8. Central laws relating to the subject of labour relations are currently the ID Act, 1947, The TU Act, 1926, Industrial Employment (SO) Act, 1946, Sales Promotion Employees (Conditions of Service) Act, 1976. There are State level legislation too on the subject. We recommend that the provisions of all these laws be judiciously consolidated into a single law called " The Labour Management Relations Law" or "Law on Labour Management Relations". (6.26)

9. We would recommend the enactment of special law for small scale unit. We have come to the conclusion that the reasonable threshold limit will be 19 workers. Any establishment with workers above that number cannot be regarded as "small". The composite law suggested by us for small enterprises has provisions for registration of establishment, (provisions pertaining to) securing safety, health and welfare, awards of work, leave, payment of wages, payment of bonus compensation in case of lay off, retrenchment and closure, resolution of individual and collective disputes of workers etc. The law suggested by us also has provisions pertaining to social security. We are of the view that a composite law will not only protect the interest of the workers in these enterprises but will make it easier for the small enterprises to comply with the same. (6.28)

Approaches in drafting the Law on Labour Management Relations :

Firstly, the Commission would prefer the gender neutral expression 'worker' instead of the currently used word 'workman'.

Secondly, the law will apply uniformly to all such establishments.

Thirdly, we recognise that today the extent of unionisation is low and even this low level is being eroded, and that it is time that the stand was reversed and collective negotiations encouraged. Where agreements and understanding between two parties is not possible, there, recourse to the assistance of a third party should as far as possible be through arbitration or where adjudication is the preferred mode, through Labour Courts and Labour Relations Commissions of the type be proposed later in this regard and not governmental intervention. A settlement enter into with recognised negotiating agent must be binding on all workers.

Fourthly, we consider that provisions must be made in the law for determining negotiating agents, particularly on behalf of workers.

Fifthly, the law must provide for authorities to identify the negotiating agent, to adjudicate disputes and so on, and these must be provided in the shape of labour courts and labour relations Commissions at the State, Central and National levels.

Sixthly, The Commission is of the view that changes in labour laws be accompanied by a well defined social secuirty package that will benefit all workers, be they in 'organised' or 'unorganised' sector and should also cover those in the administrative, managerial and other categories which have been excluded from the purview of the term worker.

The commission has avoided the term 'Industry' with a view that the persons engaged in domestic service are better covered under the proposed type of umbrella legislation, particularly in regard to wages, hours of work, working conditions, safety and social security. (6.40)

Modification in the terms like 'strikes', 'work stoppage' etc. and the terms go slow and work to rule must be regarded as misconduct under Standing Orders and Provisions relating to unpaid labour practice. (6.41)

Commission has recommended to the withdrawal of essential services maintenance Act (6.49).

The Commission has suggested to identify a bargaining agent on the basis of check-off system, with 66% entitling the Union to be accepted as a single negotating agent and if no union has 66% support, then Unions that have the support of more than 25% should be given proportionate representation on the college. (6.66)

Check-off system in an establishment employing 300 or more workers must be made compulsory for members of all registered trade unions. (6.73)

Commission also recommended that recognition once granted, should be valid for a period of 4 years to be co-terminus with the period of settlement. No claim by any other Trade Union / Federation / Center for recognition should be entertain till at least 4 years have elapsed from the date of earlier recognition. (6.76)

Establishment employing 20 or more workers should have Standing Order or Regulations. There is no need to delimit the issues on which Standing Orders can or need be framed. As long as two parties agree all manner of things including multi-skilling, production, job enrichment, productivity and so on can also be added. The appropriate Government may prescribe a separate Model Standing Orders for units employing less than 50 workers. The Commission has drafted a draft Model Standing Orders in this regard. (6.77).

Every establishment shall establish a grievance redressal committee consisting of equal number of workers and employers representatives. The said committee be the body to which all grievance of a worker in respect of his employment will be referred for decision within a given time frame (6.80).

Commission's view on Chapter V B (Special Provisions relating to Lay-off, Retrenchment & Closure in the Establishments employing not less than 100 workmen) of the ID Act : The Commission has felt that, in the new circumstances of global competition, it may not be possible for some enterprises to continue and meet the economic consequences of competition. In such cases, one cannot compel non-viable undertakings to continue to bear the financial burden that has to be borne to keep the concern going. They should, therefore, have the option to close down. In these circumstances, the commission came to the conclusion the best and more honest equitable course will be to allow closure, provide for adequate compensation to workers and in the event of an appeal, leave it to the Labour Relations Commission to find ways of redressal - through arbitration or adjudication. (6.87).

Prior permission is not necessary in respect of lay-off and retrenchment in an establishment of any employment size. Workers will however be entitled to 2 months notice or notice pay in lieu of notice, in case of retrenchment. The commission also felt that the rate of retrenchment compensation should be higher in a running organisation than in an organisation which is being closed. It would however recommend that in the case of establishment employing 300 or more workers where lay-off exceeds a period of 1 month such establishments should be required to obtain post-facto approval of the appropriate government. The Commission recommends that the provisions of Chapter V B pertaining to permission for closure should be made applicable to all the establishments to protect the interest of workers in establishment which are not covered at present by this provision if they are employing 300 or more workers. Having regard to the national debate on the issue and the principles outlined above the commission has recommended the compensation per completed year of service @ of 30 days on account of closure in case of sick industry which has continuously running to losses for the last 3 years and @ 45 days for retrenchment by such sick industry or body where retrenchment is done with a view to become viable. The commission also recommended higher retrenchment compensation @ 60 days wages and similarly a high rateof compensation for closure @ 45 days wages for every completed year of service for profit making organisation . For establishment employing less than 100 workers, half of the compensation mentioned above, in terms of days of wages may be prescribed. However, notice is required to be given for both the cases of retrenchment and closure as that of big industry. (6.88).

The commission has recommended for maintenance of panel of arbitrators by the LRC concern, to settle the disputes. (6.93).

The matters pertaining to individual workers, be it termination of employment or transfer or any other matter be determined by recourse to the Grievence Redressal Committee, conciliation and arbitration / adjudication by the Labour Court. Accordingly, Sec.2 a of the ID Act may be amended. (6.96)

The system of legal aid to workers and trade unions from Public Fund be worked out to ensure that workers and their organisations are not unduly handicapped as a result of their inability to hire legal counsel. (6.98)

Strike should be called only by the recognised negotiating agent and that too only after it had conducted a strike ballot among all the workers, of whom at least 51% of support the strike. (6.101).

Workers participation in management - the legislative teeth should be provided. (6.102).

The Commission urges that these recommendations are taken up as a whole and not in a piece-meal manner that may destroy the context of inter-relation and holistic approach. (6.104).

The provisions in respect of small establishments can be in the form of a separate law name Small Enterprises (Employment Relations Act) or be included in the general law as a separate chapter to ensure that the interest of the workers are fully protected, even while lessening burden on the management and providing them with vigilance in exercising managerial functions. (6.106)

The Commission has recommended that contract labour shall not be engaged for core production / service activities. However, for sporadic seasonal demand, the employer may engage temporary labour for core production / service activity. As mentioned by the commission that off-loading perennial non-core services like canteen, watch and ward, cleaning, etc. to other employing agencies has to take care of three aspects - (1) there have to be provisions that ensure that ensure that perennial core services are not transferred to other agencies or establishments; (2) where such services are being performed by employees on the payrolls of the enterprises, no transfer to other agencies should be done without consulting, bargaining (negotiating) agents; and (3) where the transfer of such services do not involve any employee who is currently in service of the enterprise, the management will be free to entrust the service to outside agencies. The contract labour will, however, be remunerated at the rate of a regular worker engaged in the same organisation doing work of a comparable nature or if such workers does not exist in the organisation, at the lowest salary of a worker in a comparable grade, i.e. unskilled, semi-skilled or skilled. (6.109).

The Commission would recommend that no worker should be kept continuously as a Casual or temporary worker against a permanent job for more than 2 years. (6.110)

The Commission recommends that every employer must pay each worker his one-month's wage, as bonus before an appropriate festival, be it Diwali or Onam or Puja or Ramzan or Christmas. Any demand for bonus in excess of this upto a maximum of 20% of the wages will be subject to negotiation. The Commission also recommend that the present system of two wage ceilings for reckoning entitlement and for calculation of bonus should be suitably enhanced to Rs.7500/- and Rs.3500/- for entitlement and calculation respectively.(6.113).

There should be a national minimum wage that the Central Government may notify. This minimum must be revised from time to time. It should, in addition, have a component of dearness allowance to be declared six monthly linked to the consumer price index and the minimum wage may be revised once in five years. The Commission also recommends the abolition of the present system of notifying scheduled employments and of fixing/revising the minimum rates of wages periodically for each scheduled employment, since it feels that all workers in all employments should have the benefit of a minimum wage. (6.114)

There is no need for any wage board, statutory or otherwise, for fixing wage rates for workers in any industry. (6.118).

The Commission recommended enactment of a general law relating to hours of work, leave and working conditions, at the work place. For ensuring safety at the work place and in different activities, one omnibus law may be enacted, providing for different rules and regulations on safety applicable to different activities. (The Commission have appended a draft indicative law on hours of work and other working conditions after this chapter, and an omnibus draft indicative law on safety in the chapter on Labour Administration). Such general law on working conditions etc. may provide for the following (6.121) :-

  1. The law should have a provision for letters of appointment along with a copy of Standing Orders of the establishment (in the local language); and issue of a photo identity card giving details of the name of the worker, name of establishment, designation, and so on.
  2. It should specify the maximum number of working hours in a day/week, and payment of overtime at double the rates of wages. The limitation on employing workers on overtime needs to be relaxed, and the Commission recommended that the present ceilings be increased to double to enable greater flexibility in meeting the challenges of the market. Sub section (2) of Section 64 of the Factories Act contains a provision that the State Government can give exemptions in certain circumstances. Sub section (2) of Section 64 of the Factories Act contains a provision that the State Government can give exemptions in certain circumstances. The Commission recommend that the list of such contingencies may be suitably expanded in consultation with the representatives of the industry to include more occupations, processes and contingencies.
  3. There should be reduced working hours for adolescents, prohibition of underground work in mines for women workers, prohibition of work by women workers between certain hours and so on.
  4. On the question of night work for women there need not be any restriction on this if the number of women workers in a shift in an establishment is not less than five, and if the management is able to provide satisfactory arrangements for their transport, safety and rest after or before shift hours.
  5. No exemptions like EPZ or SEZ from labour laws.
  6. Appropriate government may be empowered to grant exemptions on case to case basis.
  7. Establishment having a man power over a specified limit must provide for a canteen.
  8. Other refreshment facilities exclusively based on gender be provided
  9. To rope in local bodies, NGOs etc. in creation of amenities, common market etc.
  10. Irrespective of number of women workers, a creche should be provided

Deletion of Employers' Liability Act, 1938, fatal accident act 1855 and relevant provisions of these Acts may be incorporated into the W.C. Act, 1923. (6.126)

A provision may be made in the Laws that all cases must be disposed of in a span of 3 hearings, disposal in 03 hearings and where this is not possible, the Labour Court should in its award give reasons for taking more hearings. The Labour Relations Commissions may also be entrusted with the responsibility to assess the work of the LCs particularly in the matter of expeditious disposal of cases. With the constitution of an All India Labour Judicial Services that the commission is recommending with a hope that to have a dedicated and competent set of man and woman as presiding officers of LCs who will be able to discharge responsibilities efficiently and expeditiously. (6.139)

The Commission has suggested the recommendations on social security. The main recommendations amongst the other are stated herein below :

  • Our Commission accepts the need to consider social security as a fundamental human right. (8.30)
  • We recommend a system in which the State bears the responsibility for providing and ensuring an elementary or basic level of security, and leaves room for partly or wholly contributory schemes. This will mean that the responsibility to provide a floor will be primarily that of the State, and it will be left to individual citizens to acquire higher levels of security through assumption of responsibility and contributory participation. Such a system will temper and minimise the responsibility of the State, and maximise the role and share of individual and group responsibility. Thus, there will be three levels in the system. (8.32)
  • The Task Force on Social Security recommended that 'wage ceiling and employment threshold can and should be uniform with a provision for raising the wage ceiling and its eventual removal and lowering employment threshold and its ultimate removal. The Commission also agrees with it. (8.93)
  • The term 'workman' may be replaced by the term 'employee' so as to make the Workers' Compensation Act applicable to all categories of employees; the term 'employee' may be
  • Defined to mean any person employed in any employment specified in Schedule II; the entries in Schedule II may be revised so as to make it applicable to all classes of employees progressively; and restrictive clauses, wherever they occur in the Schedule, may be omitted. (8.96)
  • The Workmen's Compensation Act should be converted from an employers' liability scheme to a social insurance scheme, its coverage should be progressively extended to more employments and classes of employees, and the restrictive clauses in Schedule II of the Act should be removed. (8.97)
  • The management of ESI Scheme should be professionalised (8.113)
  • The PF Act be made applicable to all classes of establishment subject to such exception.(8.117)
  • The Commission suggests that EPFO organised an enquiry into the working of all exempted funds by an independent agency and review the entire scheme of granting exemptions from the provisions of the EPF Act. (8.126)
  • The Payment of Gratuity Act may be integrated with the EPF Act and converted into a social insurance scheme. (8.149)
  • An unemployment insurance scheme could play substantial role in coping with unacceptable levels of employment resulting from the implementation of structural adjustment programmes and other economic reforms. (8.175)
  • The National Renewal Fund (NRF) was established in Feb-92 to provide a form of wage guarantee which had to be used for re-training, re-deployment, counselling etc. but in practice, NRF has mostly been utilised for implementing the VRS. There is need to restructure this fund to serve as a wage guarantee fund. (8.179)
  • A provision be made for Payment of Educational Allowance to all employees (8.182).
  • The insurance companies be required to develop too or more plans providing coverage for major risks faced by people leaving it to individual to choose from among them according to their capacity. (8.242)
  • A National Scheme for pension for physically handicap be introduced (8.365).
  • A National Scheme be drawn up for payment of pension to leprosy affected persons, mentally sick people on the same lines as the pension for physically handicap person. (8.380)
  • Able bodied beggars should be given training and help to get employment. (8.386)
  • A permanent commission for disaster management should be set up on the lines of election commission. (8.393)
  • The Commission strongly recommends the constitution of high powered national security authority preferably under the Chairmanship of a Prime Minister of India. (8.415).
  • A social security fund of India and social security of each State may be set up. (8.433)
  • There will be three kinds of social security schemes : 1) social insurance type of contributory scheme, 2) subsidised insurance / welfare fund type of partly contributory and partly socially assisted schems and 3) social assistance scheme which will be wholly non-contributory. (8.343)

Other Recommendations & Conclusion:

  • The recommendations on women & child labour :
  • Recommendations on skill development :
  • Labour Administration
  • Workers participation in management
  • Employment scenario in the country :
  • Review of wages and wage policy :
  • Labour statistic and research work :

The Commission in its 2700 pages long report inter-alia has stressed on bilateral agreement, collective bargaining, identification of parties to bargain and for recognition. Review on existing provisions in the Trade Union Act with regard to recognition / registration of trade union i.e. 10% support of the work force with method of identification of parties, consequences - 66% support to recognise as TU and following suggestions:-

  • Dispute Settlement
  • Grievance Settlement Committees,
  • Power to the labour machinery to enforce awards
  • Disposal of disputes within 3 hearings
  • Independent from government interference
  • Self contained code / procedure
  • Review on strikes and lock outs
  • Essential Services Maintenance Act should be scrapped
  • Hire - fire policy, economic necessity
  • Social acceptability of contract system of appointments
  • Management (wants) to decide the working force - Sec. 9 A is must
  • Contract Labour (R&A) Act, 1970 :
  • No contract labour should be deployed Core functions

The Commission has suggested the above recommendations along-with 7 draft bills so that the concerned Ministry should not sit over the drafting exercise.

Critics on the Report:-

The report is not consonance with the National Policy on Industry - some of the parts of the Report consist number of negative covenants.

  1. Inter union revelry - 66% check off system is a myth
  2. Validity of 4 years recognition of the Trade Unions
  3. Strikes are weapons in the hands of few misled employees - Commission has recommended ballot system i.e. 51% of voting majority;
  4. Employers features not dealt in the Report

  • CLRA Act - out sourcing not in the employers interest
  • Closure - 300 is not adequate & is unrealistic
  • Festival bonus - not in the interest of the employer
  • Employment generation should be our goal accompanied by social benefit net
  • Using of the words "outsourcing", "agri business", "small scale industries", "small and medium scale industries", "manufacturing industry" without defining them.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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