Flexibility Without Security Is Counterproductive

(This post builds on the Founding Fuel essay published yesterday, which I co-authored with Vineet Kaul and Satish Pradhan, by examining the worker-security question that lies beneath the formal reforms. The Founding Fuel essay analyses the regulatory shift; this post looks at its lived consequences. Click here to access Founding Fuel Essay)

Why laws are made? Laws are made to establish standards of behavior, maintain order, resolve disputes, and protect individual rights within society. (And laws are broken to establish new standards of behaviour, create new order, resolve old disputes and protect certain individual’s rights in the Society!)

The principle of the ‘Rule of Law’ asserts that everyone, including lawmakers and officials, is subject to the law, preventing arbitrary use of power.

And there is also a concept of ‘Rule of Life.’ Unfortunately it is not much discussed. Working people are as much (if not more!) concerned with Rule of Life as they are with rule of law. Justice VR Krishna Iyer spoke about it.

Justice V.R. Krishna Iyer’s rule of life emphasized that the “rule of law” must sustain the “rule of life”, meaning the law must descend from its high pedestal to serve the real needs of people. (Emphasis supplied). His guiding principles included humility, compassion derived from the Constitution’s preamble, fair and courageous hearing for all parties, and the pursuit of attainable justice rather than a mythical perfection.

In 1991 the Government of India adopted the new economic policy. The Second National Labour Commission was constituted on October 15, 1999, under the chairmanship of Ravindra Varma. Its purpose was to suggest a/ reforms to rationalize organized sector labor laws and b/ propose an “umbrella” legislation for the unorganized sector. The Second National Labour Commission submitted its report on June 29, 2002.

This lethargy of response must be unparalleled in the world’s history. The Government of India has taken 35 years to respond to the changed reality at the workplace. And 23 years since they received the recommendations  of the Second National Labour Commission.

What happens when the inevitable changes do not get the nod of the Government? People find a way to address their concerns and the Government becomes a bystander or redundant. Let me explain.

After 1991, commercial establishments came under pressure to (a) cut down the size of the organization, meaning managing redundancies, very often as a result of adopting new technologies, or due to international competition and (b) in some rare cases closing down a part of the establishment or the entire establishment.

With the populist changes introduced by the Government in the seventies, both, reducing headcount as well as closure became nearly impossible. In both the cases the employers had to seek the permission of the Government which was usually not given in the eighties and the nineties.

Why? Because in the eighties and early nineties the Government was still holding a highly pro-labour protective stance in its administration. This changed over time to the other extreme, and we will see how.

Permission to Retrench or Close down an Undertaking.

Employers did not have the ‘exit route.’ So no foreign investments were coming, or at best they were trickling in.

It was well known that the Government was NOT giving permission to close down units. This changed over a period and the Government became more sensible, but it meant a. One had to grease palms to get the permission and b. There was uncertainty whether an employer will get the permission. This applied to those who employed more than 100 workers.

So employers brought down the number of permanent workers to less than 100 (usually through VRS) and after waiting for a year, they closed down their establishment.

A way out was found!

When the law requiring permission for closure was made it required establishments with 300 workers to seek permission. But populist considerations forced them to change it to 100.

This created anomalous situations. Diamond cutting and polishing industries in Surat, for instance, employ 99 permanent workers and 5000 contract workers. Similar situation is found in many other industries.

There are several industries which employ only contract workers and no permanent worker. For instance, this included a reputed engineering company at Baroda. (They have changed the policy following extreme unrest, and now they are recruiting permanent workers.)

These hardened stances of employers about engagement of contract labour will take years to change.

Many employers pay ‘minimum wages’ to the workers , although they do the same job which  permanent workers do. A very large and well known industrial house is known to employ permanent workers in the first shift and contract workers in the second and third shifts. So we have pay disparity.

Moreover, since they always pay minimum wages, the ‘real wages’ of workers do not increase. But their life places increasingly greater burden for earning on them, due to education of children, medical expenses etc.

Downsizing the Organization

The exit route for employers is a valid concern, but more grave concern was adjusting the size of the organization. In 1991 the ‘protection’ to the industries was taken off, so surplus labour became a start reality.

If an employer wanted to retrench workers he had to apply for permission which was not granted in the early nineties. (Later the Labour Commissioner started granting permission in some cases). That prompted employers to keep the permanent workforce below 100 while engaging large contingent of contract workers.

Since unions did not resist, or resisted weakly, the practice came to stay.

You might ask how can an employer employ so many hundreds or a few thousand employees in direct production activities. The answer is that the license is obtained for gardening or housekeeping activity, but contract labour is engaged in production or core activity.

There are guidelines for abolition of contract labour in the Contract Labour Act. This produced strange scenarios. A well-known auto giant M&M was directed to make canteen workers permanent by the State Advisory Board. Running a canteen for a factory is the last activity which a company would like to undertake.

To recap: Employers resorted to engagement of contract workers so that they can keep less than 100 workers on roll to close down a unit if need be, but they also lived under the threat of contract workers becoming permanent, through the State Advisory Board! Such permanency is directed by the State Advisory Board.

Some changes happened on the labour scene. Political leaders would lead a union till mid-nineties. Greener pastures attracted them – real estate!

How many MPs or MLAs have roots in labour movement today? The labour movement has been deserted. Net result: Internal employees unions are seen in everywhere, which is not a bad trend per se, but they have been turning a blind eye to the problems of contract labour and other contingent workforce like trainees, and temporary workers. The internal Employees unions are myopic in their stance because their thoughts and actions do not have the moorings in the purpose of trade union movement.

Now we have an interesting situation on hand. Think about it.

Think of a company where say 290 workers are employed. So the company does not have to take permission for closure or for retrenchment, as per the new labour codes.

In the pre-code days the employer would have declared a voluntary retirement scheme with benefits more than the statutory dues. But now it will not be necessary! They can be removed without additional benefits unless, of course, the employer is magnanimous or there is a union strong enough. Both are scarce things!

Racold shut down their factory in Chakan by simply sending the statutory compensation with notice pay. It was a pittance for people with long service. They were not just “unemployed but had become unemployable” too. Appeals to the Italian parent company have fallen on dear ears.

Read about their story here ‘Their Life After Retirement’  

To sum up: We have created an industrial situation where security of jobs is for a handful few, and large numbers (for every permanent workers there are 10 in the contingent force) must put their lives on tenterhooks.

Is this situation bad or good? Frankly, one can take any side but that is not the point. There is nothing permanent in this world – not even your and my life. Salman Rushdie says, ‘There is no such thing as perfect security, only varying levels of insecurity.’ That’s true!

Trade Unions Find Their Solutions

In our training session with ITC Kamgar Union’s managing committee (Ranjangaon) we debated what can be done by individual employee or worker. We just did not see alternative to having a second source of income! That meant an employee’s wife (or husband) must be gainfully working.

When Bajaj Auto suddenly and cruelly shut down their Akurdi plant, throwing out a very large number of employees, Mr. Sharad Pawar intervened and settled the matter which fetched benefits to the workers.  

And the Bajaj Auto Union learnt a lesson. They trained over 50 wives of employees various skills to ensure that in the case of loss of job by the male workers, (and in the case of an encore by the Bajaj management) his wife can still ensure that income stream does not dry up.

In other words, reskilling or acquiring new skills is essential. Not just by the usual bread winner male, but also by the lady in the house. Bajaj case glaringly puts the point across.

The union at BOSCH, Pune went one step ahead. In the recent settlement in BOSCH in Pune reskilling by the Company was a major demand by the union and BOSCH accepted it.

Insecurity is here to stay, whether we like it or not. How the unions respond is their choice. But for the time being it would be right to say that they are orphaned. Will the Government respond to this situation?

These are individual unit responses.

The Bigger Question is How Should Societies Handle Insecurity?

The employment-based insecurity has now become ‘permanent.’ The key concern today is not whether insecurity exists — but how to ensure that this insecurity does not descend into exploitation. The challenge before us is how to prevent insecurity from becoming a tool for deepening inequality.

The Indian Labour Codes: Flexibility without Safety Nets

The new labour codes have significantly enhanced flexibility for the employers as explained above — such as easing retrenchment procedures and raising the threshold for prior government permission to 300 workers. However, while employer flexibility has increased, the support for workers during job loss remains unchanged. Retrenchment compensation still remains what it was earlier — 15 days’ wages per completed year of service. In essence, the State has offered flexibility to employers without requiring any meaningful price for that flexibility, either from businesses or from itself. This approach is insufficient to address the structural insecurity you have highlighted.

Global Responses: Balancing Flexibility with Security

Across the world, insecurity in employment is not countered by guaranteeing perpetual permanency but by putting in place strong risk-sharing mechanisms. Different countries have evolved distinct models:

•   In Denmark and the Nordic region, “flexicurity” ensures high mobility of labour along with high income security, universal unemployment benefits, state-funded reskilling, and robust tripartite dialogue.

•   Germany protects workers during downturns through government-wage support schemes like Kurzarbeit, which prevents job losses. Kurzarbeit is a German term for a government-supported short-time work program that reduces employee hours instead of laying them off, with the state subsidizing part of the lost wages.

•   France absorbs the financial burden of redundancies through sectoral funds contributed to collectively.

•   Japan continues to rely on long-term employment norms with internal redeployment and skilling through company–union cooperation.

•   South Korea ensures better severance and strong conversion pathways for workers in dispatch and non-standard roles, supported by government-funded retraining.

A common global lesson emerges which is that flexibility must be balanced by income security, continuous skill development, and strong social protection. India currently has the flexibility — but not the balancing mechanisms. 

What Best Practice Models Can Work for India?

India needs solutions that distribute risk fairly rather than shifting it entirely onto labour. Among the viable options for our context are:

•   A “flexicurity”-based approach, inspired by Nordic systems, where job mobility does not jeopardize livelihood or dignity.

•   Sectoral social security funds, particularly in industries like automotive, electronics, and gig work, where layoffs are cyclical.

•   Portability of seniority and benefits, so workers carry their security with them even when they change jobs.

•   Guaranteed reskilling at scale — with mandatory contributions from employers and the State — to enable workers to shift into future technology-driven roles.

•   Universal unemployment insurance ensuring basic income continuity during periods of job loss.

The fundamental principle is clear: labour flexibility must be compensated — it cannot be given away for free.

 The Shift We Need: From “Job Security” to “Income & Skill Security”

Permanent jobs may reduce in number, but workers cannot be left without protection. India must transition from merely protecting the job to protecting the worker through:

•   Income continuity for a defined period

•   Lifelong skilling and reskilling

•   Assurance of employability even in changing industries

This is the truly future-proof approach.

The Path Ahead for India

At present, the new labour architecture has resulted in increased employer flexibility but also in heightened worker vulnerability, insecurity, weak social protection, and a diluted collective voice for the growing contingent workforce. When ten workers are precarious for everyone who is permanent, our labour system must primarily safeguard the ten — not just the one. Your article rightly captures the fundamental reality that insecurity shapes modern labour relations. But if insecurity has become the unavoidable price of economic survival, then society must ensure just compensation for that price — through strong protections, insurance, and reskilling mechanisms that are universal, enforceable, and humane.

Ultimately, a Civilized Society Must Strike the Right Balance:

Flexibility without security creates injustice. Security without flexibility leads to stagnation.

Justice lies in balancing both — guided by the “Rule of Life.”

Note: Mr. Arvind Shrouti (Option Positive) who has made an indelible and positive mark on the industrial relations in Pune-Chinchwad belt, substantially contributed to this article. I am grateful to him.

Vivek S Patwardhan

“What you leave behind is not what is engraved in stone monuments, but what is woven into the lives of others.” All matter copyrighted.