Impact of Reforming Labour Laws
Photo courtesy of Ecotextile
Labour law reforms are drawing strong resistance from local and transnational labour and civil society groups. The Minister of Labour and Foreign Employment, Manusha Nanayakkara, presented an Employment Draft Bill to the National Labour Advisory Council (NLAC) last week to review and propose amendments by July 21.
Following the pandemic, the reforms are packaged as a solution to the ongoing acute economic crisis in the country. Trade unions and civil society groups claim that these reforms are undemocratic and characterised by arbitrary and hasty actions taken outside the tripartite labour bargaining process. Worker representatives are of the opinion that proposed reforms, amalgamating 13 existing labour laws, are failing the marginalised and vulnerable worker groups in both the formal and informal economy.
The question is whether labour law reforms, in the way they are presented and proposed, are really the need of the hour. For employers and the government, reforms are presented as essential for economic progression and attracting more investments. However for the workers, who perceive the changes as negatively impacting livelihoods, there are more compromises than gains.
Labour law reforms have travelled a long, difficult and winding road. Several attempts to change labour laws in the last 40 years have resulted in partial and unsystematic changes. Regardless of the outcomes of these efforts, labour law reforms have continued to be contentious, with debates often centred around balancing economic growth with the protection of workers’ rights.
Background to labour law reforms
Sri Lanka’s labour law reforms have a long history that has produced inadequate results for both employers and the workers. The first attempt to reform was soon after the introduction of the open economy policies in the 1970s in an attempt to adjust labour to the new conditions and demands. The shift from agriculture in 1960s to an industrial economy resulted in the public sector absorbing most of the workforce. It led to complications in employment conditions. In the face of these challenges, the government introduced the white paper on industrial relations in January 1978 that proposed to repeal or reform laws such as the East Labour (Indian) Ordinance of 1889 and the Termination of Employment of Workmen No. 45 of 1971 (TEWA), Employees’ Trust Fund and Gratuity Acts, among other changes.
Although there was a need to reform labour laws in the 1980s, governments evaded this effort. This was possible because mega development projects such as Mahaweli Project created new opportunities for workers and prosperity for employers. However, this did not fully resolve the underlying issue with the labour laws or the labour force. In the late 1980s, the youth unrest had direct links to a small and inadequate job market and the mismatch of education and the skills of the country’s educated youth. This is a strong indication that the problem was not just with the labour laws.
In the 1990s amid mass privatisation, the government offered voluntary retrenchment packages without revising the laws such as those related to termination. In 2002, a poverty reduction strategy paper Regaining Sri Lanka recommended labour law reforms. It resulted in limited reforms to the Industrial Disputes Act No. 43 of 1950 (IDA) and TEWA and was postponed with a government undertaking to provide a strong social security system in place for workers. Consequently, the government, in 2010/2011 introduced a new pension bill in response to an IMF proposal without consulting workers and their representatives. This reform effort failed for disregarding worker interests. It led to labour protests across the country and resulted in the death of Roshen Chanaka, a young worker in the Katunayake Export Processing Zone, from police gunfire.
Business circles have urged changes as well as flexibility in managing the workforce since 1977. The reform efforts are perceived as employer initiated, focused on areas that have been identified by employers as needing reform and resulting in eroding worker protection. The most targeted Acts are IDA and TEWA which are traditionally viewed by workers’ organisations as offering the most protection for workers. This is also why such reform initiatives, with inadequate consultation, collaboration and research, have drawn vehement opposition from the workers.
There are several common criticisms against the prevailing labour laws governing different aspects of the employer-employee relationship and the workplace. A common allegation against the current labour laws is that they were made for a different time. Laws that govern plantation workers are often cited as an example. Another is that the existing regulatory framework is overly protective of the worker and disadvantageous to the employers. Several examples could be quoted here. First, the IDA and safeguards against unfair labour practices. Second, TEWA which enforces checks and balances on the employer and makes it difficult and expensive for employers to fire an employee. Third, the Maternity Benefits Ordinance where the employer is expected to bear the total cost of paid maternity leave and other benefits such as feeding intervals.
The above snapshot into the history also prompts the compelling question whether new labour laws actually resulted in the desired foreign investments, resolved skills shortages and job expectations in the workforce. This is an often overlooked question in the labour law reform debates.
Despite employer claims that the existing labour laws are protectionist, the current legal regime is not entirely favourable for the workers. Workers are concerned as the existing labour laws can be used to curb workers’ freedom of association in practice, do not provide tangible protections for plantation workers, provide little or no protection for workers who are engaged in care obligations, overlook informal workers who form a majority of the workforce due to lack of enforcement and does not offer a strong and sustainable social security system for private sector workers. Workers and their representatives have long demanded the reform of labour laws in these aspects.
Impact on workers
The new draft Employment Bill will effect changes in many areas impacting labour conditions and rights. These include recruitment of employees, contract of service, termination, period of service, leave, maternity leave, payment of remuneration, the establishment of National Remuneration Council, payment of gratuity, employment of women, young person and children, settlement of industrial disputes, registration of trade unions, professional safety, health and welfare, work from home, employment of foreign workers, prevention of workplace violence and harassment, record keeping and several other matters.
Out of these, worker representatives have identified several changes[i] that can potentially affect workers’ rights and interests negatively.
The new laws will introduce five day work week (as opposed to the existing 5.5 workdays) with flexible working hours and part time employment. Although this sounds attractive to some industries, it does not produce the same productivity and benefits for workers in other industries such as manufacturing. This could extend the current eight hour workday to 12 hours or longer. The practicality of the intended trade off of a four day week is not clear to many workers and has therefore drawn resistance. Some industries offer longer workdays but with overtime pay for workers in the afterhours. Workers continue their night shift, however more exhausting it is, for the overtime pay which is additional to their daily income. In fact, a considerable portion of their income per month is from allowances and overtime pay. The new law enables employers to keep the workday longer without having to pay overtime. Although this is a win for employers, it is a major compromise for the workers. This is also in a context where worker wages, especially in the manufacturing sector, are already below a living wage.
Changes to labour laws leave space to jeopardise the guaranteed basic salary of the workers. Labour representatives highlight that the changes would warrant employer discretion to pay an apportioned wage. This is conditioned by exceptional circumstances, such as a shortage of raw materials or a pandemic. However, past experiences during the COVID-19 pandemic have proven that such flexibility could undermine worker’s right to decent remuneration by forcing them to accept a salary that is insufficient to fulfil their everyday expenses. Furthermore, such reductions could contradict terms in workers’ contract of employment and leaves scope for unfair variations to national laws, e.g. minimum wage laws.
New provisions amend several protections guaranteed to workers under the current TEWA. For instance, the changes propose to remove the approval of the Labour Commissioner General for termination based on disciplinary actions and flexible payment of compensation in employment terminations. Employers have previously canvassed to change these provisions as they make firing cumbersome and expensive for them. However, this leads to serious erosions of worker rights; especially given the risks associated with freedom of association for workers these provisions could be weaponised against workers. Additionally, there are concerns around the lack of enforcement of TEWA for informal workers.
The new labour law reforms are packaged as promoting equality at workplace, empowering women and women’s economic participation. Action around the consistently low women’s economic participation rates were long overdue. Nevertheless, the proposed laws do not entirely serve for this purpose. Several civil society and labour groups highlight how the amendments are shrouded in the language of gender equality and social protection but do not fulfill the promise. Proposed changes to the maternity benefits do not clarify if the prevailing obligation on the employer will be distributed between the state and the employers or as part of a revamped social security system, thereby putting existing maternity benefits provisions at risk. Further the reforms do not facilitate the infrastructure needed for gender equality at work and in the workforce to be effective. For instance, proposed flexibility around night work is not based on the state’s obligation to guarantee safe access to public spaces for women such as transport, law enforcement and support services if workers face an issue.
Furthermore, casualisation and flexibility are promoted as strong progressive features of the new labour regime, especially in the interest of women workers. However, what is not highlighted is the precariousness that this creates as such workers are inherently not entitled to the benefits that permanent employees enjoy. One could argue that the stringent provisions in TEWA have already pushed employers to hire more agency workers and sub-contract. Both situations are not ideal for workers.
Women workers need more support around the unpaid care work that they shoulder. This is an aspect that has not drawn sufficient support in the proposed laws. In this vein, it could be argued that the new labour laws place women workers in a more precarious position leading to extractive labour practices.
Finally, social security and lack of a safety net for workers has been consistently highlighted by several international organisations. The plight of the workers was particularly evident during the COVID-19 pandemic. In order to attract more investment, as much as labour law reforms, the government should introduce a solution to this. Sri Lanka has resorted to reforms that erode existing social security provisions. Two previous social security fund reform attempts by the government proved to be unfavourable to workers and put workers, especially low income workers, at risk. One attempt to introduce a pension bill for private sector workers in 2011 was unsuccessful and resulted in major labour resistance. Last year, at the height of the economic crisis and austerity measures recommended by the International Monetary Fund (IMF), the government imposed a higher tax on the accrued benefits of superannuation funds of the workers as part of their domestic debt optimisation strategy. This disproportionately affected the low income workers in the formal private sector.
Additionally, it is unclear how the new laws would strengthen freedom of association of workers. There are concerns on whether the reforms would lead to further weakening the collective strength of the working population in the formal sector.
Labour law reforms in Sri Lanka has a long way to go in fixing these issues.
Changes needed
The current reform process has not proven to be the best way forward in making the much needed changes; there is more to consider in achieving a solution that would effectively safeguard the rights of the workers.
Although the government claims to have conducted a comprehensive consultation process in discussing the new labour law reforms, the process has been opaque. It has excluded several key labour unions and women’s labour organisations. At the same time as the labour reforms being tabled at the NLAC, four long standing trade unions were removed from the NLAC as NLAC membership is not statutorily entrenched but is at the discretion of the Minister. In addition, women labour representatives were excluded from the labour reform dialogue despite the important changes in the new laws that will affect women workers. There have been questions around accessible draft material for labour representatives especially as the draft was released only in Sinhala with no official translation available for minority unions and groups which affected the ability of these groups to effectively contribute to the reform efforts. Further, demonising trade unions and labour organisations as a spanner in the works of economic progress has been unhelpful. This dangerous narrative further imperils the rights of workers and those who stand to voice extractive labour practices and protect labour rights.
Another reason why the proposed labour law reform will not entirely solve the country’s economic woes is because it overlooks a larger working population in the informal economy. The reforms only cover the formal sector. Whereas the formal sector contributes significantly to the country’s economy, the government sooner or later will have to safeguard the rights and interests of the informal labour force. Moreover, it is unclear if the new proposals will change the plight of Sri Lanka’s plantation workers.
Apart from the concerns raised above, there are several other necessary steps that should precede the labour law reforms.
A major hurdle that Sri Lanka struggles to overcome is the mismatch in labour supply and demand. The labour force has high literacy and secondary educational attainment but is not trained for demand for skills in the current and future job market. This calls for a review of the skill’s mismatch with a job-seekers’ behaviour analysis which can inform labour law reforms.
Finally, there are systemic issues that need to be fixed before considering major labour law reforms. This includes rectifying more practical challenges such as policy inconsistencies, frequent changes to policies and not having a uniform and a consistent approach to addressing labour matters and labour reform initiatives. Without fixing these fundamental issues, a shiny new set of labour laws cannot save the workers or the country’s economy.
[i] Challenges in this section are developed, also, drawing from an analysis of the labour law reforms by Lakmali Hemachandra (Attorney-at-Law) for the Textile Garment & Clothing Workers Union (TGCWU), Sri Lanka.
