7. Employee Relations and Employment Law – Human Resource Management: Text and Cases



Chapter Objectives

  • To review the conceptual background of employee relations.
  • To understand relevant labour laws pertaining to the human resource function.
  • To understand the role and importance of trade unions.
  • To understand collective bargaining and its importance.
  • To understand strikes and lockout.
  • To understand the negotiation, grievance handling, discipline and collective bargaining processes.
  • To understand occupational health and safety.

Opening Case

Spenta Automobiles Limited (SAI), a subsidiary of Jain Enterprises, Nashik, was founded by its chairman Nipun Jain in 1979. During those days, it was one of the biggest assembly plants in Maharashtra. The company was manufacturing 40,000 vehicles on an annual basis, utilizing only 72 per cent of their capacity. It was a fully automated plant with close to 1,500 employees and was manufacturing four major types of vehicles—two types of tractors, tempos and rickshaws. The company had maintained fairly good employee relations since the commencement of its operations. Majority of its workforce was from Maharashtra itself (60 per cent) and the rest from other parts of India. The workers had formed a union after five years of the company's inception and after a couple of years another one was formed. The workers were divided into two main unions, i.e., Datta Sangh Union and the Maharashtra Mazdoor Union.

The company had been signing the memorandum of agreement periodically every three years. One of the unions signed the agreement and the other had issues with the agreement and did not perceive it as fair—a new clause was incorporated to increase and improve productivity to 75–85 per cent for which the incentive to be given was 280—500 per month; no other factors were taken into account.

On a sunny May morning, the Datta Sangh Union workers stood near the factory gates and did not allow any worker to enter the premise. Two of the minor local political parties too supported the union. The executives and other staff did try to enter through the other gate though. The strike continued for a month, till the chief minister's appeal was broadcasted on Doordarshan for the maintenance of peace and harmony and a reconciliation request between the management and the union were sought. At the end of the long month, most of the workers lost the energy to continue the strike and the local political leaders also relented.

The management maintained its composure throughout the strike, it did not succumb to the pressure tactics that were thrown at its face by the union, police, political parties and on few occasions the press too. it maintained its stand on the ‘productivity’ front. The other union that did not support the strike were supported by the management. Above all, the strike was declared illegal by the labour court and morale of the union was at an all-time low too. Routine work commenced after a month.


  1. Where did the Datta Sangh Union workers go wrong?

  2. What advice could you have given them?

The employer class is less indispensable in the modern organization of industries because the laboring men themselves possess sufficient intelligence to organize into co-operative relation and enjoy the entire benefits of their own labor


Leland Stanford (American industrialist, politician and founder of Stanford University)

Leland Stanford made this statement towards the end of the nineteenth century! The realization that employees are central to the success of the organization and that they need to be looked at as collaborators more than anything else has been around for quite some time. A couple of centuries later, this realization is at its peak and hence need not be iterated any more.


According to the Dictionary of Human Resources, industrial relations (IR) has two primary meanings: it refers to the actions of trade unions and their relations with employers as well as the government. It is also an academic field of study with employment relationships and its management and regulations. The labour dictionary defines it as ‘the relations between employers and employees in the industry.’


Employee relations refers to the relations between the employer and the employees in the industry.

Labour is abundant in India. With educational institutes growing by the day, the number of educated professionals in India is growing like never before. On the other hand, industry is also expanding and at the same time becoming very competitive. Therefore, the race for attracting and retaining quality manpower is on like never before. Even unskilled labour is also abundant in India. In spite of abundance of labour, employee relations is still a challenging subject for employers with the bargaining advantage more often than not in the hands of the employees.

There are three main parties that are directly involved in IR as depicted in Figure 7.1.

7.1.1 Industrial and Employee Relations

Employee relationship is not just defined by the employment contract between the employee and the employer. As per the employment contract, the employee agrees to work for a certain number of hours doing certain things at a certain agreed upon rate. However, there are many intangibles in this give-and-take relationship. The employees surrender some part of their autonomy and decision-making to the employer and the employer gives them job satisfaction, status and social standing and many times the prospect of a great career. Therefore, we can see that there are myriad factors affecting the employer–employee relationship.

According to Barbash (1989), the relationship is given shape by:

  1. Conditions in the product market
  2. Conditions in the labour or employment market
  3. Relationship between the price of labour and performance
  4. Permanent system of negotiations as laid out through the laws of the state


Figure 7.1 Analysis of the employment relationship


Table 7.1 How focus has shifted from IR to employee relations


Source: Adapted from Venkata Ratnam (2001).

Thus, employee relations concern the relationship of employees with the organization and with each other. It includes the processes of developing, implementing, administering and analysing the employer–employee relationship.

7.1.2 IR to Employee Relations

How focus has shifted in from IR to employee relations is shown in Table 7.1.


In the late eighteenth century, the Industrial Revolution in the Western World left a great impact on India too. The first cotton factory in India was set up at Mumbai in 1853 followed by a jute mill at Kolkata in 1855. There were Acts which came into force such as Fatal Accident Act, 1855 and Workmen's Breach of Contract Act, 1875; nevertheless these acts were serving the interest of the employers only.

Some of the early Acts which were instrumental in changing the face of the labour relations in India were the Factories Act, 1948; The Payment of Wages Act, 1936, Industrial Employment (Standing Orders) Act, 1946, the Industrial Disputes Act, 1947, the Minimum Wages Act, 1948 and the Employee State Insurance Act, 1948. Later in this chapter, we shall review some of the highlights of these Acts which are of relevance to the field of human resources. There are approximately 150 state legislations and 50 central labour laws that have added ambiguity in implementation and labour administration in India.

7.2.1 Objectives of Labour Relations

Labour relations are primarily designed for the following functions:

  • To increase the productivity of the workers through reducing the labour turnover and frequent absenteeism.
  • To safeguard the interest of workers and the management through mutual understanding and relationship.
  • To provide constructive criticism of the management.
  • To try and avoid industrial disputes, so as to develop a healthy work environment.
  • To protect workers against harmful effects on their health and safety through enactment of the different acts.
  • To secure and improve living standards and economic status of workers.

Views in the News

Government Sector Employs More Contract Labour than Private Companies

The government was contemplating amending the Contract Labour Act, to include provisions in the Act that would make it mandatory for principal employers to ensure that contract workers are also paid wages equal to those earned by permanent employees, including all other social security benefits. Before amending the provisions of the Act, the National Labour Institute conducted a study to analyse the spread of contract labour across the country and the enhanced financial outgo.

The study brought out startling facts:

  1. A total of 32 per cent of the workforce in government offices are contract labourers while only 30 per cent of the contract labour form the workforce of private companies.

  2. The amendment would cost the government 11,000 crores annually against 5,500 crores for the private sector.

  3. A total of 36 million contact labour would benefit by the amendment.

The Employers’ Associations felt that such a move would increasingly push the companies towards mechanization, but the Workers’ Unions felt that—‘if you cannot pay you have no right to run a business’.



Labour Law is the set of techniques and practices for intervention into particular kinds of markets, specifically, markets that will reach sub-optimum results without such interventions, because individuated actors cannot overcome collective action problems. While the techniques and practices vary with legal systems, they normally include devices for permitting collective actors to negotiate and agree; special institutions to encourage informal and formal bargaining and resolve disputes; and legally set minimum terms. Under the Constitution of India, labour is a subject in the concurrent list where both the central and state governments can enact legislations. As a result, a large number of labour laws have been enacted catering to different aspects of labour, namely, occupational health, safety, employment, training of apprentices, fixation, review and revision of minimum wages, mode of payment of wages, payment of compensation to workmen who suffer injuries as a result of accidents or causing death or disablement, bonded labour, contract labour, women labour and child labour, resolution and adjudication of industrial disputes, provision of social security such as provident fund, employees’ state insurance, gratuity, provision for payment of bonus, regulating the working conditions of certain specific categories of workmen such as plantation labour, beedi worker. This is how we have a large number of labour legislations in our country.


Labour law is the set of techniques and practices for intervention into particular kinds of markets, specifically, markets that will reach sub-optimum results without such interventions, because individuated actors cannot overcome collective action problems.


The Origin of Labour Laws

Labour laws emerged when employers tried to restrict the powers of workers’ organizations and keep labour costs low. The workers began demanding better conditions and the right to organize so as to improve their standard of living. The employer's costs increased due to workers demand to win higher wages or better working conditions. This led to a chaotic situation which required the intervention of the government. In order to put an end to disputes between the ever-warring employer and the employee, the government enacted many labour laws.

Given the growth of the BPO industry in India, do you think some new kinds of laws might need to get enacted for labour in this sector?

Field Guide

Checklist of Labour Laws of India

Laws Related to IR

  1. The Trade Unions Act, 1926; The Trade Unions (Amendments) Act, 2001.

  2. The Industrial Employment (Standing Orders) Act, 1946; The Industrial Employment (Standing Orders) Rules, 1946.

  3. The Industrial Disputes Act, 1947.

Laws Related to Wages

  1. The Payment of Wages Act, 1936; The Payment of Wages Rules, 1937; The Payment of Wages (amendment) Act, 2005.

  2. The Minimum Wages Act, 1948; The Minimum Wages (Central) Rules, 1950.

  3. The Working Journalist (Fixation of Rates of Wages) Act, 1958; Working Journalist (Conditions of service) and Miscellaneous Provisions Rules, 1957.

  4. The Payment of Bonus Act, 1965; The Payment of Bonus Rules, 1975.

Laws Related to Working Hours, Conditions of Services and Employment

  1. The Factories Act, 1948.

  2. The Dock Workers (Regulation of Employment) Act, 1948.

  3. The Plantation Labour Act, 1951.

  4. The Mines Act, 1952.

  5. The Working Journalists and other Newspaper Employees’ (Conditions of Service and Misc. Provisions) Act, 1955; The Working Journalists and other Newspaper Employees’ (Conditions of Service and Misc. Provisions) Rules, 1957.

  6. The Merchant Shipping Act, 1958.

  7. The Motor Transport Workers Act, 1961.

  8. The Beedi & Cigar Workers (Conditions of Employment) Act, 1966.

  9. The Contract Labour (Regulation & Abolition) Act, 1970.

  10. The Sales Promotion Employees (Conditions of Service) Act, 1976; The Sales Promotion Employees (Conditions of Service) Rules, 1976.

  11. The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979.

  12. The Shops and Establishments Act.

  13. The Cinema Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981; The Cinema Workers and Cinema Theatre Workers (Regulation of Employment) Rules, 1984; The Cine Workers’ Welfare Fund Act, 1981.

  14. The Dock Workers (Safety, Health Welfare) Act, 1986.

  15. The Building & Other Construction Workers (Regulation of Employment & Conditions of Service) Act, 1996.

  16. The Dock Workers (Regulation of Employment) (Inapplicability to Major Ports) Act, 1997.

Laws Related to Equality and Empowerment of Women

  1. The Maternity Benefit Act, 1961.

  2. The Equal Remuneration Act, 1976.

Laws Related to Deprived and Disadvantaged Sections of the Society

  1. The Bonded Labour System (Abolition) Act, 1976.

  2. The Child Labour (Prohibition & Regulation) Act, 1986; The Children (Pledging of Labour) Act, 1933.

Laws Related to Social Security

  1. The Workmen's Compensation Act, 1923; The Workmen's Compensation (Amendments) Act, 2000.

  2. The Employees’ State Insurance Act, 1948.

  3. The Employees’ Provident Fund & Miscellaneous Provisions Act, 1952; The Employees’ Provident Fund & Miscellaneous Provisions (Amendment) Act, 1996.

  4. The Payment of Gratuity Act, 1972.

  5. The Unorganised Workers’ Social Security Act, 2008; The Unorganised Workers’ Social Security Rules, 2008.

Laws Related to Labour Welfare

  1. The Mica Mines Labour Welfare Fund Act, 1946.

  2. The Limestone & Dolomite Mines Labour Welfare Fund Act, 1972.

  3. The Beedi Workers Welfare Fund Act, 1976.

  4. The Beedi Workers Welfare Cess Act, 1976, The Beedi Worker's Welfare Cess Act Rules, 1977.

  5. The Iron Ore Mines, Manganese Ore Mines & Chrome Ore Mines Labour Welfare Fund Act, 1976.

  6. The Iron Ore Mines, Manganese Ore Mines & Chrome Ore Mines Labour Welfare Cess Act, 1976.

  7. The Cine Workers Welfare Fund Act, 1981; The Cine Workers Welfare Cess Act, 1981.

  8. Employment of Manual Scavengers and Construction of Dry latrines Prohibition Act, 1993.

Laws Related to Employment and Training

  1. The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959; The Employment Exchanges (Compulsory Notification of Vacancies) Rules, 1959.

  2. The Apprentices Act, 1961.


  1. The Fatal Accidents Act, 1855.

  2. The War Injuries Ordinance Act, 1943.

  3. The Weekly Holiday Act, 1942.

  4. The National and Festival Holidays Act, 1958.

  5. The War Injuries (Compensation Insurance) Act, 1943.

  6. The Personal Injuries (Emergency) Provisions Act, 1962.

  7. The Personal Injuries (Compensation Insurance) Act, 1963.

  8. The Coal Mines (Conservation and Development) Act, 1974.

  9. The Labour Laws (Exemption from Furnishing Returns and Maintaining, Register by Certain Establishments) Act, 1988.

  10. The Public Liability Insurance Act, 1991.

It is easy to recruit employees but difficult to dispense with their service. The Indian Labour Laws provide substantial job security to a workman. In addition, no additional conditions of service can be extended during the tenure of service of an employee. That is why the employers are required to protect their right to avoid disastrous consequences.

In the subsequent section, some of the laws are explained. However, in an organization, there might be other laws which might be applicable. For example, every state has its ‘Shops and Establishment Act’ which specifies the working conditions such as hours of work, leave and its provisions are applicable to all shops and establishments in that state. Many service organizations are registered as establishments and therefore come under its purview. One, therefore, has to first classify one's organization (factory or shop or establishment etc.), identify the industry which one falls under and then find which employment laws are applicable. The Field Guide on Checklist of Labour Laws of India gives you a comprehensive list of all employment laws which are applicable in India. Some of the relevant Acts are also explained in detail in this section.


Industrial dispute refers to a conflict or difference of opinion between management and workers on the terms of employment. and other working conditions.

The purpose of the Industrial Disputes Act is to safeguard the interest of the labour and management, maintain harmonious relations and thus avoid conflict and strife.

7.3.1 Industrial Disputes Act, 1947

According to the Industrial Disputes Act, 1947, an industrial dispute is defined as a conflict or difference of opinion between the management and workers on the terms of employment and other working conditions.

This definition includes all the aspects of a dispute. It not only includes the disagreement between employees and employers but also emphasizes the difference of opinion between one worker and another worker. The disputes generally arise on account of poor wage structure or poor working conditions. This disagreement or difference could be on any matter concerning the workers individually or collectively.

The term ‘Industrial Relations’ comprises of two terms: ‘industry’ and ‘relations’. ‘Industry’ refers to ‘any productive activity in which an individual (or a group of individuals) is (are) engaged’. By ‘relations’ is meant the relationships that exist within the industry between the employer and their workmen.

Its objectives are as follows:

  • To safeguard the interest of the labour and the management by securing the highest level of mutual understanding and good will among all those sections in the industry which participate in the process of production.
  • To avoid industrial conflict or strife and develop harmonious relations, which are an essential factor in the productivity of workers and the industrial progress of a country.
  • To raise productivity to a higher level in an era of full employment by lessening the tendency to high turnover and frequency absenteeism.
  • To eliminate or minimize the number of strikes, lockouts and gheraos by providing reasonable wages, improved living and working conditions and fringe benefits.
  • To improve the economic conditions of workers in the existing state of industrial management and political government.

7.3.2 The Apprentice Act, 1961

The main purpose of the Act is to provide practical training to technically qualified persons in various trades. The objective is promotion of new skilled manpower. The scheme is also extended to engineers and diploma holders. The period of apprenticeship is determined by the National Council. The apprenticeship expires on the expiry of the period or on the application by either party to the contract to the apprenticeship advisor. The apprentice should be of minimum age of 14 years and should satisfy the standard of education and physical fitness as prescribed. The employer needs to provide the required training in the particular trade. In the event of any injury arising out of job, the employer is liable to pay the compensation, as per the schedule indicated in the Workmen's Compensation Act, 1923.


The main purpose of the Apprentice Act is to provide practical training to technically qualified persons in various trades. The objective is promotion of new skilled manpower.

7.3.3 The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959

The main purpose of the Act is to provide for the compulsory notification of vacancies to employment exchanges. The employers are required on a compulsory basis to notify to the employment exchanges, all vacancies other than vacancies in unskilled categories, temporary vacancies and vacancies proposed to be filled through promotion. They also need to inform the employment exchange on the status of staff strength at regular intervals. It covers the employers in establishments in both public and private sectors. This Act is applicable to establishments which are engaged in non-agricultural activities and employing 25 or more workers.


The main purpose of the Employment Exchanges Act is to provide for the compulsory notification of vacancies to employment exchanges.

7.3.4 The Minimum Wages Act, 1948

The Minimum Wages Act aims at making provision for statutory fixation of minimum rates of wages in a whole lot of industries. It aims to prevent the exploitation of labour by payment of wages which are necessary for normal and reasonable need of workmen and their family. Minimum wages have to be paid to all the employees of the employments described in the Act.


The Minimum Wages Act aims at making provision for statutory fixation of minimum rates of wages in certain employment.

The appropriate government fixes the minimum rates of wages for all employments specified in the Schedule of the Act. The review of the minimum wages is done by the appropriate government as it may deem fit. These could be fixed for different wage periods such as—by the hour, by the day or by the month too. Normal working day prescribed under the Act is nine hours. Non-adherence on the side of the employer is liable to be charged penalty.

It includes all remuneration being expressed in terms of money including HRA, but does not include the value of house accommodation, any other amenity or service, travelling allowance. It applies to any person who directly or through another person employs one or more employees. The beneficiaries include any person who is employed for hire/reward to do any work.

7.3.5 The Payment of Wages Act, 1936

The Payment of Wages Act, 1936, is meant for the benefit of the employees from industries who are not getting very high wages. It is done to safeguard their interest and it provides against irregularities in payment of wages, withholding wages, delay in paying the wages and making unreasonable deductions out of the wages. This Act ensures the payment of wages at regular intervals and in a particular form.


The Payment of Wages Act is meant to regulate the payment of wages to employees from certain industries not getting very high wages.

It refers to all remuneration (whether by way of salary allowances or otherwise) expressed in terms of money or capable of being so expressed which would if the terms of employment express or implied are fulfilled be payable to a person employed in respect of their employment or of work done in such employment. It includes payment on account of overtime, holidays, leave, production, attendance bonus etc. Even if an employee is terminated, the same needs to be paid. It does not include bonus, value of house accommodation, travelling allowance, PF, gratuity. It applies to every person employed in an industry, factory or through sub-contractor in the railway. Regular and timely payment of wages is a must—7 to 10 days within the last day of the wage period. The written authorization of the employee is necessary for payment by cheque/credit to the bank account. In case of termination of employment, the wages must be paid before the expiry of the second day of working from the day of termination. Non-adherence would lead to penalty having to be paid by the employer.

7.3.6 The Payment of Bonus Act, 1965

The Payment of Bonus Act applies to every factory which employs 20 or more persons on any day during the accounting year. It provides for the payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production or productivity. It includes all remuneration, other than overtime, DA and retention allowance; it does not include gratuity, commissions, incentives, travelling allowance and value of house accommodation. The beneficiaries of the Act include employees other than apprentice who have worked for more than 30 days in a year and have a salary wage of less than 3,500 increased to 10,000 recently. Bonus must be paid in cash and within a period of eight months from the close of the accounting year.


The Payment of Bonus Act provides for the payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production or productivity.

Views in the News

7.3.7 The Factories Act, 1948

The working conditions in factories are regulated by this Act, it provides for health, safety and welfare and precautions to be taken in case of hazardous processes. Minimum standards of lighting, ventilation, health, safety and welfare service, which the employer should provide in their factories, have also been laid down. The Act prescribes 48 hours per week for adult workers, prohibits the employment of children under 14 years in any factory and makes some special provisions for children and women. It also makes provision for annual leave with wages.

The Act focuses on health, safety measures, welfare measures, working hours for adults too. In case of non-adherence to the Act, a penalty would be levied on the employer. It refers to any premises where 10 or more workers are working on any day of the preceding 12 months.


The Factories Act, 1948, regulates the working conditions in factories in terms of health, safety and welfare of employees.

7.3.8 The Employee's Provident Fund Act, 1952

The Provident Fund was enacted with the main objective of making some provision for the future of industrial workers after they retire or for their dependants in case of their early death. The schemes of provident fund are meant to encourage the employees to save a portion from their present earnings for a rainy day. The objective of the Act is to provide for the institution of provident fund, pension fund and deposit-linked insurance fund for the employees in factories and other establishments.


The Employee's Provident Fund Act, 1952, was enacted with the main objective of making some provision for the future of the industrial worker after he retires or for his dependants in case of his early death.

The Employees Provident Fund (EPF) applies to most establishments employing at least 20 employees. The Act continues to be applicable even if the number of employees falls below 20. Contributions are compulsory for employees earning up to 6,500 per month and voluntary for those earning more than this amount. The employers and employees each contribute 12 per cent of the basic wage and dearness allowance of the employee. Out of 12 per cent of the employer's share of contribution, 8.33 per cent is remitted towards the pension fund. Penalties are levied on the employer for not adhering to the Act.

Views in the News

Provident Fund: Get Information on EPFO Claim Online, Mobile Phones

Over 4.72 crore subscribers of EPFO will soon be able to track status of their claim settlement and account transfer online and also get updates on their mobile phones. This will be possible as the entire data of the retirement fund manager EPFO will be digitalized by the end of March 2012. Once the digitalization process is completed, the account transfer and money withdrawal claims’ status could be done and tracked online by EPFO subscribers on the mobile phone.

Besides, the subscribers would be intimated via short mobile messages (SMS) about the status of their request for account transfer and claim settlement. In case of account transfer, the subscribers would get two messages on their mobile—the first stating that the account is closed followed by one about the amount of money transferred from old to new one.

Similarly, in claim settlement requests, the first SMS would be for intimating that the EPFO has received their application. When the claim is settled, the applicant would get another message stating the amount is credited in the specified bank account.

This facility could only be possible when the subscribers provide their mobile phone numbers in their application forms.

Online account transfer and claim settlement would be possible in the next phase. At present, it takes months to settle claims and transfer of accounts because everything is done manually.


Source: Adapted from ‘Press Trust of India’, accessed on 15 April 2011.

Employers can have a PF account with the regional Provident Fund Commissioner's office or have a PF trust of their own. The Employees’ Provident Fund Organization (EPFO) is fast adopting e-governance. There is some discussion that the PF number might be replaced by the UID number.

7.3.9 The Employees’ State Insurance Act, 1948

The Employees State Insurance Act, 1948, is a piece of social security legislation. The object of this Act is to secure sickness, maternity, disablement and medical benefit to employees’ and dependants’ benefits to the dependants. These benefits are secured by financial contributions to the scheme by employers and employees. As the name suggests, it is basically an ‘insurance’ scheme, i.e., the employees get benefits if they are sick or disabled. The Employees State Insurance Cooperation (ESIC) provides health insurance for industrial workers. The ESI Corporation has approved to enhanced wage ceiling from 10,000 to 15,000 per month for coverage of employees under the ESI Scheme (Amendment with effect from 01 May 2010). Keeping in view the increase in the cost of living index and recommendations of the Parliamentary Standing Committee on Labour, the corporation increased the wage ceiling limit for coverage of the employees under the ESI Scheme. This will help the corporation to provide social security net to more and more employees of the organized sector. The employers contribute 4.75 per cent of an employee's wage, and employees contribute another 1.75 per cent to the scheme. Non-adherence would result in employers paying up a penalty.


The Employees State Insurance Act is a piece of social security legislation. The object of this Act is to secure sickness, maternity, disablement and medical benefit to the employees and their dependants.


7.3.10 The Payment of Gratuity Act, 1972

Gratuity is a lump sum payment to the employee when they retire or leave service after a stipulated period. However, under the Gratuity Act, gratuity is payable even to an employee who resigns after completing five years of service. It is a retirement benefit such as provident fund or pension. It is the payment which is intended to help an employee after their retirement. The general principle underlying gratuity schemes is that by faithful service over a long period, the employees are entitled to a certain amount as retirement benefit. Thus, it is earned by employees as a reward for their meritorious service.


The Payment of Gratuity Act provides for the payment of a lump sum amount to an employee when they leave after five years of service.

The gratuity is to be paid in case of superannuation, retirement, resignation, death or total disablement due to accident or disease. It includes all emoluments earned by the employee while on duty or on leave, including DA but does not include bonus, HRA, overtime and any other allowance. It applies to every factory, shop or establishment in which 10 or more persons are employed on any day of the preceding 12 months. The employees should have rendered continuous service of not less than five years. In case of death or disablement, the gratuity is payable, even if they have not completed five years of service. The gratuity calculation is at the rate of 15 days wages based on the last drawn rate by the employee for every completed year of service or a part thereof exceeding six months. Hence, every employer also has to take insurance for its liability for payment towards the gratuity under this Act, from the Life Insurance Corporation of India or any other prescribed insurer. The maximum gratuity payable under the Act is 3.50 lakhs (the ceiling was 100,000 which was increased to 2.50 lakhs on 24 September 1997 by an ordinance which was later increased to 3.50 lakhs while converting the ordinance into Act). In case where higher benefit of gratuity is available under any gratuity scheme, award of agreement, the employee will be entitled to higher benefits. Gratuity received up to 3.50 lakhs is exempt from income tax. In May 2010, the maximum gratuity is now increased to 10 lakhs. Gratuity paid above that limit is taxable. Non-payment of gratuity payable by the employer under the Act is punishable.


What would be the employer's liability in the event that an employee dies in service after having completed less than five years of service?

HRM in Action

Gratuity: Employers Cannot Withhold Gratuity of Retired Employees—HC

Factories, mines, oilfields, plantations, ports, shops and other establishments with 10 or more employees cannot withhold the payment of gratuity to its retired employees by holding them responsible for financial loss, the Madras High Court has ruled. Justice K. Chandru passed the ruling while dismissing two writ petitions filed in the Madurai Bench by the Chairman and Managing Director of Tamil Nadu Civil Supplies Corporation challenging orders passed by a Joint Commissioner of Labour to pay gratuity to two of its retired employees.

The judge pointed out that Section 13 of the Act stated that gratuity payable under the legislation was not liable to attachment in execution of any decree or order of any civil, revenue or criminal court. Mr. Justice Chandru also said that Section 4(6), the only provision which provides for forfeiture of gratuity amount to the extent of damage or loss caused to the employer, states that the money could be withheld only if the services of the employee had been terminated for wilful omission or negligence. Out of the two writ petitions before the court, one related to G. Packirisamy, a rice mill operator who was accused of short out turn of rice from the paddy given to him for hulling. He retired on 31 July 2001 but his gratuity was not paid.


Source: Adapted from The Hindu, accessed on 15 April 2011.

7.3.11 The Workmen's Compensation Act, 1923

This Act was the first piece of legislation towards the social security of workmen. It deals with compensation for workers who are injured during the course of duty. The general principle is that workers who suffer an injury in the course of their employment which results in a disablement should be entitled to compensation and in the case of a fatal accident, their dependants should be compensated.


Workmen's Compensation Act deals with compensation for workers who are injured during the course of duty.

This act includes any privilege or benefit which can be estimated in money, other than travelling allowance or the employers contributions towards pension or PF. The beneficiaries under this Act include any ‘workman’ who is injured by accident arising out of and in the course of employment or any workman who is injured by accident arising out of and in the course of employment. It includes any person whether incorporated or not and any agent of the employer even if the services are temporarily lent. A notice book is maintained and a statement report and a return are to be filed when applicable. Any contract by workers waiving their right to be compensated under this Act is null and void. The compensation should be paid early, delay beyond one month attracts an interest and penalty.



Source: Adapted from ‘Press Information Bureau, Government of India’, available at http://pib.nic.in/newsite/erelease.aspx?relid=23680, accessed on 25 August 2011.

7.3.12 The Maternity Benefit Act, 1961

The objective of the Act was to provide maternity benefit to women in certain establishments. The women employee should have worked for at least 80 days in the 12 months immediately preceding the date of her expected delivery. The maximum period permitted is 12 weeks in all, taken either before or after childbirth. However, she cannot avail of the benefit six weeks before her expected delivery. Women are also entitled to six weeks maternity benefit in case of miscarriage. This Act is not applicable to those establishments/factories where Employees State Insurance Act, 1948 is applicable.


The objective of the Maternity Benefit Act is to provide maternity benefit to women.

The employer is required to pay the maternity benefit equal to Basic + DA + Cash Allowances + Incentive Bonus for the period of absence to the women employee. The woman employee is eligible to get maternity benefit for 84 days (i.e., 12 weeks). Out of the 84 days, the period before delivery should be maximum 42 days. The dismissal of female employees for absence due to maternity by the employer is liable to attract a penalty.

7.3.13 The Industrial Employment (Standing Orders Act), 1946

The objective of the Act is to prescribe to employers in industrial establishments to define with sufficient precision the conditions of employment under them and to make the said conditions known to workmen employed by them. Standing order is nothing, but a codified service condition, violation of which may lead to punishment. Its main purpose is to protect the employee against victimization. Any industrial establishment employing more than 100 people comes under the purview of this law. It takes into account issues such as classification of workmen, hours of work, holidays, pay days, wage rates, shift working, attendance and late coming, grant of leave and holidays, requirements to enter premises, closing and opening of sections, work stoppages, rights and liabilities of the employer and workmen, termination of employment, suspension, dismissal, misconduct and means to redress unfair treatment.


The objective of the Industrial Employment Act is to prescribe to employers in industrial establishments to define with sufficient precision the conditions of employment under them and to make the said conditions known to workmen employed by them.


The Madras Labour Union, set up in 1918, is considered the first trade union in India to be formed systematically.

Today, there are more than 75,000 registered and an unaccounted number of unregistered trade unions scattered across a large spectrum of industries in India. The Bharatiya Mazdoor Sangh (BMS), the Indian National Trade Union Congress (INTUC) and the All India Trade Union Congress (AITUC) are considered the largest trade unions in India.


The Act also has provision for subsistence allowance for the workers under pending suspension enquiry at the rate of 50 per cent of the wages for the first 90 days of suspension, and at the rate of 75 per cent of wages for the remaining period. Any disputes regarding the provisions and interpretation of the standing order have to be referred to the Labour Court.


The role of India's trade unions is crucial. In the earlier years, the employer–employee relationship was less significant due to the mass production system, and, therefore, workers were exploited. The employees were working long hours in very bad conditions because it was cheaper for the companies that way. The goals of labour unions were to improve both the working conditions and the wages by bringing power to the workers.

7.4.1 Developments After Independence

Independence caused a substantial modification in the post-colonial era, as a clear partnership between labour and capital was called for. The labour was then given a fair wage and fair working conditions and in return the capital would receive the fullest cooperation of labour for uninterrupted productivity and higher productivity, all concerned would observe a truce period of three years free from strikes and lockouts (Table 7.2).


Table 7.2 Trends of strikes and lockouts during 1965–94


Source: Pocket Book of Labour Statistics of relevant years, published by the Labour Bureau, Government of India.

7.4.2 Disputes and Resolving Mechanism

There were various types of disputes between the management and the workers. Strikes and lockouts require at least 51 per cent support of the workers and it should be called by the negotiating agent. The approval of the management must be taken, except in the case of grave apprehension of physical threat to the management or to the industry. The workers have the right to strike, even without notice, unless they are employed in a public utility service and the employees have the right to a lockout, subject to the same conditions as those for a strike. In case of an illegal strike, workers will lose wages for every day of illegal strike. Similarly, the management must pay the workers’ wages equivalent to three days wages per one day of illegal lock out. Either parties may sort out their differences bilaterally or through a conciliation officer who can facilitate the proceedings. In a worst-case scenario, if the dispute does not get resolved, the government may refer the dispute to compulsory adjudication and stop the strike or lockout.

7.4.3 Objectives of a Trade Union

Trade unions are formed to protect and promote the interests of their members. They are formed to achieve the following objectives:

  1. Representation: They are the representatives of their members before the management. They represent individual worker issues as well as common issues. If employees feel that they are not treated well or deprived of some of their basic rights, they can appeal to the union. The issue is taken up to the managers for a solution. If the issue cannot be resolved amicably, the issue may reach up to the industrial tribunal. The members of the industrial tribunal pay heed to both the employee and employer's point of view and then make a judgement about the case. Some of the common issues that reach the tribunal are wages, unfair dismissal, discrimination at work etc.
  2. Negotiation: This tool is used in resolving issues such as wage, benefits bonus and privileges of the worker. The differences are resolved after thorough discussions through a negotiation process. In most organizations, the management has a formal agreement with the recognized union, which extends the bargaining power to the union. Negotiations happen on similar issues such as wage increases/discrimination, working hours, leave, working conditions etc.
  3. Voice in decisions affecting workers: The economic security of the employees is determined not only by the level of wages and duration of their employment but also by the management's personal policies which include selection of employees for layoffs, retrenchment, promotions and transfer. These policies directly affect workers. The evaluation criteria for such decisions may not be fair. Therefore, the intervention of unions in such decision-making process is a way through which workers have their say in the decision-making to safeguard their interest.
  4. Member services: Trade unions have increased the range of services they offer their members. They include: education and training on employment rights, health and safety and elementary courses on basic skills and course leading to professional degrees; legal assistance on employment issues and personal matters too; financial discounts that the workers can get; discounts on mortgages, insurance and loans from unions; they also help the members with few welfare benefits such as help to their members when they are sick on unemployed.


Objectives of a trade union

  • Representation
  • Negotiation
  • Voice in decisions affecting workers
  • Member services

Trade unions can retain their bargaining power if they put consumers’ interest first, company's interest second and their members interest third. This goes against the conventional wisdom that considers the express purpose of trade unions to give a collective voice to employees to protect and further interests (Venkata Ratnam 2001).

The main objective of a trade union is to provide solutions to problems workers encounter while discharging their responsibilities, both personal and organizational. The trade union's aim is to protect the interests of the worker and the employer in the organizations. Thus, the area of focus for the trade unions encompasses the following:

  • Providing satisfactory wages and salaries to each member and worker.
  • Improving the working conditions of workers and providing better health and safety provisions.
  • Inculcating a sense of discipline among themselves, which would facilitate smooth conduct of negotiation between the employers and the employees.
  • Facilitating the fight of the workers against any irrational policies of the management.
  • Striving for the welfare of the members through guidance and counselling.

7.4.4 Why Employees Join Unions?

There could be a lot of reasons that prompt employees/workers to join unions. We have listed a few of them:

  • Employees have a certain level of threshold beyond which they cannot tolerate. At times, such employees contemplate joining unions. Unions look out for unfair management decisions and then look out for the employees to increase its union membership. Many employees join unions, as they are unhappy with the compensation provided by the organization. Therefore, for some employees joining a union is the only resort to get an increase in their wages.
  • Older employees are more concerned with job security in comparison to younger workers. In some cases, even younger employees look for ‘job security’. Hence, there are strong chances that if the older employees are told to exit the organization to make room for the younger generation, this can cause heartburn with the older folks and they may resort to joining unions to voice their views.
  • In some cases, the management is insensitive to the needs of the employees, those that are the targets of such insensitivity, feel that they do not belong to the organization, could join such unions.
  • Peer pressure also makes employees join unions and at times, some workers are threatened by the union members to be a part of the union. It also becomes a platform for self-expression.
  • Employees possess very little bargaining power as compared to that of their employer, joining a union becomes a better course of action to resolve their issues.
  • The personal relationships existing between the supervisor and each of their subordinates may influence the management. Hence, there are chances of favouritisms and discriminations, so the trade unions can compel the management to formulate personnel policies that press for equality and fair treatment of workers.

7.4.5 Trade Union Act, 1926

The Indian Trade Union Act, 1926, defines a trade union as any combination whether temporary or permanent formed primarily for the purpose of regulating the relations between workmen and employers or between workmen and workmen, between employers and employers or for imposing restrictive conditions on the conduct of any trade or business and includes any federation of two or more trade unions.


Trade union is any combination whether temporary or permanent formed primarily for the purpose of regulating the relations between workmen and employers or between workmen and workmen, between employers and employers or for imposing restrictive conditions on the conduct of any trade or business and includes any federation of two or more trade unions.

According to the Trade Union Act, 1926, a minimum of seven persons have the right to start a trade union, which can be registered under the Act, subject to their abiding by the provision of the Act and provided that a copy of the rules has been submitted to the Registrar of Trade Union. In case of unions which have been in existence for more than a year, the application to form the union needs to be supported with the statements of the assets and liabilities of the union and should also contain the union's name, its head office's address and office bearers details and the list of its members.

The Trade Union Act facilitates unionization in both the organized and the unorganized sectors. It is through this law that the freedom of association that is a fundamental right under the Constitution of India is realized. Most of the trade unions join their political partners in seeking to restructure the entire society, either peacefully or violently as the case may be in order to alter the existing power of relationships. It is only logical that the trade unions are frequently lead by ‘outsiders’, such as intellectuals, lawyers or social welfare workers, many of whom are prominent in politics too.


The International Labour Organization (ILO) defines collective bargaining as negotiations between an employer, a group of employers or one or more organization of employers on one hand, one or more representatives/organizations of workers on the other, with a view to reaching an agreement over working conditions and terms of employment.


Collective bargaining refers to negotiations between an employer, a group of employers or one or more organization of employers on the one hand, one or more representatives/organizations of workers on the other, with a view to reaching an agreement over working conditions and terms of employment.


The pioneers of plant-level collective bargaining in India were Tata Iron and Steel Company Limited and Tata Workers Union in 1956 at Jamshedpur. The public sector iron industries in India had concluded industry-wise settlements. The growth of collective bargaining was linked to the growth of trade unions of employees at first and of employers later.

Collective bargaining has gained ground in recent years, but agreements normally apply only at the plant level. Collective agreements have traditionally been the norm in banking and such pacts, may last up to five years. At the federal level, labour policies are managed jointly by the Indian Labour Conference and its executive body, the Standing Labour Committee, along with the various industrial committees. The representatives from the government, employers and labour are included in all three groups.

It is a method by which trade unions protect and improve the conditions for their workers working lives. During the good old days, it was a process of sharing governance with the management, which often adopted an unhelpful and unsympathetic attitude to workers demands. Negotiation through collective bargaining is the best way to achieve agreements on certain joint reciprocal acts for it involves a motivated process of information exchange between individuals acting either for themselves or as representatives of organized groups. Research indicates that employers wilfully violate the rights to bargain while the governments tend to tolerate this violation.

7.5.1 Collective Bargaining Process

Collective bargaining is a process of joint decision-making that advocates the industrial democracy. It establishes a culture of bipartism and joint consultation in the industry and an involved adaptable method of adjustment to the economical and technical changes in the industry. It helps in industrial peace without disturbing the existing arrangements or the production activities. Depending on the type of relationship encountered, the collective bargaining process may be relatively simple, or it could be a long struggle for both parties. The ability to reach agreement is the key to any successful negotiation.

As shown in Figure 7.2, external and internal environmental factors influence the process. The first stage in the collective bargaining process is preparing for the negotiation—which is extensive and could run into weeks and months for both the union and the management. After the issues that are to be negotiated have been firmed up, both the sides resolve to reach a mutually acceptable contract. Although breakdowns in the negotiation can occur, the management and the unions convince the other party to accept their views. In most cases, both parties reach an agreement that defines the rules for the duration of the contract. The next stage is for the union to ratify the agreement and the final stage is to put into practice the agreement.

Strikes: Real and Virtual

Real strikes are a tool used in the world of labour relations to make a point to the employer that the labour are ready to lose wages longer than the company is ready to lose profits.


1. Economic strike: The labour strike to enforce their economic demands such as increase in wages or decrease in working hours.

2. Unfair labour practice strike: When workers go on strike to protest the employer's illegal conduct.

3. Sympathetic strike: When workers of one unit or industry go on strike in sympathy with the workers of another unit or industry who are already on strike.

4. General strike: Strike by the members of all or most of the unions in a region or an industry.

5. Sit-down strike: (It is also known as ‘pen down’ or ‘tool down’ strike.) The workers show up at work, but they refuse to work.

6. Slow down strike: The workers adopt go-slow tactics to put pressure on the employers.

7. Sick-out (or sick-in): Large number of union members call in sick on the same day.

8. Wildcat strikes: Conducted by workers or employees without the authority and consent of unions.

9. Picketing: Having employees carry signs announcing their concerns near the employer's place of business.


Real strikes

  • Economic strike
  • Unfair labour practice strike
  • Sympathetic strike
  • General strike
  • Sit-down strike
  • Slow down Strike
  • Sick-out (or sick-in)
  • Wild cat strikes
  • Picketing


Figure 7.2 External and internal environmental factors influence the collective bargaining process


Source: Adapted from Mondy (2007).

In the services world today, labour being on such strike might mean inconvenience to the customer and a permanent loss of business. This has given rise to a phenomenon called virtual strikes.

Virtual strikes have been proposed as a means to avoid hurting one another (union and employer). Here, the wages of workers, salaries of the management and profits of the company go into a separate account from which neither side gets anything back unless they settle within a certain duration of time. The suffering hits only those directly involved.

For example, a virtual strike was used in Italy in 1999, when Italian pilots and flight attendants staged a virtual strike against Meridiana Airlines. The workers wore white bows on their sleeves to signal their participation and told the passengers that their action would not interrupt the service. The airline in the meanwhile donated its revenue to charity, including the wages it would have paid to the cabin crew. In 2000, the Italian transport union scored a public relations coup when it donated 100 million lire forfeited in a virtual strike by 300 pilots to a children's hospital to buy medical equipment.

7.5.2 Importance of Collective Bargaining

Collective bargaining is a fair process for resolving issues related to wages, employment and working conditions. Some of the factors which make it significant are:

  • Institutional importance: A process like this enhances the participation of workers in decision-making and hence is an avenue to practise participative management. Consequently, it aids in better implementation of decisions.
  • Economic role: It is a flexible means of adjusting the wages and other conditions. It increases the economic strength of both the union and the management.
  • Towards promoting industrial peace: It opens up the communication link between the workers, the management and increases worker participation in decision-makings. It leads to a better understanding between the management and the union and is mutually beneficial for both parties. It helps in preventing industrial disputes, work stoppage, strikes and lockouts too. It tends to promote a sense of job security among the employees and thereby tends to reduce the cost of labour turnover to the management.
  • Restrains management's unilateral actions: Since it is a collaborative process, it prevents the management from doing anything in a unilateral manner.

Importance of collective bargaining

  • Institutional importance
  • Economic role
  • Towards promoting industrial peace
  • Restrains management's unilateral actions

Negotiation is a discussion aimed at reaching an agreement. Here, it refers to the discussion or negotiation between an employer and a trade union. When there is a disagreement between the demands of workers and management, the situation is resolved through negotiation between the union representatives and the management. There can be a variety of situations which may need negotiation. It could be about team negotiation, dispute resolution, wage settlement, goal setting, work allocation, discipline meetings, performance counselling etc.


Negotiation is a discussion aimed at reaching an agreement. Here, the discussion or negotiation is between an employer and a trade union.

7.6.1 Forms of Negotiation

Walton and McKersie (1965) suggested two forms of negotiations—distributive negotiation and integrative negotiation.


Forms of negotiation

  • Distributive negotiation
  • Integrative negotiation

Distributive negotiation is also known as zero-sum or constant number negotiation. Here, the value of the stake is fixed and each side wants to take as much as possible.

In integrative negotiation, the parties cooperate to achieve maximum benefits by integrating the interests into an agreement while also competing to divide the value.

7.6.2 Negotiation Process

Given below are the major subprocesses of the negotiation process:


Negotiation process

  • Preparation
  • Opening discussion
  • Bargaining
  • Closure


Maximum effort must be dedicated to this phase. A thorough confidence on the issues is what is required in the negotiation process. It acts as a framework to evaluate the progress towards the achievement of the goals. It would include the preparation on issues that need negotiations, essential desirable and tradable objectives—how crucial the relationship is, should negotiation be done in a group or with individual employees and is the union involved with any local political party. Once the situation is analysed, then the strategy has to be planned carefully.

Opening Discussion

The opening discussion needs to set the tone of the discussion, so this should be cautiously planned. Certain ground rules ought to be set—who would be the spokesperson, what kind or role each person from the management would play, how long will each discussion last, would the final agreement be written or verbal. The management should be cautious in this discussion as it could happen that there could be outburst due to some past history and there could also be a demonstration of power, the management should maintain its composure in these testing times. It is desirable that both parties could have a smaller discussion and come to some common understanding on the issues before the main meeting—as in most cases, the union members do tend to turn up in large numbers. Nevertheless, both parties need each other in future, so an amicable settlement of disputes should be the guiding force in the discussions.



This is the heart of the negotiation process It is the final stage before the closure happens. It is in this stage that the parties get to the crux of all the issues and try to bridge the gap between their differences, the discussion may go on for couple of weeks or months. The management and the unions deploy quite a lot of tactics to settle the issues—either a pure bargaining strategy or a joint problem solving. Tradable objectives may get exchanged for desirable objectives. Many a times, the negotiations get too emotional in the process, as they have spent a lot of time and energy on this. Finally, one should analyse and reorient the strategy, if the situation demands.


This is the final step, where one can see the end of the tunnel, all the major issues have been resolved and the smaller ones remain at this stage. Here, one drafts the stage of the settlement and checks if any of the points have been left out. A written document is not compulsory unless agreed upon earlier. However, it is advisable to document everything in, as much detail as possible—necessary dates duration of the validity, method of resolving issues etc.

In an Indian scenario, it is preferable for issues dealing with labour management to go in for a tripartite settlement via a conciliation officer. However, the pros should be carefully monitored before taking any kind of decision. Those who from the management are involved in this process must have listening skills, verbal and non-verbal skills, ability to think clearly in highly stressful and emotional situations, and must be good in planning and strategizing too.


Hindustan Unilever Limited had promoted long-term settlements as an integral process of its IR policy. The long-term settlement was a series of ‘contracts’ valid for four years that were reached after negotiation between the union and the management of every factory. It covered a wide spectrum of issues—including wage improvements, attendance and working hours.

Volvo's approach to HRM has a distinct Swedish flavour, management structures are less hierarchical, team leaders are rotated and are elected by workers rather than appointed by management, a strong social technical approach to work design exists in such areas as the body shop and the door and engine plant and the role of unions remain strong.


A grievance may be defined as a genuine or not genuine feeling of discontent or dissatisfaction, whether expressed or unexpressed arising out of anything connected with the company that any employee thinks, believes or feels inequitable or unfair. As human beings are different, there are bound to be grievances among employees leading to conflicts at the workplace. To avert any kind of conflicts within the organization, there is a need for a proper grievance procedure, so that the employees feel that their grievances are addressed and redressed.


Grievance handling refers to a genuine or not genuine feeling of discontent or dissatisfaction, whether expressed or unexpressed arising out of anything connected with the company that any employee thinks, believes or feels inequitable or unfair.

7.7.1 Grievance Handling Procedure

A grievance handling procedure should be simple and easy to comprehend and operate. It must be well-defined and conform to the current legislation without any prejudice. There should not be any delay in the grievance process as it might result into crisis. Grievance should be settled as far as possible. Depending on the nature and level of the grievance, it should be referred to appropriate authorities. Necessary training must be provided to the supervisors who are involved in this process so that they can handle efficiently and effectively. It should permit the worker to appeal against various decisions. There has to be a follow-up to check the status of the grievance to take it to its logical conclusion. Monitoring the grievance handling procedure would also generate feedback which will help in improving the process.

7.7.2 Steps in Grievance Handling

  • Identify the grievance and take a note of the same.
  • Listen carefully to the complainant.
  • Articulate the grievance clearly.
  • Obtain facts and figures and gather the complete.
  • Search for multiple solutions to the grievance at hand, analyse the same and then select the best feasible solution and implement the same.

For a successful grievance handling procedure, one must ensure that there is follow-up at each stage.

The management should have an efficient team in handling employee grievances to ensure organizational excellence and effectiveness. Right mechanisms, procedures and practices would help to ensure a climate of greater productivity and performance.


The HR practices and policies are a critical factor for influencing the power of labour unions. Strategic HR interventions can be divided into two broad categories: ‘instrumentalist(hard) andempowerment(soft).

Hard HR interventions are resisted by most employees as they view the employees as mere commodities and often involve enhanced managerial control on them. On the other hand, soft HR interventions involving trusting employees, ensuring transparency and fairness in the organizational working and involving the employees in decision-making as individuals, they have a great potential of rendering workplace justice, as workers, as individuals view HR interventions as helpful in fulfilling their individual needs of involvement, sense of respect and performance-related pay.

The trade unions can encourage the management to implement sound, effective and fair HR practices. Many HR practices such as selection, appraisal reviews, direct communication, employees’ participation in engagement programmes, training, performance-linked pay and organizational initiatives have helped in building a direct rapport between the management and the employees, though they still have a great role to play during wage negotiations at the factory level. They can also have a positive impact on the competitiveness by encouraging the management to introduce more progressive work practices, so that they can stay competitive despite the higher wages.


Occupational safety and health is a cross-disciplinary area concerned with protecting the safety, health and welfare of people engaged in work or employment. The goal of all occupational safety and health programmes is to foster a safe work environment. Good health and safety performance ensures an accident-free environment. In India, the awareness of Occupational Health and Safety (OH&S) has improved to a great extent though it is a long way from the standards set in developed countries. Organizations have started attaching the same importance to OH&S performance as they do to other key aspects of their business activities. They have also commenced adopting a structured approach for the identification of hazards, their evaluation and control of risks too. Quite a few of them also revolve around International Standards. OHS practices should provide a structured process to minimize potentials of work-related injuries and illnesses, focus on increasing the quality of manufactured products and/or rendered services and increase the productivity by reducing the direct and indirect costs associated with accidents. It must provide a direction to OHS activities, in accordance with the organizational policies, regulatory requirements, industry practices and standards, including negotiated labour agreements. Hence, organizations should conform to an OHS, as may be of significant value to an organization.


Occupational safety and health is a cross-disciplinary area concerned with protecting the safety, health and welfare of people engaged in work or employment.

Two events have catapulted safety to a top management concern: one was the Bhopal gas tragedy and the other was the 9/11 terrorist attack. The ramifications of poor safety may take the form of medical, human, financial and resource liabilities for the organization. For example, these liabilities may range from sickness such as asthma/allergies for workers in mines, ergonomic/muscular-skeletal disorders, by the organizational stress etc. endless number of steps can be taken to prevent accidents, promote the importance of safety, mitigate steps to prevent the occurrence of hazards and create safety awareness. It is the responsibility of each and every employee, no matter which department, role, function, level or designation to realize that ultimately each of them is a player in the field.

7.9.1 Breaches in Safety

Organizational safety becomes an issue for organizations post-incident. This means that only after an organization has been adversely impacted by a critical breach in safety that results in a harmful regressive set of repercussions for the organization, employees are likely to realize the importance of safety consciousness in their every action. All employees need to be instilled with a compulsive safety consciousness in their day-to-day thinking and in all their work-related actions. Most safety research discussion introspects on what went wrong and resulted in the disaster (post-mortem analyses). The general consensus is that in most cases disasters are most likely to occur due to human error/factors, system vulnerabilities or environmental factors.

Trail Blazers

OHS in Action at Castrol

At Castrol, they realized that truckers carried petroleum and lubricants in the same truck which is actually meant for one of two. Since lubricants are more viscous than petroleum, there was a danger that the trucks meant for petroleum and carrying lubricant might give way and cause fatal accidents. So the Castrol team, along with a design company and with support of OE manufacturers, eventually came up with a tank custom made for carrying just lubricants. It meant that the newly designed container was so compact that if the transporters sent off petroleum into it, it was not going to be economically viable because the volume transported would be considerably lower. Thus, they found an engineering solution to human psychological problem of doing anything and everything for the sake of profits.

Another problem they faced was that the truck drivers in India are highly untrained and pick-up routine truck driving alongside their driver assistance job—hiring such drivers was a risk. Having a check on the license issued by the legal transportation authority is also of no use as getting a license made is a question of knowing the right people or a few thousand rupees. The company now owns a training school where every driver undergoes a short-term training to acquire skills on vehicle dynamics (loaded truck driving versus empty truck driving), emergency handling (sudden brakes can cause the load to slap against the driver's back), fatigue management (teaching the driver to take a nap if they are sleepy) and defensive driving principle (the best driving practice where you are receptive towards other road users’ behaviour and drive in anticipation of their errors).


Selection, training, performance management and compensation are some of the HR processes that have the potential to change the employee perception of organizational safety. Specifically, if HR takes the time and effort to identify the right candidates, and then hire them based on requisite skills that resonate with the organizational culture of safety, then more than likely the organization is likely to benefit from those right resource choices they have made. For example, if organizations make it mandatory for prospective employees to take drug tests, physical examinations, check past employment records, do background checks, ask for reference checks from previous employers and have strict rules and regulations if employees violate the working environment by using drugs or alcohol at work, or just showing up at work in an inebriated state. In doing so, employers are likely to run into fewer situations where employees take liberties at work. Encouraging safety not only discourages errant behaviour but also ensures a safe work environment for the innocent employees who come to work wanting to contribute to better the organization.

Another area where HR can ensure a higher level of safety for the organization is by having prospective applicants, who are going to work in positions where following procedural instructions is the key, take a simulation test that mimics the actual work environment they are likely to work in. For example, airplane pilots are required to practice in flight simulators and are rated on their performance in that test environment, which then counts towards their certification as a pilot. Training and development is a highly visible area of HR, and one that perhaps has the most measurable or quantifiable effect on the employee performance. The reason it has such visibility as a precautionary method of encouraging employee safety is because new skills can be imparted to employees to better prepare them. Furthermore, training also sensitizes employees to look out for potential hazards, and take steps to mitigate their onset at all.

Another equally important aspect of safety at work is people safety, which is undoubtedly one of the most basic aspects of workplace safety, and has to do with providing employees a healthy place to work (clean air, open workspaces, adequate lighting, restrooms, break areas, first-aid resources, ergonomic furniture etc.). Providing employees with a work environment free of violence is the onus of the employer. When absent this may make employees feel insecure, reduce morale, create pain/suffering for employees, and in the extreme result in adverse psychological backlash (trauma, post-traumatic stress disorder, depression). Hence, a zero tolerance for dangerous behaviours must be encouraged by employers, and what is more important is that the message should be elucidated time and time again to both the current and prospective employees.


After the tsunami in Japan, many IT companies such as TCS, Infosys, MindTree and Cognizant started getting their Indian employees back in India. Wipro Inc. took a different stand on this issue stating that they could not treat Indians differently and to show solidarity to the Japanese people, they would have all the Indian employees stay in Japan. If you were the HR manager of an Indian IT company with employees in Japan, what would you have done?

What is even more critical is the quality of training, when it occurs and what message the senior management or custodians of safety communicate to employees. Rewarding employees for safe performance is the actionable method that organizations use to demonstrate the value of organizational safety to its members. How rewards are allocated and what behaviours get allocated is a matter of debate, however. For example, if HR, on the instruction of the higher authorities, rewards those employees who do not feel threatened (about being fired, called whistle-blowers, socially shunned by colleagues) for reporting a breach of safety, then a positive atmosphere is likely to result which in turn is likely to encourage others to follow suit.

7.10.1 Financial Win for the Organization

If the start-up costs of investing in a safety program is capital intensive, time consuming, resource heavy and does not immediately show a significant return on investment, the cost saving that can result as a consequence of these decisions outweighs the monetary pinch on the organizational budget. This is because, in providing a safer work environment, the organizations are more likely to suffer less law suits, lower worker compensation costs, invest less in healthcare for employees, have higher worker productivity, decreased turnover, lower absenteeism and enhance employee morale too.


William Spriegel and Edward Schultz define discipline as the force that prompts an individual or a group to observe the rules, regulations and procedures which are deemed to be necessary to the attainment of an objective. It is the force that drives the employees of an organization to observe the code of conduct in the organization. The underlying assumption is that the code of conduct of the organization is published information for each employee.


Discpline is the force that prompts an individual or a group to observe the rules, regulations and procedures which are deemed to be necessary to the attainment of an objective.

7.11.1 Causes of Indiscipline

Some of the reasons which can cause indiscipline are:

  1. High-handed behaviour of the management
  2. Unfair treatment of employees
  3. Absence of a code of conduct
  4. Absence of a grievance handling mechanism
  5. Ineffective HR policies and practices
  6. Ineffective communication systems
  7. Negative attitude of the employees and the union

7.11.2 Disciplinary Action

Tackling indiscipline may result in one of the following disciplinary action. The actions are graded as per their severity (lowest to highest):

  • Oral reprimand: This is where the employee is reprimanded by their supervisor or manager orally.
  • Written warning: This is when an employee is given a written warning about their behaviour. The written warning is entered into records.
  • Denial of increments, promotions and pay hikes: There are occasions when the organization may deem fit to deny the employee salary hikes and promotions as a means of punishment.
  • Pay reduction and demotion: More severe than denial of increments, this is aimed at causing a monetary as well as a social loss for the employee.
  • Suspension: The employee is barred from coming to work. This step is turned to only after the earlier ones have not worked.
  • Discharge or dismissal: This is the severest of all punishment and the services of the employee are terminated.

7.11.3 Disciplinary Action Process in an Industrial Environment

In an industrial environment, the disciplinary action process has to go through the following steps:

On reporting a misconduct, the first step is to hold a preliminary enquiry. The enquiry officer should be someone who is considered to be neutral by both the parties. If the prima facie case is established, then the person is given a charge sheet. The person is given time to reply to the points raised in the charge sheet. Some important issues that need to be taken care of in the issue of charge sheet is the language which should be precise and legally valid, dates and exact charges should be mentioned and the implications (in terms of the possible punishment if found guilty) should also be mentioned. The charge sheet is to be under the signature of the disciplining authority and not the enquiring officer. It has to be ensured that it is communicated to the concerned accused. The charge-sheeted employee might respond in one of the following four ways:

  1. Accept the charges and appeal for leniency in terms of punishment.

  2. Submit explanation refuting the charges.

  3. Apply for an extension for the period of replying to the charge sheet.

  4. Fail to reply to the charge sheet.

If they accept the charges, then action would be taken. In the other three cases, the domestic enquiry takes place within a certain period, a quasi-judicial process is conducted where the onus of proving the charges lies with the accuser.


Figure 7.3 Disciplinary action process in an industrial process


The report is given to both parties and their comments sought. If charges are not proved, then the employee is exonerated. In case of proving of charges, necessary action is taken against the employee concerned. If the employee is not satisfied by the action suggested by the disciplinary authority, they can appeal to the appellate authority (particularly if the punishment is not commensurate with the misconduct). If not satisfied by the appellate authority, they can go to the review authority—the highest authority—before raising a dispute (see Figure 7.3).

Global Perspective

Collective Bargaining in Different Countries of the World

Though collective bargaining originated in the United Kingdom, it now prevails in all almost all democratic countries of the world.

United Kingdom: The Trade Union and Labour Relations Act, 1974, assumes that both sides of the industry will be collectively organized and the terms and conditions of employment without outside interference would be settled between them. Disputes in the UK are usually settled by negotiations, failing which the parties may take recourse to industrial action.

United States of America: Almost every collective agreement in this country has a specified duration (usually one–three years, and a precise expiry date). Usually, the unions agree not to strike during the terms of the agreement but guard their legal right to strike as soon as the contract expires.

Germany: The trade unions and IR movement in Germany is one of the most highly organized in the world. After World War II, all small unions were abandoned and 16 large unions were formed, one for each industry. There is no provision in the statutory law regarding collective bargaining; however, rules in this regard have been worked out on the basis of court decisions given by the Federal Labour Court and the Federal Constitution Court.

Japan: Most collective agreements in Japan take place between the employer and an enterprise union. Before any matter goes for collective bargaining, it goes through a consultative process. This is because a consultative process is informal and voluntary and gives more freedom to both the parties to discuss the issue.

Sweden: The employee side in Sweden is characterized by high degree of unionization. Wages and salary issues are settled by collective agreements. The agreement usually runs for a period of one–three years. The practical application of the agreement depends on the relationship that the company has with the local trade union. In case of failure of the agreement, the dispute is referred to the confederation at the industry level. If it is still unresolved, the settlement is made in the labour court by means of arbitration.

Nigeria: In the Nigerian system of IR, there is direct intervention of the government. Trade unions in the private sector have initiated new procedural agreements which now serve as constitution in the relation between the labour and the management.

Application Case

Bata and Its Employee Relations Issues

Bata India Limited (Bata) always managed to hog the headlines in the 1990s as far as employee relations were concerned. The company was headed by Mr William Keith Weston (Weston), who had a track record of turning around many sick companies within the Bata group.

On 30 September 2000, Bata was headed towards a major labour dispute as Bata Mazdoor Union (BMU) had requested the West Bengal government to intervene in what it considered to be a major downsizing exercise. Throughout its history, Bata was plagued by labour problems with frequent strikes and lockouts at its facilities. Huge employee expenses were incurred due to the labour issues.

For years, Bata priced its shoes reasonably well compared to other brands in the market in India and in the USA, the UK, Europe and Middle East. Its headquarters was at Kolkata and it employed over 15,000 employees in its manufacturing and sales operations. It manufactured 33 million pairs per year in five of its plants located at Batanagar (West Bengal), Faridabad (Haryana), Bengaluru (Karnataka), Patna (Bihar) and Hosur (Tamil Nadu). It had around 1,500 retail stores and 27 wholesale depots.

The management team implemented a massive revamping exercise in which around 250 managers and their juniors were asked to quit. They had decided to freeze recruitment. The company signed a long-term bipartite agreement—which did not result in any disruption of work. The union tried to show the management that they too could be as productive as any other union in the country. They bought down the staff strength in two of their factories to a great extent.

By the end of 1997, they still faced problems of a high-cost structure and surplus labour, the turnaround had made them more aggressive and demanding. Weston had failed to strike a deal with the All Indian Bata Shop Manager Unions since the third quarter of 1997. The shop managers were insisting that Bata honour the 1990 agreement and they wanted them to fill up the 248 vacancies in its retail outlets. It also opposed the move to sack all the cashiers in outlets with annual sales of less than 5 million, which meant elimination of 690 jobs. The management also decided to phase out several welfare measures at its Batanagar Unit—management subsidies, canteen facilities etc. Other measures were aimed at increasing productivity, reorganizing some departments and extending working days for some essential services.

In the beginning of January 1999, BMU submitted their charter of demands to the management. The demands mainly revolved around economic issues and the non-economic issues contained the reinstatement of four dismissed employees, introduction of a scheme for workers participation in management, wage hike for around 90 per week and some additional allowances.

In mid-1999, the BMU finally struck a deal and signed a three-year wage agreement that included a lump sum payment of arrears of 4,000 per employee. The management also decided to include 10 per cent of the 400 contract labourers at Batanagar in its staff. The West Bengal State tribunal justified and upheld Bata's action of suspending and dismissing of three executive members of the BMU.

In July 1998, Weston was severely assaulted by four workers at the factory at Batnagar, while he was attending a business meeting. A member of the BMU met Weston to discuss the issue of suspended employees. Dutta, the Union Leader, got into a heated argument with Weston and when Weston got up to leave the room, the workers turned violent and assaulted him. Earlier in 1996, the Chief Welfare Officer was assaulted too. The management dismissed the three employees on grounds of indiscipline and violence. The employees accepted the dismissal letters, but provoked the other workers to go in for a strike in protest against the management's move, the strike continued for two days. The management then decided to put on hold to the expansion of the plant at Batanagar.


Source: Adapted from Gupta (2001).


  1. The role played by the BMU is of a destructive nature. Comment.

  2. Why has maintaining good IR been a problem for Bata? From your perspective, what advice could you give them to maintain sound IR?


  • Employee relations refer to the actions of trade unions and their relations between the employer and the employees in the industry.
  • The body of laws, the administrative rulings and the precedents which address the relationship between and among employers, employees and labour organizations are known as labour laws.
  • The Industrial Disputes Act, 1947; The Apprentice Act, 1961; The Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959; The Minimum Wages Act, 1948; The Payment of Wages Act, 1936; The Payment of Bonus Act, 1965; The Factories Act, 1948; The Employee's Provident Fund Act, 1952; The Employees’ State Insurance Act, 1948; The Payment of Gratuity Act, 1972; The Workmen's Compensation Act, 1923; The Maternity Benefit Act, 1961; The Industrial Employment (Standing Orders Act), 1946; Trade Union Act 1926 are some of the most applicable laws. They have been explained succinctly in the text.
  • Trade union whether temporary or permanent is formed primarily for the purpose of regulating the relations between workmen and employers or between workmen and workmen, between employers and employers or for imposing restrictive conditions on the conduct of any trade or business and includes any federation of two or more trade unions.
  • Collective bargaining can be defined as negotiations between an employer, a group of employers or one or more organization of employers on the one hand, one or more representatives/organizations of workers on the other, with a view to reaching an agreement over working conditions and terms of employment.
  • Negotiation is the process in which two or more parties or services and attempt to agree on the exchange rate for them. The negotiation can be distributive or integrative.
  • Grievance may be defined as a genuine or not genuine feeling of discontent or dissatisfaction, whether expressed or unexpressed arising out of anything connected with the company that any employee thinks, believes or feels inequitable or unfair. Every company should have a grievance redressal mechanism.
  • Occupational safety and health is a cross-disciplinary area concerned with protecting the safety, health and welfare of people engaged in work or employment.
  • Discipline is the force that prompts an individual or a group to observe the rules, regulations and procedures which are deemed to be necessary to the attainment of an objective. Disciplinary action may manifest as oral reprimand, written warning, denial of increments, promotions and pay hikes, pay reduction and demotion, suspension and discharge or dismissal.

Drill Down

  1. The Changing Face of People Management in India, edited By Pawan S. Budhwar, Jyotsna Bhatnagar. This is a collection of articles and the article titled ‘Labour Law in India’ by Debi S. Saini has a brief summary of all laws and also explains and justifies the need for labour reform in India.
  2. http://labour.nic.in/act/welcome.html—This site carries the details of all the Central Labour Acts.

Review Questions

  1. What does employee relations mean? Is it the same as industrial relations?
  2. Why do we have so many labour laws in India?
  3. Describe the following acts: Payment of Bonus Act, 1965; Payment of Wages, 1936; and Employee State Insurance, 1948.
  4. Why are trade unions important? Describe the Trade Union Act, 1926 and list its objectives.
  5. Why do employees join trade unions?
  6. Define collective bargaining and explain its process.
  7. Define negotiation and its process.
  8. What should be the ideal grievance redressal process for an organization?
  9. Why is occupational health and safety important?


  1. Group exercise: Discuss with the IR manager/factory manager of two manufacturing firms and review the process of strikes and lockout they have had in the last decade. Prepare a report on the same.
  2. Group exercise: Discuss with the IR manager/factory manager of two pharmaceutical firms and review the process of collective bargaining they have had in the last decade. Prepare a report on the same.
  3. Group exercise : Discuss with the IR manager/factory manager of two nationalized banks and review the process of trade unions they have had in the last decade. Prepare a report on the same.



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