In-Depth Analysis: Haryana Private Sector Job Bill
March 29, 2021
In our last newsletter, we briefly touched on the Haryana governor’s March 1st approval of a bill requiring private sector organizations to set aside 75% of jobs that pay up to Rs 50,000 a month for the youth of Haryana.
The City of Gurgaon within Haryana has been an attractive destination for many multi-national corporations. The measure is like bills by the governments of Andhra Pradesh, Madhya Pradesh, and Maharashtra have promised, setting a dangerous trend.
Key Provisions of the Haryana bill:
- Applies to all companies, societies, trusts, LLPs, firms, partnerships, or any person employing 10 or more people;
- Applicable for 75% of all jobs with a salary up to Rs 50000 per month, gross;
- Applicable for all new roles, and old roles being backfilled after April 1, 2021;
- Applicable for people who have domicile in Haryana for 5 years (amended from 15 years);
- Employers should comply within 90 days of notification and share employee records on the government portal;
- Employers are given the option to restrict the employment of local candidates from any Haryana district to 10% of the total, if no suitable candidates are found from local district;
- Local candidates cannot be hired until they register on the government portal;
- Private employers can claim an exemption from employing 75% locals in cases where sufficient candidates are not available. The government can accept or reject the exemption, or direct the local employer to train workers;
- Section 5(2) bestows a designated officer with the discretion to accept or reject such claims based upon his or her subjective assessment of attempts by the company to recruit local candidates;
- Law provides for the imposition of financial penalties for violations;
- The term local candidate has been given the meaning of a 'Domiciled' candidate under Section2(g),and not the expression 'place of birth';
- Section 2(e) uses the word “employer,” but an exclusion has been made for central and state governments and entities owned by them, respectively, thus indicating that it may only apply to private sector undertakings operating within the state;
- The law will be active for 10 years, after which it will be repealed.
- No clarification on compliance processes (i.e., how will domicile be defined and verified?)
- No clarification whether it will apply for WFH roles.
The influx of migrant workers has been cited as the primary influence behind the enactment of the measure. Migrant workers are putting substantial pressure on Haryana’s infrastructure, contributing to the development of slums. This has led to environmental and health hazards in Haryana’s urban areas, adversely affecting livelihoods and the quality of life in the region. Proponents claim the bill is socially, environmentally and economically desirable for Haryana.
Implications and Analysis:
According to a leading Advocate (Tathagat Sharma), Associate Advocate, Office of Addl. Solicitor General of India, Supreme Court:
- India was envisioned as a union of states with single citizenship, which necessarily implies that states are not entitled to bestow citizenship or grant any resembling privileges. A legal challenge against any such action is expected. A principle argument will be the detrimental effect that the step would have on the ease of doing business for private entities in the Haryana. Gurgaon, in particular, is expected to suffer. Such actions stand on weak legal footing. Reservation, which has slowly but surely been accepted as a reality within specified limits by the courts and the people, has been a volatile topic for Indian society,. The ratio for reservation, in general, has resulted in the lifting up of historically marginalized communities as well as socially and educationally unprivileged classes under Art. 15(5) and Art. 16(4). It is to be noted that even these clauses are in the nature of 'non-obstante clause', which are legal because they are explicitly mentioned. Nowhere does the Constitution empower the states to provide reservations based on domicile.
- Art. 15(1) and Art. 16(2) explicitly prohibit states from discriminating based on “place of birth.” Even though the Court has made a distinction between place of birth and domicile in multiple instances, and the Constitution itself, through its different wordings to Art. 15(1) and Art. 16(2) makes the distinction clear. Art. 16(3) empowers only the Parliament to provide domicile reservation through legislation, and only for the appointment to offices under the state. Even that power of the Parliament has been questioned on multiple instances and has been stuck down at times.
- The Court wrote in one of its recent judgments that “sons of soil” demands claiming special treatment based on residence in states are threatening the fabric of India, but since they have populist appeal, they are being allowed to foster loyalties based on language and residence. Additionally, the Court laid down two conditions that any departure from a merit-based selection in favor of domicile-based selection must fulfill. First, the claim of service to the state, and second, the region's claim to underdevelopment. As we can be observed, the Haryana bill fails to fulfill these two requirements. No objective basis, in the form of any study or report, has been prepared or presented as to how the bill would prompt service to the state and its people. On the contrary, it might prompt disinvestment in the state, depleting state coffers and negatively impacting sorely needed public programs. The second claim on the region's claim to underdevelopment is more difficult to prove in Court, particularly for a state like Haryana that ranks 6th out of 28 Indian states in terms of per capita income. A state claiming to be underdeveloped while sitting 6th in terms of per capita income appears to contradict the Indian State Rankings system in India. Therefore, the Haryana bill stands on shaky ground at best, and is at worst a blatant violation of the Constitution.
Haryana has not notified the Act as of the date of writing (effective date of an act is only after being notified), and it remains highly speculative if they will ever do so considering the warnings by business houses and large factory owners, as well as -
- Multiple states in the past, including Maharashtra, Karnataka, Madhya Pradesh, Andhra Pradesh, to name a few, have tried to enact similar legislation. Some were the result of a post or pre-electoral promise, others were a result of a late surge in the son of soil spirit in the leaders. Haryana is the newest addition to the list, but the ominous signals were enough for most of those states to cautiously proceed in these testing waters. For some, these signals came in the form of opposition from their respective Law Ministries; for others, it was the fear of economic repercussions that were too much to bear for whatever political worth the legislations could have provided.
- The definition of local candidate merely mentions the word 'domiciled'- itself an ambiguous term. The Supreme Court has not been able to consistently define the term, and if the standard definition of 'place of birth' is taken it would be violative of Art. 15(2). Alternatively, if the accepted definition encompassing 'residence' is taken, most of those migrant workers, whose influx the state government has mentioned in the objectives of the Act, would be eligible to be considered as local candidates, thus, negating the purpose that the Bill seeks to achieve (younger migrants and second-generation migrant children would be included within the ambit of local candidates).
- If at the initial stage the objective of the Act itself is not rendered unconstitutional, then Haryana, with its 6th Highest Per Capita Income in the Country, would find it difficult to substantiate their argument that migrant workers are the cause of State unemployment. Regardless, using what legislative authority they, have, Haryana has enacted legislation placing significant reservation mandates on the private sector, which itself stands on unsure legal footing with the judiciary.
As per a leading newspaper, the core problem in India's economy remains lack of jobs. A secondary problem is long term distress in agriculture which has reduced the social and economic status of once dominant land owning communities. This has resulted in two trends: (1)a demand for greater reservation in state jobs; and (2)a demand for greater reservation in private sector jobs, to which the Govt in Haryana is responding. However, as the paper noted, if the law is implemented, it is bound to have several impacts on existing businesses:
- Slow down investments while further affecting ease of doing business.
- Drive jobs out of the state as it makes it unviable for businesses to follow the law in letter and spirit.
- Investors would not want to commit long term funds in India where laws are implemented without considering ramifications.
According to a NASSCOM survey, the law could impact nearly 150,000 IT and ITeS jobs in the state. The survey found that 81% of employees at respondent firms were from outside Haryana and 44% earned less than Rs 50000 ($ 700) per month. These include 40 job roles at global capability centers, over 15 roles at products, engineering, R&D and IT firms and over 20 roles at business process management firms. Respondents said that the law could significantly increase compliance burdens and limit the industry's ability to hire at will and will also make it difficult to adopt diversity and inclusion policies and initiatives.
Following the announcement of the Governor’s approval of the bill, there was an uproar from all most all industries in the state, through various industry bodies such as NASSCOM, CII and FICCI. This forced the state to announce that they would consider objections from various business groups and try to incorporate the same in the rules. All suggestions were to be filed by 21 Mar 2021. Haryana Deputy Chief Minister went so far to say that the business community could expect changes beneficial both to the state and industry. He said that the cap on the monthly ceiling of salary of Rs 50000/- was not fixed in the bill yet and could be revised on a timely basis. He added that the business community should not expect major changes, but some changes nonetheless.
HR Policy in India proactively discussed this issue with some members that would be most impacted by the law, and subsequently held a webinar with all member companies on 12 Mar 2021. During the discussion, members agreed that HRPI should send objections to the law to the Haryana Labour Ministry, which were subsequently submitted. Notwithstanding the objections raised by various industry bodies, and what the state Govt's reaction to them will be, HRPI advises members to plan for the likelihood that the law will be implemented.