So far, I have presented cases of partial compliance by employers and the connivance of inspectors who chose not to report such violations. I have not yet dealt with the role of consultants.
Now I come to them.
They fall into two categories.
The first consists of professionals possessing the requisite qualifications who are appointed or engaged by employers. Most discharge their responsibilities honestly, but some do not hesitate to suggest methods of avoiding compliance.
The second category comprises self-styled consultants, often without professional expertise, who function mainly as facilitators. For some, it is a full-time vocation. For others, it is a part-time activity, and they may include serving or retired employees. Their consultancy can deliver results as long as proper scrutiny is not undertaken.
I shall share two experiences.
A regular inspection of a small factory was conducted on 27 June 1988, covering the period from August 1986 to September 1987. Subsequently, the unit was selected randomly for a special inspection, and the task was assigned to me.
After serving the mandatory prior notice, I reached the factory on 27 June 1988.
It was a modest proprietary concern located in an industrial estate. The factory manufactured natural and coloured polythene bags, curved polythene bags, tubes, sheets, reprocessed granules, and shopping and wedding bags.
At first glance, nothing appeared unusual.
Then I began examining the records and found payments made to another concern.
The employer explained that the cutting and sealing work, along with the washing and printing of polythene bags, had been outsourced to another factory—let us call it Factory B—located elsewhere in the same town.
There was nothing unusual in subcontracting work. However, what caught my attention was the address of Factory B. It was the residential address of the proprietor of Factory A.
Then the matter became even more interesting.
The sole proprietor of Factory B was none other than the wife of the proprietor of Factory A.
The balance sheets of Factory A revealed that it had paid 24,438 during 1985–86 and 35,729.97 during 1986–87 to Factory B towards “cutting and sealing charges.”
These amounts were strikingly high when compared with the salaries paid by Factory A to its own employees: 12,752.40 during 1985–86 and 13,008.55 during 1986–87.
In my report, I recommended that contributions be claimed on the amounts paid to Factory B, since the work described was clearly an integral part of the manufacturing process of Factory A.
Besides, it was difficult to believe that such commercial manufacturing activities were genuinely being carried out from a residential premises.
According to the wage records of Factory A, workers were being paid only 2 to 3 per day, while the office assistant and the watchman were shown as receiving 100 and 50 per month respectively.
Even by the standards of the late 1980s, these figures were absurdly low.
I questioned three workers and the office assistant who were present during my inspection. All of them dutifully confirmed these wages.
Their responses sounded rehearsed. Since the inspection had been conducted after prior notice, it was obvious that they had been tutored.
Then came the turning point.
At about 5 p.m., the watchman arrived. Before anyone could coach him, I casually asked about his salary.
Without hesitation, he replied: 125 per month.
That single answer cracked the carefully staged faade.
I decided to ascertain the prevailing wages in the neighbourhood. I visited two nearby units and made enquiries.
I was informed that the minimum wage for an unskilled worker was around 5 per day, while machinists, who were skilled workers, earned anywhere between 14 and 17 per day.
Armed with this information, I confronted the employer, who admitted that he was indeed paying wages higher than those shown in the records and gave me a written letter to that effect.
Yet even in that written admission, he continued understating wages. He claimed that three female workers were paid 2.50 per day, one male unskilled worker 3 per day, and two others 4 per day.
The figures still sounded suspiciously low, but I had taken the enquiry as far as I reasonably could on site.
I therefore recommended that contributions be claimed on the difference between the wages shown in the wage records and the wages actually paid, as admitted by the employer, in writing, during my inspection.
Out of curiosity, I asked the employer how he managed the difference between the wages actually paid and the lower amounts recorded in his books.
He admitted to purchasing used polythene bags from rag pickers, obtaining receipts for amounts higher than those actually paid, and using the inflated purchase vouchers to absorb the difference.
But fiction did not end there.
Back at the Regional Office, I pulled out the factory’s old file volumes.
The records showed that as far back as July 1976—more than a decade earlier—the employer had been officially showing wages ranging from 2 to 3 and 4 to 6.
It was difficult to believe that this practice had evolved on its own. For more than a decade, the employer had consistently maintained wage figures that bore little relation to economic reality.
Obviously, some “labour consultant” had guided him on how to minimise his liability under the labour laws while maintaining an appearance of compliance.
The second incident occurred during a personal hearing held in 1987.
A cinema theatre owner appeared before me for a personal hearing relating to an ad hoc assessment of contribution. He was visibly angry.
“Just because their names are entered in the attendance register, how can they be treated as workers? That woman is my wife. That man is my son. Your people have counted them and applied the ESI Act to our cinema hall.”
I explained the law to him.
The definition of “employee” under the ESI Act had received a broad interpretation in the landmark Hyderabad Royal Talkies judgment delivered by Justice V. R. Krishna Iyer.
According to that judgment, not only workers directly employed in an establishment but even those connected in any manner with its activities could come within the ambit of the Act, even if the establishment could technically function without those particular services.
I explained that even if persons selling coffee and snacks, like his wife and son in the instant case, were not essential to the mechanical running of a cinema hall, their services were useful to patrons and therefore squarely fell within Section 2(9).
Finally, I said:
“It is up to you. You own a car, pay income tax, and occupy a respectable position in society. Whatever you state before me, will be recorded.”
His anger vanished instantly.
“How would we know all this, Sir? Your own people advised us to say so.”
I was not surprised.
Hiding my disgust, I simply told him:
“Even if your argument is accepted, since they draw wages from your establishment, they must still be treated as employees under the law.”
He quietly agreed.
Such experiences taught me that not all Consultants exist to ensure compliance. Some exist to create the appearance of compliance while helping employers avoid its substance.
Too often, consultancy was only the mask. Behind it lay a far more lucrative vocation: facilitating non-compliance while preserving the illusion of legality.
(Views expressed in this opinion piece are those of the author)
Read earlier parts in the series:
Part 1:
Part 2:
Part 3:
Part 4:
Part 5:
Part 6:
Part 7:
Part 8:
Part 9:
Part 10: