Originally published in The Himalayan Times – Perspectives on 6/21/2015. 

The Economic Freedom of the World report, released by the Canadian think tank, Fraser Institute, publishes the degree of economic freedom that a country possess every year, based on five broad thematic areas. Nepal’s unadjusted score of economic freedom as reported by the index in 2012 is 6.16, out of 10, where lower ratings reflect harsher obstacles to economic freedom. Out of the five areas, one is regulation, divided into that of credit market, labor market and business regulations. Nepal scores a 5.82 on labor regulation overall, which is again divided into 6 sub-categories that make up the final score. Economic freedom, as determined by labor regulation, is made up of hiring regulations and minimum wage, hiring and firing regulations, centralized collective bargaining, (working) hours regulations, mandated cost of worker dismissal and conscription. Because the Nepalese labor law does not have mandatory state military enrollment when or once our country goes into war in face of lack of volunteers to fight, we score a 10.00 on conscription and since hours regulation, in the formal sector, aligns itself with the mandated no-more-than-8-hours a day/48 hours a week law, we have a 10.00 on this indicator too. However, on all other indicators, the score barely averages 4, indicating numerous problems with existing labor laws and its implementation or lack thereof.

With a score of 3.73 on hiring and firing regulations, this is one of the most commented upon themes when it comes to labor issues in the country. According to Labor Act 1992, a worker should be appointed permanently after having worked for 240 days in an enterprise or industry (based on his/her punctuality and efficiency among other things). In practice, workers who work for the given time period seemingly demand permanent status despite the employer’s reservations based on the worker’s capabilities or lack thereof. Now in order to avoid having to hire the worker and provide additional security benefits that one provides a permanent worker, most enterprises/industries choose to remove him/her before the 240 day mark and replace them with another worker, thereby not having to incur additional costs of making them permanent. This cycle is thus poisonous to both employees and employers. It hampers the enterprise’s productivity when having to continually replace workers and reduces stability that a worker looks for in his/her job.

Another major problem is that of the number of ever increasing trade unions within a single enterprise itself. As of 2012, there were 104 newly registered enterprise level unions, in addition to the 323 existing enterprise level trade unions according to a 2012 report by the Department of Labor. This has to be seen in juxtaposition with the fact that trade unions are representative of only 8% of the total labor force; the rest fall in the informal economy. This naturally begets the question as to whether labor unions really are representative of those they say they represent. In addition to this, labor related grievance handling mechanisms in the country are limited and inefficient. There are only 10 labor offices across the nation in totality and 1 labor court, deep in pending cases until now. Also, the labor court is only present in Kathmandu, making it burdensome for disputing parties outside the valley to travel all the way to the capital to settle differences. All this in conjunction with the fact that collective bargaining mechanisms are also severely underdeveloped; hampered by general mistrust between employers and workers, inter-union rivalry, limited resources of the unions and factionalism.

Labor law experts have stated now and then that the new labor law shall mandate the provision of social security beginning from the first day instead of the 240-day rule. It needs to be understood that the existing labor law already has provisions for social security (welfare fund, provident fund and compensation against death among others). What makes the new social security act in question slightly promising is the fact that it has insurance (to be borne by both employer and worker) as opposed to direct compensation from the employer in case of injury and/or death.

The increasing number of trade unions could be attributed to the fact that these unions often seemingly register themselves with 25% of the laborers or 5000 members but a lot of times these laborers turn out to be ghost workers; non-existent in person, only existing in records. A labor ID card system could perhaps systematize this problem as many laborers also re-register themselves into more than one union. Keeping track and number of workers is amongst the first steps an enterprise management must take in order to be able implement existing rules and laws.

When it comes to grievance handling mechanisms, collective bargaining and Alternative Dispute Resolution (ADR) mechanisms need to rule the roost. In order for collective bargaining to work, minimization of inter-union rivalry and miscommunication between employers and workers and a detailed statutory of the agreement needs to be developed. Establishing more labor courts, particularly in industry rich areas, is also another feasible recommendation. The existing labor laws only call for conciliation and mediation as mediation tools as alternatives to the litigation process. Arbitration can be seen as an important ADR tool for it allows production to go on smoothly while workers talk over their terms of interest with employees. It also stretches collective bargaining rights to those in smaller or unorganized unions allowing greater representation. ADR mechanisms such as negotiation, mediation and arbitration thus need to be further developed and implemented.

Labisha Uprety works as Communication and Development Assistant at Samriddhi, The Prosperity Foundation.