Case Study

Nandita, Factory HR Manager, was sitting in her cabin sipping hot tea on a cold December evening. She was in a pensive mood. Reduced volumes and increased automation in the factory over the past one year lead to idle work force and hence towards the much needed manpower rationalization in the factory. The day before, in the evening, 2 Contractors who provide contractual workmen for Secondary packaging and Warehouse informed her that their Contractual Employee union was planning to serve strike notice under the pretext that their Demands should be agreed. Behind the screen The factory in Ferozepur is the oldest and the largest one for Shyamji & Balaji Company. Since its inception the factory has held a very special place in the hearts and minds of the local communities as it provided employment opportunities. The factory also earned a lot of respect for the fair business practices & caring people policies. Over the years however, the company set up three more factories across the country. This move was meant to leverage the fiscal benefits provided by governments in different states. The Ferozepur factory manufactures pre-mix for chilled beverages. The demand for these products is more in the summer season. The factory initially started with single production line and has scaled up to four production lines over the past 15 years of its existence. These expansions lead to doubling the manpower, twice in the life cycle of the factory. Currently, the factory employs 300 permanent workmen (Refer exhibit 1) and 1200 contractual workmen. Out of the 1200 contractual workmen 600 are engaged in seasonal jobs and remaining are engaged in non-seasonal jobs.

Exhibit 1: Split of permanent workmen according to skill level.

The political landscape Despite most of the workforce in the factories around the region being unionized, the permanent workforce of Ferozepur factory is not unionized, owing to the fact that company has fair people practices. However, with the changing times of reduced capacity utilization due to demand constraints in the market and near absent fiscal benefits, aggressive steps are being taken by the management to curtail fixed costs. As a reaction to the change in management way of operation, the permanent workmen are planning to unionize and external union body who is also affiliate for Union 1 contractual employees is supporting the cause. The contractual workmen who work in the non-seasonal jobs are unionized under two unions since the inception of the factory. (Refer to Exhibit 2) Union 1 is the most impacted due to the new ways of operation. Amongst the two, Union 1 is the stronger one. The three year settlement will come to an end on January 15th 2014, and 5 rounds of negotiations have happened between the respective contractors and Unions.
Exhibit 2: Split of workmen associated with Unions.

The negotiations with Union 1 are not progressing and have reached a deadlock due to the unreasonable demands raised by the union, the pain points being claim for permanency, no further manpower rationalization in their activities & wages to be higher than Union 2 Contractual employees. The negotiations with Union 2 are progressing in the right direction and this Union has always been supportive.

The Contractors are paying the same wages for all the contractual employees. The management is negotiating with the Contractor on contract value on aggressive terms due to pressures on fixed cost. Management has always been giving legal advice to the Contractors with respect to Compliance of Labor laws ad Human Rights within the legal framework. Nanditas thoughts were disturbed by the ringing of the telephone. From the other end, his secretary asked, Madam, the Union 1 Production related Contractors have come to meet you. Shall I send them inside now? Nandita replied that she could meet them after ten minutes. In the meantime a mail notification popped up on his laptop screen. The mail was from the Country HR Head and it read: Dear All, As you know, the business this year has not gone as expected. In a bid to protect profitability, we should try and reduce all unnecessary costs. In this context, I would urge all of you to view each and every item under the Fixed Costs thats under your ambit and judiciously see what can be done to manage costs more effectively. Thanks, Byomkesh There was a knock on the door. The two Contractors gently opened the door and asked, Kya hum andhar aa sakte hain?

Assuming that you are a team of advisors to Nandita, what will be your advice with regard to the following points: a. Strategy & Tactics for negotiation to handle the deadlock situation and impending strike notice. b. Propose the new wage package for contractual employees considering the Charter of Demand of Union 1 and the fact that Union 2 is fine with nominal increase in wages. c. What is your response to each of the demand in the Charter of Demand of Union 1 Kindly share your responses in not more than 3 slides (1 slide / question). Please refer to below annexures for preparing your advices 1. Manpower requirement in the factory 2. Charter of Demand of Union 1 3. Contractual Wage Structure 4. Contractual Wage progression Annexure I Manpower Requirement in the Factory LINES CURRENT PERMANANT CONTRACTUAL 180 200 LINE 1 & 2 END 2014 150 170 CURRENT 120 200 LINE 3 & 4 END 2014 105 170

The reduction in manpower requirement is mainly on the account of process improvement and small scale automation projects. Contractual employees on the Lines work in the area of Warehouse.

Annexure II Charter of Demands Union 1

1. Increase in basic wages at the rate of 50% for workmen with 1 to 5 years of experience
and 100% for workmen with more than 5 years of experience 2. Conveyance to be revised to Rs.12,00 in line with permanent workmen 3. House rent allowance should be minimum 50% of Basic and not a fixed allowance

4. Interest Free Loan of Rs.1 Lakh, for Child Higher Education or Daughter Marriage (for
employees with 10 years of completed Service) 5. Night shift allowance should be increased to Rs.50 per shift

6. Permanency to be given to employees who have crossed five years of service. 7. Attendance of 22 days or more in a month should qualify the workmen for special
incentive Annexure III Current Contractual Workmen Wage Structure (Per Day) Component Basic HRA Conveyance Night Shift Allowance Rs. 350 50 10 5

Annexure IV Contractual Workmen Wage Progression Year 2010 2011 2012 2013 Minimum Wages (Semi Skilled) per Day in Rs. Rs.90 Rs.120 Rs.240 Rs.280 Basic Wages Paid to Contractual Workmen per day in Rs. Rs.150 Rs.180 Rs.310 Rs.350

In 2014 the Minimum wages are expected to increase to Rs.380.