Interference of Political Outfits in Industrial Disputes and its Consequences

Dr. Jawahar Rani K – Professor

[St. Joseph’s College of Engg., Dept. of Management studies, Chennai]
Dinesh K Babu – HR Manager
[Voltech Group – Chennai]

Disclaimer: The names of company / individuals / places / associated parties are all imaginary. The actual names are
not disclosed in order to maintain confidentiality.
Interference of Political Outfits in Industrial Disputes and its Consequences
Dr. Jawahar Rani K – Professor
[St. Joseph’s College of Engg., Dept. of Management studies, Chennai]
Dinesh K Babu – HR Manager
[Voltech Group – Chennai]

ABSTRACT

This case study is about a labor strike that was faced in a Garment Export Factory. To be brief the
case goes as follows:
The management of the Export unit decided to shift which was on a rented premises to their own
building in a different place, around 8 km from the existing premises. The factory was operational
in the existing premises for the last eight years and it was only a year ago they shifted the factory
to their own building. As of the current status the factory has 600 workers and the old one had 120
workers. The management gave the workers an option to continue in service and assured them to
provide bus facility from the existing factory to the new place every day.

The HR communicated this decision of the management to the workers and informed them to
resign if they could not agree to this option. The announcement on the closing with an option of
resigning was given to the workers only two days before the scheduled date of closing and this
agitated the workers and they approached a political outfit for an amicable solution.

The entry of political outfit changed the entire scenario and it became a law and order issue as the
workers went on an in- house strike. This group of workers on strike had all categories ofemplotee
including employee with 6 months’ service to 8 years’ service. The management agreed to give
gratuity and full & final settlement (Salary & Bonus for the last month) for people with 5+ years
of service and for others only F&F settlement. The demand from the workers put through the
political outfit was to give gratuity settlement for all employees with 6+ months of service at a
formula where the management will have to pay 78 times higher compensation when compared to
the actual statutory compensation.

Through the case study’ we will project various options available with the management and also
the pros and cons of each option. Also we will look into the legal aspects of the issue from the
employee and employer prospective.
We will come up with various possibilities of clearing the deadlock and a smooth way out for the
management and various options available with the management.
 ABOUT THE COMPANY:

Company Name: Chennai Apparels Pvt. Ltd.

Introduction
The company was started in late 1998 with a team of five people with its operations at rented
premises in Porur. In a span of 4 years the company grew into a size of 200 employees and started
the second unit at Kachipuram with 50 people. In 2008 the company inaugurated its own factory
at Kovour with ultra modern production facilities in 39,000 sq.ft of working area with
International Standard and production capacity of 100,000 pieces of basic garments per month.
After shifting to the own factory in 2008 the company still continued its operations at Porur &
Kanchipuram units.

The Business Focus:

Chennai Apparels Pvt. Ltd(CAPL) is one of India’s most reliable manufacturers and exporters
of men's, lady’s and children's garments. They have advanced equipments, effective management
system and seasoned workers. With a capital Investment of more than INR. 500 Lakhs, there
are a team of professionals with full experience in sales, planning, purchasing, following up
clients' orders and after sales service. By producing high quality products, making timely
shipments and delivering efficient services, CAPL had established a reputation of being
committed to customer’s satisfaction. Although their presence is global, their emphasis is on
giving special attention to each client taking care to accurately determine individual requirements.

The annual sales turnover of Chennai Apparels Pvt. Ltd for the Financial year 2008-09
exceeds USD 5 Million and is set to grow.

Mission Statement

To be the most respected garment manufacturer in the global markets, setting standards for quality
and reliability.

Vision Statement

To constantly enhance the brand value of CAPL garments, while partnering for growth in global
markets through ethical business standards and technological innovations that foster the welfare
of the employees, goodwill of the customers and safety of the environment.

Values
 CAPL is a people-first organization
 CAPL places their customers' interests before their own interests
 CAPL works for happiness - for their customers' as well
 CAPL understands the value of money better than anyone else does
 CAPL believes in setting standards in quality and reliability.
Organization Structure:

The latest organization structure and the responsibilities of each profile is given in Annexure 1.It
was only after shifting to the own building at Kovour this organization structure and professional
– hierarchical mode of operation was brought into CAPL.

Also a detailed description of each department of CAPL has been given in Annexure: 2.

Employees
CAPL believes in employees as its core strength and always open for giving all possible benefits
to all its employees. Recruiting and sourcing skilled and committed workforce and train them on
various basic competencies as required for their job and their personal skills and knowledge
development are the basis of the employee - employer relation in CAPL.

Providing benefits beyond the statutory benefits has always been key to workforce management
in the CAPL. The major highlight being in its 11years of operation CAPL has never faced any
labor issues such as strike/ lock-out etc. Workers at CAPL has always been given a direct contact
with the top management and in particular they always had direct access to the Managing
Director. Thus there was no need for any registered or unregistered labor unions at CAPL. The
philosophy of the management in maintaining the relationship with the workers is to look at the
workers as a part of their extended family and provide them with all possible comforts and
benefits as those of their expectations and wherever possible beyond their expectations.

ORGANIZATION CULTURE:

Mr. M Narayanan (Chairman & Managing Director -CAPL) an entrepreneur took over this
company in 1998 from his friend who was not able to run the show due to many factors including
shortage of working capital, and lack of orders. After taking over the company, Mr. Narayanan
entrusted the operational responsibility to a core team of 5 people with each having a specific
responsibility of Marketing, Administration, Production, and Finance. The company was earlier
running on a rented premises in Porur 15Km from Chennai city. Mr. Narayanan after the takeover
decided to continue the operations at Porur. The company started showing exponential growth in
its operations and in a span of 4 years(by 2002) the company become a 25 lakh turnover
company with 250 people working in different departments and established a branch at
Kanchipuram, Chennai.

Mr. Narayanan had a very different managerial style which was more of a family- oriented
culture. He never believed in any organization structure or superior subordinate kind of system,
no distinction between the manager, supervisor or worker. In fact this was the key for his success
and the company was able to show profit from 5 th Year of its operation even on rented premises in
Porur & Kanchipueram.

Mr. Narayanan was the final deciding authority for every small and big decision. Starting from the
policy / strategic matters to the simple decision on daily operations Mr. Narayanan was personally
involved. He used to be directly in line with the last level of workers to monitor the work progress
and always preferred to get a first hand report on the wok status from the shop floor. Verysoon Mr.
Narayanan established a very close personal relationship with all his workers, staffs and
managers.

Mr. Narayanan’s family- oriented style of functioning was evident by the activities, such as taking
all the workers for at least 5 day tour every year. Arranging lunch for all workers in a 5 star hotel
once every year, distributing gold coins to workers on completion of one year of service, gifting a
one sovereign gold chain on the occasion of the marriage of a worker, giving loans to the workers
at a very low interest rate and many more.

By the year 2008 the company had grown to a 10 cr. turnover company and with strength of over
550 workers. In the mean time the company was also able to buy a land and construct a 39000 sq.
ft factory of its own. The operations where shifted to the new factory in June 2008, But the
management decided not to close its operations at Porur unit due to some sentimental and
emotional attachment with local workers. Around 410 workers of Porur unit agreed to work at the
new factory at Kovour which was only 6 Km away from Porur factory. The remaining 140
workers were retained in the Porur Unit.

The new factory was well equipped with all the modern equipment like automated line, latest lab
equipment, automated suing & cutting machine, ERP software. Also facilities such as crèche,
cafeteria, medical room, library, waiting room etc where provided at the new factory.

With the increase in manpower and induction of latest technology, the management’s style of
operation from the family driven system of open management without any formal structural
hierarchy was changed to a professional corporate system, thus establishing a professional
departmentalized system wherein each department was made responsible for a specific set of
activities.

Mr. M Narayanan, Chairman & Managing Director, was the final deciding authority on any policy
decision making act and was responsible for financial management and ensuring fund flow for the
operation.

Mr. Narayanan was supported by a Joint Managing Director – Mrs. M Narayanan responsible for
all administrative and operational activities. A Team of three Executive Directors were in palace
with each one of them responsible for Marketing(Mr. S Sundaram), Commercial(Mr. S K Raja) &
Administration (Mrs. M Geetha) - Porur & Kanchipuram respectively

The operations were headed by General Manager (Operations) Mr. Sudershan. Further the
operational division was divided into 3 departments: Cutting Department, Production Department,
and Finishing Department. The Kovour Office was established as corporate office and the
operations of the other two branches were controlled from Kovour.

The management headed by Mr. Narayanan strictly believed in adhering to all the statutory
norms of running the company and believed in the philosophy of making the workers partners in
recognition of their hard work and every success the company got. All the basic facilities such as
Bus service to pick up and drop for the workers from 30 km circle from the factory. Eight Hours
of working with 3 breaks (15min – Morning Tea / 30 min – Lunch / 15 min – Evening Tea).In
house Doctor and medical facility in case of any exigency. For working on over time 2 times the
actual salary, benefits such as Provident Fund / ESI / Insurance. Employees were paid their salary
on 5th working day of every month without any failure.

Being an emotional person Mr. Narayanan always believed in one to one personal relationship
beyond any formal relations, which made him compromise on many instance such as appointing
core managerial team, biding to certain strict statutory norms, introducing professional managerial
approach etc. With the growth of business he lost his direct contact with workers thus forcing him
to appoint managers to act on behalf of him, the unfortunate part being that the salaried class of
managers was not as competent as Mr. Narayanan in maintaining one to one personal relationship
with the workers, thus creating a virtual distance between the top management and the workers in
the factories across all the three units. This had a most adverse effect among the senior employees
who were personally attached to Mr. Narayanan. The worst of it was seen in Porur and
Kanchipuram as Mr. Narayanan had almost stopped visiting these units because of his busy
schedule.

CASE BRIEF:

The company after constructing its own building , decided to shift its operation at Kovour on 15 th
June 2008. On shifting to the new premises, around 430 people shifted to the new office from
Porur and 120 people were retained in the same office at Porur. The decision of the management
to retain the operations at the Porur was for the following reasons:

 A sentimental attachment of the Management to the place where they started their factory.
 Looking at the ease of local workers to come to the Porur unit.
 Sentimental attachment to the workers who have been in the Porur unit for long (among
the 120 people around 25 people had more than 8 years of service with the company).

After 8 months of operation, the management found it difficult to continue the operations at Porur
due to the following conditions (as highlighted by the management):

Economic Recession: Textile industry being the worst hit.

Rent Paid at Porur Unit: Amount equal to 25% of the total monthly liability was paid towards
rent and maintenance.
Electricity Problem: The Tamilnadu Electricity Board has made a 20% restriction in Industrial
Electricity consumption, making it mandatory for the company to run the machines through
generator increasing the cost of production.
Less Volume of Production: With only 65 machines running the cost of production was very
high and the overhead of moving of raw material and transit cost is comparatively high.
Space availability: More than 40% of the shop floor area at the Kovour unit was unutilized.
 Porur Unit Monthly Income Vs Expenditure Statement
Expenses Income
Particulars Amount(Rs.) Particulars Amount(Rs.)

Salary 120 workers & 15 Staffs 675000

Office Rent & Maintenance 120000
Output of Production from
Raw Material Transit Cost 20000
120 Workers (Approximate 720000
Administrative Exp 30000
Monthly Value)
Power/ Generator 25000
Misc 30000

Total 900000 720000

Net Profit/Loss -180000

During the Board Meeting in the first week of March 2009, the Company decided to close the
Porur unit at the end of March 2009, and shift all the employees to Kovour Unit with the
following facility:

Change in reporting time: All the employees will have to report at the Porur office at the same
time as they were coming previously (9.00 am).
Bus service will be provided: All the employees will be given a pick up & drop from a point
near Porur office.
Continuity of Service: No break of service or new appointment will be made and everybody will
enjoy all the benefits and their actual seniority with the company.

The management decided not to communicate the decision immediately but to keep it confidential
untill 28th March 2009, for the following reasons:
 As they had a feeling that this might affect the morale of the employee and this may have
an adverse effect on production.
 An urgent shipment was on schedule and this announcement might create some confusions
and it may affect production.
 An early announcement may give the workers more time and they may come for some
negotiations on additional benefits.

Thus the Management instructed the Dept of Human Resources (HRD) to communicate their
decision to the workers on 28th March 2009.The HRD at CAPL was a newly established
department with two fresh HR Executives taking care of all HR Activities. They were supported
by Mr. Sridar - HR Manager of another company of Mr. Narayanan and the support of this HR
Manager was only on a consultation basis. The HR executives were operational at CAPL
independently and were more into the Administrative HR activities. Ms. Ranjini one of the
executives in charge for the Porur unit had just 6 months of experience in an IT Company on
recruitment and was not at all exposed to the Non-IT Culture of Labor management and had least
knowledge of the industrial relations.
On 28th March Ms. Rangini- HR executive in charge for the Porur unit visited the factory and
announced the decision of the management to close the operations at Porur and shift the unit from
31st March 2009 to Kovour. A few workers got annoyed with the timing of the announcement and
started questioning the HR Executive on various options. In the course of the meeting the HR
Executive made an announcement that all those who did nott want to continue could resign and
leave the company. Further more HR executive closed the discussions and left the meeting. This
made the situation even more ugly, workers felt unanswered and started demanding more clarity
from the management.

On the very day seeing the agitation of the workers the Executive Director (Porur)- Mrs. M
Geetha present in the factory decided to call the production master from the Kovour unit to
discuss the issue with the workers. The Production master on arrival from the Kovour office
decided to be seated at the administrative office and asked only few representatives of workers to
come and meet him at administrative office, this further worsened the situation as it was totally
opposite to the M.D’s Style of functioning (Management By Walking) where he believed in
meeting the workers directly at their work place. This gave the workers a feeling that the
management was trying to distance them and might ditch them. The situation was further spoiled
when Mrs. Geetha - Executive Director who was responsible for the administration of the factory
refused to meet and talk to the workers. Mrs. Geetha had been involved with these workers over
for the past 8 years on their day to day operations and used to have a very close relation with the
workers; the denial from the E.D to meet the workers gave them a strong feeling of resentment
fearing that the management was trying to do some foul play with them. As Mr. Narayanan was
not in station (He was on a foreign tour) thus the workers were left out with no choice. They felt
helpless and hopeless..

On 29th March around 20 people gave their resignation and 52 agreed to join the Kovour unit
whereas the remaining 47 were left undecided. One of the ladies among these 47 people had her
brother as the district representative of a political party. “LABOR FEDERATION PARTY
(LFP) ”. They decided to approach this political outfit to get a solution and gave a written request
to the outfit requesting their interference into the issue in order to fight for their rights with the
management and get the maximum possible benefits from the management. Meanwhile the
management of CAPL not aware of any such moves of the workers, was busy coordinating the
shifting activities. None of the representatives of the management or staffs bothered to discuss the
issue with workers and tried understand their concerns.

On 30th March based on the written request given by these 47 workers along with 5 workers who
already resigned, a team of representatives from this Party approached CAPL office and gave a
notice to the HR Executive narrating that they wanted to meet the people at senior management to
discuss the issue. These 52 people who had given a written representation to “LABOR
FEDERATION PARTY (LFP)” included 18 People with 5+ years of experience, 21 people with
1+ years of experience and 12 people with less than one year experience. The management was
taken by surprise when they came to know that their workers had approached a labor union for
the issue. Mr. Narayanan being on a foreign tour constituted a three member committee
comprising two Executive Directors, Mr. S K Raja- E.D (Commercial) & Mrs. M Geetha E.D
(Administration - Porur & Kanchipuram) and Mr. Sridar - HR Manager to discuss and solve the
issue with the workers on his behalf.
On 31st March2009, in the morning hours Mr. Sridar HR Manager visited the factory and tried to
talk to the workers on their concern, but none of them were ready to talk to the HR Manager.
Their version was that they had already approached a politically party to talk on their behalf and
they did not want to talk to anybody from the management. Meanwhile the representative from
the political outfit also came to the factory and instructed the HR Manager and the management
representatives not to talk to the workers any more as the issue was under their perview.

On 1st April 2009 based on the request from the political party a high level management
representative team comprising two Executive Directors and the HR Manager was constituted to
discuss and sort out the issue with the workers and their representatives. At the initial level of
discussions the following demands were put forward by the workers representatives:

 No representative of the management will talk to the workers directly.

 No company staff will directly or indirectly try to influence the decision of the workers.
 All the discussions on behalf of the workers will be carried out with “LABOR
FEDERATION PARTY(LFP) ”.
 Even though the management will stop its operations at Porour Unit from 1 st April
onwards, the striking workers will daily come to the factory and sit their idle until this
issue is sorted out. No salary needs to be paid for this period but the factory should be kept
open.
 No Machinery or equipment should be shifted from the factory during this period.

All the employees who are not willing to continue in service should be given the following
benefits based on their length of service:

 5+ Years of Service: Against the actual Gratuity formulas of [15/26 X Basic salary X No.
of Years of service]the gratuity should be calculated as [78/26 X Basic salary X No. of
Years of service]. 78 was derived as 3 months basic(26 X 3).
 1+ Years of Service: Pay gratuity as per the actual formula. And pay one month salary.
 Less than 1 Year Service: One month salary towards settlement.
 All should be paid bonus for the year 2008-09 immediately.
 For people who have worked on holidays they should be paid full salary even though they
have been given overtime Salary.
 This case should be considered as shutdown and all the benefits of shutdown should be
given to all the employees.

With these demands in hand the management team started its discussions with the political party.
The initial stand of the LABOR FEDERATION PARTY (LFP) was that on failing to satisfy the
above conditions they would call for strike at the Kovour unit and would force complete
operational shutdown at CAPL.

The management also approached for the assistance from the local police and security was given
by them. The police authorities instructed the management to negotiate with the workers’
representatives and find an amicable solution. They also instructed to keep the factory open so
that the striking employees won’t create any nuisance to the common public on the road.
Now, what are the various different options available with the management to solve the issue?
What are the pros and cons of each option, also what are the legal aspects of each option from the
employee and employer perspective? What will be the various possibilities of clearing the
deadlock and a smooth way out for the management and employees from this issue.

ANNEXURE 2: DEPARTMENTAL ACTIVITIES

Fabrics
CAPL has access to a wide range of fabric, any Composition any Construction; their executives
have the capability to provide you with the best quality at the lowest prices. They do not limit
themselves to Indian manufactures but also import quality fabrics from different parts of the
world.

Accessories
Just like the fabrics they can source both rare and regular accessories like many types of buttons,
decorative flowers, fusible reinforcements, buckles, hot fix motifs, badges, garment rivets,
machine embroideries, hand made embroideries, crochet, laces, decorative ribbons, bows and
many other fashion accessories.

Cutting & Pattern Making

To save time and ensure quality output, the factory is equipped with large cutting tables, an eight
inch Eastman (blue streak) cutting machine, and a Band Knife Machine. These sections are
manned by senior pattern cum cutting masters.

Sampling & Design

CAPL Design team is committed throughout the year, bringing out innovative designs in
compliance with the latest fads of the season for the European and the US markets. Their designs
are perfected with the feedback they receive from the market, thus making them more market-
friendly. They spend more than 5 % of their turnover for the design team, which emphasizes their
interest in providing premium service to their clients. In order to meet the individual needs of
clients they have highly talented tailors who can create almost any garment that you can think off.

Production:
About 213 imported power sewing machines along with a conveyor based delivery assembly
which supplies garment portions to the tailors and a similar conveyer based pick-up assembly
which removes stitched garments from the tailors along with a rejection assembly to remove
garments that are of inferior quality are some of the major efforts taken to reduce the amount of
time consumed in producing garments and the amount of labor required to produce each
individual garment. The production manager along with the help of line supervisors ensures
proper co-ordination and quality production. The production area is kept clean and free of dust
particles. The entire production area is provided with convenient over head lighting and
ventilation.

Quality
Chennai Apparels Pvt. Ltd. is in the process of being accredited ISO9001:2000. They firmly
believe that this commitment represents a real advantage in achieving total customer satisfaction.
Be it a fabric or a needle Chennai Apparels Pvt. Ltd. makes its purchases only from reputed
organizations. When the fabric or accessory reaches Chennai Apparels Pvt. Ltd., the laboratory
room works to ensure they meet the specific requirements in depth, density, elasticity, color
fastness to washing, color fastness to light, color fastness to perspiration, tensile creep, ironing,
rubbing, abrasion resistance, GSM Check, tearing strength, pitting test, PH check, laundering and
crocking, etc., All our out sourced services providers have also been scrutinized for credibility and
quality. Chennai Apparels Pvt. Ltd. implements a complete standard quality control system,
ensuring its customers are 100 percent satisfied with all the products. It includes inspection of
sizes, stitching, trimming, labels, and look of the finished products according to Production
Instructions. Further inspections of the finished goods after packing are carried out as per
International Standard for Count / Quality Inspection and Assessment. However, the effort is
always to “Build Quality rather than Check Quality”

CAPL Ensure Quality Production

 Having In-House Testing Laboratory to check Production at various stages & submit MIS
reports (AZO etc).
 Having regular In-House Training Programs to update the technical experience of our key
Production Personnel.
 Further exposing our key cadre to new Designs, Developments etc by making them
participate in various garments fairs – both in our Country and Abroad.
 Installed State of Art Technology in the form of Industrial, Fusing, Stitching Machines as
well as other Specialized Machines and modern Finishing Equipments