The Haryana government’s recent announcement to reserve 75% of all jobs (in the sub-Rs 50,000 monthly income bracket) for ‘local candidates’ in the private sector, is the latest such move by a state government, ostensibly to tackle unemployment in that state.
The Precedent
While one would wish that this is a stray exception, in reality, other state governments have attempted imposing similar rules or laws in the past – mostly unsuccessfully. Here is a quick summary:
Andhra Pradesh passed the Andhra Pradesh Employment of Local Candidates in Industries/Factories Act, 2019, to reserve 75% of jobs for local domiciled individuals in the private sector. This has been challenged before the High Court, which has prima facie observed that the law may be unconstitutional.
The Karnataka government has been toying with the idea of reservations in the private sector for many years although no legislation has been passed. In 2019, the Karnataka Standing Orders were amended to state that Kannadigas (with 15 years of residence and who can read, write and speak Kannada) must be prioritised for employment in blue-collar jobs by entities who enjoy state benefits or concessions. The government interestingly justified this on the basis that hiring individuals who know Kannada would reduce industrial accidents and mishaps!
The Madhya Pradesh government has also previously announced its intention to reserve 70% of jobs for locals in the private sector, but no law has been passed.
The Maharashtra government passed a resolution in 2008 requiring that micro, small, medium, large and mega industrial enterprises hire 50% supervisory staff and 80% of the total employees from local persons (i.e. those with 15 years of residence). More recently, Maharashtra also passed the Socially and Educationally Backward Classes Act, 2018, reserving 16% seats in all educational institutions (including private) and government jobs for Marathas. This law has been stayed by the Supreme Court.
Many other states have implemented or attempted reservations in the public sector. For example, Telangana has 95% reservation for local candidates in certain public posts, Gujarat proposed 85% reservations in public posts through a government resolution; Meghalaya and Arunachal Pradesh have 80% reservation in the public sector, Jharkhand proposed 100% reservation (which was struck down by the High Court), etc.
Unconstitutional Move?
Such reservations, especially in the private sector, are liable to be struck down as unconstitutional. Article 15 of the Constitution of India permits the State to make special provisions for the advancement of socially and educationally backward classes, which has been expanded vide a constitutional amendment to admissions into private educational institutions. Article 16 permits the Indian Parliament (as compared to the state legislature) to prescribe residence criteria for government jobs. Article 16 also permits state governments to make reservations for backward classes in state service.
None of these provisions permit reservations for employment in the private sector purely based on residence/domicile.
Such laws further arguably violate Article 19(1)(d), (e), and (g) which promises all citizens the fundamental right to move freely throughout India, reside or settle in any part of India, and to practice any profession, occupation, trade or business. Even the new Labour Codes are facilitating the hiring of inter-state migrant workers with an expanded definition (covering individuals earning up to Rs 18,000 per month), and such a law runs directly contrary to the objective of such provisions.
The Fallout
If companies are forced to hire local candidates alone, irrespective of their skills, talent, or suitability for the job, they are likely to avoid operating (or significantly reduce their business activities) in such locations – thereby potentially defeating the very purpose of the law. The Haryana law expects employers to register all employees earning less than Rs 50,000 per month on the government portal, within 3 months of the law coming into force (it remains to be formally notified as of date, and its underlying rules haven’t been published either).
Will the employer be forced to terminate 25 such individuals and hire local candidates (i.e. those who’ve lived there for 15 years) as a replacement to meet the 75% criteria? Or will the employer be forced to expand headcount and hire 100 more local candidates simply to bring the percentage of existing outside candidates to 25%? Or will the 75% criteria only be enforced for future hiring? The law is unclear and such ambiguities — coupled with steep penalties and direct exposure to directors for non-compliance — will make hiring unnecessarily complex and risky for organisations.
While exemptions can be sought from the 75% hiring rule, they are discretionary in nature and may be rejected. Employers may instead be directed to train local candidates to achieve the desired skill, qualification, or proficiency required by their business.
Therefore, instead of focusing on the candidate’s qualifications and experience, employers will now need to make hiring decisions based on domicile, and enquire whether an applicant has been a resident of that state for the required period. In today’s competitive environment, such rules would prove to be a huge setback, potentially embroiling companies in constant red tape and disputes with the government and local individuals around their hiring decisions. Ease of doing business and meritocracy would take a big hit, eventually stifling innovation and economic development.
It wouldn’t be surprising to see companies move offices to neighbouring hubs like Delhi or Noida to overcome these restrictions.
Borders Within A Nation
Thankfully, courts have stepped in to stay the implementation of such laws in some locations already and, hopefully, the Haryana law will meet a similar fate. It appears that such laws are largely being promulgated to appease local vote banks. Rather than encourage free movement of talent and resources across state borders and promote national integrity, local governments are taking regressive steps and fortifying their boundaries against other states through such policies. Imagine if each state came up with a similar law, most people will be forced to migrate back to their home states (wherever they have domicile) for job opportunities. Cross-border movement will reduce drastically, and India would eventually no longer remain one integral nation but be split into 29 different ‘nation states’. Such an outcome must be avoided at all costs.
Instead of resorting to reservations, the government and lawmakers should address unemployment through increased focus on education and encouraging more commerce and industry through business-friendly policies.
Atul Gupta is a labour and employment law specialist and a Partner with Trilegal. Views are personal.
The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.
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