The story so far: The Punjab and Haryana High Court on November 17 quashed a law enacted by the Haryana government in 2021 that guaranteed 75% reservation to locals in private sector jobs in Haryana. A division bench of Justices G. S. Sandhawalia and Harpreet Kaur Jeewan ruled that the Haryana State Employment of Local Candidates Act, 2020, was unconstitutional and violated Part III of the Constitution that envisages fundamental rights. The court clarified that the legislation would become ‘ineffective from the date it came into force’.
The law providing domicile quota in private sector employment was an electoral promise made by the Jannayak Janata Party (JJP) in the 2019 Assembly election. The High Court’s decision is seen as a major setback for the Bharatiya Janata Party (BJP)-JJP coalition government in the State ahead of next year’s Parliamentary and State elections. Soon after the verdict, Deputy Chief Minister Dushyant Chautala said in a statement that the State government would soon approach the Supreme Court against the decision of the High Court. ‘The employment law is very important for providing employment to the youth of Haryana and promoting industries. The government had made the law only with the consent and consultation of the industrialists’, he added.
In light of these developments, The Hindu decodes what this controversial reservation law is, why industrialists are opposed to it and why was it ultimately struck down by the Punjab and Haryana High Court.
What does the reservation law stipulate?
In November 2020, the Haryana Assembly passed the Haryana State Employment of Local Candidates Bill, 2020, which made it mandatory for employers in the State to reserve 75% of jobs paying a monthly salary of less than ₹30,000 (originally ₹50,000) for local residents in the State. The Bill received assent the Governor’s assent on March 2, 2021, and came into effect on January last year. The law is applicable to all private entities in the State including companies, trusts, societies, partnerships, and limited liability partnerships. It also covers any person employing 10 or more persons on salary, wages, or other remuneration for the purpose of manufacturing or providing any service; as well as any such entity as may be notified by the government from time to time. However, central or state governments or organisations owned by them remain outside the ambit of the Act.
A ‘local candidate’ has been defined under the law as anyone domiciled in the State of Haryana. The original draft of the Bill had the condition that only those who have resided in the State for the past 15 years would be considered local candidates but this was later revised to 5 years. Such candidates will have to mandatorily register themselves on a designated portal in order to avail benefits of this reservation. Employers will also have to make recruitments only through this portal.
The law is applicable only with respect to new recruitments and is not effective retrospectively. Employers will have to register the employees already working with them in the ₹30,000 monthly salary bracket and can start recruiting new employees in the reserved category only after the completion of this registration process. The local candidates can hail from any district of Haryana, but the employer can exercise the discretion to restrict the employment of local candidates from any district to 10 percent of the total number of local candidates. It is, however, also within the employer’s right to recruit more than 10 per cent of employees from any particular district.
However, companies can seek an exemption if an adequate number of local candidates of a desired skill, qualification, or proficiency are not available. But this claim can be rejected by Designated Officers (an officer not below the rank of a Deputy Commissioner) after conducting an inquiry with respect to its legitimacy. Employers can also be directed to train the local youth to achieve the desired skill, qualification or proficiency in the event of inadequate eligible candidates.
In order to observe adherence, every employer will have to furnish a quarterly report on the designated portal and mention details about local candidates employed and appointed during that period. These reports will be scrutinised by authorised officers, not below the rank of Sub-Divisional Officers who will be empowered to call any record, information, or document in possession of any employer for the purposes of verification. Employers found to be violating the Act are liable to a fine between ₹10,000 and ₹2 lakh. The penalty, on a subsequent offence, shall not be less than ₹2 lakh but may even extend to ₹ 5 lakh. Further, a penalty of ₹ 50,000 shall be levied on an employer who produces false records or counterfeits or knowingly makes a false statement.
Have other States enacted similar laws?
Other States such as Maharashtra (up to 80%), Karnataka (up to 75%), Andhra Pradesh (up to 75%) and Madhya Pradesh (up to 70%) have also enacted similar laws providing reservations for their local residents in the private sector. In November 2019, the Andhra Pradesh Assembly passed The Andhra Pradesh Employment of Local Candidates in the Industries/Factories Bill, 2019, reserving three-fourths of jobs for local candidates within three years of the commencement of the Act. The law was subsequently challenged in the Andhra Pradesh High Court, which opined that ‘it may be unconstitutional’. However, the challenge is yet to be heard on merits. In most States, these laws have however not yet been implemented owing to opposition from companies who have refused to lower their hiring standards and due to the absence of any effective enforcement mechanisms.
Why was the law challenged?
Several industry associations from Gurugram, Faridabad, and Rewari districts of Haryana challenged the constitutional validity of the law on the ground that it violates Article 19 of the Constitution, which guarantees the right to freedom, including to reside and settle in any part of the Indian territory and practise any profession, business or trade. They also contended that the law was an infringement of Article 14 (equality before the law) and Article 15, which prohibits discrimination on various grounds such as religion, race, caste, sex or place of birth.
Pointing out that private sector jobs were purely based on skills and the analytical bent of mind of employees, the petitioners argued that such a law would adversely impact productivity and industrial competitiveness in the State. The court was also apprised that the reservation introduced by way of a ‘sons of the soil’ policy, creates a fundamental wedge between persons domiciled in different states and is contrary to the concept of common citizenship envisaged in the Constitution. ‘The act of the respondent (government) forcing the employers to employ local candidates in the private sector vide this bill impugned Act is the violation of the federal structure framed by the Constitution of India, whereby the government cannot act contrary to the public interest and cannot benefit one class,” the petition reads.
How has the State government defended it?
Providing clarity behind the rationale of implementing such a law, the Statement of Objects and Reasons of the Act stipulates — ‘The influx of a large number of migrants competing for low-paid jobs places a significant impact on local infrastructure and housing and leads to proliferation of slums. This has led to environmental and health issues which have been acutely felt in the urban areas of Haryana affecting the quality of living and livelihood. Therefore, giving preference to local candidates in low-paid jobs is socially, economically, and environmentally desirable and any such preference would be in the interests of the general public’.
The High Court was apprised that the law intends to ‘protect the right to life/livelihood of people domiciled in the State’, and that the enactment was rooted in the problem of rising unemployment in Haryana. Arguing that the law will create more jobs for the local youth, the State government pointed out that industrialisation and urbanisation in the State have drastically reduced employment opportunities in the agriculture sector. Underscoring the importance of domicile reservation, the government cited the example of one of the biggest industries operating out of the State — Maruti Udyog Limited which ‘does not even have 20% staff from Haryana’.
It was also contended that the government has the power to create such reservations under Article 16(4) of the Constitution, which states that the right to equality in public employment does not prevent the State from ‘making any provision for the reservation of appointments or posts in favour of any backward class of citizens which, in the opinion of the State, is not adequately represented in the services under the State’.
Why did the Supreme Court earlier set aside a stay on the law?
On February 3, 2022, thePunjab and Haryana High Court passed an interim order staying the law after recognising that ‘the core issue is whether any State can restrict employment (even in the private sector) on the basis of domicile’. Subsequently, a bench comprising Justices L. Nageswara Rao (now retired) and P.S. Narasimha of the Supreme Court set aside the interim order on the ground that the High Court had not provided ‘sufficient reasons’ for putting the law on hold. Without delving into the merits of the case, the bench asked the High Court to expeditiously decide the petition, not exceeding a period of four weeks from February 17.
It also directed the Haryana government to not take coercive steps against those companies that do not comply with the law until the matter is finally decided upon. Expressing reservations at the manner in which the interim order was passed by the High Court, the bench observed — ‘Courts are reluctant to pass interim orders staying legislations. Stay of legislation can only be when the Court is of the opinion that it is manifestly unjust or glaringly unconstitutional. No reasons are given by the High Court in support of the impugned order by which a legislation is stayed. Therefore, the impugned order is set aside’.
Why did the High Court quash the law?
Will create ‘artificial walls’ throughout the country
While declaring the law to be unconstitutional, the court observed that a ‘wall could not be built around by the State’ that defeats the ‘spirit and soul of the oneness of the Constitution.’ It also underscored that a legislative mandamus could not be imposed that treats non-residents of Haryana as secondary citizens. Cautioning about the potential repercussions of such a law, the court said — ‘Once there is a bar under the Constitution of India, we do not see any reason how the State can force a private employer to employ a local candidate as it would lead to a large scale similar state enactments providing similar protection for their residents and putting up artificial walls throughout the country, which the framers of the Constitution had never envisaged.’
Article 35 bars the State from legislating on domicile reservations in employment
Placing reliance on Article 35 of the Constitution, the court outlined that the provision bars the State legislature from making laws on matters that fall within the purview of Article 16(3) of the Constitution (equality of opportunity in matters of public employment) since this is exclusively within the domain of the Parliament.
Violates Article 19 of the Constitution; discrminatory in nature
The court underscored that the Act was unconstitutional to the extent that ‘a person’s right to carry on occupation, trade, or business under Article 19(1)(g) of the Constitution was being impaired. It also highlighted that the law discriminates against individuals who do not belong to a certain State and imposes unreasonable restrictions on the right to move freely throughout the territory of India.
Furtherance of ‘Inspector Raj’
The court noted that Section 6 of the Act which requires employers to submit quarterly reports with details of local candidates employed and appointed and — Section 8, under which authorised officers could call for documents or verification to ensure the law was being implemented amounted to ‘Inspector Raj’. It was also pointed out that the bar under Section 20 of the Act, on legal proceedings against any authorised or designated officer acting in ‘good faith’ tied the employer’s hands. These provisions the court said amounted to exercising ‘absolute control over a private employer’, which is ‘forbidden for public employment’.
