Tuesday, August 27, 2013

Does Islamic Law Deal With Minimum Wage?

There is a fundamental problem when I read this paper titled: Islamic Commercial Law and Social Justice: Shari'ah Compliant Companies, Worker's Rights and the Living Wage (written by Susan C. Hascall), namely, the fact that she argues that some of the Prophet's Hadiths can be used to support the existence of minimum wage for employees and the notion that a company cannot claim itself to be Shari'a compliant without complying with minimum wage requirement. 

Why? Let us read first the Hadiths used by Ms. Hascall below:

"Give a servant his fee before his sweat dries"

"God Most High said: I shall be the opponent of three people on the day of judgment: the man to whom I gave generously but then he cheated; the man the man who sold a freeman into slavery and ate up its price, and the man who hired a worker and took his due measure from him but did not pay him for his (fair) wages"

The word "fair" that I underline above is an additional language used by her. I have to disagree with Ms. Hascall because from the very beginning, these Hadiths do not deal with the fair amount of wages to be given to a worker. It is true that some Islamic scholars tried to argue in such a way, but I do no think that their interpretation is correct.

In my view, these Hadiths deal with the obligation of an employer to honor his contract with his worker, i.e. to pay his employee's salary/fee for the work that has been done and that he should not postpone such payment without a valid reason. No words on fair amount. Therefore, this is about the sanctity of contract not minimum wages.

As I have argued several times in my blog and in my paper here, Islamic Law (as a concept and not in the context of Legal Positivism) separates moral and legal issues and also puts efficiency and the general welfare maximization as the main principles in building its legal system. This is why Islamic Law does not prohibit or even condemn pre-existing slavery, condemns riba but does not provide any sanction even though God says that the sin of committing riba is equal to murdering a man or having an incestual relationship with our own mother. When dealing with economic/commercial issues, we have to admit that Islamic Law is very flexible, namely it does not criminalize the violation of provisions relating to commercial issues.

This is also in line with the fact that God does not prescribe an absolute value of minimum wage and cannot be expected to do so. Once we deal with fairness issue, there is no single clear answer. Saying that Islamic Law compliance can only be done once you pay your worker with a fair amount of salary creates too much ambiguity. It also transforms a moral issue into a complicated legal issue.  As an example: if an employer pays his worker too small, does it mean that he violates the law? Would that mean that the contract is invalid? What would be the consequences?

Of course you can always say that it would be good if employers pay attention to the overall well being of his employees and should pay good salaries to them. But that should stay as a moral issue rather than a legal issue with all of its consequences. Because payment of salary is also subject to many factors and the law of supply and demand. As there is a fairness aspect relating to the employee, there is also a fairness aspect relating to the employer.

I think that is why Islamic Law focuses more on the enforcement of the contract to protect the rights of the worker and the Hadiths are more consistent with this approach. As I argued here, I believe that the best way of promoting the interest of the workers is by making policies that are correlating with the supply and demand of manpower.       

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Friday, August 23, 2013

My New Papers on SPV's Law and Economics and Legal Positivism

It's been a while since the last time I wrote in this blog. I admit, I have sinned. But enough with the excuses. I've just finished two papers having completely different themes. The first one is titled: "Special Purpose Vehicles in Law and Economics Perspective". You can download the paper here. The second one is titled: "Legal Positivism and Law & Economics: A Defense". You can download the second paper here.

The first paper will be published in the Journal of Indonesia Corruption Watch to be published this year. In this paper, I discuss the nature of Special Purpose Vehicles (SPV) in the form of corporation, their function and benefits, their potentials for misuse, and also the techniques to solve or prevent such issue. I believe that for a developing country like Indonesia, relying on legal doctrine such as piercing the corporate veil to chase the ultimate shareholders of SPVs who conduct illegal acts would be too costly. They are just too cunning and some countries specialized in the formation of SPVs have all the incentives to assist these crimes.

So, the other solution is to ensure that those SPVs established in Indonesia will be here to stay, namely, we need to put some of their capitals as hostages in Indonesia by way of mandating minimum capital requirement or bank guarantee/insurance requirements. I also discuss the costs and benefits of these solutions as there is no such thing as a perfect solution. The rest can be read in the paper.   

The second paper will be presented in the third Indonesian national conference of legal philosophy to be held at Surabaya on 28 August 2013. I always enjoy legal philosophy, particularly Legal Positivism and I think that most Indonesian scholars misunderstand the nature of Legal Positivism by equalizing Legal Positivism with Legal Formalism or even worse, strict textual method of legal interpretation.

Of course this is wrong. Legal Philosophy is a theory of law while Legal Formalism is a theory of adjudication. But the mistake is so persistent that Legal Positivism is often blamed for many issues in Indonesian legal system! I think the conference would be a good place to present a defense on Legal Positivism so I decided to write this paper.

The paper will discuss the main thesis of Legal Positivism, i.e., the Source Thesis (that law is a social fact and can only be derived from social sources) and the Separability Thesis (that the content of the law does not have any necessary connection with its validity). People usually connect Separability Thesis with the relationship between law and morality. But I believe that the issue is wider than that, it can include religion, local custom and other type of norms.

I certainly believe that Legal Positivism (if applied correctly), is a democratic thought that will allow various legal theory to compete for domination within a legal system. I argue this by showing how Law and Economics (which is obviously not a pure theory of law) can survive in the framework of Legal Positivism but will be kicked out from the game in the framework of Natural Law (because by nature, Natural Law which supports only one absolute value will not be tolerant to other type of thoughts). As usual, the rest can be read in the paper itself.

Happy reading and hope it is useful.

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