New Jersey Supreme Court
Case BriefsForeign Courts

   

Supreme Court of New Jersey: While considering whether certain workers employed by East Bay Drywall, LLC, were properly classified as employees or independent contractors as per the “ABC Test” set forth under the Unemployment Compensation Law; the Supreme Court of New Jersey held that East Bay did not supply sufficient information to prove the workers' independence under the ABC Test and the Commissioner's findings of the same was not arbitrary, capricious, or unreasonable. The Court decided that East Bay misclassified its workers as independent contractors. The Bench of the Court comprising Stuart Rabner, CJ., and Anne M. Patterson, Lee Solomon and Fabiana Pierre-Louis JJ., joined the opinion delivered by Jose L. Fuentes, J.

Facts and Legal Trajectory: East Bay (a business registered as an employer), is a drywall installation business that hires on a per-job basis. Once a builder accepts East Bay's bid for a particular project, East Bay contacts workers to see who is available. Workers are free to accept or decline East Bay's offer of employment. East Bay provides the workers with the raw materials necessary to complete the drywall installation. The workers perform the labor but must provide their own tools and arrange for their own transportation to the worksites. East Bay does not dictate who or how many laborers the workers must hire to complete the project and also does not direct how the workers install drywall. However, East Bay remains responsible for the finished product.

On 30-06-2013, East Bay ceased reporting wages to the Department of Labor and Workforce Development (hereinafter Department). Consequently, an auditor for the Department conducted a status audit that reviewed the workers hired between 2013 and 2016, to determine whether they were independent contractors, as defined by the ABC Test, or employees of East Bay, requiring the employer to contribute to the unemployment compensation and temporary disability funds. In addition to meeting with East Bay's principal and accountant, the auditor requested documentation such as tax forms, business cards, and business insurance to determine whether the workers' businesses were independent entities. The auditor found that approximately half of the alleged sub-contractors working for East Bay between 2013 and 2016 — four individuals and twelve business entities (total- 16) should have been classified as employees. East Bay owed $42,120.79 in unpaid unemployment and temporary disability contributions as per the findings of the auditor.

East Bay challenged the results of the audit and requested a hearing in the Office of Administrative Law, which concluded that three of the workers were employees but the other thirteen were independent contractors. The Commissioner of the Department determined that all sixteen workers failed all three prongs of the ABC Test and that they were therefore employees of East Bay. The Appellate Division affirmed the Commissioner's final determination as to five workers but reversed as to the eleven other workers. The Department then appealed for the eleven workers, and the Court granted certification.

What is the ‘ABC Test' under Unemployment Compensation Law? 1

The ABC test is used in some states to determine whether a person is an employee or an independent contractor for the purpose of determining state unemployment tax. Some courts use this test to look at whether a worker meets three separate criteria (prongs) to be considered an independent contractor:

  1. The worker is free from the employer’s control or direction in performing the work.

  2. The work takes place outside the usual course of the business of the company and off the site of the business.

  3. Customarily, the worker is engaged in an independent trade, occupation, profession, or business.

Observations and Conclusion: The unanimous decision of the Court was delivered by temporarily assigned Justice Jose L. Fuentes, P.J.A.D.

  • The Court observed that The Unemployment Compensation Law (UCL), N.J.S.A. 43:21-1 to -71, acts as a “cushion against the shocks and rigours of unemployment”. The law requires that employers and employees make contributions to the unemployment compensation and temporary disability benefit funds. However, even if a worker receives compensation for work performed, the worker will not be considered an employee if the ABC Test is fulfilled.

  • Regarding the ABC Test, the Court observed that test is conjunctive; thus, all three prongs must be satisfied for a worker to be considered an independent contractor. The ABC Test presumes a worker is an employee therefore, the party challenging the classification carries the burden to establish the existence of all three criteria of the ABC test.

  • It was further observed that East Bay did not supply sufficient information to satisfy prong C burden regarding the eleven entities whose classification has been challenged by the Department. Prong C of the ABC Test broadly asks whether a worker can maintain a business independent of and apart from the employer. If the worker “would join the ranks of the unemployed” when the relationship ends, the worker cannot be considered independent under prong C.

  • The information East Bay provided is insufficient to prove the entities' independence. The probative value of refusal to accept or complete work is limited because, like an employee, even a bonafide independent contractor is not free from the pressure to accept a job. “A certificate of insurance could be a significant indication of independence, and business registration information may bolster the inference of independence. Here, however, these documents do not elucidate whether the disputed entities were engaged in independent businesses separate and apart from East Bay”.

  • The Court concluded that the instant case presents one of those less-obvious situations of whether the workers are truly independent business entities. Thus, consideration of the prong C factors is appropriate; but, in attempting to meet its burden, East Bay has provided little or no documentary evidence to address those factors. “For example, East Bay has not provided evidence that the entities maintained independent business locations, advertised, or had employees”.

  • It was further stated that any business practice that requires workers to assume the appearance of an independent business entity, can give rise to speculation that such a practice was intended to obscure the employer's responsibility to remit its fund contributions. “That type of subterfuge is particularly damaging in the construction context, where workers may be less likely to be familiar with the public policy protections afforded by the ABC test and consequently particularly vulnerable to the manipulation of the laws intended to protect all employees. Such a business practice also undermines the public policy codified in the UCL”.

Decision: With the afore-stated observations, the Court held that, since each entity at issue fails prong C of the ABC Test, therefore they can be properly classified as an employee. The Court remanded the matter to the Department for calculation of the appropriate back-owed contributions.

[East Bay Drywall, LLC v. Department of Labor & Workforce Development, (A-7-21) (085770), decided on 02-08-2022]


Advocates who appeared in this case :

Christopher Hamner, Deputy Attorney General, Advocate, for the Appellant;

Jennifer B. Barr, Advocate, for the Respondent;

Ravi Sattiraju, Advocate, for the Amicus Curiae.


*Sucheta Sarkar, Editorial Assistant has prepared this brief.


1. ABC Test, LII, Cornell Law School

Case BriefsHigh Courts

Gujarat High Court: Biren Vaishnav, J. dismissed a petition which was filed aggrieved by the award dated 14-02-2020 by which petitioner-State of Gujarat has been directed to pay to the respondent-sweeper, salary for undertaking work for four hours a day together with arrears from the date of reinstatement. It was also directed that when a regular process of recruitment is undertaken, looking to her tenure of service since the year 1985, preference be given to her.

Respondent-Union raised an industrial dispute on behalf of– part-timer in reference to extending the benefits that were available to full time employees. It was contended that she had completed over 30 years of service and even thereafter she was still being paid fixed wages though working in the establishment from 10 am to 6.30 pm.

Counsel for the petitioner argued that she was not appointed on a permanent set up but she worked as and when there was work available for a period of two years for cleaning and serving water. That she was paid through the contingency funds. That, there was no regular set up and since her appointment was not in accordance with the procedure of recruitment, she was not entitled to regularization.

Perusal of the reasoning assigned by the Industrial Tribunal for granting the benefits of fixed pay of 4 hours of work and only granting a limited benefit of letting the respondent-workman participate in the recruitment process as and when taken, was:

1) In her deposition she stated that she was not given any appointment order. Vouchers for December 1989 to July 1991 were produced by the employer which persuaded the Industrial Tribunal to hold that in absence of any evidence contrary that the respondent had worked only for two hours in a day, examining the nature of duties that the respondent carried out, the Industrial Tribunal came to the conclusion that she was working for over eight hours a day.

2) Court found that on her services from 1985 till the date of reinstatement based on an award in her favour which was confirmed by the High Court, the deposition of the respondent indicate the various activities, nature of duties or work that she carried out and it was plausible to believe that the kind and nature of work she undertook, there was reason to believe that the work would last for more than two hours.

The Court found no fault with the reasoning of the Tribunal and dismissed the petition.[State of Gujarat v. Saurashtra Majur Mahajan Sangh, 2022 SCC OnLine Guj 722, decided on 04-05-2022]


Ms Surbhi Bhati, AGP for the Petitioner(s) 1,2

Krishnam M Ghavariya for the Respondent(s) 1


Suchita Shukla, Editorial Assistant has reported this brief.

Foreign LegislationLegislation Updates

On 5th April 2022, Employment and Social Development Canada (ESDC) has announced that the minimum wage will increase from $15 to $15.55 per hour. Prior to 2022, the minimum wage in Ontario was $ 14.25 per hour. It is an effort by Canadian Government to protect workers from inflation, because of this reason the rise in general minimum wage by 8%. The general minimum wage applies to most employees in the province.

 

On 1st October 2022, minimum wage rates in Ontario will also be raised for the following workers:

Government promises to hike:

  • The province’s student minimum wage, who are under 18, from $14.10 to $14.60 per hour.
  • Home workers (those who do paid work out of their own homes for employers), from $16.50 to $17.05 per hour and,
  • Hunting, fishing and wilderness guides: from $75 to 77.60$ per day, when working less than five consecutive hours in a day; and from $150.05 to $155.25 per day, when working five or more hours in a day

*Disha Srivastava, Publication Assistant has reported this brief.

Case BriefsSupreme Court

Supreme Court: The bench of Hemant Gupta and V. Ramasubramanian*, JJ has held that an ad hoc payment made to the workers pursuant to the interim orders passed by this Court in a previous round of litigation does not form part of “wages” within the meaning of the expression under Section 2(s) of the Payment of Gratuity Act, 1972, for the purpose of calculating gratuity.

Factual Background

The scales of pay of the employees of public sector undertakings were revised w.e.f. 01.01.1992.

When the benefit of such revision was not made available to the employees of Fertiliser Corporation of India Limited and Hindustan Fertiliser Corporation Limited, their employees moved writ petitions in various High Courts, in the year 1996.

The writ petitions pending on the file of various High Courts were transferred to the Supreme Court.

By an interim order dated 18.08.2000, the Supreme Court directed an ad hoc monthly payment of Rs.1500/¬, Rs.1000/-, Rs.750/¬ and Rs.500/¬, respectively to four different categories of employees, as an interim measure, subject to the final outcome of the writ petitions which stood transferred to this Court.

In the final order, the Supreme Court held that economic viability or the financial capacity of the employer is an important factor which cannot be ignored while fixing the wage structure and that the materials on record clearly revealed that both these companies were suffering heavy losses for several years. It also made it clear that what was paid was only ad hoc.

Once the curtain was finally drawn on their very employment, the Controlling Authority started passing orders in the applications filed by the employees individually, treating the ad hoc payment as part of the wages.

The Management of these companies moved an application before the Supreme Court for clarification/modification of the order. On 01.05.2008, the Supreme Court disposed of the interim application by just observing that when the final order is passed, the interim order automatically comes to an end.

Analysis

Section 2(s) of the Act defines wages, as follows:-

“wages” means all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employments and which are paid or are payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance.”

The Court explained that the definition of the expression is in 3 parts,

  • the first part indicating the meaning of the expression,
  • the second part indicating what is included therein and
  • the third part indicating what is not included therein.

In the first part of the definition, the emphasis is on what is earned by the employee “in accordance with the terms and conditions of employment”.

Hence, irrespective of whether what was earned has been paid or remained payable, the same is included in the definition, provided it is in accordance with the terms and conditions of his employment.

The Court also took note of the ruling in Straw Board Manufacturing Co. Ltd. v. Workmen, (1977) 2 SCC 329, wherein it was held that:

“We clarify that wages will mean and included basic wages and Dearness Allowance and nothing else”.

The Court also observed that it is a fundamental principle of law that a party who is in enjoyment of an interim order, is bound to lose the benefit of such interim order when the ultimate outcome of the case goes against him.

“Merely because of the fortuitous circumstance of the Voluntary Separation Scheme coming into effect before the transferred cases were finally dismissed by this Court by an order dated 25.04.2003, creating an illusion as though the last drawn pay included this  ad hoc  payment, it is not possible to go against the fundamental rule that the benefits of an interim order would automatically go when the party who secured it, failed in the final stage.”

Keeping in mind the above definition, if we go back to historical facts, it would be clear that the employees initiated the first round of litigation before various High Courts, for the grant of the benefit of revision of pay scales, way back in the year 1996, on the ground that the employees of other PSUs have been granted revision on par with the Government servants. It will thus be clear that what was claimed in the first round of litigation was not what was payable in accordance with the terms and conditions of employment. Therefore, this Court was clear in its interim order dated 18.08.2000 as to how 1the ad hoc payment ordered there under should be treated. Even in the final order, this Court made it clear that what was paid was only ad hoc.

The Court, hence, held that the ad hoc payment made pursuant to the interim orders will not form part of the wages. However, in view of the efflux of time and taking into account the fact that few employees are now no more, the Court directed the Management not to effect any recovery, if payment has already been made to any of the respondents or their families.

[Fertilizer Corporation of India Ltd. v. Rajesh Chandra Srivastava, 2022 SCC OnLine SC 417, decided on 07.04.2022]


*Judgment by: Justice V. Ramasubramanian

Legislation UpdatesStatutes/Bills/Ordinances

The Labour Department of Delhi has published the Draft of the Code on Wages (Delhi) Rules, 2021 which shall extend to the National Capital Territory of Delhi, vide notification dated November 26, 2021.

 

Key highlights:

  • The Code addresses the problems relating to delay in payment of wages whether on monthly, weekly, or daily basis. The Code will safeguard that there is no discrimination between male and female as well as transgenders in getting wages.
  • The working day of an employee shall be inclusive of the intervals of rest, if any, it shall not spread over more than twelve hours on any day and an employee shall be allowed a day of rest every week which shall ordinarily be Sunday, but the employer may fix any other day of the week as the rest day for any employee or class of employees.
  • The Code shall make certain the cost-of-living allowance and the cash value of the concession in respect of essential commodities at concession rate shall be computed once before 1st April and then before 1st October in every year to revise the dearness allowance payable to the employees on the minimum wages.
  • Further, every employer shall issue wage slips, electronically or otherwise to the employees in Form V on or before payment of wages.
  • For the purposes of the Code there may be formulated an inspection scheme by the Labour Commissioner with the approval of the Government on the criteria laid down in the Act.

 


*Tanvi Singh, Editorial Assistant has reported this brief.

Legislation UpdatesRules & Regulations

The Government of Gujarat has issued the Code on Wages (Gujarat) Rules, 2021 vide notification dated October 5, 2021.

Key provisions under the Rules are:

  • The Code will supersede-
    1. The Payment of Wages (Procedure) Rules, 1937;
    2. The Gujarat Payment of Wages Rules, 1963;
  • The Gujarat Payment of Wages (Unclaimed Amounts) Rules, 1963;
    1. The Gujarat Payment of Wages Deductions for National Defence Fund and Defence Savings Scheme) Rules, 1964;
    2. The Payment of Wages (Manner of recovery of excess deductions) Rules, 1967;
    3. The Gujarat Minimum Wages Rules, 1961;
  • The Ease of Compliance to Maintain Registers under various Labour Laws (Gujarat) Rules, 2017 to the extent these rules are made in exercise of the powers conferred by Section 26 of the Payment of Wages Act, 1948.
  • Minimum Wages: Chapter II of the Rules prescribes provisions with respect to minimum wages, which includes:
    1. The manner of calculating minimum rate of wages.
    2. The norms will be fixed for minimum rate of wages.
  • Revision of wages
    1. The time interval for revision of dearness allowance.
    2. The number of hours of work which will constitute a normal working day.
    3. The weekly day of rest and Night shifts.
  • Payment of Wages: Chapter III of the Rules constitute provisions with respect to payment of wages, which includes:
    1. Recovery of Wages
    2. The manner of exhibiting the notice
  • Intimation of deduction
  1. Procedure for deduction
  • State Advisory Board: Chapter IV of the Rules prescribes provisions for constitution of state advisory board its functions, quorum, meetings etc.
  • Payment of Dues and Claims: Chapter V of the Rules provides the provisions for payment of dues and claims, which includes:
    1. Deposit of the undisbursed dues.
    2. Payment under clause (a) of sub-section (1) of section 44.
  • Manner of dealing with the undisbursed dues.
  • Forms, registers and wage slips: Chapter VI of the Rules prescribe provisions for Forms, registers and wage slips.


*Tanvi Singh, Editorial Assistant has reported this brief.

Case BriefsHigh Courts

Andhra Pradesh High Court: Opining that, a Math, which is a separate institution rendering certain religious and other functions pertaining to a particular denomination is different from a temple which is open to all for worship, D.V.S.S. Somayajulu, J., held that,

Minimum Wages Act, 1948 will not be applicable to the Math.

Instant petition was filed by the petitioner – Math to seek reliefs.

Senior Counsel, C.R. Sridharan, for the petitioner submitted that petition was a Math which is a specific religious denomination.

He added that the petition was filed because the respondent was attempting to interfere with the activities of the Math and directing the petitioner to pay minimum wages, etc. to the persons employed in the Math.

Respondent’s action was challenged.

Senior Counsel added that respondent-State does not have the right to interfere with the Management of the math and issue the directions contained in the impugned memos.

Petitioner’s counsel submitted that there is a fundamental distinction between a Math and a temple although both can be called a religious institution.

Government Pleader argued that coming to the issue of wages, the respondents are not insisting upon the payment of the wages, more so, under the Minimum Wages Act, but are essentially trying to ensure that the equal pay for equal work principle as enunciated in the case of State of Punjab v. Jagjit Singh, (2017) 1 SCC 148, is actually followed.

Analysis, Law and Decision

High Court noticed that it is a fact that a “Math” is distinct from a “Temple”.

Temple and Math are both religious institutions, but the purposes for which they are established and the manner in which they function are clearly specified in Section 2(17) of  A.P. Charitable and Hindu Religious Institutions & Endowments Act, 1987 Act.

 As per the above-stated Sections, Math is an institution headed by a person whose primary job is to engage himself in teaching, propagation of religious philosophy etc., and impart religious training etc.

On the other hand, Temple is a place, which is dedicated to and keep used as a place of public religious worship.

Hence in view of the above distinction between the two institutions is clear.

Under Section 6 of the Act also, the income or the change in income of the Math cannot lead to a change in the classification of the Math. It is only possible for the institutions and endowments under Section 6(a), 6(b) and 6 (c) of the Act, which are included in this section. If their income exceeds or falls below the stipulated limit, for the three years, their position can be changed, but this is clearly not applicable to a Math.

Whether Commissioner’s power extends to giving the direction to pay Minimum Wage of the Minimum Time Scale?

In Court’s opinion, the general power of superintendence given to the Commissioner does not extend to interfere in the secular activity and was limited in its scope.

Section 8 makes it clear that the superintendence and control includes the power to pass an order to ensure that institution is properly administered and the income is spent for the purpose for which they were found.

Section 8 (1) is to ensure that the funds are spent for the purposes for which they are intended only.

Section 8(2) which starts with a non-obstante clause also talks of exercise of powers ‘conferred’ on him or the functions ‘entitled’ to him by the Act.  

No statutory provision has been pointed out by which this particular power to give directions to pay minimum wages etc., is shown to the Court.

 Further, Court also added that on the issue that, if Section 8(1) and Section 49 of the Act are read together, the limited powers of the Commissioner become clear. They are limited to the fixing/spending/utilization of the “dittam‟ only. In case of disagreement, the matter has to be referred to a Court for decision (Section 49-Proviso). Similarly, the amendments to Sections 51-53 etc., where the Commissioner has been substituted by the “Dharmika Parishad” also makes it clear that the role of the Commissioner is very limited.

The Minimum Wages Act applies to certain employments (preamble) which are specified as “scheduled employments” Section 2(g). Employments specified in Part-I/II of the Schedule (Section 3). The schedule is silent about employment in a Math.

“…only in cases of misconduct or mismanagement of the properties by the Mahant, it would be permissible for the State to interfere under Section 51 of the Act.”

 While reaching the conclusion, Bench expressed that the autonomy given to a Math to maintain and administer its activities also supports the view that the respondents cannot interfere in every activity, in case respondents have such a power to interfere every activity it would run contrary to the constitutional and other guarantees given to the religious denominations to carry their own activities.

Therefore, in view of the above analysis, High Court held that the memos dated 04.07.2018; 05.12.2018 and the consequential memo dated 19.04.2021 will not be applicable to the petitioner – Math. [Sri Raghavendra Swamy Mutt v. State of Andhra Pradesh, 2021 SCC OnLine AP 2938, decided on 21-9-2021]


Advocates before the Court:

Counsel for the Petitioners: Sri C.R. Sridharan, Senior counsel rep. Sri G.V.S.Ganesh

Counsel for the Respondents: Government Pleader for Endowments

Legislation UpdatesRules & Regulations

Union Ministry of Labour and Employment has notified the draft rules under the Occupational Safety, Health and Working Conditions Code, 2020 on 19-11-2020 inviting objections and suggestions, if any, from the stakeholders. Such objections and suggestions are required to be submitted within a period of 45 days from the date of notification of the draft rules.

2. The draft rules provide for operationalization of provisions in the Occupational Safety, Health and Working Conditions Code, 2020 relating to safety, health and working conditions of the Dock Workers, Building or other construction workers, Mines workers, Inter-State Migrant worker, Contract labour, Working journalist, Audio-visual workers and Sales promotion employees.  The salient features of the draft rules include:

i. Appointment letter in prescribed format including designation, category of skill, wages, avenue for achieving higher wages/higher position etc. to every employee of an establishment within three months of coming into force of the rules. As per new rules no employee shall be employed in any establishment unless he has been issued a letter of appointment.

ii. Annual health examination to be conducted by the employer free of cost for every worker of factory, dock, mine and building or other construction work, who has completed 45 years of age.

iii. Provision has also been made in the rules regarding journey allowance once in a year for to & fro journey and Toll-Free Helpline number for interstate migrant worker with a view to address their concerns and grievances in a timely manner.

iv. Single electronic registration, license and annual integrated return for an establishment.

v. An all India single license for contractor supplying or engaging contract labour in more than one State for five years has been provided as against work order based licensing at present.

vi. Rules for the prohibition of employment of contract labour for core activity of an establishment and the classification of core and non-core activities is laid down in the Occupational Safety, Health and Working Conditions Code, 2020.

vii. Payment of wages to contract labour (a) the contractor shall fix the wage periods and no wage period shall exceed one month. (b) The wages of every person employed as contract labour in an establishment or by the contractor shall be paid before the expiry of seventh day after the last day of the wage period. (c) The wages shall be disbursed through bank transfer or electronic mode only.

viii. Safety committees have been made mandatory for every establishment employing 500 or more workers to provide an opportunity for the workers to represent their concern on occupational safety and health matters and rules have been provided for composition and functions of safety committees.

ix. The rules has been made regarding conditions relating to safety of women employment in all establishment for all type of work before 6 a.m. and beyond 7 p.m. with their consent.

x. In calculating overtime on any day, a fraction of an hour between 15 to 30 minutes shall be counted as 30 minutes, at present less than 30 minutes is counted as no overtime.

xi. Mines rules have also been simplified and integrated with the Occupational Safety, Health and Working Conditions rules.

xii. Thus, the draft Rules are aimed at enhancing safety, health and working conditions in establishments, simplifying the procedures and protocols, allowing electronic mode of maintaining registers, records and furnishing returns, thus ensuring safe, healthy and decent working conditions.


Ministry of Labour & Employment

[Press Release dt. 20-11-2020]

[Source: PIB]

COVID 19Legislation UpdatesNotifications

In view of the extension of the nationwide lockdown, it has been decided by EPFO to allow grace period of 30 days from 16-04-2020 to 15-05-2020 for filing of Electronic Challan cum Return to the employers for those establishments which have disbursed the wages for march, 2020 to their employees.

Employers who seek to avail the above relief, need to file ECR for wage month March, 2020 on or before 15-05-2020, duly certifying the disbursement of wages to employees by declaring actual date of disbursement of wages for March, 2020 in the column “Salary disbursal date: in the ECR and remit the contributions and administrative/inspection charges on or before 15-05-2020.

To read the letter, please follow the link below:

EPF Contribution Due Date Extended For The Month Of March 2020

COVID 19Legislation UpdatesNotifications

In the wake of Outbreak of Corona Virus (COVID-19) Pandemic Secretary of Ministry of Labour and Employment issues advisory:

All the employers of Public/Private establishments are advised to extend their coordination by not terminating their employees, particularly casual or contractual workers from job or reduce their wages. If any worker takes leaves, he should be deemed to be on duty without any consequential deduction in wages.

If the place of employment is to be made non-operational due to COVID-19, employees of such unit will be deemed to be on duty.


Ministry of Labour and Employment

[Dated: 20-03-2020]

Op EdsOP. ED.

Employees’ Compensation Act, 1923 (ECA) stipulates that an employer is required to compensate an employee (other than one covered under Employees’ State Insurance Act, 1948) if such employee (i) suffers personal injury due to an accident arising out of and in the course of employment; or (ii) contracts any disease peculiar to the employment.

One of the ingredients for ascertaining amount of compensation payable to such an employee is “monthly wages”. Section 5 of ECA defines term “monthly wages” to mean an amount of wages deemed to be payable for a month’s service. Section 4 provides for manner in which compensation amount is discovered as under:

Injury resulting in Compensation basis monthly wages
Death Higher of —

50% of deceased employee’s “monthly wages” multiplied by relevant factor;

OR

INR 1,20,000 i.e. rate of compensation.

Permanent total disablement Higher of —

60% of such employee’s “monthly wages” multiplied by relevant factor;

OR

INR 1,40,000 i.e. rate of compensation.

Total or partial temporary disablement  Half-monthly payment of the sum equivalent to 25% of “monthly wages”.

Thus, it is apparent that the amount of compensation payable to an employee is directly influenced by the quantum of monthly wages paid to an employee.

The Central Government by 2020 Notification[1] almost doubled the “monthly wages” to INR 15,000 from INR 8000 that was notified under 2010 Notification[2] but did not resolve the conundrum that is troubling employers, which is — 

Whether the notified monthly wage should be treated as “base amount” or “ceiling amount” for determining compensation under ECA?

Unfortunately, even the courts across India are divided on this question. The excerpts of differing judgments are reproduced below:

In New India Assurance Co. Ltd. v. Govindi Devi,[3] injury resulted in death of the employee. The claimants claimed that the employee was earning INR 5000 per month but failed to prove so. High Court of Himachal Pradesh at Shimla held:

19. … It is pertinent to mention here that prior to aforesaid amendment, the said wages were fixed at a sum of Rs 4000 and Explanation II specifically restricted the amount to be Rs 4000 only even if it exceeds. However, by virtue of Act 45 of 2009, the restriction as referred above came to be omitted and in its place, a sum of Rs 8000 has been substituted by way of notification taken note hereinabove. It is not in dispute that while amending the said clause, no restriction has been attached or specified that if the monthly wages of the deceased employee exceeds Rs 8000 whether it should be considered at Rs 8000 only and, as such, there appears to be considerable force in the arguments of learned counsel appearing for the claimants that since no restriction is imposed in case the monthly wages of the deceased employee exceeds to Rs 8000 liberal interpretation has to be made especially when the Act itself is a beneficial legislation.

***

26. It is quiet apparent from the aforesaid exposition of law that where the “language” is clear, the intention of the legislature is to be gathered from the language used. What is to be borne in mind is as to what has been said in the statute as also what has not been said. Having regard to the above, this Court is unable to accept the contention of Shri Praneet Gupta, learned counsel appearing for the Insurance Company, that the Court below ought not to have taken into consideration a sum of Rs 8000, which has otherwise been prescribed as minimum wages for the purpose of determining the compensation, especially when claimants themselves claimed that monthly wages of deceased were Rs 5000 per month including diet money. Accordingly, this Court is of the view that the monthly wages specified by the statute by way of amendment at Rs 8000 is appropriate for consideration for the purpose of computing the compensation and as such, the learned court below has rightly calculated the compensation by considering the wages of the deceased workman at Rs 8000, which in no manner requires any interference.                                                                                                                                                                (emphasis supplied)

High Court of Himachal Pradesh at Shimla once again toed on similar lines while adjudicating upon a compensation claim in Rajender Kumar v. Shyam Lal[4] by holding that the notified monthly wages is the base amount i.e. minimum wage amount for ascertaining compensation. In this case, the claimant claimed that he was earning INR 7500 per month but failed to prove income as claimed by him. High Court placed reliance on 2010 Notification and held:

23. Bare perusal of aforesaid “Statement of Objects and Reasons” suggests that the amendment came into force while empowering the Central Government to enhance the minimum rates of the said compensation from time to time as well as to specify the monthly wages in relation to an employee for the purpose of the aforesaid compensation, meaning thereby fixing the minimum wages by way of amendment at Rs 8000 is only for the purpose of determining the compensation under the Workmen’s Compensation Act and there is scope of further enhancement from time to time … (emphasis supplied)

In United India Insurance Co. Ltd. v. Kakali Sarkar Guha [5], injury resulted in death of the employee and the claimants claimed that the deceased employee was earning INR 13,765 per month. While adjudicating over the matter, High Court of Sikkim at Gangtok relied on the Supreme Court’s judgment and considered entire monthly wages for ascertaining the compensation. The High Court held:

16. … A similar situation arose before the Supreme Court in Jaya Biswal v. Iffco Tokio General Insurance Co. Ltd. [6] In the said case the learned Commissioner had taken Rs 8000 as the limited wage to calculate the compensation. Since neither of the parties produced any document on record to prove the exact amount of wages being earned by the deceased the wage of the deceased was accepted as Rs 4000 per month  + daily bhatta of Rs 6000 per month, which amounts to a total of Rs 10,000 at the time of the accident. In the present case, it has been proved that the monthly wages of the deceased was Rs 13,765. The learned Commissioner was thus required to calculate the employer’s liability for compensation in the following manner: 

Rs 13,765 (monthly wages) x 50% x 194.64 (the relevant factor) = Rs 13,39,609.8.  (emphasis supplied)

Unlike the High Court of Himachal Pradesh and Sikkim, in United India Insurance Co. Ltd. v. Seethammal, [7] the High Court of Madras held:

15. Therefore, according to the learned counsel for the petitioner, since the statute is a beneficial legislation, it has to be construed by interpreting liberally and in view of omission of Explanation II and the notification issued by the Central Government (Ministry of Labour and Employment) dated 31-5-2010, though a sum Rs 8000 has been mentioned as monthly wages, it should be construed as minimum and not as maximum and therefore, when evidence establishes that the workman was earning Rs 12,000 per month, the same has to be considered for arriving at just compensation.

***

21. … Therefore, in this context, the learned counsel appearing for the claimants would vehemently contend that since no restriction is imposed in case the monthly wages of the deceased employee exceeds Rs 8000 since the Act itself is a beneficial legislation, liberal interpretation has to be made which would be beneficial to the claimants.

22. Though the contention of the learned counsel for the claimants is logically sound and acceptable, but I am unable to countenance the same.

***

24. …  In my considered view, when the intent of the legislature is clear while amending the Act to enhance the minimum rates of the compensation from time to time as well as to specify the monthly wages in relation to an employee for the purpose of the said compensation, liberal interpretation beyond the prescription made in the Act, is not at all required. Further, it is pertinent to note that while amending the Act, the legislature has consciously in its wisdom, omitted the Explanation II of Section 4-A of the Act only in order to enhance the minimum rates of compensation….

***

26. … Having regard to the above, I am unable to give accept the contention of the learned counsel for the claimants. Accordingly, I am of the view that the monthly wages specified by the statute by way of amendment at Rs 8000 is appropriate for consideration for the purpose of computing the compensation and hence, the Deputy Commissioner has rightly calculated the compensation by considering the wages of the deceased workman at Rs 8000, which, in my opinion, requires no interference. (emphasis supplied)

Conclusion

It is stated with due respect, both the judgments of High Court of Himachal Pradesh in advancing the principle of “beneficial legislation” have ignored the fact that the quantum of compensation increases manifold as the “monthly wages” is multiplied by relevant factor set out in ECA. This not only overburdens the employer but also has a cascading effect on the earnings of other employees who are working for the employer.

Furthermore, High Court of Himachal Pradesh’s reading of “minimum rates of compensation” in the Statement of Objects and Reasons of Workmen’s Compensation Act, 1923 to mean “monthly wages” of INR 8000 stated in 2010 Notification as “minimum monthly wages” is against the cannons of construction especially the literal rule of interpretation. 

With due respect, High Court of Sikkim mechanically interpreted Supreme Court’s judgment in Jaya Biswal v. Iffco Tokio General Insurance Co. Ltd.[8] to determine compensation on full monthly wages of INR 13,765 in supersession of average monthly wage of INR 8000 as deduced by the Commissioner. In doing so, High Court failed to notice that even Supreme Court stopped short of considering entire monthly wages paid to the employee in the said judgment for deducing the compensation amount.

High Court of Madras, on the other hand, has endeavoured to balance conflicting interests of both the employer and employee. It has effectively deployed the tools of interpretation of statutes to gather intention of legislature by keeping in mind both what has been said in statute as well as what is not said. Thus the order, in our view, is a reasoned order and should be able to withstand the test of time. 

Other takeaways for employers: Aside the conundrum, the impact of 2020 Notification is that going forward, employers will have to pay higher compensation under ECA. Likewise, employers availing Workmen’s Compensation Policy from an Insurance Company may have to budget for premium hikes.


† Principal Associate, Vaish Associates Advocates

†† Associate, Vaish Associates Advocates

[1]Notification No. S.O. 71(E) dated 3-1-2020, source: <http://egazette.nic.in/WriteReadData/2020/215147.pdf>.

[2]Notification No. S.O. 1258(E) dated 31-5-2010, source: <http://egazette.nic.in/> (Notification available using the “search function” of the website).

[3] 2019 SCC OnLine HP 2529

[4] 2019 SCC OnLine HP 1709

[5] 2019 SCC OnLine Sikk 156

[6] (2016) 11 SCC 201

Case BriefsHigh Courts

Rajasthan High Court: Mohammad Rafiq, J. disposed of an application seeking a grant of last wages drawn by the employee under the Industrial Disputes Act, 1947.

In the present case, the respondent-employee had moved an application under Section 17-B of the Industrial Disputes Act, 1947 for receiving the amount of wages last drawn by him from the date of filing the application.

The counsel representing the petitioner-employer, Neeraj Jain submitted that the labour court erred in passing the award since there was no master-servant relationship subsisting between the parties.

The Court upon hearing both the parties stated, that once the labour court has declared in its award that the retrenchment of respondent-employee as illegal, even if the execution of the award has been stayed, according to mandate of Section 17-B of the Industrial Disputes Act, 1947 the respondent-employee is having statutory right to receive amount of wages last drawn by him from the date of filing of the application. However, the petitioner-employer will have an option to re-engage the respondent-employee as per the payable wages. The Court directed the petitioner-employer to pay the amount due to the petitioner within a period of six weeks.[Manager Employer v. Judge Industrial Dispute, 2019 SCC OnLine Raj 3027decided on 19-09-2019]

Case BriefsHigh Courts

Rajasthan High Court: The Bench of Arun Bhansali, J.,  allowed the writ petition filed in regard to payment of minimum wages as prescribed for skilled workman under the provisions of the Minimum Wages Act, 1948. 

The facts of the case were that the petitioners were employed as Pump Driver/Operator under Janata Jal Yojana, promulgated by Government of Rajasthan to provide drinking water to the citizens. They sought directions to the respondents to make payment of minimum wages as prescribed for skilled workman under the provisions of the Minimum Wages Act, 1948. They also prayed that the respondents should be directed to release 50% of the minimum wages withheld w.e.f. February 2013. Pawan Singh Rathore, counsel appearing for the petitioners, submitted that the controversy involved in the writ petition was covered by a decision of this Court rendered in Jagdish Singh v. State of Rajasthan, S.B. Civil Writ Petition No. 5954/17, which was allowed with the directions that the petitioners who were employed under Gramin Janta Jal Yojana as Pump Driver/Pump Operator should be entitled to the wages as prescribed for skilled workman by the State of Rajasthan as per the provisions of Minimum Wages Act, 1948. It also directed that the amount of 50% of the minimum wages payable to the petitioners withheld by the respondents should be released forthwith. It was made clear in this case that these directions would apply only to the cases where the scheme in question was floated and implemented and not in any other case. If the scheme Gramin Janta Jal Yojana was not floated in a particular Gram Panchayat, the respondents would not be liable for payment at the rate of minimum wages rather, in that case, if any of the petitioners was employed in other scheme or otherwise, he would be at liberty to approach the authority under the Minimum Wages Act for adjudication of the dispute. 

The Court upheld the decision given in Jagdish Singh case and allowed the writ petition. [Rupendra Singh v. State of Rajasthan, 2019 SCC OnLine Raj 491, decided on 15-05-2019]

Case BriefsHigh Courts

Bombay High Court: A Division Bench comprising of R.M. Savant and Nitin W. Sambre, JJ. allowed a petition filed by a suspended worker seeking payment of suspension allowance during the pendency of disciplinary enquiry against him.

The petitioner was registered with the respondent Board. In June 2018, he was served a show cause notice for initiating departmental proceedings against him. Subsequently, he was suspended from service. The petitioner requested the respondent for payment of suspension allowance which was not granted. Aggrieved thereby, the petitioner filed the instant petition.

The High Court perused the entire scheme of the service conditions and the statute under which the petitioner’s service was governed. It was observed that the object behind payment of suspension allowance is that the suspended employee is able to keep his body and soul together during his suspension period and is able to sustain himself. It was held that once there is a power to suspend vested in an employer, then the necessary concomitant is that the employer has to pay the suspension allowance to the employee. Furthermore, it was observed as well settled that suspension allowance is a part of “wages” defined under Section 2(vi) of the Payment of Wages Act, 1936. In light of the aforesaid, the petition was allowed and the respondent was directed to pay suspension allowance to the petitioner at a rate to be fixed by the Board. [Tanaji Genba Pawge v. Mumbai Vegetable Market Unprotected Workers Board,2018 SCC OnLine Bom 4140, dated 30-10-2018]

Case BriefsSupreme Court

Supreme Court: The bench of Madan B. Lokur and NV Ramana, JJ directed the the Ministry of Rural Development to prepare an urgent time bound mandatory program to make the payment of wages and compensation to the workers in consultation with the State Governments and Union Territory Administrations. The Bench said:

“This is not only in the interest of the workers who have expended unskilled manual labour but also in furtherance of the rule of law which must be followed in letter and spirit.”

On the issue pertaining to the delay in payment of wages and compensation to the beneficiaries under the Mahatma Gandhi National Rural Employment Guarantee Act, 2005 (Act) and the Scheme framed thereunder, the Court said that in terms of the Act and Schedule II thereof a worker is entitled to payment of wages within a fortnight of the date on which the work was done, failing which the worker is entitled to the compensation as prescribed in paragraph 29 of the Schedule II of the Act. Stating that one entity cannot pass on the burden to another and vice versa, the Court said that the burden of compliance is on the State Governments and Union Territory Administrations as well as the Central Government.

On Central Government’s argument that it has no responsibility after the second signature is placed on the Fund Transfer Orders, the Court said:

“The Central Government cannot be seen to shy away from its responsibility or taking advantage of a person who has been placed in the unfortunate situation of having to seek employment under the Act and then not being paid wages for the unskilled manual labour within the statutorily prescribed time. The State Governments and Union Territory Administrations may be at fault, but that does not absolve the Central Government of its duty.”

Stating that delays are simply not acceptable, the bench said that the law requires and indeed mandates payment of wages not later than a fortnight after the date on which the work was done by the worker or labourer. Any reason for the delay in receiving wages is not at all the concern of the worker. He or she is entitled to get the due wages within a fortnight of completion of the work. It was hence held that if there are any administrative inefficiencies or deficiencies or laxity, it is entirely for the State Government and the Ministry of Rural Development to sort out the problem. [Swaraj Abhiyan (VI) v. Union of India,  2018 SCC OnLine SC 578, decided on 18.05.2018]