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Update

Labour & Employment: Legal Milestones for 2019 and a Look Ahead

28 Feb 2020

From landmark judicial pronouncements to progress in statutory reforms, 2019 was an interesting year in the domain of employment laws in India. This update summarises some of the key developments in 2019 and gives a brief overview of what can be expected in 2020.

THE YEAR THAT WAS

The past year witnessed both the Central government and State governments undertaking various initiatives in the labour and employment sector, including the introduction of legislative changes and measures to simplify and boost legal compliance.

In recent years, the Labour Ministry’s efforts have concentrated around streamlining the vast number of central labour laws into 4 codes. The earlier endeavors of the Central government were directed towards formulating the draft-codes and obtaining stakeholder comments. In 2019, these efforts further crystallised into bills that were introduced in the Parliament. The Code on Wages, 2019 (Wage Code) was passed by both the Houses of the Parliament and has received Presidential assent.

The judiciary also delivered some note-worthy judgments on labour law in early 2019. Significant amongst them is the Supreme Court’s (SC) decision that brought more clarity on the definition of ‘basic wages’ under the provident fund (PF) laws, and the Karnataka High Court quashing the obligation on employers to pay a ‘service seniority allowance’ under various minimum wages notifications issued in that State.

2019 also witnessed some interesting changes in the legislative space, prompted by the government’s objective of enhancing ‘ease of doing business’ in India. Some of the noteworthy changes on this front include: (i) the introduction of a new shops and commercial establishments (S&E) law in Gujarat, (ii) renewal of exemptions given to IT/ITeS companies (and other types of establishments) from the applicability of certain provisions of the Telangana S&E Act and from the applicability of the Industrial Employment (Standing Orders) Act, 1946 (SO Act) in Karnataka, (iii) elimination of the registration-renewal requirements under the S&E laws in some States, (iv) permission given to factories in Karnataka to employ women at night (subject to conditions), (v) amendment to the applicability of the law on engaging apprentices, and (vi) coverage of the S&Es in Haryana under the SO Act.

MAJOR DEVELOPMENTS IN 2019

  • Supreme Court’s ruling on the definition of ‘basic wages’ under the PF law

    The meaning of the term ‘basic wages’ under the PF law has been a long-debated and highly litigated issue. While the SC had laid down legal principles on the allowances that can be included and excluded from ‘basic wages’ as early as 1962 (in the case of Bridge and Roof Co. (India) Ltd. v. Union of India), several high courts were taking different views on this issue. Thereafter, even the PF office had issued internal circulars directing the authorities to refer to such high court rulings while determining what amounted to ‘basic wages’ for calculating PF contributions.

    In the 2019 ruling of Regional PF Commissioner, West Bengal v. Vivekananda Vidyamandir, the SC reiterated the principles laid down by it in Bridge and Roof. It also upheld the view that the crucial test for inclusion of allowances as part of ‘basic wages’ is universality i.e., PF contributions should be computed on all allowances which are uniformly, necessarily and ordinarily paid to all the employees on a guaranteed basis (and not conditional payments).

    Questions were later raised on whether this ruling should be implemented prospectively or even retrospectively. While the legal position on this issue was unambiguous (the ruling would also have retrospective applicability), representations were made to the PF authorities and to Labour Ministry, requesting that the ruling be applied only prospectively. No formal response was received to these representations from the authorities or the Ministry. However, in August 2019, the Employees’ Provident Fund Organisation (EPFO) issued an internal notice, directing PF field officers to not undertake ‘roving inquiries’ on establishments merely based on the 2019 SC Ruling. Field officers were further directed to obtain prior approvals and follow internal EPFO guidelines before initiating inspections and inquiries for past non-compliances.

  • Code on Wages, 2019

    The Wage Code received Presidential assent in August 2019. Once notified by the Central Government, the Wage Code will replace the current laws on payment of wages, payment of bonus, minimum wages and equal remuneration. Some prominent changes that the Wage Code will introduce to the existing legal regime include:

    • Providing a uniform definition of the term ‘wages’. Currently, the definition of this term varies across various legislations, leading to ambiguity. The uniform definition under the Wage Code will offer some relief to employers. However, the manner in which wages is defined still leaves a lot of room for determining which allowances should be included and which excluded.
    • The Wage Code does away with the concept of ‘scheduled employments’ that exists under the current minimum wages law. Instead, it introduces an obligation on the Central Government to consider the worker’s minimum standard of living and to fix a ‘Floor Wage’ which will apply across the country (although different Floor Wages could be fixed for different geographical areas). Basis the Floor Wage, the State Governments could fix State-specific minimum wages.
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