Chadha & Co. - Labour Law Update April and May, 2015

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1 Chadha & Co. - Labour Law Update April and May, 2015 Summary of Important Judgments Employees Provident Fund and Miscellaneous Provisions Act, 1952 ( EPF Act ) 1.1 Employer is required to make provident fund contributions in respect of Good Work Rewards payable to workers which fall within the ambit of basic wages under the EPF Act. 1.2 Imposition of penalty by quasi-judicial authorities is not mandatory under the EPF Act and such imposition is to be based on an analysis of multiple factors by following principles of natural justice. (2015 LLR 473 Delhi High Court) Industrial Disputes Act, 1947 ( ID Act ) 2. Paying lesser wages to different workers for the same work and similar duration amounts to an unfair labour practice under the Industrial Disputes Act, (2015 LLR 449 Supreme Court) 3. Misconduct by the employee leading to loss of confidence of the employer must be materially proved by following the principles of natural justice so that termination of the services of the employee do not amount to an unfair labour practice. (2015 LLR 497 Bombay High Court). 4. The services of a workman cannot be terminated without following the termination procedures under section 25 F of the ID Act, simply by taking up the plea of abandonment of work by the employee. (2015 LLR 530 Punjab and Haryana High Court) 5. Transfer: Any change in the service conditions of the employee can only be made by the employer after issuing a notice under section 9A of the ID Act but such change would not include a geographical transfer of an employee. (2015 LLR 464 Delhi High Court) 6.1 Imposition of extreme penalty in the form of dismissal of an employee from service for charges of insubordination is not appropriate where only a denial of 50% of back-wages with re-instatement is an adequate deterrent. 6.2 Threat by an employee to commit suicide emanating from acute financial distress in order to pressurise the employer, is not a charge serious enough to justify the extreme punishment of dismissal from service. ( Patna High Court) 7. Non-compliance with statutory provisions during closure of business or retrenchment of workers, such as failure to display the seniority list of workers, or to follow the principle of last come, first go, or to give the notice of the said closure/ retrenchment to the State Government, or to give the retrenchment notice of one month to the workers, amounts to an unfair labour practice. Such retrenchment is liable to be set aside. (2015 LLR 337 Supreme Court of India)

2 8. If back-wages have not been granted explicitly, an order for the same cannot be read into an order for re-instatement of the employee. (2015 LLR 411 Delhi High Court) 9. Probation: A probationer s employment cannot be deemed to be confirmed simply by the employment continuing post the maximum period of probation unless a reasonable period of time has passed since the conclusion of such maximum period with annual increments. Each case is decided on the basis of its own factual matrix. (2015 LLR 405 Delhi High Court). 10. Termination of employment, even on grounds of long absence from work, without conducting a proper enquiry is illegal. (2015 LLR 376 Kerela High Court) 11. Re-instatement and payment of wages during pendency of an appeal can be ordered only if the concerned employee has the right to continue in employment which right ceases to exist in case of closure of the establishment. (2015 LLR 378 Kerela High Court) C&Co. Labour Law Update, April and May, 2015 Page 2 of 12

3 Employees Provident Fund and Miscellaneous Provisions Act, Case: M/S DCM Shriram Consolidated Ltd. vs. Employee Provident Fund Appellate Tribunal and Ors. (2015) LLR 473 Forum: Delhi High Court which was challenged by the petitioner by way of a writ, was stayed by the Delhi High Court. The proceedings subsequently were commenced before the respondent Tribunal and an order was passed against the petitioner. It is against this order that the present appeal had been filed before the Delhi High Court. The petitioner has a manufacturing unit and has been making regular provident fund contributions and deposits as mandated by the EPF Act. On a visit by the Inspector of Provident Fund, it was reported that the petitioner was paying a Good Work Reward to its workers which should be subject to provident fund contributions by the petitioner. The petitioner contended that this Good Work Reward was simply an overtime allowance paid to the employees and was not within the purview of the definition of basic wages under the EPF Act, and therefore the petitioner was not mandated to make the provident fund contributions. However the Regional Provident Fund Commissioner upheld the liability of the petitioner to make the provident fund contribution in respect of the said Good Work Reward. The High Court has held in the instant case that since the Good Work Reward is not included within the exclusionary clause of the definition of basic wages under the EPF Act, the petitioner is required to make provident fund contributions in respect of the same and may be held liable for failure to do so. With respect to the penalty for such failure, it was further held that it is not mandatory to order a penalty and the imposition of damages as well as the quantum of damages would depend on an analysis of multiple factors. The central government authorities under EPF Act are required to act in a quasi-judicial capacity and pass reasoned orders after analysing the facts and following the principles of natural justice. Hence in this case, the Assistant Provident Fund Commissioner was held to have erred in mechanically ordering 100% damages whereas the interest of justice would be served by the order of only 50% damages. The Single Judge of the Rajasthan High Court, while upholding the liability of the petitioner, held that the Good Work Reward was not covered The Industrial Disputes Act, 1947 by the definition of overtime 2. Case: Umrala Gram Panchayat vs. allowance under the Factories Act, Secy. Municipal Employees Union & 1948, nor could it be treated as a similar allowance. On appeal, the Ors. (2015) LLR 449 Division Bench of the High Court also held against the petitioner that the Forum: Supreme Court Good Work Reward is a component of basic wages as defined under the EPF Act and the provision for making The appellant is a gram panchayat provident fund contributions was invoked. Meanwhile, the respondents established in Gujarat. Its workmen issued a show-cause notice to the were appointed as safai kamdars and petitioner on account of delay in even after long years of service, were payment of contribution and ordered considered as daily wage workers and damages. The execution of this order, deprived of monetary benefits that C&Co. Labour Law Update, April and May, 2015 Page 3 of 12

4 were paid to permanent safai kamdars. Hence the workmen raised an industrial dispute before the Conciliation Officer through the respondent, Municipal Employees Union. On a failure to settle the matter amicably by conciliation, it was referred to the Labour Court which held that the workmen were to be made permanent employees in the gram panchayat and were to be entitled to all associated monetary benefits. The single judge as well as the division bench of the High Court upheld the decision of the Labour Court. Hence the present appeal has been filed before the Supreme Court. The Supreme Court has in the instant case held that the High Court has rightfully dismissed the appeal since the Labour Court has passed a detailed and reasoned award and no error in fact or law can be detected. It was further held that the workmen were doing the same work as the permanent workmen of the gram panchayat and there was a distinct contrast in the wages/ salary for the same type and duration of work. Hence it would fall within the purview of an unfair labour practice as defined in the ID Act and prohibited in the same for which the appellant may be held liable. The Supreme Court further held that since the District Panchayat has by way of a proposal, increased the workforce in the establishment of the appellant gram panchayat, there is no legal restriction on further recruitment of permanent workmen by the appellant. The Supreme Court has emphasised on the principle of equal work, equal pay and thus held the discrimination by the appellant as an unfair labour practice, thereby holding the appellant liable for the same. 3. Case: Agricultural Produce Market Committee and Ors. Vs. Ashok and Ors. (2015) LLR 497 Forum: Bombay High Court This is a common judgement in respect of two writ petitions based on the factual matrix of termination of employment by the employer. The employee was appointed as clerk with the Agricultural Produce Market Committee and was receiving daily wages for his services. During the continuation of his employment, the employer issued a charge-sheet against him, as a consequence of which his services were suspended and an enquiry officer was appointed to investigate the matter. Subsequently a show cause notice was issued to the employee proposing to dismiss his services on grounds of misconduct. The employee challenged the order of dismissal before the Labour Court under the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, The Labour Court held that the enquiry conducted was not fair and proper and violated the principles of natural justice. It further held after consideration of the evidence that the allegations of misconduct were not proved by the employer and that this dismissal amounted to an unfair labour practice. Hence the employee was directed to be re-instated but with 50% of the wages. On appeal, the Industrial Court upheld the finding of the Labour Court regarding the unfair labour practice on the part of the employer. However it held that though the C&Co. Labour Law Update, April and May, 2015 Page 4 of 12

5 charges against the employee had not been proved the employer had lost faith in the employee and hence is liable to compensate the employee. Therefore it set aside the Labour Court s order of re-instatement of the employee with 50% wages and instead directed the employer to pay a monetary compensation to the employee. It is against this order of the Industrial Court that the first writ petition in the instant case was filed by the employer before the High Court. The High Court held that the loss of confidence was being claimed by the employer on the same grounds on which the inquiry was conducted and the employee s services were sought to be terminated. Since the misconduct could not be established, the employer cannot claim loss of confidence on the basis of the same charges and dismiss the employee. Moreover, since the enquiry proceedings itself were held to be improper and in violation of the principles of natural justice, it had to be ignored completely and could not serve as valid material on record in terms of section 11A of the ID Act. It was further held that the industrial Court cannot invoke its revisional jurisdiction to overturn findings of fact. Hence it was not empowered to substitute the Labour Court s order of re-instatement with an order of grant of compensation while dismissing the employee from his services and such order was set aside. The order of the Labour Court was restored and it was held that misconduct leading to loss of confidence of the employer is required to be materially proved. 4. Case: M/S Sood Industries vs. Presiding Officer and Anr. (2015) LLR 530 Forum: Punjab and Haryana High Court The respondent workman was appointed as a power pressman with the petitioner management and after more than fifteen years of service, his employment was allegedly terminated without following the procedures given in section 2A of the ID Act. The management however contended that the services of the workman had not been terminated but in fact, he had abandoned his job. The matter was referred to the Labour Court which held against the petitioner and ordered the workman to be re-instated with continuity of service and payment of back-wages to the extent of 25%. Hence the instant writ petition had been moved in the High Court. The High Court held in the instant case that the petitioner management had not acted bona fide and had intentionally denied relief to the workman. In fact the petitioner was also unable to produce on record the cash-books, inspection books, attendance registers, etc. claiming them to have been lost. It was further held that even if the plea of the management is accepted on face value that the workman had abandoned his work, it is not an adequate justification for the management s failure to conduct an enquiry and send requisite notices as per the procedure envisaged in section 25F of the ID Act. It was held that non-compliance with section 25F of the ID Act which is evidenced by failure to duly issue the charge C&Co. Labour Law Update, April and May, 2015 Page 5 of 12

6 sheet or notice or hold an enquiry would render the termination invalid. The court took note of the records that the workman had completed 240 days in every calendar year which negated the contentions of the management that the workman was irregular in his attendance at work. Hence the order of the Labour Court in granting reinstatement with payment of backwages to the extent of 25%, was upheld. 5. Case: Sh. Mohd. Azim vs. Sarv Up Gramin Bank (2015) LLR 464 Forum: Delhi High Court The petitioner was appointed as a driver-cum-messenger with the respondent Bank and after more than a decade of service, was transferred to another branch of the Bank as a messenger. The petitioner challenged this order of transfer before the High Court of Allahabad but the order was upheld on the grounds that there was no legal error or arbitrariness in the same and the petitioner joined the new branch. termination which was referred to the Industrial Tribunal for adjudication after failure of conciliation proceedings. At the first instance the Tribunal set aside the internal inquiry conducted by the respondent as being violative of the principles of natural justice. Then the respondent moved an application before the Industrial Tribunal to prove the charges against the petitioner workman. It is this award of the Tribunal which has been challenged by the petitioner before the High Court in the instant case. The petitioner contended that the Industrial Tribunal was not justified in permitting the respondent to produce evidence when it was already held that the internal inquiry conducted by the respondent is bad in law and vitiated. The High Court set aside this contention and explained the general position in law that even if a domestic enquiry is held to be defective by the Labour Court and the matter is thereafter referred to either the Labour Court or the Industrial Tribunal under sections 10 or 33 of the ID Act, the entire controversy becomes open for adjudication and both parties are given an opportunity to substantiate their opposing contentions. A few years later the Bank issued him The petitioner contended that since he a show cause notice with certain was appointed as a driver-cummessenger, allegations. On a denial of the his primary work was that allegations by the petitioner, a gross of a messenger and in order to perform misconduct charge-sheet was served the work of a driver, he had to be paid on him and an enquiry was initiated an extra allowance. The High Court pursuant to which, the respondent held that under section 9A of the ID terminated the services of the Act, any change effected by an petitioner. employer in the service conditions of the employee is illegal and not The petitioner raised an industrial sustainable, but transfer of an dispute against the aforesaid order of employee does not constitute a change C&Co. Labour Law Update, April and May, 2015 Page 6 of 12

7 in service conditions. It was also held that simply because the petitioner was appointed as a driver-cum-messenger, it would not mean that he would perform the work of only the messenger. Hence a notice under section 9A is not imperative in such a situation. Therefore the petitioner s claim that he was appointed as a driver-cum-messenger and was not required to perform the job of a messenger alone was held to be unsustainable. 6. Case: Chairman, Bihar Rajya Jal Parishad, Patna & Ors. Vs. Ganesh Chandra Prasad, S/o Late Rameshwar Prasad & Ors. (2015 LLR 521) Forum: Patna High Court contested the writ but the Single Judge allowed the petition and set aside the order of dismissal on the grounds that the report of the enquiry officer was not produced by the appellant to support the charges against the driver. The High Court has however pointed out that a mere failure to furnish the report of the enquiry officer does not vitiate the disciplinary proceedings till the employee proves the prejudice arising out of non-submission of the enquiry report. Since in this case the respondent had not even raised an issue regarding the non-submission of the report, the decision of the single judge to allow the petition on the aforementioned ground is not sustainable in law. The respondent was appointed as a driver by the appellant and in the course of his employment was issued a charge sheet by the appellant on grounds of insubordination. A departmental enquiry was conducted by the appellant employer in which some of the charges were held to be proved and a second show cause notice proposing to dismiss the respondent driver was issued. On consideration of explanation furnished by the respondent, the order of dismissal was passed by the appellant. The respondent driver had been pressurising his employers to transfer him to Patna from Bhagalpur since it was becoming financially difficult for him to maintain his family at Patna while he stayed in Bhagalpur. He even threatened to commit suicide if such a transfer order was not passed. This was the most serious charge against him. The High Court held that while his act of pressurising his employer by threatening to commit suicide cannot be supported, the extreme demand was probably simply on account of sheer desperation owing to his low level of income. Therefore it was held that such an extreme penalty in the form of dismissal from service may not be appropriate and a mere denial of 50% of the back-wages would meet the ends of justice. Therefore an order of re-instatement with 50% back wages was passed. The respondent filed an appeal before the appellate authority which upheld the order of dismissal. Against this order, the respondent filed a writ petition which was set aside and the matter was remanded to the appellate authority. This appellate authority once again rejected the appeal. Hence the present writ petition was filed before the High Court. The appellants C&Co. Labour Law Update, April and May, 2015 Page 7 of 12

8 7. Case: Mackinon Mackenzie & Company Ltd. vs. Mackinon Employees Union (2015) LLR 337 Forum: Supreme Court of India The appellant company had employed 150 workmen who were all part of the respondent trade union. The company issued a retrenchment notice to 98 of the workmen effective from the date of closure of business along with a statement of reasons on the grounds that the company was sustaining continuous losses and its activities had to be rationalised. The respondent union filed a complaint before the Industrial Court alleging unfair labour practices on account of noncompliance with the ID Act and the relevant State laws, including failure by the company to display the seniority list of the workmen on the notice board. The Industrial Court held in favour of the workmen and noted the following unfair labour practices committed by the company: (i) not displaying the seniority list of workmen of the concerned department on the notice board before the issuance of the retrenchment notice as required by rule 81 of the Industrial Disputes (Bombay) Rules, 1957; and (ii) not following the principle of last come, first go as per section 25G of the ID Act and the aforesaid Rules. Therefore the company was directed to re-instate the retrenched workers with full backwages being paid. Industrial Court. A further appeal was preferred by the company before the division bench of the High Court. The division bench also upheld the decision of the Industrial Court and therefore the appellants finally approached the Supreme Court in the instant case. It may be pertinent to note here that section 25F(a) provides that a workman employed in continuous service for at least one year can only be retrenched by being given one month s prior notice or being paid wages in lieu of such notice. Section 25F(b) provides for a retrenchment compensation to be paid to the workman based on the number of years of his service. Section 25F(c) provides for a notice in the prescribed manner to be served on the appropriate government. The Supreme Court held that section 25F of the ID Act had been breached since: (i) the company did not give one-month s retrenchment notice and no evidence could be adduced on their behalf to prove that the workmen were paid a salary in lieu of that onemonth s notice; (ii) no evidence could be adduced to the effect that the retrenchment compensation had been paid; and (ii) no evidence has been produced to prove that the prescribed notice for retrenchment has been served to the State Government. It was further held that section 25FFA of the ID Act mandates a 60 day notice of the intention to close down a unit/ undertaking to be given to the State Government before such closure in order to protect the interests of workmen who are being retrenched. The findings of fact reveal that no such notice had been served by the The company challenged the award of the Industrial Court before the High Court which was also dismissed for the same reasons adduced by the C&Co. Labour Law Update, April and May, 2015 Page 8 of 12

9 company, thereby making the closure invalid. It was also held that there was no valid justification for non-compliance with the principle of last come, first go as provided for in section 25G of the ID act read with rule 81 of the Industrial Disputes (Bombay) Rules, 1957 since the more senior workmen were retrenched while retaining the ones who had joined later. Hence the Supreme Court also held that on account of non-compliance with various statutory provisions, the closure of the department/ unit and the resultant retrenchment of workmen constituted an unfair labour practice. of the Tribunal that the workman should also be paid the back wages from the date of illegal termination till re-instatement. The primary issue that arose in appeal was whether the workman was entitled to back-wages for the period between the illegal termination and the reinstatement. The single judge of the High Court held in favour of the workman by stating that when termination is held to be illegal, payment of full back-wages is warranted. The judge had interpreted the term re-instatement in the light of being restored to the original position and therefore read the payment of back-wages into the award. 8. Case: Hindustan Times Limited vs. Aita Ram (2015) LLR 411 Forum: Delhi High Court The division bench of the High Court, on appeal, finally held that when a conditional order of re-instatement has been passed, the re-instatement is not valid till such conditions have been fulfilled. Hence in order to claim reinstatement the workman would have to refund the compensation received under section 25 FF of the ID Act. Simply because an order of reinstatement with continuity of service has been passed, it cannot be implied that such order would include an order for payment of back-wages. Words like as before used in the award would mean at the time of termination of service and do not indicate that back-wages have to be paid unless the same is specifically provided for in the award. Therefore the appeal was allowed. The respondent workman had raised an industrial dispute challenging the termination of his employment on account of transfer of the undertaking under Section 25FF of the ID Act. The said section 25FF mandates a notice to the workmen whose services are being terminated and the payment of retrenchment compensation. It may be noted here that such compensation had been paid to the respondent workman in the instant case. The Industrial Tribunal passed its award holding that the aforesaid termination was illegal and directed re-instatement of the workman on the condition that the 9. Case: Shri Rajneesh Kumar vs. State compensation received under the aforesaid section 25 FF, be refunded Farms Corporation of India Ltd. to the management. However there (2015) LLR 405 was no specific mention in the award Forum: Delhi High Court C&Co. Labour Law Update, April and May, 2015 Page 9 of 12

10 The petitioner was a probationary officer employed by the respondent. The employer terminated his services on grounds of unsatisfactory performance during probation. The petitioner worked on probation for one year and thereafter, continued on probation for a further period of six months without an official confirmation. The petitioner had contended that since he had continued in service for the maximum period of probation, he ought to have been confirmed. This contention was however, over-ruled by the High Court. It was held after a careful perusal of the rules of probation of the concerned employer that the maximum period of probation was clearly laid out to be one and a half years and the probationer could be absorbed as a regular employee only after a clear decision as to the satisfactory completion of his probationary period has been expressed by the employer. It was clarified on the basis of precedent judgments that no straight jacket formula can be used in this regard and every case is determined on the basis of its unique factual matrix. Where the service rules explicitly provide for a definite act of confirmation by the employer, there can be no situation of automatic confirmation of the probationer in the absence of such act in such situations. After the completion of the probationary period the employer is entitled to a reasonable time to call for reports of the reviewing officers to determine the quality of services provided by the probationer. If an employee continues to work after completion of maximum period of probation, thereby receiving annual increments and increase in other emoluments, that would mean that his work was assessed to be satisfactory and the concept of deemed confirmation would be applicable in his case. Therefore, in the absence of any positive confirmation, it cannot be held that there has been a deemed confirmation of the petitioner by the employer and the petition was dismissed. 10. Case: Fertilizers and Chemicals Travancore Ltd. vs. James Phillip (2015) LLR 376 Forum: Kerela High Court Judgement: The respondent workman was removed from employment of the appellant company simply by way of a notice and without any internal enquiry being conducted on the grounds of unauthorised absence from work. The Labour Court after considering the evidence held that the workman cannot be considered to have abandoned his employment and absented himself from work in an unauthorized manner. Therefore he was ordered to be re-instated with 25% back-wages. The single judge of the High Court also refused to interfere with the decision of the Labour Court. The division bench of the High Court also agreed with the decision of the Labour Court and held that the question of abandonment of work is essentially question of fact which has C&Co. Labour Law Update, April and May, 2015 Page 10 of 12

11 to be determined in the light of the surrounding circumstances of each case. Such issues fall within the primary adjudicative function of the Labour Court. Since the Labour Court had based its decision on a careful analysis of the evidence available on record and it could not be set aside as being arbitrary or perverse, thereby invoking the provisions of Article 14 of the Constitution of India. Termination of employment on the grounds of long unauthorised absence without conducting a proper enquiry is illegal and hence the re-instatement ordered by the Labour Court was held to be justified. Therefore the writ petition by the company was dismissed while upholding the decision of the Labour Court. 11. Case: Mahalingam and Company vs. Santosh Kumar (2015) LLR 378 Forum: Kerela High Court The respondent workman raised an industrial dispute with regard to the termination of his services by the appellant company. The Labour Court passed an award that the termination was illegal and ordered re-instatement of the workman. However, during the pendency of the matter before the Labour Court, the establishment of the company had been closed down. Hence the order of the Labour Court was challenged by the company by way of a writ petition claiming that no order of re-instatement could have been passed after the closure of the establishment. Section 17B of the ID Act provides that when an order of re-instatement has been passed by the Labour Court and the matter is pending in appeal before a court of higher jurisdiction, the employer is required to pay full wages and allowances to the workman during such pendency. The issue that arose for consideration was whether the employer is obliged under section 17-B of the ID Act to pay the last drawn wages to the workman even after the closure of the establishment. It was held that section 17-B of the ID Act was introduced for the benefit of workmen whose services having been terminated, were ordered to be reinstated but were awaiting their reinstatement on account of interference by higher courts. Such re-instatement is ordered by the Labour Court only when the workman has a right to continue in employment. If the workman loses such right to by virtue of closure of the establishment, reinstatement cannot be ordered and as a result, the workman cannot claim benefit of the provision of section 17- B of ID Act. Therefore the company cannot be held liable to pay the last drawn wages during the pendency of the appeal before the High Court. C&Co. Labour Law Update, April and May, 2015 Page 11 of 12

12 Source Labour Law Reporter, press clippings Disclaimer This update is not a legal service and does not provide legal representation or advice to any recipient. This update is published by Chadha & Co. for the purposes of providing general information and should not be construed as legal advice. Should further information or analysis be required of any subject matter contained in this publication, please contact Chadha & Co. About Chadha & Co. Chadha & Co. is India s leading boutique law firm with a specialised practice in advising foreign companies doing business in India on Indian laws and regulations. The Firm has a strong labour and employment laws practice. Contact Namita Chadha Rahul Chadha Savita Sarna Chair, Labour and Employment Chadha & Co. Advocates & Legal Consultants S 327, Greater Kailash II New Delhi India Tel: ; Fax: Website: ssarna@chadha-co.com C&Co. Labour Law Update, April and May, 2015 Page 12 of 12