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Code on wages : a change in approach

November 20, 2021
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This article is written by Anshika Patel and Malini Raj pursuing BA,LLB from the University of petroleum and energy, Dehradun. The article is edited by Khushi Sharma (Trainee Associate, Blog iPleaders).

Abstract 

The labor legislation in India has mostly been a backhand topic for the government but with the progression of rights, survival of human being the concept of labor jurisprudence started to develop, and with growing concern at the international level, India also buckled up its status with respect to labor laws. Due to many loopholes in existing labor practices, the ministry decided to sum up almost all existing laws in four core legislations and one such law is the Code on Wages 2019.

Code on wages streamlines and simplifies the provision of Payment of Wages, Payment of Bonus, Equal Remuneration, and Minimum Wages Act. The present paper tries to put forward a comparative analysis of some relevant provisions of consolidated acts and the code which includes applicability, definitions, offenses and penalties, and other new concepts introduced in the 2019 code. 

Introduction

The background of labor laws in India and the complexities attributed to it is not an unknown fact. The rigidity inherent in the labor legislation established itself as a major impediment for the investments and growth of the labor classes as well as the establishments. The seed for such complexity and overlapping can be seen due to the fact that the grundnorm i.e. the Constitution of India itself provides labor subject matter in the concurrent list hence impliedly giving both the center and the state the power to legislate the same, this authority over the period have resulted in over 200 state legislations and around 50 Central labor laws administering different aspect of labor employment in the territory of India.

Furthermore, vagueness in various elements such as the workforce threshold, wage definition, the types of establishment, etc caused hindrance in the application of the labor law. In this background of the Labour Law structure, the sole probable corrective step was to consolidate the labor laws.

Thus as a step of the Ministry of Labour and employment to codify the 44 Central legislation into 4 codes the code on wages came into the picture. Code on wages summed within itself 4 Central labour laws namely the Payment of Wages Act, 1936, the Payment of Bonus Act 1965, the Equal Remuneration Act 1976, and the Minimum Wages Act 1948 and had repealed the same.

In the word of ministry, “the code on wages was an attempt to transform the old and obsolete labor legislations into more accountable and transparent laws that are aligned as per the need of the hour”.

Scrutinizing some key definitions

Applicability

The study of every law starts with the basic aspect of applicability of the same on various entities. The four Labour Laws that were repealed by the code on wages incorporated within itself different applicability provisions which eventually lead to non-uniformity. Moreover, the scope covered by those four legislations was quite restrictive. Thus as usual code attempted to overcome this shortcoming by clearly stating down the area where the provision of this code will be applicable by taking a broader approach. The previous law’s applicability provisions state that: 

Now the Code On Wages has reversed these existing provisions in a way that it is universally applicable on all employees without any specific threshold or scheduled employment with respect to chapter I, II, III, and IV, but for chapter IV there is a catch that applicability of payment of bonus will depend on the threshold that will be provided by the appropriate government.

Hence all employees irrespective of their Wage or status have the rights and remedies available under the code on wages, the only ambiguity left is with respect to chapter 4 where the threshold has to be provided. Moreover, the code makes it abundantly clear that this code will not apply to the areas covered by Mahatma Gandhi National Rural Employment Guarantee Act 2005, coal mines provident fund Act 1948, or schemes made under the same. 

Appropriate government

Appropriate government is an authority that is charged with the duty for implementing the code within their assigned jurisdiction therefore it’s important to determine what is appropriate government? 

On the critique of the definition, it can be seen that the payment of wages act defines the jurisdiction of the appropriate Central Government in a very restrictive manner by limiting its scope to railway transport, mine, and oil field. On the other hand, the equal remuneration act has a broader sense of meaning and jurisdiction of the central government, under the Payment of Bonus Act the definition of appropriate government depends on the Industrial Dispute Act, and lastly, the minimum wages act defines the government in respect of schedule employment hence leaving behind the non-scheduled employment. 

Presently the code on wages defines the same “concerning an establishment which is carried by or under the central government or the establishment of mine, Railway’s, oilfield, ports, air transport service, telecommunication, insurance, and banking company or any corporation established by a central act or public sector undertaking, subsidiary of a company set up by Central Public Sector undertaking or autonomous bodies under the ownership and control of the central government and also includes the establishment of contractor appointed for such establishment, corporation or authority, etc it is the central government who is the appropriate Government and for the other establishments the state government is the appropriate government”.

Hence a reformist step is made in defining appropriate government by including almost every aspect and providing uniformity concerning the identity of appropriate government under the labor law domain.

Establishment

Another important part for the implementation of the code is to have a clear understanding of the term establishment. Under of the code, establishment means “any trade, business, industry, manufacture or occupation carried on and it also includes government establishment”. The definition in the code has given a wider meaning and essence to the term establishment to make sure that the perk of the code extends to every worker in all establishments however there still exists a lacuna in the definition as the code does not describe the term industry, trade, business, manufacture or occupation hence leaving behind an ambiguity unsolved. 

Employee

It is a well-established fact that the labor laws are enacted for the security, growth, and welfare of employees hence it is vital in labor legislation to have a definition of the term “employee“. 

The Code On Wages give a combination of minimum wages act and Payment of Bonus Act definition along with certain changes and define the same as “any person other than apprentice employed on wages by any establishment to do any kind of skilled, Semi-skilled or unskilled, operational, supervisory, technical, administrative managerial or clerical work and it also includes within itself a person who is declared an employee by the appropriate government but the same does not include a member of the armed forces of the union“. 

Hence it can be said that the new code eliminated the threshold and the schedule employment provision and added semiskilled, operational workers. A question that lingers around the definition is whether the employee definition provided in the code is exhaustive? Answer to this concerning code on wages is a tough one as there is no case law clarifying the same but looking back at the answer of a similar question by the supreme court in the case of Ahmedabad private Primary Teachers Association vs administrative officers and other it is quite clear that the term employee is not an exhaustive definition. The issue in the case was whether the teacher falls on the definition of employee?

Supreme Court rejected this set of contention by stating that teachers cannot be included either in the skilled or unskilled category. Similarly, they are not Semi-skilled or unskilled employees. Moreover, the code explicitly states that the appropriate government holds the power to notify any person as an employee thus, the final answer that can be concluded is that the definition is not exhaustive. 

Worker

The minimum wage acts, Payment of Bonus Act, Payment of Wages Act do not define the term worker. Under the Equal Remuneration Act defines it as “a worker in any establishment or employment in respect of which this act has come into force”.

The definition rendered was very vague thus the code took a step forward in defining the same as “a person except for an apprentice who is employed in an industry to do any kind of skilled, unskilled, manual, technical, clerical, operational or supervisory work and the same includes a working journalist and a sale promotion employee however it does not include the subjects who fall under the air force act army act Navy Act, a person who is in a managerial or administrative capacity, a person employed in police service or an officer or employee of a Prison plus an employee who is working under supervisory capacity and is earning salary exceeding fifteen thousand per month“. 

Now the difference between the term worker and employee in the point that the term employee is wider than worker as it includes person working under managerial and administrative capacity plus there is no threshold provided for a person working in a supervisory capacity.

Employer

With the growing importance of fixing liability the definition of employer is crucial to identify the person for the wrongdoing. 

The code defines it as “a person who directly or through any person employs one or more employee in his establishment and where the establishment is carried on by the department of the central of the state government then the head of such department will be considered as an employer. Moreover, in the case of a factory, the occupier of the factory will be considered as the employer“. 

The code added a new dimension to the definition by inserting ‘contractor’ as well as the “legal representative of a deceased employer” under the definition of employer. An important aspect added in this context is the lifting of the corporate veil by the adjudicating authority to fix the liability.

Minimum wage and National Floor Wage 

Security of minimum wage to all wage workers in India was not strong and the code in this regard brought a change by asserting that the employer has to pay employee wage that is not below the minimum wage and such minimum wage will be notified by the appropriate government for the entire establishment falling within its jurisdiction. Earlier there was no mandatory provision for periodic review of minimum wages but the present code developed this point and provided that the appropriate government will ordinarily review and revise the same every five years. Such a point has been affixed to get minimum wages in line with the ongoing social-economic realities. 

The code also emphasizes the National Floor Wage concept in India. This concept is an old one that was first introduced in the year 1991 however it was a non-binding provision which led to its ignorance by many states. To change this practice legally binding floor wage was introduced under the code which cast a duty on the central government to fix the same. The central government can also fix regional level floor wage considering the regional factors. The minimum wage set by the state government cannot be below the national floor wage and in this way, the code tries to bring uniformity and decrease disparity.

Payment of bonus

The Code takes into account the following two types of bonus disputes to be industrial disputes within the provisions of the Industrial Disputes Act, 1947: 

a) Disputes over bonus fixing or qualification for the bonus payment; and

b) The applicability of this Code to a public sector establishment in respect of bonus.

It is notable that the Code has excluded in the above point a) and b) about the applicability of the Code as concerned towards bonus to an establishment in private sectors.

Claims under the Code

To resolve claims under the Code, the Code establishes a specialized adjudication system in the form of authority.’ It states that a claim must be lodged with the ‘authority designated by the competent government. The Code requires the authority to hear and assess the claims, as well as pay damages up to 10 times the amount of the claim established if the conditions merit it. Furthermore, the authority is required to make every effort to resolve the dispute within three months.

The following are some of the ways in which the Code has introduced uniformity and clarity to various areas of the claims process.

A claim can be lodged by (a) the employee concerned; (b) any Trade Union enrolled under the Trade Unions Act, 1926, in which the worker is associated; or (c) the Inspector-cum-Facilitator [Section 45(4)], whereas the Payment of Wages Act, Minimum Wages Act and Equal Remuneration Act all have more or less same provisions relating for filing claim and group application. Also, as per the Code, the limitation period to file a claim is 3 years (section 45(6)).

But it differs with other Acts such as for Payment of Wages Act (section 20(4)) and Minimum Wages Act (section 15(2)), the limitation period is 12 months and 6 months respectively. There are no penalties foreseen in case of malicious or vexatious claims in the Code. Whereas the above mentioned Acts foresee penalties for malicious and vexatious claims.

By prescribing a single method to arbitrate all forms of claims under the Code, the Code has given uniformity to the claim system in comparison to current wage legislation.

Right to appeal

The Code has developed a new method for appealing an authority order to a ‘appellate authority.’ It’s worth noting that the ‘appellate authority’ is administrative in character and is nominated by the appropriate Government among officials holding positions at least one level higher than the authority. The Code allows the appellate authority to excuse the delay and entertain the appeal beyond the 90 days term if the delay was due to good cause, and it also encourages the appellate authority to try to resolve the appeal as quickly as possible, i.e. within three months.

Bar on suits

To judge claims and appeals under the Code, the Code established an exclusive authorised adjudication mechanism. The officers to be selected by the competent authorities make up the system for adjudication of claims and appeals. The Code thus prohibits the courts from hearing any suit for the recovery of minimum wages, deductions from wages, wage discrimination, or bonus payments if the sum sought is: 

  1. the subject of claims (section 45 of the Code);
  2. the subject of a direction under this Code;
  3. adjudged in any proceeding under this Code; or 
  4. could have been recovered under this Code.

Inspection mechanism/ Inspector-cum-Facilitator

For the appropriate enforcement of labour regulations, an effective inspection system is required. The International Labour Organization also requires member governments to have an effective inspection process in its Labor Inspection Convention of 1947, which India ratified. In this regard, the Code allows the competent government to designate an inspector-cum-facilitator and to establish an inspection plan.

The inspector-cum-facilitator has been given the following power and authority under the Code to ensure effective implementation of the Code: 

  1. examine any person found in any establishment premises whom the Inspector-cum-Facilitator has logical cause to consider is a worker of the establishment;
  2. ask any person to provide any information in his power concerning the names and addresses of the persons;
  3. search, seize, or copy any register, record of wages, or takes notice, or portions thereof, that the Inspector-cum-Facilitator considers appropriate concerning to an offence under this Code that the Inspector-cum-Facilitator has reason to believe was committed by the employer; 
  4. bring to the attention of the appropriate Government faults or abuses not encased by any law currently in force; and 
  5. exercise such other power and authority as may be prescribed.

Inspection scheme

The ability to establish the inspection plan has been entrusted to the appropriate government under the Code. Moreover, to foster e-governance, the Code clearly states that such an inspection mechanism may include:

  1. the creation of a web-based inspection; and
  2. the electronic retrieval of information related to the inspection conducted under this Code.

Furthermore, the Code authorizes the competent government to confer jurisdiction of randomized inspection selection on an Inspector-cum-Facilitator to bring transparency to the Inspection system.

Offences and penalties

The Code authorizes courts with jurisdiction and cognizance over an offence punishable under the Code, which is not subordinate to a Metropolitan Magistrate or Judicial Magistrate of the First Class. In contrast to current wage regulations, the Code has liberalised the right to complain before a court for violations of the Code.

The Code allows an employee, a Trade Union registered under the Trade Unions Act, 1926, or an Inspector-cum-Facilitator to make a complaint without prior permission if they have the approval of the competent government or an authorised officer. This widened locus standi in the Code will go a long way toward ensuring that those who have been wronged receive justice, as well as acting as a deterrent to employers and ensuring efficient enforcement.

Punishments/ penalties for the offences

The Code has incorporated progressive punishments for offences based on the severity and frequency with which they are committed. In comparison to current wage regulations, the Code has significantly increased the amount of punishments for offences. It’s also worth noting that, in contrast to current wage regulations, the penalty of detention has been eliminated for the first time offender as well as for the offence of non-maintenance or faulty record-keeping.

The Inspector-cum-Facilitator shall give the employer a chance to comply with the requirements of this Code through a written manner, which shall lay down a time frame for such compliance, and if the employer conforms to the manner within such timespan, the Inspector-cum-Facilitator shall not start prosecution proceedings for the offences under the Code.

Parallel administrative mechanism for imposition of penalties

The establishment of a parallel administrative procedure to enforce punishments in the Code for some minor offences is a positive move. The Code provides for the appointment of officials to impose fines by the competent government under Section 53(1) of the Code. During the investigation, these officers shall have the authority to summon and compel any person familiar with the facts and circumstances of the case to present evidence or produce any document that, in the opinion of that officer, may be useful for or important to the investigation’s subject matter.

Composition of offences

On the application of the accused, either before or after the commencement of any trial, Section 56 of the Code specifies that the following two kinds of offences may be compounded:

  1. Offenses that are not penalized solely by imprisonment, or 
  2. Offenses that are penalized both by imprisonment and fine.

The scope of composition is further limited by Section 56(2) of the Code, which states that composition does not apply to an offence committed by a person for the second or subsequent time within five years of the date – 

  1. of commission of a similar offence which was previously compounded, or
  2. of commission of a similar offence for which such composition was not made.

Conclusion

According to the study above, the Code has taken positive steps toward simplifying and closing loopholes in existing wage legislation. The Code will assist the country’s economy to a large extent because it attempts to bring gender justice as well as provide near-universal wage law protection to almost all workers employed in practically all establishments with few exceptions.

The Code would contribute to efficient execution of wage laws by establishing uniformity in definitions, mechanisms for e-governance and transparency, an effective grievance redressal process, the right to appeal, and the composition of offences. As a result, Code’s new pay laws will be a powerful instrument for shielding the workforce, and it will undoubtedly result in a new paradigm in wage law enforcement.


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