Subjective Rules and Sacred Principles

There is an interesting duel which is going on for decades – it is between the Employers and the Judiciary. The unscrupulous employers are giving narrow interpretation to provisions of labour legislation and the judiciary is reacting with expanding its scope!

The latest round of battle comes in interpretation of ‘Basic Wage’ definition under the Employees’ Provident Fund and Miscellaneous Provisions Act. To understand it we have to understand how wages are paid to employees. As we are aware, Minimum wages are defined for certain industries and occupations. Many employers pay minimum wages and this is quite common.

Let us presume that the defined minimum wages are Rs. 5000 pm consisting of a basic wage of Rs. 4000 and a special allowance of Rs 1000. So the employee would earn a PF contribution from his employer @12%, in other words, Rs. 480 pm, thus his Cost to Company would be Rs. 5480 pm.

The mathematics throws up a different result if the employer pays a basic wage of Rs. 1000 and a Dearness allowance of Rs. 1000 and a House Rent allowance of Rs. 3000 pm. The ‘Cost to Company’ then works out to Rs. 5240 as the PF contribution to be made by the employer works out to Rs. 240; it is not payable on House Rent Allowance. That gives a saving of Rs. 240 pm per employee by the trick of restructuring wages.

The Courts stepped in and said that the PF contribution is payable on the minimum wages, and plugged one source of unjust enrichment of the unscrupulous employers.

So far so good. But the courts, through their judgements, widened the scope of the definition to such an extent that it is leading to futile litigation. There is a claim by PF authorities that many allowances paid regularly to employees should be included in the definition of basic wages. That will place an excessive burden on the employers. It may not be justified as there are hundreds of good employers who pay good wages, much higher than minimum wages to their employees. Excluding contribution to PF on certain allowances is agreed through settlements and seems to be fair.

So the widened definition has created problems for employers, and now lawyers are at work advising employers. Now the matter is before the Supreme Court and till it conclusively settles the issue parties have no choice but to carry on the fight.

The story of the definition of ‘workman’ is not too different. In order to deny the protection of the Industrial Disputes Act, some unscrupulous employers ‘pulled them out of the coverage of the Act’ by designating them ‘Officers’ or ‘Managers.’ And gave them salaries higher than what the definition stipulated for being out of coverage. This allowed them to hire and fire such employees at will. So the courts ‘lifted the veil’ and said that designations or salaries were of no consequence; what mattered was the nature of duties. This is how it should be. 

But a number of scientists and pilots who draw more salaries than Managing Directors of small or medium sized enterprises also got covered. It also encouraged litigation because even those who were genuinely performing ‘managerial’ tasks filed cases in labour courts when they were asked to leave.

Such instances can be given in dozens, almost for any legislation. But we have to appreciate that laws are created to protect people from being harmed by others. Without it a society may ultimately degenerate into despotism–the rule of the strong and violent over the weak and nonviolent. And these laws have created a set of rules. And the principle is to protect the weak from the unscrupulous strong.

Franklin Roosevelt put the things in perspective when he said “Rules are not necessarily sacred, principles are!”