XLRI Jamshedpur DR. E. M.

RAO

LABOUR LEGISLATION IN A NUTSHELL

1998
(as corrected from time to time)

As has already been stated elsewhere, labour or industrial law can be classified in
several ways. A convenient and easily discernible classification is the one based on
the subject-matter, in as broad terms as possible, of the enactments. Viewed from this
standpoint, labour law can be grouped under the following heads:

Welfare and Working Conditions

Wages and benefits
Industrial Relations
Social Security.
Miscellaneous.

The subject-matter of some of the important pieces of legislation is given hereunder, in a

nutshell.

1. Apprentices Act, 1961

The object of the Act is to provide for regulation and control of training of apprentices and for
certain other matters connected therewith.

An apprentice is a person who is undergoing apprenticeship training in pursuance of a

contract of apprenticeship. The period of training for each designated trade is as prescribed
by the Government. There are two types of apprentices – ‘trade apprentice’ and
‘graduate/technician apprentice’ (S. 2).

An apprentice should have completed 14 years of age, and possess the standards of
education and physical fitness prescribed. For engaging a person as an apprentice, two
conditions should be satisfied, i.e., (a) a contract of apprenticeship must be entered into
between the apprentice and the employer, (b) the said contract should be sent to the
Apprenticeship Adviser for registration. (Ss. 3 & 4).

The Act provides for novation of contract of apprenticeship. Where the employer is unable
to fulfil his obligations under the contract, the employer, the apprentice (or his guardian), and
any other employer who is willing to permit the apprentice to complete the remainder of his
apprenticeship on the same terms and conditions, subject, of course, to the clearance by the
Apprenticeship Adviser (S. 5).

It is obligatory for the employer to impart practical training to every apprentice engaged by
him. In addition practical training in his establishment, the employer should depute the
apprentices to Related Instruction classes conducted by the Apprenticeship Council
periodically (Ss. 9 & 10).
An apprentice is not a worker. He is entitled to stipend at the rates as prescribed. However,
the stipend paid to him during the apprenticeship training is not ‘wages’ for the purpose of
any enactment (S. 18).

The employer should comply with the standards prescribed for the health, welfare and safety
of the apprentices in the same manner as is applicable to his regular workers. So is the case
with hours of work, leave and holidays. No apprentice should be asked to work overtime
except with the prior permission of the Apprenticeship Adviser. The total number of hours of
work per week shall be 42 – 48 including the time spent on Related Instruction. The
apprentice shall be entitled to leave of different types, but not less than 37 days in a year. In
addition, he is entitled to such holidays with pay as are admissible to other workers of the
establishment (Ss. 14 & 15).

Every employer should provide training in accordance with the provisions of the Act. In case
of any accident arising out of and in the course of such apprenticeship training, the employer
is liable to pay compensation to the apprentices as per the provisions of the Workmen’s
Compensation Act, 1923 (S. 16).

As an exception to the Law of Contracts, a minor, i.e., a person who has completed 14 years
of age but has not attained 18 years can enter into a legally binding contract of
apprenticeship, if he satisfied the other conditions laid down in the Act. (R. v. Petrox, 4 T. R.
1961).

2. Contract Labour (Regulation and Abolition) Act, 1970

Enacted with the object of abolishing the contract labour system prevalent in industrial
establishments, wherever possible and practicable to do so; and to regulate the working
conditions, working hours and payment of wages of contract workers, wherever the system
cannot be abolished. It applies to every establishment in which 20 or more workmen are
engaged as contract labour and to every contractor who employs 20 or more workmen.

A workman is said to be employed as contract labour, when he is hired through a contractor.

A contractor is any person who undertakes to produce a result for the establishment through
contract labour or who supplies labour for any work in the establishment. Thus, it includes
both “job contractor” and “labour supply contractor.” The contractor is also known as
“immediate employer”, while the owner or manager or the employer of the establishment is
known as “principal employer” in relation to the contract labour (S. 2).

The Government can constitute an Advisory Board to advise on matters of abolition and
regulation of contract labour, while the labour commissioner is normally the appointed
authority under the Act (S. 3-5). Every establishment (employing 20 workmen as contract
labour) has to obtain a certificate of registration from the authority concerned and every
contractor who employs 20 or more workmen has to obtain a licence. Engaging of contract
labour without proper registration and licensing is prohibited (Ss. 7 & 12).

The appropriate Government is empowered to abolish contract labour in any operation,

employment or establishment. While so abolishing contract labour, the Government may take
the the following guidelines and other relevant factors into consideration (S. 10):

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Where the work is incidental to the manufacture, trade , business or occupation;
If it is of perennial nature;
If it is done ordinarily through regular workmen in the unit or in other similar establishment;
and
If it is sufficient to employ considerable number of whole-time workmen.

Where it is not abolished, the Government may make rules requiring the contractor or, in
case of his failure, the principal employer to provide for:

Canteens (where 100 or more contract workers are ordinarily employed;

Rest-rooms (wherein contract workers are required to stay overnight;
Drinking water facilities; urinals and latrines; and
First –aid facilities (Ss. 16-20).

The contractor is responsible for payment of wages to his workers; The disbursement of
wages shall take place in the presence of an authorised representative of the principal
employer. In case of the failure of the contractor to pay wages, the principal employer is liable
to pay the same to the workers and recover the same from the dues payable to the contractor
(S. 21).

3. Employees’ Compensation Act, 1923

The passing of Workmen’s Compensation Act in 1923 was the first step towards social
security of workmen. The main object of the Act is to provide for the payment of
compensation by certain classes of employers to their workmen in the event of an accident
arising out of and in the course of employment. The theory of workmen’s compensation is
that “the cost of product should bear the blood of the workmen.” The Title of the Act has
been changed as “Employees’ Compensation Act” in the year 2010.

The Act provides special machinery to deal with cases of compensation in the event of
accidents and to make arrangement for prompt compensation to the injured workmen who
cannot afford to go to the courts of law. The injured workman or, in the case of his death, his
dependants may either file a civil suit for damages against the employer or claim
compensation under the Act. The suitor, however, has to make a choice between these two
types of relief. However, between the two, the claim under the Act is safer and less expensive.

‘Disablement’ has been defined as loss of capacity to work or to move. Disablement of a

workman may result in loss or reduction of his earning capacity. In the latter case, he is not
liable to earn as much as he used to earn before his disablement. It may be partial or total.
Further it may be permanent or temporary (S. 2). Thus, there can be four combinations of
disablement:

Temporary Partial Disablement (TPD) – is one which reduces the earning capacity of a
workman in any employment in which he was engaged at the time of accident which resulted
in such disablement.

Permanent Partial Disablement (PPD) – is one which reduces the earning capacity of a
workmen in every employment which he was capable of undertaking at the time of injury.

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Temporary Total Disablement (TTD) – incapacitates a workman for a certain period of time
for all work which he was capable of performing at the time of accident resulting in such
disablement.

Permanent Total Disablement (PTD) – incapacitates a workman for ever for all work which
he was capable of performing at the time of accident resulting in such disablement.

An employer is liable to pay compensation to a workman if a personal injury is caused to him

by accident arising out of and in the course of his employment (S. 3).

The phrase ‘in the course of employment’ refers to the time when the accidental injury was
caused, whereas the phrase ‘out of employment’ emphasises that there must be a causal
connection between the employment and the accidental injury. An accident arising out of
employment necessarily occurs in the course of employment, but an accident arising in the
course of employment may not necessarily arise out of employment, though ordinarily it will.

The expression ‘employment’ is notionally extended beyond the portals of the factory or place
work and is referred to as the “theory of notional extension of employment”. In Saurashtra
Salt Manufacturing Co. v. Bai Valu Raja, (AIR 1958 SC 881), the Supreme Court laid down
the said theory as under:

“As a rule, the employment of a workman does not commence until he has reached the place
of employment and does not continue when he has left the place of employment: the journey
to and from the place of work is thus excluded from the notion of employment. However, it
is now well settled that this is subject to the theory of notional extension of the employer’s
premises, so as to include in it an area which the workman passes and repasses in going to
and in leaving the actual place of work, so that there may be some reasonable extension in
both time and place of work and a workman may be regarded as in the course of his
employment even though he had not reached or had left the actual premises where he was
employed. The facts and circumstances of each case will have to be examined carefully in
order to determine whether the accident arose out of and in the course of employment of a
workman, keeping in view at all times this theory of notional extension.”

The amount of compensation payable to a workman depends on:

the nature of the injury caused by the accident,

the monthly wages of the workman concerned, and
the relevant factor for working out lump-sum equivalent of compensation amount as specified
in Schedule IV.

There is no difference between an adult and a minor worker with respect to the amount of
compensation.

Compensation is payable for –

death,
permanent total disablement,
permanent partial disablement, and
temporary disablement, whether total or partial. (S. 4 r/w Schedule IV).

Mode of calculation and Quantum of Compensation:

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Where death results from injury, an amount equal to 50% of monthly wages of the deceased
workman multiplied by the relevant factor (given in Schedule-IV to the Act) OR Rs. 1,00,000/-
, whichever is more

Where permanent total disablement results from injury, an amount equal to 60% of the
monthly wages multiplied by the relevant factor OR Rs. 1,40,000/-, whichever is more.

Where permanent partial disablement results from injury, such percentage of the
compensation as specified in Schedule-I (calculated on the basis of the percentage loss of
earning capacity) be paid.

Where temporary disablement, whether total or partial, results from the injury, the amount of
compensation shall be a half-monthly payment of the sum equivalent to 25 per cent of
monthly wages of the workman, i.e., 25 per cent of monthly wages of the workman shall be
payable every half month. The half monthly payment is payable on the 16 th day –

from the date of disablement where such disablement lasts for a period of 28 days or more,
or after the expiry of a waiting period of 3 days from the date of disablement where such
disablement lasts for a period of less than 28 days. Thereafter, the compensation shall be
payable half-monthly during the disablement or during a period of 5 years, whichever period
is shorter.

The Commissioner for workmens’ compensation is empowered to review, on application by

the workman, the half-monthly payments and he may, thereon, (i) continue, (ii) increase, (iii)
decrease, (iv) end, or (v) convert the same into a lump-sum. The half-monthly payments can
be commuted by agreement between the parties (Ss. 6 & 7).

The Act provides for distribution of compensation among the claimants in the event of a fatal
accident (S. 8).

No compensation – whether lump-sum or half-monthly - payable under the Act is capable of

being assigned or charged or be liable to attachment or pass to any person other than the
workmen by operation law, nor shall any claim be set against the same. (S. 9).

No claim for compensation shall be entertained by the Commissioner unless the notice of
accident has been given by the workman in writing the prescribed manner. Claim for
compensation shall be preferred before the Commissioner within 2 years of the occurrence
of the accident, or in case of death within 2 years from the date of death (S. 10).

4. Employees’ Provident Funds and Misc. Provisions Act, 1952

The object of the Act is to provide for the institution of provident funds and family pension and
deposit-linked insurance schemes for employees in factories and other establishments. It
applies to all establishments employing 20 or more persons. Employees whose monthly wage
does not exceed Rs. 15,000/- are covered under the scheme from the date on which they
are employed in the establishment. (NOTE: Practitioners are advised to refer to the
notifications issued by the GOI from time to time enhancing the wage limit)

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The statutory rate of contribution was raised from the erstwhile 6.25% (of Basic Wages plus
Dearness Allowance and Retaining Allowance, if any) to 8.33% by an amendment in 1988
with an enabling provision to raise the rate of contribution to 10% with an enabling provision
to increase it to 12% (S. 6).

Both the employee and the employee are required to contribute at the same rate as
the first instance, both the contribution payable by himself and on behalf of his employee or
the employee engaged through a contractor. The employees’ contribution cannot be
recovered otherwise than from the wage period for which the contribution is payable. The
contributions so recovered shall be paid to the Regional Provident Fund Commissioner within
15 days after the close of the wage period. (Para 29-32 of the Scheme, 1952).

The Act provides for loans – refundable and non-refundable - to members from their
contribution for certain purposes, such as marriage in the house, construction or purchase of
a dwelling house, etc.

5. Employees’ State Insurance Act, 1948

This Act is a landmark in the history of social security in India. It is one of compulsory State
insurance providing for certain benefits. It is conceived as a means of extinction of the evils
of society, namely, want, disease, dirt, ignorance and indigence.

The Act applies to all factories and industrial establishments. However, the extension of the
provisions of the Act to different areas in the country will be notified depending upon the
provision of the facilities for treatment, etc. In the areas where the provisions of the Act are
not applicable, the Workmen’s Compensation Act, 1923 together with the Fatal Accidents
Act, 1855 and Maternity Benefit Act, 1961 operate in the alternative. There has been a
proposal by the NDA government to extend the scheme by raising the salary limit to Rs.
25,000/- per month.

The Act confers benefit on industrial employees, including those employed through a
contractor, in the event of sickness, maternity, and other types of disablement. These benefits
are secured by financial contributions to the scheme by both the employers and employees.

For the purpose of contributions to the ESI Scheme, the employees are divided into 9 groups
on the basis of their monthly wages. The employees drawing a monthly wage of Rs. 540 and
above are required pay contribution @ 1.75 per cent of their wages rounded off to the next
higher multiple of 5 paise. Employees drawing a daily wage of Rs. 15 and below are
exempted from contributing to the scheme, but are entitled to the benefits. Employer’s
contribution is 4.75 per cent of the total wage bill. (Ss. 38-45-B).

The Act provides the following benefits (Ss. 46-52):

Medical benefit (treatment at the ESI hospital);
Sickness benefit (cash payment during the period of absence due to sickness);
Maternity benefit (cash payments during the period of absence for a maximum period of 12
weeks);
Disablement benefit (cash payments in case of disablement due to an accident arising out of
and in the course of employment);
Dependants benefit (cash payment to the dependents of the deceased employees in case of
fatal accident);

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Funeral benefit (lump-sum cash payment to meet the funeral expenses in case of the death
of an employee).

The quantum of benefit under each head is determined on the basis of the “Standard Benefit
Rate” (for short, “SBR”), which approximately works out to 43-63% of the average daily wage
of an employee. The daily wage is arrived at by dividing the monthly wage by 26.

Illustration-I: The average daily wage of an employee drawing a monthly wage of Rs. 420 is
(420/26=) Rs. 16 (apprx.). His SBR will be Rs. 10, which works out to about 62% of his
average daily wage.
Illustration-II: The average daily wage of an employee drawing a monthly wage of Rs. 600 is
(600/26 =) Rs. 23 (appx.). His SBR will be Rs. 10, which works out to about 44% of his
average daily wage.

The daily rate of cash benefit in each case is as follows:

Sickness = SBR corresponding to the average daily wage; for not more than 91 days in a
year (two consecutive benefit periods of six months each).
- Maternity = Twice the SBR; for a maximum of 12 weeks.
Disablement (whether temporary for not less than 3 days or permanent) = as per the rate
assessed by the ESI Corporation; in other cases, 40% more than the SBR.
Dependants benefit = As per the rate prescribed from time to time.
Funeral expenses = A lump-sum amount of Rs. 1000.

Outer wage limit for the application of the Act: This has been raised from the erstwhile Rs.
10,000/- p.m., to Rs. 15,000/- p.m. (vide 2010 Amendment to Rule 50 of the ESI (Central)
Rules 1950.

IMPORTANT: The outer wage-limit of employees (for the purpose of coverage under the
Act) is not static and gets revised upwards by the Government from time to time. Hence
practitioners should keep track of government notifications issued in this regard.

6. Factories Act, 1948.

Aims to protect workers employed in factories against industrial and occupational hazards
and to ensure safe and healthy working conditions.

Manufacturing process means any process for making, altering, repairing, ornamenting,
finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating
or adapting any article or substance with a view to its use, sale, transport, delivery or disposal,
or pumping oil, etc., generation and transmission of power, printing, ship construction and
repairs, etc. [S. 2 (k)].

Where, in any factory 10 or more workers (with power) and 20 or more workers (without
power) are employed, the manager/occupier of such factory is required to apply for and obtain
licence from the inspector of factories. [Ss. 6 & 7).

Every manager/occupier is required to provide for healthy working conditions inside the
factory which include - effective disposal of wastes and effluents, adequate ventilation,

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lighting and temperature, artificial humidification, prevention of overcrowding, provision of
wholesome drinking water, latrines and urinals, spittoons, etc. (Ss. 11-20).

To ensure strict safe working conditions, which include – fencing of machinery and casing of
machinery in motion, devices for cutting of power in case of emergency, protection to eyes,
precautions against dangerous fumes and fire, safe construction of floors, stairs and means
of access, safe working loads of hoists and lifts, periodic checking of the chains, ropes, etc.,
prohibition of carrying excessive weights, prohibition of employment of young persons and
women in hazardous operations, proper maintenance of plant, machinery and buildings,
appointment of safety officers, constitution site appraisal committees, emergency standards,
right of workers to warn about imminent danger, etc. (Ss. 21-41-H).

Provision of facilities for sitting, and for storing/drying of clothes, and washing; first aid
appliances; statutory canteen to be provided if the number of workers exceed 250; shelters
or rest-rooms to be provided where the number of workers exceed 75; crèches to be provided
if the number of female workers exceed 30; appointment of welfare officer where the number
of workers exceed 500; etc. (Ss. 42-50).

Weekly hours of working not to exceed 48 hours; weekly holiday on every Sunday;
compensatory holidays; daily hours not to exceed 9 hours, subject to certain exceptions;
continuous work for more than five hours is prohibited without giving an interval for rest for
half-an-hour interval; spreadover cannot exceed 10-1/2 hours in any day, and in any case
not more than 12 hours; in the case of night-shift workers, holiday shall be reckoned as
consisting of a period of 24 consecutive hours from the close of the night shift; prohibition of
overlapping shifts; extra wages for overtime work (for work exceeding 9 hours a day or 48
hours a week) at double the ordinary rate of wages; maximum number of hours of OT not to
exceed 100 hours/quarter; prohibition of double employment; display of notice of periods of
work for adults; maintenance of register of adult workers; women workers shall in no case be
asked to work between 10 p.m. and 5 p.m. (Ss. 51-66).

Prohibition of employing children (who have not completed 14 years of age) in the factory;
but children above 14 years and adolescents can be employed subject to certification by the
certifying surgeon; children cannot be employed for more than 4-1/2 hours in any day and
during the night; notice of periods of work for children to be displayed; register of child workers
be maintained; young persons (child or an adolescent) should be sent by the employer for
examination, if so directed by the Inspector; (Ss. 67-77).

Annual leave with wages be given for those who have put in 90 days of work in a calendar
year; leave should be given at the rate of 1 day for every 20 days of actual work put in to be
availed in the following calendar year; power of the Inspector to prohibit employment on
account of serious hazard in any operation; fatal accidents and all other accidents resulting
in disablement for more than 48 hours shall be intimated to the Inspector; notice of dangerous
occurrences and diseases, etc., be given to the Inspector; penalties for violation, etc. (Ss. 78
onwards).

NOTE:
- The other cognate pieces of legislation, such as -
Plantations Labour Act. 1951,
Mines Act, 1952,
Shops & Establishments Acts (of various States),
Motor Transport Workers Act, 1961,

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Contract Labour (Regulation & Abolition) Act,1970
Bonded Labour (Abolition) Act, 1976,
Cine-Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981,
Child Labour (Prohibition and Regulation) Act, 1986,
Dock Workers (Safety, Health and Welfare) Act, 1986
- contain similar provisions pertaining to health, welfare, safety, working hours, leave, weekly
holidays, etc., with necessary variations as warranted by the particular context/place of
working.

7. Industrial Disputes Act, 1947.

This enactment occupies a pivotal position in the industrial relations system. It makes
provision for the investigation and settlement of industrial disputes and for certain other
purposes, such as, prohibition of strikes and lockouts, regulation of layoff, retrenchment and
closure; protection of workmen against victimisation during the pendency of any proceeding
under the Act, and for computation and recovery of certain sums due to the workmen under
the Act.

The Act applies to all industrial establishments. The benefit of the dispute settlement
machinery provided under the Act can be availed of by those industrial employees who
answer to the definition of ‘workman’. The Act provides for settlement of industrial disputes
through conciliation, arbitration and adjudication.

Conciliation is simply mediation by a third party who intervenes in the dispute. A conciliation
officer does not enjoy any statutory power or authority to decide the dispute or to impose his
decision on the parties to the dispute. His role is essentially one of ‘enabler’, in the sense he
brings the parties to the negotiating table, facilitates negotiation and/or the process of dispute
resolution, offers his expert advise to the parties and does all that is necessary to make the
disputants arrive at an amicable settlement. Conciliation proceedings are held by the Labour
Commissioner and/or his officers.

The word ‘adjudicate’ is derived from the Latin word ‘adjudicare’ which means ‘to hear or try
and determine, as a court; to settle by judicial decree; to adjudge (as), The court “adjudicated”
upon the case. ‘Adjudication’ is the process of trying and determining a case judicially; the
application of law to the facts and an authoritative declaration of the result. Labour Courts
and Industrial Tribunals adjudicate industrial disputes on a reference made by the
Government.

Adjudication differs from arbitration in several respects. While the former is the determination
of matters in dispute by the decision of a competent court, the latter refers to the
determination of such matters by the decision of an arbitrator or a team of arbitrators.
Likewise, while the court derives its power and authority from legislation and is peremptory
and compulsory in nature, an arbitrator derives his power and authority from the voluntary
agreement or, say, the free will and consent of the parties to the dispute. Though the two
terms are essentially different, some countries use them synonymously. However, in India,
the two are treated as distinct and separate processes.

The Central Government is the appropriate Government in respect of an industrial dispute

arising in any industry carried on by or under the authority of the Central Government or by

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a railway company or in a Dock Labour Board, IFCI, ESIC, EPFO, Indian Airlines, Air India,
LIC of India, ONGC, DICGC Ltd, CWC, UTI, Food Corporation of India, IAAI, RRB, ECGC
Ltd., IRCI, Banking Service Commission, a banking or an insurance company, a mine, an oil-
field, a cantonment board, or a major port, AND any other corporation established by an Act
of Parliament or any CPSU, its subsidiary companies and any autonomous body owned or
controlled by Central Government. In all other cases, the State Government is the appropriate
Government. [S. 2 (a)].

‘Industry’ means any business, trade, undertaking, manufacture or calling of employers and
includes any calling, service, employment, handicraft, or industrial occupation or avocation
of workmen. [S. 2 (j)].

‘Industrial Dispute’ means any dispute or difference between employers and employers, or
between employers and workmen, or between workmen and workmen, which is connected
with the employment or non-employment or the terms of employment or with the conditions
of labour, of any person. [S. 2 (k)]. In short, wages, allowances, working conditions,
conditions of service, discharge, dismissal, retrenchment, lay-off, and a score of other
cognate matters fall within the purview of the definition of the industrial dispute.

‘Workman’ means any person (including an apprentice) employed in any industry to do any
manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or
reward . . . and includes any such person who has been dismissed, discharged or retrenched
in connection with, or as a consequence of, that dispute, or whose dismissal or discharge or
retrenchment has led to that dispute; but does not include members of the armed forces,
police service or an employee of a prison; or who is employed mainly in a managerial or
administrative capacity; or who, having been employed in a supervisory capacity, draws
wages exceeding Rs. 10,000/- per month or exercises functions mainly of a managerial
nature. [S. 2(s)].

Every industrial establishment where 100 or more workmen are employed in the preceding
12 months, the employer shall constitute a Works Committee with equal representation to
workmen and management (S. 3).

In the case of discharge or dismissal or retrenchment or termination otherwise an individual

workman can raise an industrial dispute whether or not the cause of the workman is espoused
by the union or a group of workmen. If the issue is not resolved by the conciliation officer
within 45 days, the workman can directly approach the labour court or tribunal. (S. 2-A).

Every establishment having 20 or more workmen will have to constitute Grievance Redressal
Machinery (GRM). The number of members should not exceed more than six; if the
committee has two members out of which one member should be a woman, and in case of
increase in number of members, the participation of women members may be increase
appropriately. (S. 9-C).

In the case of discharge or dismissal, the labour court has the appellate power to set aside
the order and order reinstatement of the workman, or it may award a lesser punishment or
grant such other relief as it deems fit (S. 11-A).

Where the dispute could not be resolved at the bipartite level, the parties can approach the
machinery provided under the Act. Alternately, the Government may on its own motion refer
the dispute to the settlement machinery, in certain situations (S. 10).

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A collective bargaining settlement arrived between the management and the union at the
bipartite level is binding only on the parties to the settlement. On the other hand, a conciliation
settlement arrived at in the course of conciliation proceedings is binding not only on the
parties to the settlement, but also on all the workmen of the establishment and are concerned
in the dispute. (Ss. 12 & 18).

Likewise, the award passed by a labour court or tribunal or an arbitrator is binding on all the
workmen – present and future - apart from the employer including his heirs, successors,
assigns in respect of the establishment to which the dispute relates (S. 18).

An award of a labour court or tribunal shall become enforceable on the expiry of 30 days from
the date of its publication by the Government and shall remain in operation for a period of
one year. Provided that the Government may, if it thinks fit, extend the operation of the award
by one year at a time so, however, that the total period of operation of the award does not
exceed three years from the date on which it came into operation. This does not apply to an
award, which does not impose any continuing obligations on the parties. Subject to the above,
the award shall continue in operation notwithstanding the expiry of the period of operation
until a period of two months has elapsed from the date on which notice is given by either
party bound by the award to the other party or parties (Ss. 17-A & 19).

A settlement comes into force from the date agreed to therein or in default from the date of
signing the settlement and remains in operation till such time as agreed to and continues to
be in operation until the expiry of two months from the date on which a notice is given by one
of the parties to the other party or parties to the settlement (Ss. 19).

Where a labour court or tribunal orders reinstatement of a discharged or dismissed workman

and the employer prefers any proceedings in a High Court or the Supreme Court against the
award, the employer shall be liable to pay such workman, during the pendency of such
proceedings, full wages last drawn by him.

The Act prohibits strikes and lockouts in public utility services without giving six weeks’ notice
and within fourteen days of such notice. In non-public utility services, the parties cannot
declare a lockout or go on a strike during the pendency of conciliation or arbitration or
adjudication proceedings, and during the period of operation of a settlement in respect of any
matter covered thereunder. Any strike or lockout in violation of these provisions is rendered
illegal and the party is liable for penalties prescribed under the Act. However, a lock-out
declared as a consequence of an illegal strike and strike resorted to as a consequence of an
illegal lock-out are not illegal (Ss. 22-24).

The Act regulates lay-off and retrenchment, and also transfer and closure of establishments
with special reference to the rights of workmen affected thereby to receive notice or wages
and compensation at the rate of 15 days wages for every completed year service or any part
thereof in excess of six months. In the case of transfer of undertaking, the workmen shall be
entitled to notice and compensation as if they had been retrenched. If, however, the change
of employer does not cause any interruption in their service and the terms and conditions of
service are not less favourable under the transferee, no such compensation is payable. In
the case of closure of under taking due to unavoidable circumstances, the compensation
shall not exceed three months’ average pay. (Ch. V-A).

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In establishments employing 100 or more workmen, the employer is prohibited from declaring
lay-off or retrenchment or close down his undertaking without obtaining prior permission from
the appropriate Government, in addition to paying compensation to the affected workmen
(Ch. V-B).

Employers, workmen and trade unions are prohibited from committing any unfair labour
practice detailed in Schedule-V to the Act. In case of commission of any unfair labour
practice, the guilty shall be liable for punishment (Ss. 25-T & U).

Any one who commences, continues or otherwise acts in furtherance of an illegal strike or
lockout is liable for punishment with imprisonment or with fine (S. 26). Similarly the Act
provides for penalty for instigation to take part in an illegal strike or lockout, for giving financial
aid to illegal strikes and lockouts, and for breach of settlement or award (Ss. 27-29).

Where a conciliation or adjudication proceeding is pending, no workman concerned in the

dispute can be dismissed for a misconduct without obtaining prior permission of the authority
concerned, if the misconduct is connected with the pending dispute [S. 33 (1) (b)].

However, if the misconduct is not connected with the pending dispute, the employer can
dismiss such workman by paying one month’s wages and by filing simultaneously an
application before the authority for approval of the action taken [S. 33 (2) (b)].

Notwithstanding anything contained in sub-sections (1) and (2), no ‘protected workman’ can
be dismissed by an employer, during the pendency of a conciliation or adjudication
proceeding, without obtaining the prior permission of the authority before whom the
proceeding is pending [S. 33 (3)].

Where any money is due to a workman from the employer under a settlement or award or
under the provisions of Chapter V-A or Chapter V-B, the workman can make an application
to the Government for recovery of the same from the employer as an arrear of land revenue.
Where any workman is entitled to receive any benefit capable of being computed in terms of
money, the Government may, on an application from the workman, refer the same to such
labour court for computation, which may thereafter be recovered as an arrear of land revenue.
(S. 33-C).

The Act provides for representation of parties by their respective trade unions/federations in
any proceeding before conciliation or arbitration or adjudication. No party to the dispute is
entitled to representation by a legal practitioner in any conciliation proceeding. However, in
any proceeding before a labour court, tribunal or national tribunal, a party to a dispute may
be represented by a legal practitioner with the consent of the other parties to the proceeding
and with the leave of the Court/tribunal (S. 36).

In case any difficulty or doubt arises as to the interpretation of an award or a settlement, the
Government may refer the same to such labour court as it thinks fit. The decision given by
the labour court, after hearing the parties, is final and binding on all such parties (S. 36-A).

8. Industrial Employment (Standing Orders) Act, 1946.

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An Act, which requires employers in industrial establishments to formally define, with
sufficient precision, the conditions of employment under them and to make the said conditions
known to workmen employed by them. Every industrial employer employing 50 or more
workmen is required to submit five copies of draft standing orders to the certifying officer for
certification. The draft standing orders should, as far as possible, be in conformity with the
Model Standing Orders appended to the Act (S. 3).

Standing orders are certifiable, if provision is made therein for every matter set out in the
schedule and the draft standing orders are otherwise in conformity with the provisions of the
Act. The Certifying Officer, after hearing he parties including the trade union and/or workmen,
issues a certificate to that effect. Such certified standing orders shall, unless an appeal is
preferred under S. 6 come into operation on the expiry of 30 days from the date on which
authenticated copies are sent (Ss. 4-5 & 7).

Appeal lies to the Appellate Authority in case any party is aggrieved by the order of the
certifying officer. The SOs, once finally certified, shall not be liable to modification until the
expiry of 6 months, except on agreement between the parties (Ss. 6 &10).

In the event of suspension of a workman pending inquiry, the employer shall pay subsistence
allowance @ 50 per cent of wages for the first 90 days and @ 75 per cent beyond 90 days if
the delay in completion of disciplinary proceedings is not directly attributable to the conduct
of the workman (S. 10-A).

Model Standing Orders will apply to the establishment during the interregnum, i.e., during the
period between the date on which the Act becomes applicable to it and the date on which the
certified standing orders come into operation (S. 12-A).

Model Standing Orders, which should be followed while framing draft standing orders for
certification, provide for the following matters:
Classification of workmen; issue of tokens; publication of working time, holidays, pay-days
and wage-rates; shift working and notice of changes therein; attendance and late coming;
procedure for availing different types of leave; stoppage of work for reasons beyond the
control of employer; termination of employment; acts of omission and commission for which
a fine can be impose; acts of misconduct; disciplinary action; punishments; handling of
complaints; essential services and their rights/duties; service certificate, etc.

If any question arises as to the application or interpretation of a standing order cerfitied under
the Act, any employer or workman may refer the question to any of the Labour Courts
constituted under the Industrial Disputes Act, 1947 and specified for the disposal of such
proceeding (S. 13-A).

Nothing in the Act shall apply to an industrial establishment in so far as the workmen
employed therein are covered by the Fundamental and Supplementary Rules, Civil Services
(CCA) Rules, Civilians in Defence Service (CCA) Rules, IRES, etc., that may be notified by
the appropriate Government in the official gazette (S. 13-B).

9. Minimum Wages Act, 1948

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The Minimum Wages Act is an off-shoot of the resolution passed at the Minimum Wages
Fixing Machinery Convention (1928) of the International Labour Organisation. The object of
the said resolution was to fix minimum wages in the cases of “trades or parts of trades (and,
in particular, home working trades) in which no arrangements exist for the effective regulation
of wages by collective agreements or otherwise and wages are exceptionally low. The MW
Act was passed with a view to give effect to these resolutions.

Aims at preventing exploitation of labour by making provision for the statutory fixation of
minimum rates of wages in industries and a number of scheduled employments, where labour
is not organised and sweated labour is most prevalent. The appropriate government can fix
minimum rates of wages for different scheduled employments, or different classes of work in
the same scheduled employment, or separate rates for adults, adolescents, children and
apprentices, and/or for different localities. (S. 3)

For instance, the expression “scheduled employments” includes/covers employment in

carpet-making, rice and flour mills, tobacco industry, plantations, oil mills, local authority,
construction industry, stone-crushing and stone-breaking, lac manufacturing, mica works,
public motor transport, tanneries, mining, railways, docks and ports, etc.

The sweep of the Act is very wide and the appropriate Government is empowered to bring
any employment and any establishment under the purview of the MW Act. The appropriate
government is empowered to fix minimum rates of wages for time work (MTR) or piece work
(MPR) including guaranteed time-rate where piece-rate systems are in vogue (MGTR) and
overtime rate (OTR). (S. 3).

The minimum rate of wages fixed/revised under the Act may consist of: (a) a basic rate plus
special allowance towards cost of living index number; (b) a basic rate with or without the
cost of living allowance, and the cash value of the concessional supply of essential
commodities, where so authorised; (c) an all inclusive rate allowing for basic rate, cost of
living allowance and the cash value of the concession, if any. (S. 4).

The wages may be fixed by any one or more of the following wage periods, namely, by the
hour, or by the day or by the month or by such other larger wage-period. The minimum rates
of wages may consist of basic wages including cost of living allowance or an all inclusive
basic rate. (S. 5).

The government may follow one of the two procedures in fixing minimum rates, namely, (a)
by appointing a committee to advise it in respect of fixation or revision of minimum rates of
wages; or (b) by publishing proposals in the official gazette and calling for objections, if any,
from the affected parties and, after giving them a hearing, finally fixing the minimum rates.
The final notification fixing/revising minimum rates of wages shall, unless otherwise specified,
come into force on the expiry of three months from the date of its issue. (S. 5).

The government may also appoint a Standing Advisory Board to advise it on fixation/revision
of minimum rates of wages and to co-ordinate the work of committees and sub-committees
appointed under S. 3. (Ss. 7 & 8).

In case of payment of less than the minimum rate of wages, an employee can move the
Authority under the Act to recover the difference along with penal damages from the
employer. The maximum damages that can be levied by the Authority under the Act are 10
times the shortfall. (S. 20).

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10. Payment of Bonus Act, 1965
The object of the Act is to provide for the payment of bonus to persons employed in certain
establishments. The scheme of the Act is quadri-dimensional: (a) to impose statutory liability
upon an employer covered by the Act to pay bonus to his employees; (b) to define the
principle of payment of bonus according to the prescribed formula; (c) to provide for payment
of minimum and maximum bonus and linking the payment of bonus with the scheme of “set-
on and set-off” of allocable surplus; and (d) to provide machinery for enforcement of the
liability for payment of bonus.

The Act applies to every factory and every other establishment where 20 or more persons
are employed on any day during the accounting year. The term ‘establishment’ includes
departments, undertakings and branches. It does not apply to persons employed by
insurance companies, seamen, persons registered as dock workers, employees of any
industry carried on by or under the authority of any department of the Central or State
Government or a local authority. “Employee”, as defined in s. 2(13), means any person (other
than an apprentice) employed on a salary or wage not exceeding Rs. 21,000/- p.m.

The Act provides for computation gross profits and determination of available surplus. From
out of the available surplus, 60% in the case of a banking company and 67% in any other
case is treated as allocable surplus. This allocable surplus is the workers’ share in the
available surplus. (Ss. 4-7).

Every employee who has worked for not less than 30 working days in an accounting year is
entitled to the bonus under the Act. In respect of employees drawing wages more than Rs.
7,000/- per month, bonus will be calculated as if their wages are Rs. 7,000/- per month. The
Act provides for payment of minimum bonus @ 8.33% basic wages and dearness allowance,
whether or not there is allocable surplus. The maximum bonus is fixed @ 20%. (Ss. 8-11).

If in any accounting year, the allocable surplus exceeds the amount of maximum bonus
payable, then, the excess shall, subject to a limit of 20% of the total wage of the employees,
be carried forward for being ‘set on’ in the succeeding accounting year and so on up to and
inclusive of the fourth accounting year to be utilised for paying bonus. Similarly, in case of
deficiency to pay the minimum bonus and there is no sufficient amount carried forward under
‘set on’, such minimum amount or deficiency shall be carried forward for being ‘set off’ in the
succeeding accounting year and so on up to and inclusive of the fourth accounting year. (S.
15).

Bonus under the Act has to be paid within 8 months from the close of the accounting year.
The employer can adjust any customary or pooja bonus paid from the annual bonus. The
employer can also deduct any sum towards loss of damage caused by the employee and
proved in an enquiry, and the employee is entitled to receive only the balance, if any. (Ss.
17-19).

An employee shall be disqualified to receive bonus under the Act, if he is dismissed from
service for – fraud; or riotous or violent behaviour; or theft, misappropriation or sabotage of
any property of the establishment. (S. 9).

15
Where any money is due to an employee by way of bonus from him employer, the employee
or his authorised representative or in the event of his death, his legal heirs, may make an
application to the appropriate Government, which shall issue a certificate for that amount to
the Collector who shall proceed to recover the same as an arrear of land revenue. Such
application has to be made by the employee, etc., within one year from the date on which the
money became due. (S. 21).

The Act also provides for linking bonus to production or productivity, provided the maximum
bonus payable does not exceed 20% of the basic wages and dearness allowance. (S. 31-
A).

11. Payment of Gratuity Act, 1972

The Act provides of payment of gratuity to employees engaged in factories, mines, oilfields,
plantations, ports, railways, shops and other establishments where 10 or more persons are
employed.

Gratuity is payable to an employee in the event of superannuation, retirement, resignation

and death or disablement due to accident or disease. ‘Employee’ means and includes all
employees (other than an apprentice) [S. 2 (e)]. ‘Superannuation’ means the attainment by
the employee of such as is fixed in the contract or conditions of service as the age on the
attainment of which the employee shall vacate the employment [S. 2 (r)]. ‘Retirement’
includes termination of the service of an employee otherwise than on superannuation [S. 2
(q)]. ‘Wages’, in a nutshell, includes basic plus dearness allowance, and expressly excludes
bonus, commission, house rent allowance, overtime and any other allowance [S. 2 (s)].

Note: The 1994 amendment abolished the wage limit from the definition of ‘employee’ which
stood at Rs. 2500/- p.m. as on the date of amendment.

Employer is required to pay gratuity to an employee on the termination of his employment,

provided he has rendered continuous service for not less than 5 years. Subject to the above,
Gratuity is payable in the event of superannuation, retirement or resignation. However, the
eligibility criterion of 5 years continuous service is waived, if the termination of employment
is due to death or disablement due to accident or disease (S. 4).

‘Continuous service’ means uninterrupted service for 240/120 days in an year/six months
respectively. In the case of employment below the ground, it is 190/95 days. For the purpose
of the definition of ‘continuous service’, service interrupted on account of sickness, accident,
absence from duty without leave (not being absence resulting in break of service), lay-off,
strike or a lock-out or cessation of work not due to any fault of the employee, and, in the case
of a female employee, maternity leave not exceeding 12 weeks, shall not be treated as
interruption (S. 2-A).

Gratuity shall be calculated at the rate of 15 days’ wages for every completed year service or
any part thereof in excess of six months based on the rate of wages last drawn. In the case
of a monthly rated employee, 15 days’ wages shall be calculated by dividing the monthly rate
of wages last drawn by 26 and multiplying the quotient by 15. The maximum amount of
gratuity payable to an employee has been fixed at Rs. 10,00,000 (S. 4).

16
The right of the employee to receive gratuity is forfeited –

a) in case of damage or loss to employer’s property, to the extent of such damage or loss;
and/or
b) in case of termination of services due to riotous or disorderly behaviour or due to an offence
involving moral turpitude, provided such offence is committed by him in the course of his
employment (S. 4).

Every employer is required to obtain an insurance for his liability for payment towards the
gratuity from the Life Insurance Corporation of India or any other prescribed insurer (S. 4-A).

In case of non-payment of gratuity within 30 days from the date it becomes payable, he is
required to pay simple interest at such rate as prescribed by the Central Government from
time to time. The amount of gratuity payable can be recovered by the controlling authority
by issuing a certificate to the Collector, who shall proceed to recover it as an arrear of land
revenue (Ss. 7 & 8).

Note: This Handout was prepared in the year 1998. Most of the subsequent changes made
in the laws have been incorporated in the handout, while some might not have been. The
readers are advised to refer to the latest notifications for changes, if any, made in respect of
contribution towards ESI, PF and the minimum and maximum limits of number of
employees/persons employed and/or the benefits provided for the purposes of Works
Committee, Chapter V-A and V-B of the ID Act or for mandatory requirement of Factories
Act, Standing Orders, Gratuity, Bonus, Minimum Wages, Payment of Wages, etc.

12. Payment of Wages Act, 1936.

Regulates the payment of wages in certain classes of persons employed in industry. The Act
applies to the payment of wages to persons employed, in any factory or a railway
establishment or an industrial establishment, either directly or through a contractor. The Act
does not apply to persons whose wages exceed Rs. 18000/- per month.

Wages includes all remuneration payable under the contract and includes remuneration
payable - a) under a settlement or award, b) for overtime work, c) bonus, d) at the time of
termination, i.e., notice wages, etc., d) under any scheme framed under any law;

but does not include: a) profit sharing or other bonus which does not form part of the
remuneration under the terms of employment, b) any value of house accommodation or of
supply of water, light, medical attendance or other amenity or any service expressly excluded
from computation of wages by an order of the State Government, c) contribution toward PF,
etc., d) travelling allowance or concession, e) any sum paid to defray special expenses
incurred by the employee in connection with his employment, and f) any gratuity payable. [S.
2 (vi)].

Wages shall be payable by the employer in the current coin within the prescribed time limit
(maximum being one month) and that no deductions other than those authorised by law are
made by the employers. (Ss. 3-6).

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Authorised deductions include deductions towards – fines; absence from duty; damage to or
loss of goods specifically entrusted to the person; for services rendered including house-
accommodation supplied by the employer or any agency and the amenities and services
supplied; recovery of advances and loans; co-operative societies. (Ss. 7-13).

With the written authorisation of the employee, deductions toward LIC premia; trade union
subscriptions; national relief fund, etc.

In case of unauthorised deduction or delayed payment of wages, the employee can approach
the PW Authority; penalty includes recovery of the amount deducted unauthorisedly plus 10
times the amount so deducted; in case of delayed payment, a fine of Rs. 25 can be levied; if
the claim of the employee is found frivolous, he is liable to pay a fine of Rs. 50; appeal against
the order of the PW Authority lies in a small causes court or District Court; Civil Courts are,
however, barred from entertaining any suit for recovery of wages or deduction from wages in
so far as the sum so claimed forms the subjct of an application under S. 15 or has formed
the subject of a direction under S. 15 or could have been recovered under that section. (Ss.
15, 17 & 22).

13. Trade Unions Act, 1926

This was enacted with a view to provide for the registration of trade unions and to spell out
the rights and liabilities of registered trade unions.

‘Trade Union’ is any combination, whether temporary or permanent, formed primarily for the
purpose of regulating the relations between workmen and employers and workmen and
workmen, or between employers and employers, or for imposing restrictive conditions on the
conduct of any trade or business, and includes any federation of two or more Trade Unions
[S. 2 (h)].

Any seven or more members of a trade union may, by subscribing their names to the rules
of the trade union and by complying with the provisions of the Act may apply for registration.
It should, however, be ensured that not less than one-half of the total number of the office
bearers shall be persons actually engaged or employed in the industry with which the trade
union is connected. The application for registration should be accompanied by a copy of the
rules of the trade union, a statement of the personal-cum-official particulars of the members
and name and address of the trade union. If the Union is connected with an establishment or
industry, it should have a minimum of 10% or 100 workmen, whichever is less, as its members
as on the date of making application for registration. (Ss. 4 & 5).

The rules of the trade union should provide for such matters as the name of the union, objects,
the purposes for which the funds shall be applicable, mode of maintaining the list of members,
the quantum and mode of collecting subscription, the range of benefits to which the members
are entitled to, the manner of amending the rules, the safe custody of union funds and the
audit of its annual accounts, the mode of dissolution of union, etc. The minimum subscription
payable by members of the trade union shall not be less than (i) Re. 1/- p.a., in case of rural
workers; (ii) Rs. 3/- p.a., in case of workers in other unorganized sectors; and (iii) Rs. 12/-
p.a., for workers in any other case. (S. 6).

A certificate of registration of a trade union can be withdrawn or cancelled by the Registrar -

18
on the application of the trade union, subject to verification, or (b) if the registrar is satisfied
that the certificate was obtained by fraud or mistake or that the trade union has ceased to
exist or has wilfully contravened any provision of the Act or allowed any rule to remain in
force which is inconsistent with any such provision, or has rescinded any rule providing for
any matter provision which is required by S. 6. However, a notice of two months be given by
the registrar before the certificate is withdrawn or cancelled. An appeal lies in the civil court
and/or High Court against the order of the Registrar. (Ss. 10 & 11).

A union so registered will enjoy certain rights. The general funds of the union can only be
spent on certain objects, such as payment of salaries, etc., to the officers of the trade union;
administrative expenses; compensation to members in the event of loss due to trade
disputes, allowances to members or their dependants on account of death, old age, sickness,
etc., provision of educational or social or religious benefits for the members, etc. The Act
permits constitution of separate fund for political purposes.

The general funds of the union can only be spent on objects, such as, payment of salaries,
etc., to the office bearers, administrative expenses, prosecution/defending of a legal
proceeding, conduct of a trade dispute, compensation to members for loss arising out of trade
disputes, allowances to dependants in case of death, etc., of members, provision of
education, social or religious benefits for members, the upkeep of any periodical, etc. The
union may, however, constitute a separate fund for political purposes, but cannot utilise the
general funds for political purposes of any of the office bearer or member or any other person.
(Ss. 15 & 16).

The union office-bearers enjoy immunity against criminal conspiracy under S. 120-B of the
Indian Penal Code, for any agreement made between the members in furtherance of any
legitimate object of the union, unless the agreement is an agreement to commit an offence
punishable under the IPC (S. 17).

Likewise, the trade union and its office-bearers are protected from any civil action for
damages, in respect of any legitimate act done in contemplation or furtherance of a trade
dispute even if results in interference with the trade or business or employment of some other
person or with the right of some other person to dispose of the capital or of his labour as he
wills. No agreement between the members of a trade union is void or voidable merely by
reason of the fact that the object(s) of the agreement are in restraint of trade (Ss. 18 & 19).

A person below 18 years of age is disqualified; so also a person convicted of any offence
involving moral turpitude and sentenced to imprisonment is disqualified for a period of five
years from the date of release. (S. 21-A).

The name of a union can be changed with the consent of at least two-thirds of the total
number of its members. Two or more unions can amalgamate into one with or without
dissolution or division of funds, provided the votes of at least 50 per cent members of each
and every such union are recorded, and that at least 60 per cent of the votes recorded are in
favour of the proposal. Notice of change of name or amalgamation to be given to the
Registrar in the manner prescribed (Ss. 23-25).

Where a union is dissolved, notice thereof shall be given to the Registrar duly signed by
seven members and by the Secretary of the union within 14 days of the dissolution. The Act
requires the union to furnish returns as prescribed and keep the records available for
inspection by the authorities. (Ss. 27 & 28).

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