This issue of LexCognito, which in Latin means 'awareness about law', seeks to provide you an insight into significant legal and regulatory developments that have taken place very recently in India.

Date: 27 July 2019
Workers permitted to work off site fall within the definition of employee under EPF Act
Vide its judgment dated 24 July 2019 in the matter of the Officer In-­Charge, Sub­-Regional Provident Fund Office & Anr. Vs. M/s Godavari Garments Limited, the Supreme Court of India has held that merely because women workers were permitted to do work off site and were paid on piece-rate basis would not take away their status as employees of the company under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 ("Act"). 

Facts: The Respondent Company ("Company") had engaged women workers who were provided with cut fabrics, thread, buttons, etc. to be made into garments at their homes. The sewing machines used by the women workers were owned by them, and not provided by the Company. The Company maintained that women workers were not its employees and were merely independent contractors, and hence, refused to pay Provident Fund Contributions ("PF Contributions") for them. However, the Provident Fund Office ("PF Office") held that those women workers were employees and the Company was liable to pay PF Contributions for them. Thereupon, the Company challenged the said order passed by PF Office before the Bombay High Court, which passed judgment in favour of the Company and set aside the order passed by PF Office stating that the Company had no direct or indirect control over the women workers. The PF Office then appealed against the said order before the Supreme Court of India.

Issue: Whether aforesaid women workers are covered under the definition of "employee" under the Act or not?

Relevant provision: As per the Section 2(f), the term “Employee" means "any person who is employed for wages in any kind of work, manual or otherwise, in or in connection with the work of an establishment, and who gets, his wages directly or indirectly from the employer, and includes any person:
  1. employed by or through a contractor in or in connection with the work of the establishment;
  2. engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961 (52 of 1961), or under the standing orders of the establishment."
Contentions and decision: The Company contented that the women workers used their own sewing machine and worked from their home and not at its production centers. Any person could do the work on their behalf and hence, the Company exercised no supervisory control. The Court stated that the Company supplied all the raw materials, gave specifications to stitch the garments and had absolute right to reject the finished products in case of any defects. The Employer’s right to reject the end product if not satisfied and also having the authority to remove a worker, speaks enough for the element of control and supervision. The mere fact that the women workers stitched garments at home, would make no difference. 

Another contention of the Company was that the wages were paid on piece-rate basis and there is no master-servant relationship. The Court quoted its decision in another matter that If every piece rated workmen is an independent consultant, lakhs and lakhs of workmen in various industries where payment is correlated with production would be out of the expression "workmen". Piece rate payment meaning thereby payment correlated to production is a well recognized mode of payment to industrial workmen.   

The court emphasized that the Act is a social welfare legislation and should be interpreted in a way which is beneficial to the workmen. Accordingly, the Court held that the women workers were employees of the Company and directed the Company to pay assessed amount of PF dues within one (1) month.  

Conclusion: Indeed, the definition of the term “employee” under the Act is very wide. Further, the law distinguishes between a “contract of service” and “contract for service” although there is a very thin line difference between the two. There is a catena of judgments on this subject with no single factor which can be used universally to make such determination. Interestingly, since the Act is a social welfare legislation for the benefit of the employees, it is interpreted in a manner that seeks to advance its purpose. Therefore, the determination as to whether there is an employer-employee relationship or not is made by the Courts in India by examining various factors considering facts of each case. In the instant case, the Court while applying the test of control and examining mode of payment passed the judgement against the Company and held that women workers were its employees.
It has become really challenging for the companies to enter into consultancy arrangement with individual workers, the terms of which may be interpreted in different ways under different legislation. Therefore, the companies must revisit their arrangements with individual workers as non-compliance under the Act will not only attract penalties and prosecution of directors and officers, but it will also require the companies to deposit employer as well as employee contribution for the entire period of default in case employer-employee relationship is established.
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Chambers of Rajan & Indraneel is a premier full service law firm headquartered at New Delhi, India. The Firm represents amalgamation of vast experiences and practices of two eminent lawyers. Indranil Ghosh is highly reputed as a disputes lawyer. He was a senior partner and head of litigation practice in one of the oldest Indian law firm Fox Mandal for several decades before setting up his own practice. Rajan D Gupta is a rank holder Chartered Accountant turned Corporate Lawyer. He is also a licensed Insolvency Resolution Professional. He has been associated with internationally renowned big law firms in past and has held senior level positions in firms like PwC, Fox Mandal, Khaitan & Co. and SRGR Law, etc. before starting the Firm.

We have a team of experienced Lawyers, Chartered Accountants, Company Secretaries and Insolvency Resolution Professionals with access to network of high quality experienced lawyers in all major commercial cities of India.

The Firm offers a wide range of expert legal services in the areas of corporate and commercial laws and specializes in representing major foreign and domestic corporations with diverse business interests in India. The Firm is professionally equipped to handle large sized and complex corporate transactions like Mergers & Acquisitions, Corporate Restructuring, Joint Ventures, Inbound & Outbound Investments, Private Equity and Venture Capital Investment Transactions, Real Estate Transactions, Infrastructure Projects, Project Finance, Power Projects, Non-Conventional Energy Projects, Highways & Road Projects and Corporate Taxation as well as GST, etc. The Firm also offers proven capabilities in litigation and dispute resolution practice areas, especially in handling international and domestic arbitrations as well as litigation in Supreme Court, various High Courts of India and various judicial and quasi-judicial tribunals/forums including at National Client Law Tribunal, Appellate Tribunals, Tax Tribunals, Competition Commission, Electricity Tribunal, Telecom Disputes Tribunal, Designated Authorities and other adjudicatory bodies.

We have set up a Japan Business Desk (JBD) in order to serve our Japanese clients in a better way. The endeavour of the JBD is to act as a bridge between our professionals and clients from Japan so as to ensure that there are no barriers as to linguistic and cultural differences. This will indeed facilitate Japanese corporates doing business in India. 
This newsletter contains general information available in public domain at the time of its preparation. It is intended as a general news update and is not intended to be comprehensive nor to provide specific business, financial, investment, legal, tax or other professional advice or opinion or services. This newsletter is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Before making any decision or taking any action that may affect you or your business, you should consult a qualified professional adviser and refer to the source pronouncement/documents on which this business alert is based. It is also expressly clarified that this newsletter is neither a solicitation nor an invitation of any sort whatsoever or a source of advertising from our firm or any of its partners or lawyers or other professionals to create any adviser-client relationship. Whilst every effort has been made to ensure the accuracy of the information contained in this news alert, this cannot be guaranteed, and neither our firm nor any related person/entity shall have any liability to any person or entity that relies on the information contained in this publication. Any such reliance is solely at the user's risk.
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