International Labor & Employment Law Committee Newsletter

Issue: May 2012

Editor: Tim Darby | European Editor: Paul Callaghan |Canada Editor: Gilles Touchette |Asia and Oceania Editor: Ute Krudewagen

India

Establishments Are not to be Grouped Together for Retirement Provident Fund Purposes Merely Because Different Family Members Own Them All, Court Holds

Sajai Singh, Partner & Chair--Employment Law Practice, J. Sagar Associates, Bangalore, India

Different establishments are not "clubbed" together for determining whether an establishment meets the 20 employee threshold for application of retirement funding under the Employees' Provident Funds & Miscellaneous Provisions Act, 1952 (PF Act) simply because the managing directors of the four establishments are family members, the EPF Appellate Tribunal held on February 2, 2012.1

The issue arose because the Managing Directors of all four establishments were family members. Under the PF Act, an 'establishment' does not mean only one establishment, and may include two or more establishments, clubbed together, provided there is inter-dependability upon each other, common supervisory control, geographical proximity, functional and financial integrality. The Tribunal held that although the Managing Directors of all the establishments are family members, there are no findings to suggest that the establishments are inter-dependant on each other, there is functional integrality between these units, or a possibility that if one establishment were closed, the others would not survive on their own.

1 M/s. Pavizham Jewellers vs. Assistant Provident Fund Commissioner, Coimbatore [ATA No.624(13)/2011]

Allowances to all Employees Are to Be Included in Calculating Provident Fund Retirement Plan Contributions, Court Holds

Sajai Singh, Partner & Chair--Employment Law Practice, J. Sagar Associates, Bangalore, India

When special allowances are paid universally to all employees, they are treated as part of the basic wages for calculation of the provident fund contributions under the Employees' Provident Fund & Miscellaneous Provisions Act, 1952 (PF Act), the Division Bench of the Madhya Pradesh High Court held earlier this year.1

Such allowances may include

  • a dearness allowance (i.e., any cash benefits paid to the employee to meet special expenditures due to a rise in cost of living),
  • a retention allowance (i.e., payments to employees for retaining their services during a period when the establishment is shut down), or
  • a conveyance allowance (i.e., cash benefits paid to employees to defray expenses for establishing a home).

This interpretation is contrary to the definition of basic wages under Sections 2 (b) and 6 of the PF Act, which expressly exclude a house rent allowance, dearness allowance, overtime allowance, bonus, commission or any other similar allowances from the calculation of basic wages.

A Special Leave Petition has now been filed before the Supreme Court of India by Surya Roshni Ltd., challenging the decision of the Madhya Pradesh High Court. This case is perhaps the first one where this controversy will be decided conclusively by the Supreme Court, and the outcome is much awaited by stakeholders and industry experts.

1 Surya Roshni Ltd. v. Employees' Provident Fund and Anr. [2011 LLR 568].

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New Legislation Passed Protecting Older Employees in Corporate Reorganizations | National Regulations Push for "Democratic Management" of All Enterprises | Continued Work after Termination Deemed by Shanghai Court as New Employment | Requiring a Non-Workman to Perform Certain Duties of a Workman Does Not Amount to Unfair Labor Practice, Supreme Court Holds | Supreme Court Rules against Deemed Confirmation of Employment of a Probationary Employee | Establishments Are not to be Grouped Together for Retirement Provident Fund Purposes Merely Because Different Family Members Own Them All, Court Holds | Allowances to all Employees Are to Be Included in Calculating Provident Fund Retirement Plan Contributions, Court Holds | Backpay Agreed on In Settlement is to Be Paid Without Employee Proof He Did Not Obtain Further Employment Following Termination, Supreme Court Rules | Proposed Law on Sexual Harassment at Workplace Delayed | Employee Consent Is Pre-Requisite to Business Transfer Deals | Rules for Issuance of Employment Permits to Foreign Nationals Amended | Fixed Bonus to Be Included in Ordinary Wage, Supreme Court Rules | Amendments to Labor Code Proposed Reducing Some Employee Protections and Increasing Some Employee Benefits

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