International Labor & Employment Law Committee Newsletter
Issue: May 2012
Backpay Agreed on In Settlement is to Be Paid Without Employee Proof He Did Not Obtain Further Employment Following Termination, Supreme Court Rules
Sajai Singh, Partner & Chair--Employment Law Practice, J. Sagar Associates, Bangalore, India
Where the parties have amicably arrived at a settlement of back wages, back wages must be awarded without going into the question of offsets from subsequent employment, the Supreme Court held on March 2, 2012.1
The appeal had been filed against a judgment of the High Court, which had set aside the decision of the School Tribunal to award back wages of Rs.1,00,000 to the reinstated employee, on the grounds that the employee had not made a specific assertion that he was not gainfully employed.
The employer had argued that back wages could only be awarded where the employee was not gainfully employed during the period he remained out of service, relying on the judgment of the Supreme Court in the case of Kendriya Vidyalaya Sangathan & anr. v. S.C. Sharma.2 The employee had relied on the Supreme Court's judgment in Reetu Marbles v. Brabhakant Shkla,3 where the Supreme Court had held that back wages could be awarded to the employee even in the absence of a specific assertion by the employee to the effect that he was not gainfully employed during the period that he remained out of service.
In the present case, the Supreme Court did not resolve this split of authority, and instead held that since the school and the employee had already reached a mutual agreement pursuant to which the school was to pay Rs.1 lakh in back wages to the employee, the settlement should be upheld.
1 Vismay Digambar Thakare v. Ramchandra Samaj Sewa Samiti & Ors.
3 (2010) 2 SCC 70.
Proposed Law on Sexual Harassment at Workplace Delayed
India's Union Cabinet deferred its approval for the draft 'Protection of Women from Sexual Harassment at Workplace Bill, 2010' (Bill) due to possible concerns that the Bill appears to be disproportionately in favor of the complainant and that the burden of proving innocence was on the employer, which could potentially encourage misuse of the law.1
The Government of India, in 2004, through the National Commission of Women initiated the Bill, which has been in discussion since then. The Bill is largely based on the guidelines laid down by the Supreme Court of India (Supreme Court) in a decision2 concerning sexual harassment against female employees at the workplace. The Bill proposes to cover, in addition to the organized sector, unorganized sectors, domestic workers and educational institutions. The Bill also lays down detailed provisions with respect to setting up of a complaints committee, which would look into complaints regarding sexual harassment. The Bill also mandates that the committee complete the enquiry in a time-bound manner.
The Bill envisages a penalty of de-registration of the institution or a fine of INR 50,000 (approx. US$1,000) for violating the provisions therein and a repetition of the same offence could result in the punishment being up to three times such amount. The Bill also seeks to make false complaints of sexual harassment punishable.
Until the Bill is passed and there is a codified law in India on prohibition of sexual harassment at the workplace, all employers will need to continue to comply with the guidelines laid down by the Supreme Court on this subject, which require employers to, inter alia, set up a complaints committee and take other steps to prevent sexual harassment against female employees at the workplace.
1 The Times of India, TNN, April 27, 2012 (http://timesofindia.indiatimes.com/india/Cabinet-puts-off-lopsided-bill-on-sexual-harassment/articleshow/12888366.cms)
2 Vishaka v. State of Rajasthan, AIR 1997 SC 3011
Employee Consent Is Pre-Requisite to Business Transfer Deals
In any business transfer/asset transfer deal involving a change in management or ownership of an undertaking, prior consent from employees must be obtained according to a landmark decision by the Supreme Court pronounced on November 18, 2011.1 Employees have the right not to consent to such transfer, in which case they will be entitled to retrenchment compensation in terms of Section 25F of the Industrial Disputes Act, 1947 (ID Act). This shall be applicable even where the terms of employment under the new management are no less favourable and where the services are not interrupted, the Court specified.
As a result of the decision, a provision requiring that consent of employees be obtained is likely to be incorporated as a condition precedent in transaction documents executed for the purposes of business transfer/asset transfers in future.
Section 25FF of the ID Act provides that where the ownership or management of an undertaking is transferred, whether by agreement or operation of law, from the employer in relation to that undertaking to a new employer, every workman (as defined below) who has been in continuous service for not less than 1 year in that undertaking immediately before such transfer shall be entitled to notice and compensation in accordance with provisions of Section 25F, as if the workman had been retrenched. An exception has been provided from the applicability of this Section, if the following conditions are met:
Section 25F of the ID Act mandates payment of retrenchment compensation equivalent to 15 days average pay for every completed year of continuous service or any part thereof in excess of six months, to every workman who has been in continuous service for not less than 1 year, in the event the conditions listed above have not been complied with. This is in addition to other retirement benefits payable to the workman, such as provident fund, gratuity etc. A 'workman' is defined to include all employees except those that primarily work in a managerial or administrative capacity and whose wages exceed Rs 10,000 per month.
However, the judgment delivered in the aforesaid case lays down a new principle, which suggests that even where the terms of employment under the new management are no less favourable and where the services are not interrupted, consent of the workmen will be required for the transfer of the undertaking and they cannot be forced to work under the new management. If the employees refuse to work under the new management, the provisions on payment of retrenchment compensation provided in Section 25F will apply.
Facts of the Case
Philips India Limited (Philips) entered into an Agreement for Sale for the sale of its Consumer Electronics Factory at Calcutta with Kitchen Appliances India Limited (KAIL), a subsidiary of Videocon International Limited as a going concern together with all assets and liabilities. Philips had earlier in the year 1997 introduced a Voluntary Retirement Scheme (VRS) for its workmen and majority of them opted and accepted the same. Post the execution of the Agreement for Sale between Philips and KAIL, Philips withdrew the VRS launched in the year 1997.
Some of the employees of the Consumer Electronics Factory in Calcutta had opposed the sale of the unit by Philips to KAIL.
They were offered the voluntary retirement scheme but did not accept the same. When Philips proposed a resolution at an extraordinary general meeting to approve the sale, the employees raised an industrial dispute and also brought a motion with the Calcutta High Court.
The Calcutta High Court ordered Philips to pay retirement benefits, including retrenchment benefits, to the employees who did not want to join KAIL. The management did not comply with the order, contending that since the workers neither availed themselves of the VRS within the stipulated time nor did they retire/were retrenched from the service, there was no question of any payment.
The employees moved a contempt petition in the Calcutta High Court, but it was dismissed. Their appeal was allowed by the Supreme Court, which asked Philips to pay all the benefits within 3 months. The Supreme Court held that when workmen cannot be compelled to work under different management, those workmen who do not consent to the transfer are entitled to retirement/retrenchment compensation in terms of the ID Act.
There have been some earlier judgments pronounced by the Supreme Court which seem to imply that where the conditions as contained in proviso to Section 25FF are complied with, no retrenchment compensation will be payable on account of transfer. However, in the judgment delivered in this case, the Supreme Court has mentioned that it is a settled law that without consent, workmen cannot be forced to work under different management and in that event, those workmen are entitled to retirement/retrenchment compensation in terms of the ID Act.
1 Sunil Kr. Ghosh versus K. Ram Chandran, Civil Appeal Nos. 9921-9922 of 2011.