International Labor & Employment Law Committee Newsletter

Issue: December 2012

Editor: Tim Darby | Africa and Middle East Editor: Karen Seigel | Asia and Oceania Editor: Ute Krudewagen | Canada Editor: Gilles Touchette | European Editor: Paul Callaghan | Latin America Editor: Juan Carlos Varela | Law Student Editor: Irene Lehne, Earle Mack School of Law at Drexel University


Adjudication of Industrial Disputes Falls Outside the Purview of the Arbitration and Conciliation Act Even if Agreed to by Employer and Employee, Bombay High Court Rules

Stuti Galiya, Khaitan & Co, Mumbai, India

Industrial disputes (i.e., disputes between an employer and a workman employee relating to the enforcement of a right or an obligation created under the Industrial Disputes Act, 1947 (IDA)) cannot be adjudicated in a private forum by an arbitrator and instead must be decided by the authorities constituted under the IDA, a single judge of the Bombay High Court ruled on 20 November 2012.1

In this case, the petitioner was a public limited company involved in the 'air transport industry.' The respondents were pilots employed by the petitioner pursuant to appointment letters issued by the petitioner. These appointment letters contained an arbitration clause for referring all disputes in relation to the appointment of the respondents to the sole arbitration of the chief operating officer of the petitioner or a person designated by him. The respondents (the pilots) filed applications under the IDA before the Labour Court in July 2012 for recovery of unpaid wages since December 2011 along with interest. The petitioner (the airline) disputed the jurisdiction of the Labour Court on the ground that the parties had agreed to refer all disputes to arbitration under the provisions of the Arbitration and Conciliation Act, 1996 (Arbitration Act) in the appointment letters of the respondents.

The Labour Court ruled against the petitioner, who then approached the Bombay High Court by filing writ petitions. The Bombay High Court upheld the decision of the Labour Court and ruled that adjudication of industrial disputes is reserved by the legislature exclusively for the authorities established under the IDA (such as the works committee, the Board of Conciliation, labor courts and industrial tribunals), as a matter of public policy. Further, the IDA separately provides a process for arbitration to which the Arbitration Act does not apply. Such disputes affect not only the concerned workman but the industry as a whole, the Bombay High Court explained. As a result, industrial disputes cannot be decided by a privately chosen arbitrator outside the four corners of the IDA despite an agreement to the contrary.

This judgment seeks to protect the interests of workmen through the safeguards set out in the IDA, which cannot be excluded by an agreement between the employer and workman.

1Kingfisher Airlines Limited versus Captain Prithvi Malhotra and Others, Writ Petitions 2585, 2586 and 2587 of 2012.

Recent Circular on Social Security Contributions Kept in Abeyance

Veena Gopalakrishnan and Vikram Shroff, Nishith Desai Associates, Mumbai/Bangalore/Delhi

The guidelines for computation of contributions and quasi-judicial proceedings and under the Employees' Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act) laid out in an internal circular dated November 30, 2012,1 because of confusion over what benefits are to be included in calculation of basic wages. To the extent the Circular is kept in abeyance,2 the current status in relation to provident fund contributions on basic wages is likely to continue.

The Circular was issued to streamline and standardize the assessments made under the EPF Act. The key points addressed by the Circular include:

  1. Certain inquiries in relation to violations of, and non-compliance with, the EPF Act are to be initiated only after actionable and verifiable information is provided for compliance officers to consider;
  2. In order to facilitate the effort of the compliance officers in inquiring into the proceedings, the complete compliance history of the establishment consisting of, inter alia, the amount remitted, the number of employees, pending quasi-judicial enquiries, pending recovery certificates, and pending legal cases should be made available by the Employee Provident Fund's officers based on the data collected from employers as a part of their routine filings;
  3. The procedure for initiation of assessment inquiry;
  4. Regulation of lump sum assessments;
  5. Inspection of multi-location establishments;
  6. Limitation on inquiries and investigations going beyond seven years i.e., the period of default investigated into shall not exceed seven years; and
  7. In relation to splitting of wages, all allowances which are ordinarily, necessarily and uniformly paid to the employees are to be treated as a part of the basic wages for the purposes of calculation of provident fund contributions.

The Circular has attempted to clear the confusion in the definition of the term 'basic wages' under the EPF Act3 and stipulates that the expression 'commission or any other similar allowance payable to employees' is to be read as one continuous term i.e., commission or any other 'commission-like allowance, irrespective of the nomenclature. The Circular provides that the 'basic wages' is subject only to those exclusions expressly referred to in the definition of the term under the EPF Act.


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3Section 2(b) of the EPF Act: "basic wages" means all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in either case in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include:(i) the cash value of any food concession; (ii) any dearness allowance (that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house-rent allowance, overtime allowance, bonus commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment; (iii) any presents made by the employer; . . .

Social Security Agreement Signed with Japan

Veena Gopalakrishnan and Vikram Shroff, Nishith Desai Associates, Mumbai/Bangalore/Delhi

India and Japan signed a social security agreement (SSA) November 16, 2012.1 As indicated in a press release issued by the Ministry of Foreign Affairs of Japan,2 the Japan-India SSA is aimed to solve the problem of double-coverage, i.e., coverage under the social security legislations of the home and host countries, The SSA stipulates that those employees temporarily dispatched for a period of five years or less to the other country will, in principle, join only the pension system of the country from which employees are dispatched. It is expected that the conclusion of the SSA will reduce the burden imposed on companies and employees to make social security contributions and further promote economic investments and employment opportunities for nationals of Japan and India.

In addition to Japan, India has signed SSAs with several other countries including Belgium, Germany, Switzerland, France, Luxembourg, Netherlands, Hungary, Denmark, Czech Republic, Republic of Korea, Norway, Finland, Canada and Sweden.3



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India Signs Social Security Agreement with Sweden

Veena Gopalakrishnan and Vikram Shroff, Nishith Desai Associates, Mumbai/Bangalore/Delhi

A social security agreement (SSA) between India and Sweden was signed on November 26, 2012.1 The following benefits shall be provided to Indian nationals working in Sweden, as per a press release issued by the Government of India:2

  • For short term contract up to two years, no social contributions would need to be paid under Swedish law by or on behalf of the detached workers, provided they continue to make social security payments in India;
  • This two-year exception shall apply even when the Indian company sends its employees to Sweden from a third country;
  • Indian workers shall be entitled to the export of the social security benefit if they relocate to India after the completion of their service in Sweden;
  • Self-employed Indians in Sweden would also be entitled to export (withdraw) their social security benefit to India upon their return to India; and
  • The period of contribution in one contracting state will be added to the period of contribution in the second contracting state for determining the eligibility for social security benefits.

In addition to Sweden, India has signed SSAs with several other countries including Belgium, Germany, Switzerland, France, Luxembourg, Netherlands, Hungary, Denmark, Czech Republic, Republic of Korea, Norway, Finland, Canada and Japan.3



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