Supreme Court on Minimum Wages Act: Haryana Notifications on Worker Classification and Trainee Wages

Introduction

Date of the Judgment: 29 April 2019

Citation: 2019 INSC 414

Judges: L. Nageswara Rao, J. and M.R. Shah, J.

Can a State government, while fixing minimum wages, also classify employees based on experience and set rules for trainee wages? The Supreme Court of India recently examined this question in a case involving notifications issued by the Haryana government under the Minimum Wages Act, 1948. The core issue revolved around the extent of the government’s power to modify employment conditions while setting minimum wages. The Supreme Court, in this judgment, clarified the boundaries of the government’s authority under the Minimum Wages Act, 1948, particularly concerning the classification of employees and the regulation of trainee wages. The judgment was delivered by a two-judge bench comprising Justice L. Nageswara Rao and Justice M.R. Shah.

Case Background

The case involves two appeals against judgments of the High Court of Punjab and Haryana, which upheld notifications issued by the Haryana government under Section 5(2) of the Minimum Wages Act, 1948. The first appeal, Hindustan Sanitaryware and Industries Ltd. & Others vs. The State of Haryana, challenged a notification dated 27 June 2007. The second appeal, Faridabad Industries Association vs. The State of Haryana & Another, contested a notification dated 21 October 2015. Both notifications dealt with fixing and revising minimum wages for various scheduled employments in Haryana. The notifications included provisions for classifying employees based on their years of experience, setting minimum wages for trainees, and prohibiting the segregation of wages into components like allowances. The appellants, primarily industrial associations, argued that these provisions exceeded the government’s authority under the Minimum Wages Act, 1948, and interfered with contractual agreements between employers and employees. They also challenged the inclusion of certain categories of workers, like security personnel and trainees, under the purview of the Act.

Timeline

Course of Proceedings

The High Court of Punjab and Haryana dismissed the writ petitions filed by the Appellants, upholding the notifications issued by the Haryana government. The High Court held that the classification of workmen was justified and necessary to avoid stagnation of employees in their grades. It also held that the Minimum Wages Act, 1948, applied to trainees. The High Court relied on its earlier judgment in Apparel Exporters & Manufacturers Association vs. State of Haryana. The High Court, however, accepted the contention of the Appellants that Domestic Workers and Safai Karamcharis could not have been included in the list of scheduled employment. The High Court concluded that Notes 1, 9, and 10 of the Notification dated 21.10.2015 were legal and valid. Aggrieved by the judgment of the High Court, the Appellants approached the Supreme Court.

Legal Framework

The core of this case revolves around the interpretation of the Minimum Wages Act, 1948. Key provisions include:

• Section 2(h) of the Minimum Wages Act, 1948, defines “wages” as “all remuneration, capable of being expressed in terms of money, which would, if the terms of the contract of employment, express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment, [and includes house rent allowance], but does not include—(i) the value of—(a) any house-accommodation, supply of light, water, medical attendance, or (b) any other amenity or any service excluded by general or special order of the appropriate Government; (ii) any contribution paid by the employer to any Pension Fund or Provident Fund or under any scheme of social insurance; (iii) any travelling allowance or the value of any travelling concession; (iv) any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment; or (v) any gratuity payable on discharge;”.
• Section 2(i) of the Minimum Wages Act, 1948, defines “employee” as “any person who is employed for hire or reward to do any work, skilled or unskilled, manual or clerical, in a scheduled employment in respect of which minimum rates of wages have been fixed; and includes an out-worker to whom any articles or materials are given out by another person to be made up, cleaned, washed, altered, ornamented, finished, repaired, adapted or otherwise processed for sale for the purposes of the trade or business of that other person where the process is to be carried out either in the home of the out-worker or in some other premises not being premises under the control and management of that other person; and also includes an employee declared to be an employee by the appropriate Government; but does not include any member of the Armed Forces of the [Union].”.
• Section 3 of the Minimum Wages Act, 1948, empowers the appropriate government to fix minimum rates of wages for employees in scheduled employments.
• Section 4 of the Minimum Wages Act, 1948, specifies that minimum wages may consist of a basic rate of wages and a cost of living allowance, or an all-inclusive rate.
• Section 5 of the Minimum Wages Act, 1948, outlines the procedure for fixing and revising minimum wages.
• Section 12 of the Minimum Wages Act, 1948, obligates employers to pay wages not less than the minimum rates fixed by the government.

The Act aims to ensure that workers receive a minimum level of pay, but the extent to which the government can interfere with existing employment contracts is a key point of contention in this case. The Supreme Court interprets these provisions in light of the constitutional mandate to secure a living wage for all workers as per Article 43 of the Constitution of India.

Arguments

Appellants’ Arguments:

• The classification of workmen based on experience (e.g., deeming an unskilled worker as semi-skilled after a certain number of years) interferes with the employer’s promotion policy and is beyond the government’s jurisdiction under the Minimum Wages Act, 1948.
• The government cannot alter the conditions of service, contract, or settlement between the employer and employee. The government’s power is limited to fixing and revising wages, not interfering with contractual rights and obligations.
• Security inspectors, security officers, and supervisors do not fall within the definition of “employee” under Section 2(i) of the Minimum Wages Act, 1948, as they do not perform skilled, unskilled, manual, or clerical work. Therefore, the government cannot fix minimum wages for these categories.
• Trainees who are not employed for hire or reward cannot be brought under the purview of the Act. The government cannot fix minimum wages for such trainees or restrict the training period to one year.
• The prohibition on segregating wages into components like allowances is beyond the government’s competence. The definition of “wages” includes all remuneration as per the contract of employment. There is no concept of a basic rate of minimum wages.
• The concept of a principal employer being responsible for the payment of minimum wages to contract labor is foreign to the Act.
• Different minimum rates of wages cannot be fixed for the same class of work in the same scheduled employment.

State of Haryana’s Arguments:

• The notifications were issued to secure a living wage for all workers as mandated by Article 43 of the Constitution of India.
• The notifications were based on recommendations made by an Advisory Committee after consultations with employers and workmen.
• Splitting minimum wages into components is permissible as there is no prohibition in the Act.
• The deemed promotion of an unskilled worker to a semi-skilled worker based on experience is only for the purpose of entitling them to the next grade of minimum wages and is not a deemed promotion or classification.
• Trainees were not being paid even the minimum wages applicable to an unskilled worker, and therefore, the government decided to protect them.

Submissions of Parties

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the classification of workmen by the Notification dated 27.06.2007 amounts to an interference with the promotion policy of the Appellant which is beyond the jurisdiction of the Government under the Act.
2. Whether the Government has the power to alter the conditions of service, contract or settlement between the employer and the employee.
3. Whether the High Court erred in not realizing the difference between a fair wage, a living wage, and a minimum wage.
4. Whether the Security inspector/ Security officer/ Supervisors will fall within the purview of the definition of “employee” in Section 2(i) of the Act.
5. Whether trainees can be brought within the purview of the Act.
6. Whether the Government has the power to place a restriction on the period of training.
7. Whether the classification of employees was totally impermissible.
8. Whether different minimum rates of wages can be fixed for the same class of work in the same scheduled employment.
9. Whether the prohibition of segregation of wages into components in the form of allowances was beyond the competence of the Government.
10. Whether the concept of principal employer and contractor is foreign to the Act.
11. Whether the occupier/the principal employer can be made responsible for the payment of minimum rate of wages to a contract labour.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

✓ Bidi, Bidi Leaves and Tobacco Merchants’ Association v. State of Bombay [1962 Supp (1) SCR 381]: The Court relied on this case* to reiterate that the government’s power is limited to fixing wages and cannot alter other terms of the contract.

✓ Haryana Unrecognised Schools’ Association v. State of Haryana [(1996) 4 SCC 225]: The Court followed this case* to define the scope of “employee” under the Act, holding that security personnel and teachers do not fall under this definition.

✓ Airfreight Ltd. v. State of Karnataka [(1999) 6 SCC 567]: The Court referred to this case* to support its view that minimum wages cannot be split into components.

✓ Section 2(h) of the Minimum Wages Act, 1948: The Court used this provision* to define “wages,” emphasizing that it includes all remuneration payable under the contract of employment.

✓ Section 2(i) of the Minimum Wages Act, 1948: The Court used this provision* to define “employee,” particularly concerning security personnel and trainees.

✓ Sections 3, 4, 5 and 12 of the Minimum Wages Act, 1948: The Court referred to these provisions* to discuss the powers of the government to fix minimum wages and the procedure for doing so.

✓ Article 43 of the Constitution of India: The Court referred to this provision* to emphasize that the government has the duty to secure a living wage for all workers.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily driven by the principle that the government’s power under the Minimum Wages Act, 1948, is limited to fixing and revising wages and does not extend to altering the terms of the contract between the employer and the employee. The Court emphasized that the definition of “wages” in Section 2(h) of the Act includes all remuneration payable under the contract of employment. The Court also focused on the definition of “employee” in Section 2(i) of the Act, holding that only those who are employed for “hire or reward” are covered by the Act. The Court was also concerned that the government was interfering with the contractual rights of the employers and employees. The Court was also concerned about the fact that the government was trying to make alterations to the terms of the contract through the notifications which is not permissible under the Act.

Sentiment Analysis of Reasons

Fact:Law Ratio

Logical Reasoning

Issue 1: Classification of workmen based on experience

Issue 2: Inclusion of Security Personnel

Issue 3: Inclusion of Trainees

Issue 4: Restriction on Training Period

Issue 5: Prohibition on segregation of wages

Key Takeaways

✓ The government cannot classify employees based on experience for the purpose of minimum wages.

✓ The government cannot alter the terms of the contract between the employer and the employee, except for fixing minimum wages.

✓ Security personnel and other similar categories of workers who do not perform skilled, unskilled, manual, or clerical work are not covered under the Minimum Wages Act, 1948.

✓ Only trainees who are employed for “hire or reward” are covered by the Act.

✓ The government cannot fix the training period.

✓ The government cannot prohibit the segregation of wages into components like allowances.

✓ The principal employer is responsible for the payment of minimum wages to contract labor.

Directions

The Supreme Court did not give any specific directions, but clarified that the employers shall not be entitled to recover any amounts paid under the Notifications to the workmen on the ground that they have succeeded in this case. The Court also clarified that the workmen are not precluded from seeking redressal of their grievances by resorting to other remedies available to them under law.

Conclusion

The Supreme Court’s judgment in Hindustan Sanitaryware and Industries Ltd. & Others vs. The State of Haryana and Faridabad Industries Association vs. The State of Haryana & Another clarified the scope of the government’s power under the Minimum Wages Act, 1948. The Court held that the government’s power is limited to fixing and revising minimum wages and does not extend to altering the terms of the contract between the employer and the employee. The Court also clarified that the definition of “employee” under the Act does not include security personnel and other similar categories of workers who do not perform skilled, unskilled, manual, or clerical work. The Court further held that only trainees who are employed for “hire or reward” are covered by the Act. The judgment has significant implications for employers and employees, as it clarifies the boundaries of the government’s authority under the Act. The Court has also ensured that the benefits that have already been given to the workers are not taken back. The judgment provides a framework for future notifications under the Minimum Wages Act, 1948, and ensures that the Act is implemented in a manner that is consistent with its objectives and the constitutional mandate.