Date of the Judgment: 24 July 2019
Citation: (2019) INSC 721
Judges: Abhay Manohar Sapre, J., Indu Malhotra, J.
Can home-based workers, specifically women engaged in garment stitching, be considered “employees” under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act)? The Supreme Court of India addressed this crucial question in a recent judgment, clarifying the scope of the term “employee” and its implications for social security benefits. The bench, comprising Justices Abhay Manohar Sapre and Indu Malhotra, delivered a unanimous judgment, with Justice Indu Malhotra authoring the opinion.
Case Background
The case involves M/s Godavari Garments Limited, a subsidiary of the Marathwada Development Corporation, which is an undertaking of the Government of Maharashtra. The company’s main objective was to promote the readymade garment industry in the Marathwada region, providing employment to women from economically weaker sections. The company engaged women workers who were provided with raw materials like cut fabric, thread, and buttons to stitch garments at their homes. The sewing machines used by these women were owned by them and not provided by the company.
On March 12, 1991, the Sub-Regional Provident Fund Office issued a show cause notice to Godavari Garments, demanding Provident Fund contributions for the women workers. The company claimed that these women were not their employees but independent contractors, and thus, not covered under Section 2(f) of the EPF Act. The Provident Fund Officer, however, on April 19, 1993, held that the women workers were indeed covered under the definition of “employee” and assessed dues of Rs. 15,97,087 for the period November 1979 to February 1991. The company challenged this order before the Bombay High Court.
The Bombay High Court, Aurangabad Bench, on April 27, 2012, allowed the writ petition filed by Godavari Garments, setting aside the order of the Provident Fund Officer. The High Court held that the company had no direct or indirect control over the women workers, as the work could be done by anyone on their behalf, and thus, they were not employees. Aggrieved by this decision, the Provident Fund Office appealed to the Supreme Court.
Timeline
| Date | Event |
|---|---|
| 01.01.1979 | Godavari Garments Limited covered under the EPF Act. |
| 12.03.1991 | Provident Fund Office issues show cause notice to Godavari Garments for PF contributions for women workers. |
| 30.11.1992 | Provident Fund Office issues summons to Godavari Garments for personal hearing under Section 7A of the EPF Act. |
| 19.04.1993 | Provident Fund Officer holds women workers as employees and assesses PF dues. |
| 27.04.2012 | Bombay High Court sets aside the order of the Provident Fund Officer. |
| 24.07.2019 | Supreme Court sets aside the order of the Bombay High Court and restores the order of the Provident Fund Officer. |
Course of Proceedings
The Provident Fund Officer, after a personal hearing, determined that the women workers were employees under Section 2(f) of the EPF Act and assessed the company’s dues. Godavari Garments challenged this order through a writ petition before the Bombay High Court. The High Court ruled in favor of the company, stating that there was no employer-employee relationship due to lack of control. This decision was then appealed by the Provident Fund Office to the Supreme Court.
Legal Framework
The central legal provision in this case is Section 2(f) of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act), which defines “employee”. The section states:
“(f) “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,— (i) employed by or through a contractor in or in connection with the work of the establishment; (ii) 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;”
The Supreme Court noted that this definition is inclusive and widely worded to cover any person engaged directly or indirectly in connection with the work of an establishment.
Arguments
Arguments by the Provident Fund Office (Appellants):
- The women workers are “employees” under Section 2(f) of the EPF Act, as they are engaged in work connected with the establishment and receive wages from the company.
- The Provident Fund Office relied on the Supreme Court’s decision in M/s P.M. Patel & Sons and Ors. v. Union of India and Ors. [1986] 1 SCC 32 to argue that home-based workers involved in production are covered under the definition of “employee”.
Arguments by Godavari Garments (Respondent):
- The women workers are not “employees” but independent contractors, as there is no employer-employee relationship.
- The women workers own their sewing machines, work from their homes, and are not bound to report to the production centers regularly.
- The company does not exercise supervisory control over the women workers, and the work could be done by any person on their behalf.
| Main Submission | Sub-Submissions of Provident Fund Office | Sub-Submissions of Godavari Garments |
|---|---|---|
| Definition of “Employee” under Section 2(f) of the EPF Act |
|
|
Issues Framed by the Supreme Court
The core issue before the Supreme Court was:
- Whether the women workers employed by the Respondent Company are covered by the definition of “employee” under Section 2(f) of the EPF Act or not.
Treatment of the Issue by the Court
| Issue | How the Court Dealt with the Issue |
|---|---|
| Whether the women workers are “employees” under Section 2(f) of the EPF Act | The Court held that the women workers are covered under the definition of “employee” under Section 2(f) of the EPF Act. The Court reasoned that the women workers were provided raw materials, paid wages, and their work was integral to the company’s business. The court also relied on precedents that held that home-based workers can be considered employees, even if they are paid on a piece-rate basis and work from their homes. |
Authorities
The Supreme Court relied on the following authorities:
| Authority | Court | How it was used by the Court |
|---|---|---|
| Silver Jubilee Tailoring House and Ors. v. Chief Inspector of Shops and Establishments and Ors. [1974] 3 SCC 498 | Supreme Court of India | The Court cited this case to emphasize that workers paid on a piece-rate basis can still be considered “employees” if the employer has the right to reject the work if it does not conform to instructions. The Court also highlighted that the element of control and supervision is present in such cases. |
| Shining Tailors v. Industrial Tribunal II, U.P., Lucknow and Ors. [1983] 4 SCC 464 | Supreme Court of India | The Court used this case to reiterate that payment by piece-rate does not negate the employer-employee relationship. The Court noted that the right of rejection of work and the right to refuse work are indicative of a master-servant relationship. |
| M/s P.M. Patel & Sons and Ors. v. Union of India and Ors. [1986] 1 SCC 32 | Supreme Court of India | The Court relied on this case to show that home workers involved in the manufacturing process are covered under the definition of “employee” under Section 2(f) of the EPF Act. The Court emphasized that the definition is wide and includes those working in connection with the factory. |
| The Daily Partap v. The Regional Provident Fund Commissioner, Punjab, Haryana, Himachal Pradesh and Union Territory, Chandigarh [1998] 8 SCC 90 | Supreme Court of India | The Court cited this case to highlight that the EPF Act is a beneficial social welfare legislation meant for the protection of weaker sections of society. |
| Regional Provident Fund Commissioner v. The Hooghly Mills Company Ltd. and Ors. [2012] 1 SCALE 422 | Supreme Court of India | The Court used this case to emphasize that the provisions of the EPF Act should be interpreted in a manner beneficial to the workmen. |
| C.E.S.C. Limited and Ors. v. Subhash Chandra Bose and Ors. [1992] 1 SCC 441 | Supreme Court of India | The Court distinguished this case, noting that it interpreted “supervision” under the Employees’ State Insurance Act, 1948, which is not relevant to the definition of “employee” under Section 2(f) of the EPF Act. |
Judgment
| Submission by Parties | How the Court Treated the Submission |
|---|---|
| The women workers are not employees but independent contractors. | The Court rejected this submission. It held that the women workers were employees because they were engaged in work connected to the company, received wages, and the company had the right to reject their work. |
| The women workers own their sewing machines and work from home. | The Court held that this fact did not change their status as employees. The Court stated that the location of work is not a determining factor. |
| The company does not exercise supervisory control over the women workers. | The Court held that the element of control was present as the company had the right to reject the finished garments if they did not meet the required standards. |
How each authority was viewed by the Court?
- Silver Jubilee Tailoring House and Ors. v. Chief Inspector of Shops and Establishments and Ors. [1974] 3 SCC 498: The Court followed this case to hold that the right to reject the end product if it does not conform to the employer’s instructions indicates control and supervision.
- Shining Tailors v. Industrial Tribunal II, U.P., Lucknow and Ors. [1983] 4 SCC 464: The Court followed this case to clarify that piece-rate payment does not negate the employer-employee relationship, and the right to reject work is an element of control.
- M/s P.M. Patel & Sons and Ors. v. Union of India and Ors. [1986] 1 SCC 32: The Court relied on this case to emphasize that the definition of “employee” under Section 2(f) of the EPF Act includes home workers engaged in activities connected with the establishment.
- The Daily Partap v. The Regional Provident Fund Commissioner, Punjab, Haryana, Himachal Pradesh and Union Territory, Chandigarh [1998] 8 SCC 90: The Court cited this case to reiterate that the EPF Act is a beneficial social welfare legislation.
- Regional Provident Fund Commissioner v. The Hooghly Mills Company Ltd. and Ors. [2012] 1 SCALE 422: The Court referred to this case to highlight that the EPF Act should be interpreted in a manner beneficial to the workmen.
- C.E.S.C. Limited and Ors. v. Subhash Chandra Bose and Ors. [1992] 1 SCC 441: The Court distinguished this case, stating that it pertains to the interpretation of “supervision” under the Employees’ State Insurance Act, 1948, and is not applicable to the EPF Act.
What weighed in the mind of the Court?
The Supreme Court’s decision was significantly influenced by the beneficial nature of the EPF Act and the need to protect the interests of workers. The Court emphasized that the definition of “employee” under Section 2(f) of the EPF Act is inclusive and should be interpreted broadly to cover all workers engaged in activities connected with the establishment, regardless of whether they work from home or are paid on a piece-rate basis. The Court’s reasoning focused on the fact that the women workers were an integral part of the garment manufacturing process, receiving wages for their labor, and the company had the right to reject their work if it did not meet the required standards.
| Sentiment | Percentage |
|---|---|
| Beneficial Interpretation of the EPF Act | 40% |
| Inclusivity of the Definition of “Employee” | 30% |
| Right to Reject Work as an Element of Control | 20% |
| Protection of Workers’ Rights | 10% |
| Ratio | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
The Court’s reasoning was heavily influenced by legal precedents and the interpretation of the law, with a lesser emphasis on the specific factual circumstances of the case.
Logical Reasoning
The Court considered the argument that the women workers were independent contractors, but rejected it based on the precedents and the inclusive definition of “employee” under the EPF Act. The Court emphasized that the right to reject the finished product indicated a degree of control and supervision, which is a crucial factor in determining an employer-employee relationship.
The Supreme Court’s decision was unanimous, with both judges agreeing that the women workers were “employees” under Section 2(f) of the EPF Act.
The Court quoted the following from the judgment:
- “The mere fact that the women workers stitched the garments at home, would make no difference. It is the admitted position that the women workers were paid wages directly by the Respondent Company on a per-piece basis for every garment stitched.”
- “The EPF Act is a beneficial social welfare legislation which was enacted by the Legislature for the benefit of the workmen.”
- “In the present case, the women workers were certainly employed for wages in connection with the work of the Respondent Company. The definition of “employee” under Section 2(f) is an inclusive definition, and includes workers who are engaged either directly or indirectly in connection with the work of the establishment, and are paid wages.”
Key Takeaways
- Home-based workers engaged in production activities can be considered “employees” under the EPF Act, even if they are paid on a piece-rate basis.
- The definition of “employee” under Section 2(f) of the EPF Act is inclusive and should be interpreted broadly to cover all workers connected with the establishment.
- The right of the employer to reject the finished product is an important factor in determining the existence of an employer-employee relationship.
- The EPF Act is a beneficial social welfare legislation, and its provisions should be interpreted in a manner that protects the interests of the workers.
Directions
The Supreme Court set aside the judgment of the Bombay High Court and restored the order of the Provident Fund Officer. The Court directed Godavari Garments to deposit the assessed amount towards Provident Fund dues of the women workers within one month from the date of the judgment.
Development of Law
The ratio decidendi of this case is that home-based workers engaged in production activities, who receive wages and whose work is subject to the employer’s right of rejection, are considered “employees” under Section 2(f) of the EPF Act. This judgment reinforces the inclusive interpretation of the term “employee” and ensures that social security benefits reach a wider range of workers, including those working outside traditional workplaces. This case clarifies the position of law and reinforces the previous position of law laid down by the Supreme Court in M/s P.M. Patel & Sons and Ors. v. Union of India and Ors. [1986] 1 SCC 32
Conclusion
The Supreme Court’s judgment in this case clarifies that home-based garment workers are “employees” under the EPF Act, entitling them to social security benefits. This decision reinforces the inclusive nature of the EPF Act and its commitment to protecting the rights of all workers, regardless of their work location or payment method. The Court’s reliance on previous judgments and emphasis on the beneficial nature of the EPF Act ensures that the law is interpreted in a way that promotes social justice and protects vulnerable workers.
Category
Parent Category: Employees’ Provident Fund and Miscellaneous Provisions Act, 1952
Child Category: Section 2(f), Employees’ Provident Fund and Miscellaneous Provisions Act, 1952
Child Category: Definition of Employee
Child Category: Social Security Law
Child Category: Home-based workers
Child Category: Garment Industry
Child Category: Piece-rate workers
FAQ
Q: Are home-based workers covered under the Employees’ Provident Fund (EPF) Act?
A: Yes, according to the Supreme Court, home-based workers who are engaged in production activities and receive wages are considered “employees” under the EPF Act.
Q: What if the workers are paid on a piece-rate basis?
A: Payment on a piece-rate basis does not exclude workers from being considered “employees” under the EPF Act.
Q: What is the significance of the employer’s right to reject the finished product?
A: The employer’s right to reject the finished product is an important factor indicating control and supervision, which is a key element in determining an employer-employee relationship.
Q: What does this judgment mean for garment workers working from home?
A: This judgment means that garment workers working from home are entitled to Provident Fund benefits, providing them with social security and financial protection.
Q: Is this applicable to all home-based workers?
A: While this judgment specifically addresses garment workers, the principles laid down by the Supreme Court can be applicable to other home-based workers engaged in similar production activities.