A New Era or A False Dawn: A Comment on the Code on Wages Bill 2017

by Saurabh Bhattacharjee

Labour reforms has been a part of the election manifesto of the Bharatiya Janata Party (BJP) for several General Elections now. Not surprisingly, the BJP-led National Democratic Alliance (NDA) Government tried to flag off the process of labour reforms soon after it assumed office in 2014. As part of this process, the Labour Ministry has sought to consolidate 38 central legislation into 4 Labour Codes – on Code of Wages, Code on Industrial Relations, Code on Social Security and Code on Occupational Safety, Health and Working Conditions. While preliminary drafts of most of these Codes are still undergoing pre-legislative consultation with various stakeholders, the Code on Wages Bill was introduced in the Lok Sabha in August 2017.[1] It has subsequently been referred to the Standing Committee on Labour for its comments.

The Code on Wages Bill seeks to unify 4 laws currently in force – the Minimum Wages Act, 1948; the Payment of Wages Act, 1936; the Payment of Bonus Act, 1965; and the Equal Remuneration Act, 1976 – into a single enactment. As the Ministry of Labour and Employment has noted, such codification of 4 statutes into one Code “will remove the multiplicity of definitions and authorities leading to ease of compliance without compromising wage security and social security to the workers.”[2] As such, the introduction of the Code is a commendable step and the Ministry must be lauded for its attempt.

Towards Universality

Very critically, the Code on Wages Bill seeks to extend the application of the Minimum Wages Act (MWA) and the Payment of Wages Act (PWA). MWA, as it stands now, applies only to scheduled employment and Section 12 of the Act obliges the employer to pay minimum wages only for a scheduled employment with respect to which a notification has been issued under section 5 of the Act. As a result, and as clarified by the Supreme Court in Lingegowd Detective & Security Chamber Pvt Ltd. v. Mysore Kirloskar Ltd.,[3] there is no obligation whatsoever to pay minimum wages for non-scheduled employments. Therefore, while the Supreme Court of India had held that every citizen is entitled to minimum wages under Article 23 of the Constitution,[4] a large number of workers paradoxically remain outside the ambit of the MWA and do not have a statutory right to minimum wages.

The Code on Wages Bill dispenses away with this distinction between scheduled and non-scheduled employments and seeks to make the right to minimum wages a universal statutory right in so far as Section 5 of the Bill uses the word ‘employees’ without any qualification.  The extension of the Code on Wages Bill to all employees is a ground-breaking step and can truly translate the observation of the Supreme Court of India that every citizen is entitled to minimum wages under Article 23 of the Constitution of India into a reality.

Similarly, the PWA, a statute that deals with timely payment of wages and permissible deductions from wages, currently applies only to a limited set of establishments specified in section 1 (4) of the Act or notified by the Appropriate Government. Therefore, a significant number of workers do not have the protection of this statute. The Code on Wages Bill extends these provisions all establishments. There is no threshold clause provided for application of the Bill to any establishment. Thus, the artificial exclusion of establishments between notified and non-notified establishments is being sought to be eliminated. This will dramatically expand the number of workers who will have the benefit of wage protection laws and is a ground-breaking step that must be welcomed.

However, there are certain features in Code, most notably, its definition of employee and its silence on public works programme, that may belie the promise of universal application of wage protection laws.

Definition of Employee

The definition of ‘employee’ under section 2 (f) covers all persons employed on wages by an establishment to do any skilled, semi-skilled or unskilled, manual, operational, supervisory, managerial, administrative, technical or clerical work except for member of the Armed Forces of the Union. This definition is relatively broad since it includes managerial and administrative functions within its scope.

Nonetheless, while the terms used like ‘manual’, ‘unskilled’, ‘skilled’, ‘technical’, ‘operational’ or ‘clerical’ are very broad, they have been subjected to comparatively narrow interpretation by the judiciary in recent cases. For example, the Supreme Court has held that school-teachers are not embraced within the fold of the MWA.[5] Similarly, creative artists and professionals have been excluded from the ambit of these terms under the Industrial Disputes Act 1947. As a result, there is a danger that even though the Code seeks to universalise minimum wages by jettisoning the category of scheduled employment, a limited interpretation of definition of ‘employee’ would exclude several workers from the ambit of the Code.

It is also submitted that in so far as minimum wages has been held to be a constitutional entitlement of every worker by the Court of India,[6] imposition of a qualification on the definition of employee on the basis of nature of work defies logic. If minimum wage is indeed a matter of right for all employees, then it should be applicable to all regardless of the nature of their work. In other words, a definition similar to that provided in Payment of Gratuity Act 1972 and which covers all employees, irrespective of the kind of their work, may be more suitable of the Code on Wages has to be truly universal in its scope.

Application of Minimum Wages to Public Works Programmes

Application of MWA to public works programme has been a bone of contention, especially in the context of the National Rural Employment Guarantee Act (NREGA). Section 6 of that statute allows the Central Government to delink the wages under the NREGA Programme from minimum wages. In fact, a Committee constituted by the Central Government recently found that the NREGA wages were less than the prescribed minimum wages in fifteen states.[7] Further, the Committee rejected the need for revising the wages under the NREGA programme to match the minimum wages.[8]

This is in brazen disregard of the ruling of the Supreme Court which had held that non-payment of minimum wages amounts to forced labour.[9] Indeed, it has been held that the obligation to pay minimum wages extends to public works programme as well. In Sanjit Roy v Union of India, the Supreme Court held that minimum wages have to be paid for a drought relief programme and observed:

Every person who provides labour or service to another is entitled at the least to the minimum wage and if anything less than the minimum wage is paid to him he can complain of violation of his fundamental right under Article 23. . . The State cannot under the guise of helping these affected persons extract work of utility and value from them without paying them the minimum wage. Whenever any labour or service is taken by the State from any person, whether he be affected by drought and scarcity conditions or not, the State must pay, at the least, minimum wage to such person on pain of violation of Article 23.[10]

The applicability of minimum wages law to public works programme and particularly to NREGA in the context of Article 23 of the Constitution has been reiterated by the Karnataka High Court in Karnataka Prantya Raita Sangha v. Union of India[11] and the Supreme Court in Union Of India & Ors. v. Karnataka Prantya Raita Sangha & Ors.[12]

Yet the controversy on linkage between NREGA and minimum wages has persisted. Unfortunately, the Code on Wages Bill is silent on this controversy. The Code’s failure to articulate an explicit right to minimum wages for workers under the NREGA programme undermines its stated objective of achieving universality in payment of minimum wages. A Code can scarcely be considered universal if it excludes the 10 crores workers, currently engaged by NREGA programme across the country.[13]

Fixation of National Minimum Wage: Undermining Federalism

One of the major changes that the Code will usher in is the introduction of statutory National Minimum Wage (NMW) for different geographical areas. Right from the 28th Indian Labour Conference onwards, a National Minimum Wage has been discussed and recommended in several National Labour Conference sessions – a forum for the Union Ministry of Labour and Employment and State Labour Ministers. The National Commission on Rural Labour (NCRL) had also recommended the adoption of a National Minimum Wage in 1991. As the Ministry has noted, “it will ensure that no State Government fixes the minimum wage below the National Minimum Wages for that particular area as notified by the Central Government” and thereby prevent a race-to-bottom. Therefore, this measure is not a day late and can strengthen the legal regime on minimum wages.

However, introduction of this statutory national minimum wages may raise legitimate concerns about impingement of federal autonomy since state’s prerogative to fix minimum wage rates would be substantially curtailed. It is undoubtedly a case of legitimate intrusion that is designed to only provide a baseline minimum below which states cannot fix the wage rate. Thus, the Code only minimally impairs and does not eliminate state’s freedom to fix the appropriate wage rate.

Nonetheless, it is important to take on board the concerns of state governments in fixation of National Minimum Wages. Section 9 (3) provides that the Central Government may obtain the advice of the Central Advisory Board. However, there is no positive obligation to consult state governments. This is a significant anomaly and goes against the principles of cooperative federalism that has shaped so many of India’s labour legislations. While introduction of national minimum wage is indeed commendable, providing for a statutory mechanism for consultation with state governments, or at the very least, State Advisory Boards contemplated under the Code would go a long way in assuaging concerns of state governments regarding erosion of federal autonomy.

Conclusion

The Code on Wages Bill is an impressive attempt to codify the four central statutes on wages and bonus into a uniform Code. While the discourse on labour reforms and codification of labour laws have largely centred around dilution of labour rights, the Code Bill stands out as an exception in so far as it breaks new ground in its attempt to remove threshold exclusions that apply to Payment of Wages Act and the Minimum Wages Act. Further, the introduction of national minimum wages may prevent a race-to-bottom between states to attract further investment. Therefore, the Code may expand the scope of wage security that workers in India currently enjoy. However, the deficiencies highlighted in this note are significant hurdles in this regard. Unless these are addressed by the Parliament, the objective of full wage security for workers may not be realised through this Code.

[This piece is based on a Comment submitted to the Parliamentary Standing Committee on Labour and Employment on the Code Wages Bill 2017]        

[1] The Code on Wages Bill 2017 (Bill No. 163 of 2017) available at http://labour.nic.in/sites/default/files/Code%20on%20Wages%20Bill%202017-As%20introduced%20in%20Lok%20Sabha.pdf

[2] Ministry of Labour and Employment, The Code on Wages Bill 2017, September 5, 2017, http://pib.nic.in/newsite/PrintRelease.aspx?relid=170541

[3] (2006) 5 SCC 180

[4] People’s Union for Democratic Rights v Union of India (1982) 3 SCC 235

[5] Haryana Unrecognised Schools Association v State of Haryana (1996) 4 SCC 225

[6] Sanjit Roy v Union of India (1983) 1 SCC 525

[7] Shalini Nair, MGNREGA Wages Less than Minimum Farm Wages in 15 States: Panel, Indian Express, July 10, 2017, available at http://indianexpress.com/article/india/mgnrega-wages-less-than-minimum-farm-wages-in-15-states-panel-4743412/

[8] According to Central Panel, Minimum Wages in MGNREGA Will Increase Gender Inequality, The Wire, September 11, 2017, available at https://thewire.in/176106/mgnrega-minimum-wages-women/

[9] People’s Union for Democratic Rights, supra note 4.

[10] Supra note 6, 533-534.

[11] MANU/KA/1139/2011

[12] MANU/SCOR/26392/2014

[13] Ministry of Rural Development, MGNREGA at a Glance, available at http://mnregaweb4.nic.in/netnrega/all_lvl_details_dashboard_new.aspx

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