Urgent Feedback Needed: How Does the Airfreight Case Affect Minimum Wage and PF Contributions?

Dear Members,

Feedback is urgent!!! The interesting point is the court said that the total wage paid to the employee, including the wage, is the criterion. If you go through the judgment, you can see that when the employer pays more than any sum fixed under the Minimum Wage Act, there is no illegality. Under the PF Act, only for Basic and DA, the contribution is payable.

However, there is no provision in the act that specifies the minimum contribution payable. In the absence of that, whatever is agreed upon in the contract of employment will prevail.

Kindly give me your feedback urgently.

Dear Satya,

Sorry, I cannot understand what you are saying. Please attach the copy of the judgment.

Regards,
SC

Hi,

The Airfreight judgment arose over the split-up of the salary into basic, DA, and other allowances. With the introduction of the DA component, the labor authorities started insisting that the basic and DA should be consistent with the Minimum Wages Act. The other components were not included in determining the wages. By virtue of this judgment, the components are totaled as minimum wages.

There is no minimum fixed for determining PF. Though the act specifies that there shall be no reduction in the contribution. Hence, while drafting the contract, the splits have to be worked out without casting doubts on the authorities that the splits are done deliberately to avoid the payment of contributions.

There is no scope for this concerning ESi, as more or less all allowances are covered for contribution.

Regarding PF, there is a Gujarat High Court judgment that speaks similarly. If this comes into effect, it will open a Pandora's box on contributions. The outflow being unimaginable!!!!

hrg-rajaram

Dear Sc,

I have forwarded the Judgment copy to your email address. I am waiting for your reply.

Satya

Hi,

What is your problem?

Personally and professionally, I am familiar with the case you are referring to. All that you have said about the case is largely true. The salient points regarding the judgment and how to operationalize it are:

1) Whatever split up you may adopt, the components you include in your structure must be those permitted by the definition of "wage" in the MW Act.

2) The Minimum Wages Act and the Employees Provident Funds Act are two independent legislations.

3) The Minimum Wage, as constituted in the Minimum Wages Act, has two components, viz: "Minimum Rate of Wages" and the "Special Allowance." The Statutory Minimum Wage is supposed to be inclusive of HRA.

4) The mischief lies here! The enforcement agencies force the employers to treat "Minimum Rate of Wage" as "BASIC" wage and the "Special Allowance" as the "D.A." In law, there is NO SUPPORT for such treatment, but gullible employers fall for it and follow wrong practices and over a period of time become captives of this evil!

5) The judgment(s) in question have adequately underscored that position the law considers as "right"!

6) The only way out for the employers is to follow these judgments, try to convince the enforcing agencies of the "rightness" of own action, and failing the approach, let the enforcing agencies prosecute the employer on this ground, and thus let the court affirm these judgments.

To uphold what is right, some pain is inevitable, and such risks must be taken. I would suggest that before following what is stated in this mail, an opinion of a senior practicing lawyer in labor be obtained. I know I am right, but not being a qualified lawyer, I am showing a direction and asking all to take suitable precautions.

Let the position be thus clear!!!

Regards,

Samvedan

August 4, 2006

Satya, can you please upload the Airfreight judgment on this site as there seems to be a lot of confusion. After reading the judgment, maybe we can interact better. By the way, the judgment is strangely unavailable on Judis.

Regards,
Praveen

Satya, can you please upload the Airfreight judgment on this site? There seems to be a lot of confusion. After reading the judgment, maybe we can interact better. By the way, the judgment is strangely unavailable on Judis.

Regards,
Praveen

Dear all,

Please find attached the Airfreight judgment. Let's read and discuss so that the issue is clear to all. In my view, the ratio is that Minimum Wages are (Basic + DA or VDA), and the same cannot be bifurcated whether one pays the statutory minimum wages or pays an amount which is more than the Minimum wages. Para 15 of the said judgment makes the issue clear.

Views are invited. Sorry for the poor copy; it was hard to procure.

Regards,
Praveen

1999 INDLAW SC 1529

[SUPREME COURT OF INDIA]

Airfreight Limited
v
State of Karnataka and Others
M. B. Shah
04 Aug 1999
BENCH
D. P. Wadhwa & M. B. Shah

COMPARATIVE CITATIONS
1999 (2) LLJ 70, 1999 AIR(SC) 2459, 1999 (6) SCC 567, 1999 SCC(L&S) 1185, 1999 (95) FJR 395, 1999 (4) LLN 1, 1999 INDLAW SC 1529

CASES REFERRED TO
Municipal Council, Hatta v Bhagat Singh and Others 1998 Indlaw SC 1694
Employees' State Insurance Corporation v R. K. Swamy and Others 1993 Indlaw SC 741
Cochin Shipping Company Etc v E.S.I. Corporation 1992 Indlaw SC 784
Messrs International Ore and Fertilizers (India) Private Limited v Employees' State Insurance Corporation 1987 Indlaw SC 28373
Hindu Jea Band, Jaipur v Regional Director, Employees' State Insurance Corporation, Ja 1987 Indlaw SC 28258
Kamani Metals and Alloys Limited v Their Workmen 1967 Indlaw SC 132
Bhikusa Yamasa Kshatriya and Another v Sangamner Akola Taluka Bidi Kamgar Union and Others 1962 Indlaw SC 275
U. Unichoyi and Others v State of Kerala 1961 Indlaw SC 377

THIS JUDGMENT WAS FOLLOWED IN 5 CASE(S)

ACTS REFERRED
Commercial establishments

CASE NO
Civil Appeal No. 4259 of 1999 (From the Judgment and Order dated 16-10-1998 of the Karnataka High Court in W.A. No. 2502 of 1998), decided on August 4, 1999.

KEYWORDS
Labour & Industrial Law, Dearness Allowance, Contract Of Employment, Fair Wage

LAWYERS
Judgment, J.P. Cama, N. Ganapathy, K. Kiran, S.R. Bhat, Subramanaya, Hetu Sharma

.JUDGMENT TEXT

The Judgment was delivered by SHAH, J. :

SHAH, J. for the Leave granted.

This appeal by special leave is filed against the judgment and order dated 16-10-1998 passed by the Division Bench of the High Court of Karnataka at Bangalore in Appeal No. 2502 of 1998 dismissing the appeals filed by the appellant Company and confirming the order passed by the learned Single Judge in Writ Petition No. 23096 of 1997.

Writ petition was filed in the High Court of Karnataka for a declaration that the notification dated 19-8-1987 issued by the State Government in exercise of the power under Section 27 of the Minimum Wages Act (hereinafter referred to as "the Act") fixing the minimum rates of wages payable to the categories of employees as specified in the said notification for Item 28, namely, "shops and commercial establishments" under the Act, was not applicable to the appellant industry and also for setting aside the order dated 31-7-1997 passed by the Labour Officer (the Competent Authority) under the Minimum Wages Act.

The respondent employees contended that the appellant was required to pay variable dearness allowance on the basis of the notification issued under with Section 3 read with Section 5 of the Act. Applications under Section 20(2) of the Act were filed as the employer failed to pay the said amount. The Labour Officer directed that each employee was entitled to the extent of Rs. 8740 by way of variable dearness allowance in terms of the notification. The Competent Authority also directed the employer to pay compensation under Section 20(3) of the Act. However, that part of the order directing the employer to pay compensation is set aside by the High Court.

At the time of the hearing of this appeal, Mr. Cama, learned counsel for the appellant, submitted that:
(a) the appellant Company does not come under the category of shops and commercial establishments "as defined under the provisions of the Karnataka Shops and Commercial Establishments Act, 1961, and, therefore, the notification under the Minimum Wages Act which applies to shops and commercial establishments would not be applicable to the appellant Company;
(b) the learned counsel contended that the appellant Company is paying a total pay packet which is more than the minimum wages prescribed under the notification and, therefore, (i) the notification is not applicable and (ii) in any case, there is no violation of the said notification. He clarified that the appellant Company is paying more than the minimum wages, but the Company is not bifurcating the basic wages and dearness allowance. He submitted that under the Act it is not required to divide minimum wages into two parts, one as basic wages and the other as dearness allowance.

In our view, the contention that the appellant Company is not covered by the expression "shops and commercial establishments" has no merit. It is admitted by the appellant Company before the Competent Authority (Labour Officer) that the appellant Company is engaged in import and export clearance and forwarding of cargo, travel and tourism, import, consolidate and courier services and is having several offices situated at various places including New Delhi, Bombay, Calcutta, Madras, Ahmedabad, Bangalore etc. It is also admitted that it is registered as a commercial establishment which is engaged in courier, cargo, travel and related services. In the petition filed before the High Court, it was submitted by the appellant that the main activity of the cargo division is handling incoming and outgoing shipment by air concerning clearing and forwarding; the type of services rendered are processing of custom clearance and export formalities; booking of space of air shipment; consolidation of inward air cargo, international/domestic door to door express delivery of documents, parcels and packages; clearing and forwarding of goods entrusted to it for safe delivery by way of personal services and such other activities. For this purpose, the High Court has appreciated the evidence that was placed before the Labour Officer and we do not find any error that would call for interference. The High Court has also rightly referred to the common parlance meaning of the expression "shops and commercial establishment" on the ground that Item 28 is added in the Central Act where the said expression is not defined. In our view, the activities which are carried out by the appellant leave no doubt that they would be covered by the expression "shops" and/or "commercial establishment" as understood in the ordinary common parlance. What the appellant establishment is doing is purely a commercial activity with a profit motive, hence, a commercial establishment. It can also be termed as a shop where services are sold on a retail basis. For this purpose, it is not necessary to refer to various decisions of this Court in detail which deal with the meaning of the expression "shops and/or commercial establishment". In Hindu Jea Band v. Regional Director, ESI Corpn. 1987 Indlaw SC 353) a shop was held to be "a place where services are sold on a retail basis" and, therefore, making available on payment of a stipulated price the services of musicians employed by the petitioner on wages made the petitioner's establishment a "shop". In International Ore and Fertilizers (India) (P) Ltd. v. ESI Corpn. 1987 Indlaw SC 504 : 1987 SCC) the petitioner carried on activities facilitating the sale of goods by its foreign principals to the State Trading Corporation or the Minerals and Metals Corporation; it arranged for the unloading of such goods and their survey; upon delivery it collected the price payable and remitted to its foreign principals. These activities were considered to be trading activities, although the goods imported were not actually brought to the petitioner's premises but were delivered to the purchaser there and the premises was held to be a shop. In the case of Cochin Shipping Co. v. ESI Corpn. 1992 Indlaw SC 784 : 1992 Indlaw SC 784) wherein the Company was engaged in the business of clearing and forwarding at the Port of Cochin situated in Willingdon Island the question was whether the establishment with the Company is a "shop" within the meaning of the expression as used in the notification under the ESI Act. The Court held that the Company was rendering service to cater to the needs of exporters and importers and others who want to carry the goods further. Therefore, it is a shop carrying on systematic, economic or commercial activity. Further, in the case of ESI Corpn. v. R. K. Swamy 1993 Indlaw SC 741 : 1993 Indlaw SC 741) the Court held that "*

the word 'shop' has acquired an expanded meaning and means a place where services are sold on a retail basis

". The Court further observed that the Employees' State Insurance Act, 1948 was a beneficial legislation and, therefore, it was reasonably possible to construe the word "shop" as to include the activity of an advertising agency within it.

Further even taking

14. For considering this contention, we would first refer to the notifications issued by the State Government. By notification dated 27-1-1971/28-1-1971, the Karnataka State Government, in exercise of powers conferred by Section 27 of the Minimum Wages Act, directed that in Part 1 of the Schedule to the said Act, after Item 27, the following item shall be added, namely:

"28. Employment in shops and commercial establishments."

Thereafter, in exercise of the powers conferred by sub-section (1) of Section 3 and sub-section (1) of Section 5 of the Act, the State Government has fixed the rates of minimum wages payable to the categories of employees who are employed in any kind of work throughout the State of Karnataka in any of the shops and commercial establishments as specified in the Schedule. The notification also provides for payment of VDA at the rate specified therein. The Schedule is divided as under:

SCHEDULE

Sl. Classification Minimum rates of wages per month No. of work --------------------------------------------- Zones Zones Zones Zones 1 2 3 4 5 6

Thereafter, various groups are mentioned. For illustration, Group 3 Item 12 reads as under:

Skilled worker for 495.45 482.50 469.70 450.25 establishing Opto.

It further provides as under:

"The rates shown in this notification are inclusive of the rates of dearness allowance as per the State's Average Consumer Price Index 1960+100 which is payable over and above 700 points. For every increase of points over and above 700 in the cost of price index number on the basis of State average, the following dearness allowance is payable:
--------------------------------------------------------
Classification of employees Rates of cost of living allowance
1. ......
2. ......
3. Employees getting more per day & per point 3 ps. than Rs. 15 per day and above Rs. 450 per month
---------------------------------------------------------------------

The dearness allowance shall be calculated every year on the 1st of April on the basis of the average of the indices preceding 12 months, i.e., January to December. In addition, the dearness allowance will be calculated on a sliding basis going higher or lower depending on the cost of living."

Other relevant clause (3) provides as under:

"Wherever the prevailing rates of wages are higher, the higher rates of wages shall be continued to be paid.

The aforesaid notification specifically states that it has fixed the minimum wages of various classes of employees working in shops and commercial establishments in the State of Karnataka. The rates of minimum wages mentioned in the notification were inclusive of the rates of dearness allowance as per the State Average Consumer Price Index 1960 added 100 which was payable over and above 700 points. So the notification makes it clear that it has taken into consideration the cost of living allowance which is mentioned as the dearness allowance till the date of the notification and for the future increase, it is linked with the rate of cost of living allowance. However, what is fixed by the State Government by the said notification is the minimum "wages" which includes dearness allowance. Hence, from the aforesaid notification itself, it can be stated that the contention of the learned counsel for the respondent employees is without any substance because the notification fixes minimum wages which include dearness allowance. Thereafter, for taking care of future increase in the cost of living, dearness allowance is to be paid as prescribed in the said notification. However, if there is no increase in the cost of living, then there is no question of paying dearness allowance, and minimum wages would be paid as stated therein. For the purpose of illustration, we have mentioned Group 3 skilled worker where prescribed minimum wage is Rs. 495.45 for Zone 3. The said rate of minimum wage includes dearness allowance till the date of the notification and is not bifurcated. To contend that by the said notification, the minimum wage is fixed into two parts, namely, basic wages and other dearness allowance, is without any basis as the total of both items constitutes the minimum wage which is required to be paid under the notification. Further, as quoted above, the notification specifically saves the rights of the employees who are getting more than minimum wages from their employer by providing a clause that:

wherever the prevailing rates of wages are higher, the higher rates of wages shall be continued to be paid." It does not provide that in such cases in addition to "higher wages

"payable by the employer, VDA should also be paid. It is, therefore, rightly submitted by the learned counsel for the appellant that the appellant falls in this category and as the Company is paying higher rates of wages prescribed by the said notification, there is no question of payment of wages plus VDA.

This would be further clear from the scheme and object of the Act and the relevant provisions. In the case of U. Unichoyi v. State of Kerala 1961 Indlaw SC 377, 17) after referring to earlier decisions, this Court stated the purpose of the Act thus:

"[W]hat the Act purports to achieve is to prevent exploitation of labour and for that purpose authorizes the appropriate Government to take steps to prescribe minimum rates of wages in the scheduled industries. In an underdeveloped country which faces the problem of unemployment on a very large scale, it is not unlikely that labor may offer to work even on starvation wages. The policy of the Act is to prevent the employment of such sweated labor in the interest of the general public and so in prescribing the minimum wage rates the capacity of the employer need not be considered. What is being prescribed is minimum wage rates which a welfare State assumes every employer must pay before he employs labor."

The Court further considered what the components of minimum wages are in the context of the Act and after considering the evidence led before the Committee on Fair Wages observed as under:

"The Committee came to the conclusion that a minimum wage must provide not merely for the bare subsistence of life but for the preservation of the efficiency of the worker, and so it must also provide for some measure of education, medical requirements, and amenities. The concept about the components of the minimum wage thus enunciated by the Committee has been generally accepted by industrial adjudication in this country. Sometimes the minimum wage is described as a bare minimum wage in order to distinguish it from the wage structure, which is 'subsistence plus' or fair wage, but too much emphasis on the adjective 'bare' in relation to the minimum wage is apt to lead to the erroneous assumption that the maintenance wage is a wage that enables the worker to cover his bare physical needs and keep himself just above starvation. That clearly is not intended by the concept of the minimum wage. On the other hand, since the capacity of the employer to pay is treated as irrelevant, it is but right that no addition should be made to the components of the minimum wage which would take the minimum wage near the lower level of the fair wage, but the contents of this concept must ensure for the employee not only his sustenance and that of his family but must also preserve his efficiency as a worker. The Act contemplates that minimum wage rates should be fixed in the scheduled industries with the dual object of providing sustenance and maintenance of the worker and his family and preserving his efficiency as a worker."

Further the definition of the word "wages" and the manner prescribed under Sections 3 and 4 of the Act fixing the wages would make it clear that "minimum wage" is one unit of fixed amount and for fixing the same, the authority is required to take into consideration various components of costs so that the worker gets minimum remuneration which can provide for sustenance and maintenance of the worker and his family and preserve his efficiency.

Section 2(h) defines "wages" as under:

"2. (h) 'wages' means 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 traveling allowance or the value of any traveling 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 3, inter alia, provides that the appropriate Government shall in the manner provided, fix the minimum rates of wages payable to the employees employed in any employment specified in Part 1 or in Part 11 of the Schedule and in an employment added to either part by the notification under Section 27 and the said minimum wages are required to be reviewed at such intervals as the appropriate Government may think fit, but it is required to be reviewed and revised within 5 years. Section 4 which provides that minimum wage can be linked with an increase in the cost of living so that the increase in the cost of living can be neutralized or all-inclusive rates of minimum wages can be fixed. But, from the aforesaid Sections 3 and 4, it is apparent that what is fixed is total remuneration which should be paid to the employees covered by the Schedule and not for the payment of costs of different components which are taken into consideration for the fixation of minimum rates of wages. It is thus clear that the concept of minimum wages does take in the factor of the prevailing cost of essential commodities whenever such minimum wage is to be fixed. The idea of fixing such wage in the light of the

Hi Satya,

Could you please forward me a copy of the judgment of this case? I hope this will help me in sorting out some major problems relating to minimum wages.

My email ID is: vishwakarma.d16@gmail.com.

Thanks & regards,
Prasad

Dear All,

Please let me know if the employee is in the government sector and is a payroll employee, but has not received an increment in the last 20 years. He is currently around 40 years old. What should he do in this situation?

Looking forward to your reply.

With regards,
Anita
9967666605

Can employees in the Management Cadre of a limited Engineering sector company contest legally if they are being paid basic which is less than the minimum wages prescribed for skilled labor under the Minimum Wages Act for the labor in the Engineering Sector?

Please post an immediate reply herein and also on the email id: [Login to view]

Once when I approached such a case, the question of the ALO was that paying a sum or amount of money cannot be referred to as "wage," maybe a bonus or other outstanding or loan. Thus, I had to argue that the amount paid was not "wage," and I won.

Though the present national labor, economic, and employment conditions, the Labor Department has nothing to do in the Cities or Corporates on MW act or SCE Act, as they need the annual and monthly return for which one paid employee is required to maintain the register and books, who is well-versed with the relevant rules. It is an extra burden for any establishment in the present economic crisis and the commercial type HRM. It is my view that this type of Labor Rules is necessary subject to agreement by the employer.

Instead, if the Labor Department forces any "pan dookans" for MW and/or SCE, the reaction would be uncivilized. (As I have seen the ALO bargains in an Electric Shop (sale). Besides, the commercial establishment should have the competent income to pay the minimum wage notified by the State.

Today, the 6th of March 2010, see the situation of Kerala State, (Raw Rice 25/- per Kg and Raw Dal Rs.80/- per Kg, Sugar is Rs.44/- per Kg, Bus fare Rs.0.60 per Km) increased price of provisions and vegetables and transportation and based on it, the MW should be somewhere between 10,000/- to 12,000/-. Has anybody thought about the practicability? It is a foul play to impose such an Act in such a fluctuating market situation in any place in the world. But, if there is a reliable complaint, a case can be filed by the LO.

Once, when I approached such a case, the question of the ALO was that paying a sum or amount of money cannot be referred to as "wage"; it may be a bonus or other outstanding payment or a loan. Thus, I had to argue that the amount paid was not a "wage," and I won. Though, given the current national, labor, economic, and employment conditions, the Labor Department has no involvement in the cities or corporates under the MW Act or SCE Act. They require annual and monthly returns for which one paid employee must maintain the register and books, being well-versed with the relevant rules. This poses an extra burden for any establishment in the current economic crisis and the commercial HRM sector. In my view, such Labor Rules are necessary subject to agreement by the employer. If the Labor Department forces any 'pan dookans' for MW and/or SCE, the reaction would likely be uncivilized, as I witnessed the ALO bargaining in an electric shop (sale). Moreover, commercial establishments should have the means to pay the minimum wage notified by the state. As of today, March 6, 2010, considering the situation in Kerala State (Raw Rice 25/- per Kg, Raw Dal Rs.80/- per Kg, Sugar Rs.44/- per Kg, Bus fare Rs.0.60 per Km), with increased prices of provisions, vegetables, and transportation, the MW should be somewhere between 10,000/- to 12,000/-. Has anyone considered the practicality of this? It seems like a foul play to impose such an Act in a fluctuating market situation anywhere in the world. However, in the case of a reliable complaint, a lawsuit can be filed by the LO.

Hi Satya,

Could you please forward me a copy of any stay on the judgment of the airfreight case or any further judgment from the Supreme Court of India on this?

You can forward it to rmadaan@rediffmail.com.

Thanks in advance.

Regards,
Rajiv Madan
098102 97179

There are a lot of outdated Acts and Rules that were formed for a particular period after the independence of the country. The Minimum Wages Act is a prime example of this, especially in certain provinces where employers and employees are trying to undermine each other instead of working together. This Act establishes wages for adolescents and children, even though child welfare is entirely prohibited. Despite this, the Act persists - for what purpose?

Secondly, there are numerous private and proprietary business concerns where, even if their income is combined, the employer could end up being a debtor. Therefore, when a monthly minimum wage of Rs.4981/- (or similar) is set, in addition to DA (770/-) per month, the Labour Department inevitably has to pressure some employers. Furthermore, the Labour Departmental Officers seem more interested in educating employees and laborers about their "rights" without emphasizing their "obligations," thus encouraging and provoking laborers to demand their rights, funded by the Ministry. It's notable that even the sweeper at the Office of the Labour Commissioner receives an hourly wage.

The current loophole exploited by employers is the hourly wage system, aiming to address issues with the department and employers, ultimately discouraging deserving candidates. It would also be insightful to understand the aftermath of entrusting matters to the Labour Department.

Dear Sir,

Please mail me the judgment of the AIRFREIGHT CASE and a notification on the minimum wage for UTTAR PRADESH for SHOP & ESTABLISHMENT applicable currently.

My email is [Login to view].

Thank you with warm regards,
DHARMENDRA GUPTA