Madras High Court Ruling on Overtime Calculation
The Madras High Court, on 30th November 2011 (Heavy Vehicles Factory Employees' Union v Union of India), held that for the purposes of overtime calculation, House Rent Allowance, City Compensatory Allowance, Transport Allowance, and Small Family Allowance must be included. This has resulted in a lot of confusion and various problems and litigation in the courts. In this connection, it is important to note the following:
Section 59 of the Factories Act
Section 59 of the Factories Act is reproduced here for quick reference.
59. Extra wages for overtime: (1) Where a worker works in a factory for more than nine hours in any day or for more than forty-eight hours in any week, he shall, in respect of overtime work, be entitled to wages at the rate of twice his ordinary rate of wages.
(2) For the purposes of sub-section (1), "ordinary rate of wages" means the basic wages plus such allowances, including the cash equivalent of the advantage accruing through the concessional sale to workers of foodgrains and other articles, as the worker is for the time being entitled to, but does not include a bonus and wages for overtime work.
Kerala High Court's Stand
The Kerala High Court, on 12th July 2011 (V E JOSSIE, MCM (AE), NAY v THE OFFICER COMMANDING IN CHIEF FLAG), upheld the orders of the Central Administrative Tribunal, Chennai Branch. The Tribunal rejected the claim of the Petitioners by stating that when a specific clarification is made in provision 2 of Section 59 about the term "ordinary rate of wages," the applicants cannot contend that the allowances include HRA, TA, and other allowances. There is no reason to hold that the term "allowance" includes all allowances such as HRA, TA, etc., which is not the intention of the legislature while incorporating the relevant provisions.
Mysore High Court Judgment
In this context, it is most relevant to note the judgment of the Mysore High Court (Dasappa v Labour Court - 25th June 1969 {I LLJ 486}), where the Judge mentioned that the word "such" used therein makes the operation restricted. If it was the intention of the legislature that the proviso should cover the entire section, the word "such" would not have been used there.
The words "Basic wages plus such allowances" mean only the allowances that have the characteristics of Basic wages. Therefore, only Dearness Allowance, which has been rightly and legally included for the purpose of PF, Bonus, and Gratuity, can be considered for the purpose of OT wages. It is very clear that the intention of the legislature while using the word "such" is only to restrict the allowances and certainly not for the inclusion of all allowances.
Section 92 of the Factories Act 1948
As per Section 92 of the Factories Act 1948, the Manager of the Factory can be guilty only if there is any contravention of any of the provisions of the Act or of any Rule made thereunder. Section 59 (1) and (2) do not contain any provision specifically requiring the Manager to include HRA, Conveyance allowance, etc.
Calcutta High Court's Perspective
The Calcutta High Court, in Asbestos Cement Ltd v Chief Inspector of Factories, Govt of West Bengal and Others (1984 LIC 549), held that there is no provision in the Act empowering the Inspector or the Chief Inspector of Factories to direct the Employer to make payment of overtime wages including certain allowances. Therefore, it is clear that the Inspector of Factories can neither give directions to the Manager to include certain allowances not clearly mentioned while computing OT wages nor allege contravention of the provisions of the Act if certain allowances are not included.
Since there is no clarity in the interpretation, more expert views are welcome.
Regards, N Nataraajhan
Sakthi Management Services
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