Are ESI Institutes and Government Bodies Really Exempt from ESI Act Coverage? Let's Discuss

Coverage of ESI Institutes Under the ESI Act

When the ESI Act under Section 1 itself clearly states that primarily all organizations, including the government, are covered under the ESI Act by virtue of engaging private security agencies and outsourcing personnel, the question arises: Are ESI Institutes not covered under the ESI Act?

Exemption for Government and PSUs

In the same scenario, is there any blanket exemption for all Central Government or State Government and PSUs, etc., from the statutory liability of coverage as Principal Employers under respective Labour Laws in the light of engaging different part-time and outsourcing workers?

The Act is not applicable to factories or undertakings under the control of the Central or State Government if they have benefits substantially similar or superior to those extended by the Act. That is the reason it is not applicable to PSUs.

B. Saikumar
HR & Labour Relations Adviser
Navi Mumbai

Here, the point is, what about the contract workers engaged for security and outsourcing? Will they not be provided substantially similar or superior, and can they not be covered by considering such government organizations as principal employers? Please read between the lines of my query.

Applicability of the ESI Act to Government Establishments

First of all, not every government establishment is exempt from the ESI Act, as is clearly provided in Section 1(4) of the Act as follows:

(4) It shall apply, in the first instance, to all factories (including factories belonging to the Government) other than seasonal factories. Provided that nothing contained in this sub-section shall apply to a factory or establishment belonging to or under the control of the Government whose employees are otherwise in receipt of benefits substantially similar or superior to the benefits provided under this Act.

So, ipso facto, being a government factory or establishment does not exclude it, but the test of providing employees benefits substantially similar or superior to the Act holds the key.

Exemption Criteria Under Section 90

Furthermore, Section 90 of the Act mandates that the exemption of a factory or establishment or class of factories or establishments belonging to the Government or any local authority is subject to the condition that employees of such factories or establishments are otherwise in receipt of benefits substantially similar or superior to the benefits provided under this Act. It is very difficult to fulfill this criterion, particularly when considering the medical benefit criteria.

Application to Other Organizations

Secondly, the same criteria apply to other organizations too, as seen in Section 87, reproduced below:

87. Exemption of a factory or establishment or class of factories or establishments. — The appropriate Government may, by notification in the Official Gazette and subject to such conditions as may be specified in the notification, exempt any factory or establishment or class of factories or establishments in any specified area from the operation of this Act for a period not exceeding one year and may from time to time by like notification renew any such exemption for periods not exceeding one year at a time. Provided that such exemptions may be granted only if the employees in such factories or establishments are otherwise in receipt of benefits substantially similar or superior to the benefits provided under this Act.

Once the establishment is in an ESI-covered area, the issue of ESI coverage for every employee, including contract labor, whether in security or any other outsourced activity, comes up sooner or later. Unless one is notified as an exempted establishment as per the Act, compliance has to be ensured. The norms of exemption are uniform, whether in the government sector or private sector establishments.

Understanding the ESI Act and its Applicability

1. In the ESI Act of 1948 and the rules/regulations framed thereunder, there is no blanket exemption for ESIC or government offices. The policymakers laid down criteria of "benefits substantially similar or superior" under the proviso to section 1(4) of the said Act. However, concerning ESIC, regular and direct employees are already enjoying social security benefits similar to or higher than those applicable to central government employees, including medical facilities, provident fund, and pension after retirement. I understand that individuals engaged through contractors or immediate employers in any of its offices, including ESIC Model Hospitals for security, data services, repair, and maintenance, are covered under the above Act as well as other labor laws. Compliance regarding such contractor/immediate employees is being monitored by the relevant officers.

2. Even otherwise, under the provisions of the above Act, the Act does not have universal application. Initially, it covers "factories" under section 1(3), and that too in notified areas. Under section 1(5), it covers certain establishments that the appropriate State Governments have declared coverable through notifications. The majority of State governments have extended the provisions of the above Act to "shops," etc., only.

3. In some government units that qualify as "factory," "shop," or other specified establishments, the appropriate governments have granted exemptions based on "benefits substantially similar or superior." However, in government establishments like Oil Companies, Government Transport Workshops, KV substations of electricity boards, etc., employees under categories such as casual, temporary, work-charge, as well as those engaged through any contractor or immediate employer, are not exempted and are covered/coverable under the provisions of the above Act. Therefore, it would not be fair to conclude that there is any blanket exemption under the above Act for any government or PSUs. The important question is whether such a unit is situated in an implemented area and also whether it falls into a category either of a factory or as declared by the appropriate government under section 1(5) as mentioned above.

4. I would also like to point out that the provisions of social security benefits (like ESI benefits) have not been extended to all categories of employees in India, including in the unorganized sector. More than 90% of the workforce (including in the unorganized sector) are still deprived of any protection under social security laws.