CASE ANALYSIS OF WORKMEN v. REPTAKOS BRETT & CO. LTD. (1992)
Author: Sanjoli Verma, IV year of B.A.,LL.B from Hidayatullah National Law University.
Introduction - The minimum wage issue
Minimum wages are legal mandate that are arrived at by calculating the minimal nutritional requirement and basic needs of an individual. The current daily NREGA wages are just a quarter of the minimum daily living wage of Rs.692 as outlined in the 7th Pay Commission.A substantial increase in NREGA wages and subsequent indexation with CPI-R would be meaningful for the workers and the economy. The debate on origin of minimum wages started 80 years ago in the US when the Federal minimum wage was fixed at 25 cents an hour. India’s minimum wage system, according to the Economic Survey 2018-19, comprises of 1,915 minimum wages defined for various scheduled job categories across different states in the country. Beyond the complications that such calculations bring, the government must grapple with costs and requirements changing significantly across the country, from the low-wage economy of Tripura to highly labour scarce areas like Kerala.
More than 45 central laws and at least 100 state-level legislations create confusion, complexity, and chaos. The burden of compliance is huge is the conventional wisdom. The Indian government has chosen to increase minimum wages and push costs to businesses. The Centre will set standards and define minimum wages across industry, including for small businesses. Given our diversity, this will not be easy. The 15th Indian Labour Conference more than 60 years ago suggested norms for fixing minimum wages based on a per person intake of 2,700 calories per day, and 18 yards of clothing per year, minimum housing rent as charged by the government for low-income groups, fuel and lighting expenses, and other miscellaneous items of expenditure. All this, it said, should comprise 20% of minimum wage.
The process of determining the minimum wage is complex to say the least. The level of compliance too is abysmal; one survey showed that 90% of workers don’t even know about the minimum wage and, needless to say, are severely exploited. It is widely acknowledged that India has a serious wages problem. According to the Periodic Labour Force Survey 2017-18, 45% of regular workers (those who are in the relatively stable, formal sector) are paid less than the minimum wage.
In India, small and unorganized businesses employ more than 90% of the workforce, an estimated 500 million people. The laws seeks to cover all employees, just as recommended in the Directive Principles. This is where the major problem with compliance will come up, leading to the threat of harassment from labour officials.
The second issue is of what’s about to unfold is that 50% of the workforce is self-employed. Nearly 30% work on a causal basis, approaching the labour market in bursts and spurts. The new code therefore will actually only work for 20% of the total workforce. Even within this, more than half belong to very small enterprises that hire between one and five people. Making these tiny enterprises comply with new laws is, in any case, a tall order.
The third conundrum is whether the laws will result in the setting up of more industries, and the creation of more jobs? The endeavour are to remove multiplicity of definitions and authorities without compromising on the basic concepts of welfare and benefits to workers and to bring transparency and accountability into the system. This is a laudatory statement but remains merely an expression.
The laws states that they would provide for all essential elements related to wages, equal remuneration, its timely payment, and bonus and it takes four major acts at once—the Payment of Wages Act, 1936, Minimum Wages Act, 1948, Payment of Bonus Act, 1965 and the Equal Remuneration Act, 1976—and seeks to bring them together into one.
Minimum wages are neither a dole nor an act of charity. They are a legal mandate that are arrived at by calculating the minimal nutritional requirement and basic needs of an individual.There has been an increase in inequality as the current corporate tax cut will only widen economic inequality. So according to CRISIL report the estimated gains of just 1,000 companies would be equivalent to the annual earnings of around 7.2 crore NREGA labourers. There has been a lot of judgements and view of different committees such as : The Fair Wages Committee of the Ministry of Labour (1949) which noted that in a progressive report that a “living wage” should also include education, healthcare and insurance besides the bare essentials.
The case of Sanjit Roy v. State of Rajasthan (1983), the Supreme Court held that paying less than minimum wages is akin to “forced labour”.
And the Workmen v. Management of Raptakos Brett (1991) case, which said that the aforementioned provisions must be added to arrive at a moral “living wage” to ensure basic dignity of life.
The Workmen v. Reptakos Brett & Co. Ltd Analysis
The endeavour to ensure a decent standard of living, which is a constitutionally guaranteed right, has always been at the core of labour issues in the country. Due to constitutional set up, both state and centre can legislate on matter related to labour welfare which leads to multifarious jurisdictional issues. Inadequacy on the part of the Government provides a platform for the intervention of the Courts. The Courts have in innumerable cases frowned upon the inadequacy of the data or consideration of obsolete data in formulation of wage structure and in one such case the Supreme Court of India have tried to remove these inaccuracies.
The backdrop of the case
The Reptakos Brett & Co. Ltd. (hereinafter called the ‘Company’) is engaged in the manufacture of pharmaceutical and dietetic speciality products and is having three units, two at Bombay and one at Madras. The Madras factory, with which we are concerned, was set up in the year 1959. The Company on its own provided slab system of dearness allowance (DA) which means the DA paid to the workmen was linked to cost of living index as well as the basic wage.
The respondent-company, in its factory set up at Madras 1959, introduced slab system of dearness allowance (DA) i.e.the DA paid to the workmen was linked to the cost of living index as well as the basic pay. The double linked DA scheme, being consciously accepted as basic constituent by the company and its workmen in various settlements between them, became basic feature of the wage structure and remained operative in the company for about 30 years. The question for our consideration is whether the Company is entitled to restructure the DA scheme by abolishing the slab system and substituting the same by the scheme -prejudicial to the workmen on the ground that the slab system has resulted in over-neutralisation thereby landing the workmen in the high-wage island. In the year 1983, a dispute arose between the company and its workmen. The matter was referred to the industrial Tribunal.
One of the issues before the Tribunal was based on the demand of the Management for restructuring of the dearness allowance scheme and to frame a new scheme. The first settlement between the Company and the workmen was entered into on August 11, 1964. While accepting the double-linked DA it further provided variable DA limited to the cost of living index up to 5.41-5.50. Further relief was given to the workmen in the settlement dated July 18, 1969 when the limit on the variable DA was removed. The Company revised the rates of DA on August 7, 1971. Thereafter, two more settlements were entered into on July 4, 1974, and January 4, 1979, respectively. Slab system with variable DA continued to be the basic constituent of the wage structure in the Company from its inception.The position which emerges is that in the year 1959 the Company on its own introduced slab system of DA. In 1964 in addition, variable DA to the limited extent was introduced but the said limit was removed in the 1969 settlement. The said DA scheme was reiterated in the 1979 settlement. It is thus obvious that the slab system of DA introduced by the Company in the year 1959 and its progressive modifications by various settlements over a period of almost thirty years, has been consciously accepted by the parties and it has become a basic feature of the wage structure in the Company. The workmen raised several demands in the year 1983 which were referred for adjudication to the Industrial Tribunal, Madras. The Company in turn made counter demands which were also referred to the said Tribunal.
The Tribunal abolished the existing slab system of DA and directed the dearness allowance to be linked only to the cost of living index at 33 paise per point over 100 points at the Madras city cost of living index 1936 base. The Tribunal disposed of the two references by a common award.
The Company as well as the workmen filed separate writ petitions before the Madras High Court challenging the award of the Tribunal. While the two writ petitions were pending the parties filed a joint memorandum dated June 13 1988, before the High Court, both the parties agreed not to press their respective writ petitions except on the issue of restructuring of DA. Upholding the findings of the Tribunal on the sole surviving issue, the Single Judge dismissed the workmen’s writ petition. The writ appeal filed by the workmen was also dismissed by the High Court by its judgment dated September 14, 1989. The present appeal by special leave is against the award of the Tribunal as upheld by the High Court. The case finally reached supreme court where :
Mr M.K Ramamurthi, learned counsel for the appellants has raised the following points for the courts consideration:
(i) The Tribunal and the High Court grossly erred in taking Rs 26 as a pre-war wage of a worker in Madras region and, on that arithmetic, reaching a conclusion that the rate of neutralisation on the basis of cost of living index in December 1984 was 192 per cent.
(ii) Even if it is assumed that there was over-neutralisation — unless the pay structure of the workmen is within the concept of a ‘living wage’ and in addition it is proved that financially the Company is unable to bear the burden — the existing pay structure/DA scheme cannot be revised to the prejudice of the workmen.
(iii) In any case the DA scheme — which was voluntarily introduced by the Company and reiterated in various settlements cannot be altered to the detriment of the workmen.
Before the points are dealt with, we may have a fresh look into various concepts of wage structure in the industry. Broadly, the wage structure can be divided into three categories — the basic “minimum wage” which provides bare subsistence and is at poverty line level, a little above is the “fair wage” and finally the “living wage” which comes at a comfort level. It is not possible to demarcate these levels of wage structure with any precision. There are, however, well accepted norms which broadly distinguish one category of pay structure from another. The Fair Wages Committee, in its report published by the Government of India, Ministry of Labour, in 1949, defined the “living wage” as under: “the living wage should enable the male earner to provide for himself and his family not merely the bare essentials of food, clothing and shelter but a measure of frugal comfort including education for the children, protection against ill-health, requirements of essential social needs, and a measure of insurance against the more important misfortunes including old age.”
The Committee's view regarding “minimum wage” was as under: “the minimum wage must provide not merely for the bare sustenance of life but for the preservation of the efficiency of the worker. For this purpose the minimum wage must also provide for some measure of education, medical requirements and amenities.”
The Fair Wages Committee's Report has been broadly approved by the Court in Express Newspapers (P) Ltd. v. Union of India and Standard Vacuum Refining Co. of India v. Its Workmen in which it referred to those norms which has been accepted at Tripartite Committee of the Indian Labour Conference held in New Delhi in 1957 (declared the wage policy which was to be followed during the Second Five Year Plan) with approval.
The wage structure which approximately answers the above six components is nothing more than a minimum wage at subsistence level. The employees are entitled to the minimum wage at all times and under all circumstances. An employer who cannot pay the minimum wage has no right to engage labour and no justification to run the industry. A living wage has been promised to the workers under the Constitution. A ‘socialist’ framework to enable the working people a decent standard of life, has further been promised by the 42nd Amendment. The workers are hopefully looking forward to achieve the said ideal. The promises are piling up but the day of fulfilment is nowhere in sight. Industrial wage looked at as a whole has not yet risen higher than the level of minimum wage.
The Directive Principles of the Constitution already encourage the state to work for higher than minimum wages. Article 43 states that “the state shall endeavour to secure, by suitable legislation or economic organization or in any other way, to all workers, agricultural, industrial or otherwise, work, a living wage, conditions of work ensuring a decent standard of life, and full enjoyment of leisure and social and cultural opportunities in particular" to ensure a fair deal to the labour class. Article 39 reinforces the same. These goals have not been reached and the new code seeks to do so.
Meanwhile the contentions of the company and the findings reached by the Tribunal which in-turn accepted those contentions and finally decided as under: “Taking an overall view of the rate of dearness allowance paid by these comparable concerns in the region and the higher total emoluments received by the workmen in this establishment, the slab system of dearness allowance now in existence shall stand abolished and in future, dearness allowance in the petitioner management would be linked only to the cost of living index at 33 paise per point over 100 points of the Madras City Cost of Living Index 1936 base and it shall be effective from the month in which the award is published in the Tamil Nadu gazette. “ The learned Single Judge of the High Court upheld the above findings of the Tribunal. The Division Bench of the High Court, in writ appeal, approved the award and the judgment of the learned Single Judge.
According to the Company the only purpose of DA is to enable a worker — in the event of a rise in cost of living — to purchase the same amount of goods of basic necessity as before. In other words the DA is to neutralise the rise in prices. The said purpose can be achieved by providing maximum of 100 per cent neutralisation. Accepting the calculations of the Company based on Rs 26 being the pre-war (1936) minimum wage in Madras region the Tribunal came to the finding that there was 192 per cent neutralisation. The Tribunal accepted Rs 26 as the pre-war minimum wage in Madras region on the basis of the decisions of Labour Appellate Tribunal of India in Buckingham and Carnatic Mills Ltd. v. Their Workers and Good Pastor Press v. Their Workers. In Buckingham case the Appellate Tribunal came to the conclusion that the basic wage of the lowest category of operatives on the cost of living index of the year 1936 was Rs 28. The said wage included Rs 16 1/2 as expenses on diet. The workers relied upon the Textile Enquiry Committee's report to claim 25 per cent addition to the diet expenses. The Appellate Tribunal rejected the report on the ground that the recommendations in the said report were for the purpose of attaining the standard of “living wage” and not of ‘minimum wage’.
It was said Court, therefore, in Standard Vacuum case came to the conclusion that the Textile Labour Committee Report in the year 1940 in its calculations did not proceed beyond the minimum level of the wage structure. It was further held that Rs 50 to Rs 55 was the need-based minimum wage in the year 1940. The Appellate Tribunal in Buckingham case therefore, misread the Textile Committee Report and was not justified in rejecting the same on the ground that it related to the category of ‘living wage’. The court was also of the view that it would not be safe to accept the findings of the Appellate Tribunal in Buckingham case as the basis for fixing the wage structure to the prejudice of the workmen. This Court in Standard Vacuum case has further held that in Bombay the minimum wage in the year 1940 was Rs 50 to Rs 55. On that finding it is not possible to accept that the minimum wage in the year 1936 in Madras region was Rs 26/28. So far as the Good Pastor Press case is concerned the question of determining the minimum wage in pre-war 1936 was not before the Appellate Tribunal. It only mentioned the fact that Rs 26 was held to be so by some of the subordinate tribunals. There was no discussion at all on this point. The Tribunal's reliance on this case was wholly misplaced.
The court moved to the appellants other points and Mr F.S Nariman, learned counsel appearing for the Company, contended that the existing DA scheme can be revised even to the prejudice of the workmen and for that proposition he relied upon the judgment of this Court in Crown Aluminium Works v. Workmen. Appellant has however, argued that even if the contention of Mr Nariman is accepted in principle, the Company has not been able to make out a case for such a revision. In Crown Aluminium Works case this Court speaking through Justice Gajendragadkar that “The tribunal may also enquire whether the financial difficulties facing the employer are likely to be of a short duration or are going to face the employer for a fairly long time. It is not necessary, and would indeed be very difficult, to state exhaustively all considerations which may be relevant in a given case. It would, however, be enough to observe that, after considering all the relevant facts, if the tribunal is satisfied that a case for reduction in the wage structure has been established then it would be open to the tribunal to accede to the request of the employer to make appropriate reduction in the wage structure, subject to such conditions as to time or otherwise that the tribunal may deem fit or expedient to impose.” The same was reiterated by this Court in Ahmedabad Mills Owners' Association v. Textile Labour Association
Mr Ramamurthi (Appellant’s counsel) further relied upon this Court's judgment in Monthly Rated Workmen at the Wadala factory of the Indian Hume Pipe Co. Ltd. v. Indian Hume Pipe Co. Ltd., contended that an employer cannot be permitted to abolish the DA scheme which has worked smoothly for almost thirty years on the plea that the said scheme is more beneficial than the DA scheme adopted by other industries in the region. In the Indian Hume Pipe Co. Ltd. case the management pleaded that the dearness allowance enjoyed by the workmen was so high in certain cases that neutralisation was at rates much higher than 100 per cent. It was further contended that the management did not have the capacity to pay the slab system of DA and in the event of a claim for similar DA by other workmen the management might have to close down the factories.
What did the judgement say ?
The court agreed with Mr Ramamurthi that the DA scheme which had stood the test of time for almost thirty years and had been approved by various settlements between the parties has been unjustifiably abolished by the courts below and as such the award of the tribunal and the High Court judgments are unsustainable. Mr Nariman has also relied on the judgment of this Court in Killick Nixon Ltd. v. Killick & Allied Companies Employees Union to support the findings of the tribunal and the High Court. The said case does not lay down that in all cases the slab system of DA should be abolished to the prejudice of the workers. In the said case this Court on the facts of the case came to the conclusion that the employer had made out a case for putting a ceiling on the dearness allowance. The ratio of that case cannot be extended to interfere with the existing DA schemes in every case where such schemes are beneficial to the workmen. Mr Nariman has invited attention to para 20 of the award wherein the tribunal has held as under: “These figures as detailed in Ex. M-13 would establish that the company is not in a financial position to bear the additional burden on account of increased wages.”
From the above finding it was sought to be shown that the Company has proved to the satisfaction of the Tribunal that financially it was not in a position to bear the burden of the existing DA scheme. We do not agree with the learned counsel. The Tribunal gave the above finding in the reference made on behalf of the workmen asking for bonus increase and various other monetary benefits. While rejecting the demands of the workmen the Tribunal gave the above finding which related to the additional burden accruing in the event of acceptance of the workers' demands. The tribunal nowhere considered the financial position of the Company vis-a-vis the existing DA scheme. The Company neither pleaded nor argued before the tribunal that its financial position had so much deteriorated that it was not possible for it to bear the burden of the slab system of DA. The tribunal has not dealt with this aspect of the matter while considering the demand of the Company for restructuring the DA scheme.
It was pleaded by the Company that its workmen are in a high wage island and as such the revision of DA scheme was justified. The Company also produced evidence before the Tribunal to show that comparable concerns in the region were paying lesser DA to its workmen. On the basis of the material produced before the tribunal all that the Company has been able to show is that the DA paid by the Company is somewhat higher than what is being paid by the other similar industries in the region. There was no material on the record to show that what is being paid by the Company is higher than what would be required by the concept of need based minimum wage. In any case there was a very long way between the need based wage and the living wage.
The court said that Mr Nariman reminded us of the limits on supreme court’s jurisdiction under Article 136 of the Constitution of India and relying upon Shaw Wallace & Co. Ltd. v. Workmen and Statesman Ltd. v. Their Workmen contended that so long as there is “some basis, some material to validate the award” the “jurisdiction under Article 136 stands repelled”. The tribunal and the High Court, in this case acted in total oblivion of the legal position as propounded by Supreme Court in various judgments referred by it. Manifest injustice has been caused to the workmen by the award under appeal. We see no force in the contention of the learned counsel. The apex court finally held that the tribunal was not justified in abolishing the slab system of DA which was operating in the Company for almost thirty years. The court allowed the appeal and set aside the award of the tribunal and the judgment of the learned Single Judge in the writ petition and of the Division Bench in the writ appeal. The reference of the Company on the issue of restructuring of the dearness allowance was declined and rejected. The appellant-workmen were entitled to their costs throughout which we assess at Rs 25,000.
The Court stated that the Fair Wages Committee understood the term minimum wage is the lowest wage in the scale below which the efficiency of the worker was likely to be impaired. It was described as the "wage door" allowing living at a standard considered socially, medically and ethically to be the acceptable minimum. Fair wages by comparison were more generous and represented a wage which lay between the minimum wage and the living wage. The concept of ‘minimum wage’ is no longer the same as it was in 1936. Even 1957 is way behind. A worker's wage is no longer a contract between an employer and an employee. It has the force of collective bargaining under the labour laws. Each category of the wage structure has to be tested at the anvil of social justice which is the live-fibre of our society today. Keeping in view the socio-economic aspect of the wage structure, it is of the view that it is necessary to add the few additional component as a guide for fixing the minimum wage in the industry.
The court said that “Children education, medical requirement, minimum recreation including festivals/ceremonies and provision for old age, marriage etc. should further constitute 25% of the total minimum wage." And the supreme court also said that Local conditions and other factors influencing the wage rate should also be as per to the advantage and benefit of workmen.
Measure to avoid such issues
Government needs to pay more attention to the poor in economic, ethical, and legal ways:
The budget allocation for NREGA gets exhausted by October of each financial year, leading to delays in payment of wages.
While corporate tax cuts and lower interest rates would give corporations some liquidity, it is unlikely that rural demand will increase.
On the contrary, without a substantial increase in NREGA wages, the wages would barely match inflation levels leading to wage stagnation in real terms.
In circumstances of unsustainable wages, the poor would be forced to become part of the migrant labour force and industries would benefit by absorbing them at throwaway daily wages leaving no alternatives.
It is economically prudent to substantially increase the budget for public programmes such as NREGA.
This would lead to higher disposable income for the poor which in turn would have positive multiplier effects in the economy.
This was one of the landmark cases where supreme court put effort in determining the proper working condition of workmen who are largely exploited. There have been innumerable instances wherein the Supreme Court has tried to enter this field of wage fixation and has expressed its own view in this regard in the larger interest of justice and equity and also to ensure proper implementation and enforcement of laws. Minimum wages are neither a dole nor an act of charity. They are a legal mandate that are arrived at by calculating the minimal nutritional requirement and basic needs of an individual. This case helped in getting approval of the norms recommended by The Tripartite Committee. Such measures are important because India has vast number of labourers working in the unorganized sector and inspite of their contribution to the Indian economy, they still go on to constitute poorest section of the society. In this light, therefore, it becomes all the more imperative that the wage structure be adequately looked into and accordingly changes are made to suit the requirement of the country. Infrequent revisions and inadequate cost of living adjustments have been a marked feature of minimum wages in India. The rates of minimum wages so fixed in few states, is not enough even for two times meal in a day, leave aside the needs of health, education and shelter.
The issue of wages has been another issue that needs attention till now. There is a wide spread corruption while disbursing wages. Problems like fake bank accounts, offering fewer wages, delayed wages etc. The opinion that purchasing power of today's wage cannot be judged by making calculations which are solely based on 30/40 years old wage structure. The only reasonable way to determine the category of wage structure is to evaluate each component of the category concerned in the light of the prevailing prices. There has been sky-rocketing rise in the prices and the inflation chart is going up so fast that the only way to do justice to the labour is to determine the money value of various components of the minimum wage in the context of today.
References & Webliography
Industrial Relations and Labour Laws, 6th Edition
Labour and Industrial Laws - S.N Mishra - 28th Edition
P. L. Malik Handbook of Labour and Industrial Law by Editorial Staff of SCCEdition: 18th Edn.