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Provident Fund extended to Contract Employees: Supreme Court

January 24, 2020

By Rupin Chopra and Reetika Wadhwa

The Hon’ble Supreme Court of India, in the matter of M/S. Pawan Hans Limited and ors.  v. Aviation Karmachari Sanghatana and ors[1] vide its judgement dated January 17, 2020, under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (hereinafter referred to as ‘Act’) has clarified that the contractual employees, who draw wages/salary directly or indirectly, are entitled to the benefit of provident fund.

The brief facts of the case are below:

  1. M/s Pawan Hans Limited (hereinafter referred to as “Appellant Company”) was incorporated under the Companies Act, 1956, and was subsequently registered as a Government of India company with the Registrar of Companies, Delhi. The Government of   India   held   51%   shareholding   in   the Appellant Company and the remaining 49% was held by Oil and Natural Gas Company Ltd. (hereinafter referred to as ‘ONGC’).
  2. Out of a total workforce of 840 employees, the Appellant Company had engaged 570 employees on regular basis, while 270 employees were engaged on ‘contractual’ basis.
  3. The Appellant Company implemented the PF Trust Regulations only with respect to the regular employees, even though the term   “employee”   had   been   defined   to   include   “any person”   employed   “directly   or   indirectly”   under   the   PF Trust Regulations, as notified by the Appellant Company.
  4. Aggrieved by this arrangement, the labour union of the Appellant Company filed a writ petition in Hon’ble Bombay High Court[2] contending the benefits under the Act be extended to the members of the Union, and other similarly situated employees. Keeping into consideration the points made by the labour union the aforesaid writ petition was allowed.
  5. Impugning this judgment of the High Court, the Appellant Company contended before the Apex Court that it is excluded from the applicability of the provisions of the Act and the Employees Provident Fund Scheme framed thereunder.

Contractual Employees are entitled to Provident Fund

  • The Hon’ble Supreme Court held that, the following twin test needs to be satisfied for an establishment to seek exemption from Section 16 (1) of the Act.
  • The establishment must be either “belonging to” or “under the control of” the Central or the State Government. The phrase “belonging to” would signify “ownership” of the Government, whereas the phrase “under the control of” would imply superintendence, management or authority to direct, restrict or regulate.[3]
  • The employees of an establishment should be entitled to the benefit of contributory provident fund or old age pension in accordance with any scheme or rule framed by the Central Government or the State Government governing such benefits.
  • Even though the Appellant Company qualified under the first criteria of the test, it did not satisfy the second, therefore it could not claim exclusion from the applicability of the provisions of the Act.
  • The Apex Court further held that as per Section 2(f) of the Act the definition of an ’employee’ is an inclusive definition, and is widely worded to include “any person” engaged either directly or indirectly in connection with the work of an establishment, and is paid wages.
  • It was conclusively held by the Apex Court that members of the labour union of the Appellant Company and all other similarly situated contractual employees, are entitled to the benefit of provident fund under Act.

Take Away

When contract labours are hired by any Company, their terms of employment are often left ambiguous and undetermined to avoid liabilities in future. Due to this lack of clarity contractual employees are often denied benefits at par with regular employees. The aforesaid judgement of the Hon’ble Supreme Court has addressed the issue of contractual employees regarding provident fund benefits and provides a clarity on implementation of same.

[1] Civil Appeal No. 353 of 2020

[2] W.P.No.325/2017

[3] Shamrao Vithal Coop. Bank Ltd. v. Kasargode Panduranga Maliya, (1972) 4 SCC 600

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