One of the key changes brought about by the Labour Codes are the provisions for compliance with the requirements of the Codes. While the Codes have introduced the concept of a facilitator/labour inspector to ensure compliance by employers rather than penalising them for a first non-compliance, further non-compliance attracts criminal action with serious consequences that can be initiated by the authorities under the Codes. In a huge shift in approach, the proposed codes have given the employees in an organization, apart from the authorities, the right to initiate criminal proceedings against the company and its senior management. Such an approach is a significant change in the law.
This article will specifically analyse the consequences of non-compliance under the proposed Code on Wages, 2019 (“Wage Code”) vis-à-vis the current labour regime, and the implications of the penal provisions for any offences/non-compliance on the employer. The Wage Code subsumes the provisions of the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976.
Penalties for Offences/Non-Compliance: (Under Current Regime)
For any offence / non-compliance under the Payment of Wages Act, 1936, Minimum Wages Act, 1948, Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976, the fines range between INR 500 to INR 22,500. In addition to the fines, there are possibilities of imprisonment in the first instance/occurrence for any offence/ non-compliance under the Minimum Wages Act, 1948 and the Payment of Bonus Act, 1965.
Under the Wage Code:
First Instance: Offences punishable with a fine of up to INR 50,000
Second and Subsequent Instances (within 5 years of the first instance): Imprisonment for a period up to 3 months or with a fine up to INR 1,00,000 or with both
The initial risk to employers has reduced, thereby significantly easing the woes of employers while enhancing their operational flexibility since there is no provision for imprisonment on commission of offence/non-compliance for the first time and the same is compoundable. However, there is a substantial increase in the quantum of fines which are to be paid on the first offence and subsequent offence within a period of five years is punishable with imprisonment under the Wage Codes as compared to the current law.
What is a criminal offence under the Wage Code?
Currently, during the course of service, if an employee earning less than Rs. 24,000/- as wages has any issue with an employer with regard to the contravention of the provisions of the Payment of Wages Act, 1936, the said employee can approach the concerned labour authority and those employees earning above the wage limit of Rs. 24,000/- may approach the civil court seeking appropriate relief.
On implementation of the Labour Codes, in case of any offence/non-compliance with regard to payment of wages, full and final settlement or any offence punishable under the Wage Code, an employee has the option to either approach the concerned labour authority or initiate criminal proceedings before a Judicial Magistrate of First Class or a Metropolitan Magistrate. This is likely to result in many employees making use of the criminal justice system to force their employer to come to terms. This may also result in a reduction in the number of cases being taken through the regular channel of the labour authorities.
Who are covered under the Wage Code
Under the current labour law regime, all provisions of the Payment of Wages Act, 1936 are applicable to employees earning less than Rs. 24,000 per month. The employees earning above Rs. 24,000 per month only have the option of filing a civil suit in respect of any dispute with regard to non-payment of wages.
On the other hand, the Wage Code is applicable to an ‘employee’. The definition of “employee” has been standardized for all purposes under Section 2(k) of the Wage Code, to mean “all employees including those under the supervisory, managerial, and administrative category”. Further, there is no wage threshold with regard to the applicability of the Wage Code. Therefore, all employees up to the level of manager will come under the ambit of the Wage Code and will be able to use the mechanisms provided under the Code, including initiating criminal prosecutions, for enforcement of their rights. This will greatly widen the number of employees who can initiate proceedings before the appropriate authority as may be notified under the Code.
Who gets prosecuted?
The provision of offences against companies under Section 55 of the Wage Code is hereunder:
“(1) If the person committing an offence under this Code is a company, every person who, at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the offence was committed without his knowledge and that he exercised all due diligence to prevent the commission of such offence.
(2) Notwithstanding anything contained in sub-section (1), where an offence under this Code has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.”
It is clear on reading the provision that where there is an offence by a company, all the full-time Directors of the company would be made a party to the offence. This provision is identical in terms across all four labour codes as well as under existing legislations such as the Payment of Bonus Act, 1965(Section 29), Minimum Wages Act (Section 22(c)), Employees’ State Insurance Act, 1948 (Section 86(a)), Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (Section 14(a)), Negotiable Instruments Act, 1881 (Section 141), among others.
In the case of K.K. Ahuja vs V.K. Vora and Ors, while discussing Section 141 of the Negotiable Instruments Act, the Honourable Supreme Court recognised the provisions under all the aforementioned legislations as being in pari materia and held that:
“…Neither Section 141 of the Negotiable Instruments Act nor the pari materia provisions in other enactments give any indication as to who the persons are responsible to the company, for the conduct of the business of the company. Therefore, we will have to fall back upon the provisions of the Companies Act, 1956 which is the law relating to and regulating companies. Section 291 of the said Act provides that subject to the provisions of that Act, the Board of Directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to exercise and do. A company, though a legal entity can act only through its Board of Directors…”
Now the question of whether the non-executive/Independent Directors would be involved as a party to the offence has been resolved, as recently in the case of Sunita Palita vs. Panchami Stone Quarry, the court held that:
“…The provisions of Section 138/141 of the NI Act create a statutory presumption of dishonesty on the part of the signatory of the cheque, and when the cheque is issued on behalf of a company, also those persons in charge of or responsible for the company or the business of the company. Every person connected with the company does not fall within the ambit of Section 141 of the NI Act…”
Further, the court has held that the non-executive/Independent Directors would not be in charge or responsible for the company or the business of the company.
Accordingly, the non-executive/Independent Directors do not need to be made a party in cases under the pari materia provisions including but not limited to the Wage Code. However, it will be for a director who is charged to prove that they fall within the exceptions in the provision.
Employer’s Way Forward:
With ample modifications made and introduced in the Wage Code regarding penalties and penal provisions for non-compliance/offence, who can approach the court, and the impact on companies for such non-compliance/offence, the companies have to be Code ready by making sure that all the policies and processes of the company are reformed and realigned in view of the New Labour Codes and their processes are robust enough to ensure continuous compliance with the requirements of law.
The Codes provide the opportunity to an employer to correct a first instance of non-compliance but treats continued non-compliance with severity. Now with the recourse of approaching the magistrate court being widened to all the employees, the employer and employee are truly on an equal footing.