The question of which statutory regime governs the payment of gratuity to government employees has been a recurring source of litigation in India. In a significant ruling delivered on February 11, 2026, the Supreme Court of India categorically held that retired employees of the Heavy Water Plant, Tuticorin, functioning under the Department of Atomic Energy, are not entitled to gratuity under the Payment of Gratuity Act, 1972, as they are Central Government servants governed by the Central Civil Service (Pension) Rules, 1972. The bench comprising Justices Pankaj Mithal and S.V.N. Bhatti resolved a critical interpretative issue regarding the scope of the exclusionary clause contained in the Payment of Gratuity Act and its application to government employees whose terms and conditions of service are governed by specialized pension rules [1].

This decision has far-reaching implications for thousands of government employees working in departments, establishments, and public sector undertakings where dual benefit structures exist. The judgment underscores a fundamental principle in labor and service law that employees cannot cherry-pick benefits from different statutory schemes based on which provides more favorable terms. Once employees are brought within a specific statutory framework that provides for retirement benefits including gratuity, they are excluded from claiming benefits under the general Payment of Gratuity Act. This ruling brings much-needed clarity to the longstanding debate about whether government employees can claim differential amounts between what they receive under pension rules and what they might have received under the Payment of Gratuity Act.

Factual Background and Procedural History

The appellants in this case were retired employees of the Heavy Water Plant located in Tuticorin, which operates under the administrative and functional control of the Department of Atomic Energy. The Heavy Water Plant is part of India’s strategic nuclear program infrastructure, responsible for producing heavy water used as a moderator in nuclear reactors. The employees of this establishment were appointed under terms and conditions of service that brought them within the framework of Central Government employees, and their retirement benefits were governed by the Central Civil Service (Pension) Rules, 1972.

Upon retirement, these employees received gratuity as calculated under the CCS (Pension) Rules. However, they subsequently approached the authorities claiming that had their gratuity been computed under the Payment of Gratuity Act, 1972, they would have been entitled to a higher amount. They therefore demanded payment of the differential amount, asserting that the Heavy Water Plant should be treated as an industrial establishment falling within the purview of the Payment of Gratuity Act rather than as a government department. This claim raised fundamental questions about the nature and character of the establishment and the status of its employees under applicable labor and service laws.

The matter was initially examined by the Controlling Authority under the Payment of Gratuity Act, which ruled in favor of the employees. The Controlling Authority held that the Heavy Water Plant qualified as an industry within the meaning of the Payment of Gratuity Act and therefore the employees were entitled to benefits under that statute. This decision was upheld by the Appellate Authority, which concurred that the establishment possessed industrial character notwithstanding its governmental ownership and control. The employees’ claims were further vindicated when a Single Judge of the Madras High Court upheld the authorities’ findings and confirmed the employees’ entitlement to differential gratuity amounts [1].

However, a Division Bench of the Madras High Court took a completely different view when the matter came before it on appeal. The Division Bench reversed all the previous orders and held that the retired employees of the Heavy Water Plant were Central Government employees governed by the CCS (Pension) Rules. Consequently, they fell squarely within the exclusion clause provided in the Payment of Gratuity Act and could not claim benefits under that statute. The Division Bench reasoned that these employees could not simultaneously claim the status and benefits of Central Government employment while seeking to avoid the consequences of that status when it came to retirement benefits. Aggrieved by this reversal, the employees approached the Supreme Court.

The Payment of Gratuity Act, 1972: Legislative Framework

The Payment of Gratuity Act, 1972, was enacted to provide for a scheme of compulsory payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops, and other establishments. The Act represents a significant piece of social security legislation aimed at providing financial security to employees upon termination of their employment after rendering continuous service for a specified period. The statute creates a statutory right to gratuity, making it mandatory for covered establishments to pay gratuity irrespective of whether any contract of employment provides for such payment [2].

The definition of employee under the Act is crucial to determining its applicability. The Act defines employee to mean any person who is employed for wages, whether the terms of such employment are express or implied, in any kind of work, manual or otherwise, in or in connection with the work of a factory, mine, oilfield, plantation, port, railway company, shop or other establishment to which the Act applies. This definition is deliberately broad to ensure wide coverage of the working population. However, this expansive definition is immediately followed by an important exclusionary clause [3].

The exclusionary clause, which formed the crux of the present dispute, provides that the term employee does not include any such person who holds a post under the Central Government or a State Government and is governed by any other Act or by any rules providing for payment of gratuity. This exclusion reflects the legislative recognition that government employees have their own comprehensive pension and retirement benefit schemes, and subjecting them to the Payment of Gratuity Act would create duplication and potential conflicts. The exclusion ensures that government employees continue to be governed by the specific rules applicable to them rather than by the general provisions of the Payment of Gratuity Act [3].

The statutory scheme under the Payment of Gratuity Act provides for payment of gratuity at the rate of fifteen days wages for every completed year of service or part thereof in excess of six months. The wages for this purpose mean the wages last drawn by the employee. The Act provides a formula for calculating the fifteen days wages by dividing the monthly wages by twenty-six and multiplying the result by fifteen. However, the Act also imposes a ceiling on the maximum amount of gratuity payable. Initially set at ten lakh rupees, this ceiling was enhanced to twenty lakh rupees through subsequent amendments to account for inflation and changes in wage structures [2].

An important feature of the Payment of Gratuity Act is its overriding effect over other instruments and contracts. The Act contains a provision stating that its provisions shall have effect notwithstanding anything inconsistent therewith contained in any enactment other than the Act itself or in any instrument or contract having effect by virtue of any enactment. This non-obstante clause has been interpreted by courts to mean that where the Payment of Gratuity Act applies, its provisions cannot be overridden by contractual terms or other enactments providing for lesser benefits. However, this overriding effect is subject to the fundamental requirement that the person claiming benefits must fall within the definition of employee under the Act, which brings us back to the critical importance of the exclusionary clause [4].

The CCS (Pension) Rules, 1972: Governing Framework for Central Government Employees

The Central Civil Services (Pension) Rules, 1972, constitute a comprehensive code governing the pension and other retirement benefits of Central Government employees. These rules were framed in exercise of the powers conferred by the proviso to Article 309 of the Constitution of India, read with Article 148, to regulate the conditions of service of persons appointed to civil services and posts in connection with the affairs of the Union. The CCS (Pension) Rules apply to government servants appointed to pensionable establishments and provide for various types of pensions, including superannuation pension, retiring pension, compensation pension, invalid pension, and family pension [5].

Under the CCS (Pension) Rules, gratuity is provided as a component of retirement benefits distinct from pension. The rules provide for retirement gratuity payable to government servants who retire after rendering not less than five years of qualifying service. The amount of retirement gratuity is calculated as one-fourth of emoluments for every completed six-monthly period of qualifying service, subject to a maximum. The emoluments for this purpose include basic pay, dearness allowance, and non-practicing allowance where applicable. The maximum limit for gratuity under these rules has been periodically revised, with the current ceiling standing at twenty lakh rupees for government employees [5].

The CCS (Pension) Rules also provide for death gratuity payable to the family of a government servant who dies while in service. The quantum of death gratuity depends on the length of service rendered by the deceased government servant. These provisions ensure that government employees and their families have financial security upon retirement or death, forming part of a comprehensive social security framework that includes pension, provident fund, leave encashment, and other benefits. The rules contain detailed provisions regarding the calculation of qualifying service, counting of various types of service, and procedures for sanctioning and disbursing pension and gratuity [5].

An important feature of the CCS (Pension) Rules is that they create a self-contained code for retirement benefits of government employees. The rules specify the conditions of eligibility, the method of calculation, the procedures for claiming benefits, and the authorities responsible for sanctioning payments. This comprehensive framework is intended to provide certainty and uniformity in the treatment of government employees across different departments and ministries. The existence of this comprehensive framework is relevant to understanding why government employees are excluded from the purview of the Payment of Gratuity Act.

The Supreme Court’s Analysis and Reasoning

The Supreme Court began its analysis by examining the precise scope of the exclusionary clause in the Payment of Gratuity Act. The Court noted that this clause specifically excludes from the definition of employee any person who holds a post under the Central Government or a State Government and is governed by any other Act or rules providing for payment of gratuity. The Court emphasized that this exclusion is not limited to persons who actually receive higher gratuity under other rules, but extends to all persons who hold posts under the government and are governed by such rules, regardless of whether they have actually availed of benefits under those rules [1].

Justice Bhatti, authoring the judgment, observed that the exclusionary clause under the Payment of Gratuity Act clearly keeps Central Government employees outside its ambit, thereby making it evident that the appellants were not employees entitled to claim gratuity under that Act. The Court rejected the contention that employees could be treated as falling under the Payment of Gratuity Act merely because they worked in an establishment that might otherwise qualify as an industry. The determinative factor was not the nature of the establishment but the status of the employees and the rules governing their service conditions [1].

The Court endorsed the respondent’s argument that employees cannot claim to have the benefit of CCS Rules and the status of a Central Government employee while simultaneously seeking gratuity benefits under the Payment of Gratuity Act. This principle reflects a broader jurisprudential understanding that parties cannot selectively apply different legal regimes to obtain the most favorable outcome in each situation. The Court recognized that allowing such cherry-picking would undermine the coherence of the statutory schemes and create administrative complications in determining which rules apply to which aspects of an employee’s service conditions.

The appellants had placed heavy reliance on the Supreme Court’s earlier decision in Municipal Corporation of Delhi v. Dharam Prakash Sharma, where the Court had held that employees of the Municipal Corporation of Delhi were entitled to benefits under the Payment of Gratuity Act despite the Corporation having adopted the CCS (Pension) Rules for its employees. The appellants argued that this precedent supported their claim that adoption of pension rules by an establishment does not automatically exclude its employees from the Payment of Gratuity Act [6].

However, the Supreme Court distinguished the Dharam Prakash Sharma case on facts. The Court noted that employees of the Municipal Corporation of Delhi were not Central Government servants but employees of a statutory corporation established under the Delhi Municipal Corporation Act. The MCD was a separate legal entity with its own identity distinct from the Central Government. The fact that the MCD had chosen to adopt the CCS (Pension) Rules for administrative convenience did not convert its employees into government servants falling within the exclusionary clause of the Payment of Gratuity Act. The Court emphasized that the critical distinction was between employees of statutory corporations or autonomous bodies on one hand, and actual government servants on the other [1].

In contrast to the MCD employees, the Court found that the staff of the Heavy Water Plant were directly part of the governmental framework. The Court examined the constitution, establishment, and continuation of the Heavy Water Plant and concluded that it had the character of an adjunct of the Department of Atomic Energy. The Plant was not a separate legal entity or autonomous organization but an integral part of the government department. Employees were appointed to government posts and their service conditions were governed by government rules from the inception of their employment. The Court specifically noted that it was not relying on appointment orders or circulars to determine the jurisdictional fact of whether the appellants were employees, but rather on the fundamental character of the establishment itself [1].

The Court’s reasoning thus rested on a clear distinction between government servants proper and employees of statutory corporations or autonomous bodies who may have adopted government rules. This distinction is significant because it preserves the applicability of the Payment of Gratuity Act to a wide range of public sector employees while maintaining the exclusion for actual government servants. The decision clarifies that the mere fact that an establishment is owned by the government or performs governmental functions does not automatically make its employees government servants for purposes of the exclusionary clause. The determinative factor is the legal character of the employment relationship and the statutory framework governing it.

Statutory Interpretation and the Principle Against Double Benefits

The Supreme Court’s decision reflects important principles of statutory interpretation that have broader applicability beyond gratuity disputes. The first principle is that exclusionary clauses in beneficial legislation must be given their natural and ordinary meaning without unduly restricting their scope. The Payment of Gratuity Act is undoubtedly beneficial legislation designed to provide social security to workers. However, its benefits are intended for persons who would not otherwise have statutory entitlement to gratuity. Where a separate and specific statutory scheme exists for a particular class of employees, the principle of generalia specialibus non derogant applies – general provisions do not derogate from specific ones.

The second principle evident in the judgment is that courts should not interpret statutes in a manner that would allow claimants to receive double benefits or to selectively apply different statutory schemes to maximize their benefits. This principle has been articulated by the Supreme Court in various contexts. The rationale is both practical and principled. From a practical standpoint, allowing employees to claim benefits under multiple statutory schemes would impose unsustainable financial burdens on employers and the exchequer. From a principled standpoint, it would be inequitable to allow some employees to receive cumulative benefits from different schemes when the legislative intent was to provide alternative rather than cumulative benefits.

The Court’s interpretation also reflects an understanding of the distinct purposes served by the Payment of Gratuity Act and the CCS (Pension) Rules. The Payment of Gratuity Act was enacted to fill a gap in social security coverage for employees in the private sector and in public sector organizations that did not have their own gratuity schemes. It was not intended to supplement or override existing comprehensive pension and gratuity schemes for government employees. The CCS (Pension) Rules represent a carefully calibrated system of retirement benefits that takes into account the security of tenure, promotional opportunities, and other advantages available to government employees.

The judgment also implicitly recognizes that different methods of calculating gratuity may legitimately result in different amounts depending on the factors considered relevant by the respective statutory schemes. The Payment of Gratuity Act uses a formula based on last drawn wages, while the CCS (Pension) Rules use average emoluments over a period. These different methodologies reflect different policy choices about what constitutes a fair measure of an employee’s contribution and entitlement. Courts should be hesitant to second-guess these legislative policy choices or to allow employees to shop between different schemes based on which produces the most favorable outcome in their particular case.

Distinguishing Government Servants from Employees of Public Sector Entities

One of the most significant aspects of this judgment is the clear distinction it draws between government servants proper and employees of public sector undertakings, statutory corporations, and autonomous bodies. This distinction has important implications for a vast number of employees working in various public sector organizations in India. The judgment clarifies that not every employee working in a government-owned or government-controlled organization is a government servant for purposes of the exclusionary clause in the Payment of Gratuity Act.

The test laid down by the Court focuses on the legal character of the employment relationship rather than on ownership or control of the establishment. An employee is a government servant if they hold a post under the Central Government or State Government, meaning they are appointed to positions in the civil services or civil posts in connection with the affairs of the Union or State. Such employees derive their terms and conditions of service directly from rules framed under Article 309 of the Constitution. Their appointment, promotion, discipline, and retirement are governed by statutory rules applicable to government servants.

In contrast, employees of public sector undertakings, even those wholly owned by the government, are generally not government servants unless specifically made so by statute. These organizations are typically incorporated as companies under the Companies Act or established as statutory corporations under specific legislation. They have separate legal personality and their employees are governed by the terms of their individual contracts of employment, subject to applicable labor laws. Even if such organizations adopt government pay scales or pension rules for administrative convenience, this adoption does not convert their employees into government servants.

The Municipal Corporation of Delhi case, which the Court distinguished, exemplifies this principle. The MCD is a statutory corporation with its own legal identity, created under special legislation to perform municipal functions. Its employees are not appointed to government posts but to positions in the Corporation. The fact that the Corporation chose to adopt CCS (Pension) Rules for determining pension and gratuity did not alter this fundamental character. Therefore, the exclusionary clause in the Payment of Gratuity Act, which applies to government servants, did not apply to MCD employees [6].

However, the Heavy Water Plant presented a different scenario. Unlike the MCD, the Heavy Water Plant is not a separate legal entity but an establishment of the Department of Atomic Energy. It functions as an integral part of a government department, not as an autonomous organization. Employees of the Plant are appointed to government posts in the Department of Atomic Energy and their service conditions are governed by rules applicable to Central Government employees. This fundamental difference in legal character justified the different treatment accorded to Heavy Water Plant employees compared to MCD employees.

This distinction has practical implications for thousands of employees across India’s vast public sector. Employees of nationalized banks, for instance, are generally not government servants despite these banks being owned by the government. Similarly, employees of public sector companies in various industries are governed by the Payment of Gratuity Act unless they fall within some other exception. However, employees working in government departments, even if those departments operate industrial or commercial establishments, remain government servants governed by pension rules. The precise determination requires examination of the legal framework governing each organization and the nature of the employment relationship.

Comparative Analysis of Gratuity Under Different Schemes

The dispute in this case arose because the employees believed they would receive higher gratuity under the Payment of Gratuity Act compared to what they received under the CCS (Pension) Rules. This raises the question of how gratuity is calculated under these different schemes and why the amounts might differ. Understanding these differences is important for appreciating the broader context of such disputes and the policy considerations underlying different gratuity schemes.

Under the Payment of Gratuity Act, gratuity is calculated at the rate of fifteen days wages for every completed year of service. The fifteen days wages is computed by dividing the monthly wages last drawn by twenty-six and multiplying the result by fifteen. The use of last drawn wages as the basis means that an employee who has received significant salary increases in the final months of service would benefit from a higher gratuity calculation. The Act imposes a ceiling of twenty lakh rupees on the maximum gratuity payable, regardless of the length of service or the amount of wages drawn [2].

Under the CCS (Pension) Rules, retirement gratuity is calculated differently. The rules provide for payment of one-fourth of emoluments for every completed six-monthly period of qualifying service. The emoluments considered include basic pay, dearness allowance, and non-practicing allowance. However, instead of using the last drawn emoluments, the rules typically use average emoluments over a specified period, often the last ten months of service. This averaging mechanism can result in a lower gratuity compared to using the very last salary, particularly if an employee received a significant salary increase just before retirement [5].

The ceiling on gratuity also differs in practice between the two schemes. While both currently have a ceiling of twenty lakh rupees, this ceiling was reached through different amendment processes and at different times. For many years, the ceiling under the CCS (Pension) Rules was lower than under the Payment of Gratuity Act, though subsequent amendments have aligned them. Additionally, the components of emoluments considered for gratuity calculation may differ, with some allowances being included under one scheme but not the other.

However, these differences in calculation methods should not be viewed in isolation. Government employees receive other benefits under the CCS (Pension) Rules that are not available under the Payment of Gratuity Act. Most significantly, government employees receive pension, which provides a regular monthly income after retirement indexed to inflation through dearness relief. They also receive commutation of pension, provident fund benefits, leave encashment, and other terminal benefits. The gratuity under the CCS (Pension) Rules is just one component of a comprehensive retirement benefit package.

Employees covered under the Payment of Gratuity Act, on the other hand, may not have pension benefits unless they are separately covered under the Employees’ Pension Scheme or some other pension arrangement. For many private sector employees, gratuity is the only statutory retirement benefit they receive, apart from provident fund accumulations. The Payment of Gratuity Act was designed to provide at least some measure of financial security to employees who do not have the advantage of comprehensive pension schemes.

This comparison highlights why the Court was correct in rejecting the employees’ attempt to claim differential benefits. Allowing government employees to claim gratuity under the Payment of Gratuity Act in addition to or instead of their pension scheme benefits would upset the careful balance struck by the legislature in designing different retirement benefit schemes for different categories of employees. It would also create anomalies where government employees would potentially receive both pension and higher gratuity, while private sector employees covered only by the Payment of Gratuity Act would have no pension entitlement.

Implications for Future Litigation and Policy

The Supreme Court’s decision has significant implications for the resolution of similar disputes involving employees of various government departments and public sector organizations. The judgment provides a clear framework for determining whether employees are covered by the Payment of Gratuity Act or excluded under the statutory exclusion clause. The test is whether the employees hold posts under the Central Government or State Government and are governed by rules providing for payment of gratuity. If both conditions are satisfied, the employees are excluded from the Payment of Gratuity Act regardless of the nature of the establishment where they work.

This clarity should help reduce litigation by providing a definitive answer to the question of applicability. Employees of government departments, including those working in industrial or commercial establishments run by departments, cannot claim benefits under the Payment of Gratuity Act if they are governed by pension rules. On the other hand, employees of statutory corporations and public sector companies generally remain covered under the Payment of Gratuity Act unless they fall within some other specific exclusion. The key is to examine the legal character of the employment relationship rather than the ownership or nature of the establishment.

The decision also has implications for administrative practices in government departments and public sector organizations. Organizations need to be clear about the status of their employees and the applicable statutory framework for retirement benefits. Where organizations employ both regular government servants and other categories of employees, they must maintain clear records distinguishing between different categories and applying the appropriate rules to each. Failure to maintain such clarity can lead to disputes and litigation, as employees may claim entitlement under whichever scheme appears more favorable.

From a policy perspective, the judgment reinforces the importance of comprehensive and adequate retirement benefit schemes for all categories of employees. The exclusion of government employees from the Payment of Gratuity Act is premised on the existence of alternative schemes that provide comparable or better benefits. If pension rules provide inadequate benefits, the solution lies in amending those rules rather than in allowing employees to claim benefits under multiple statutory schemes. The government has periodically revised pension rules to enhance retirement benefits, including increasing the ceiling on gratuity and improving pension formulas.

The decision also highlights the need for clarity in the legal framework governing public sector organizations. The distinction between government servants and employees of public sector entities is sometimes blurred, leading to uncertainty about applicable rules. Legislation establishing public sector entities should clearly specify the status of employees and the rules governing their service conditions. Where organizations choose to adopt government pay scales or pension rules, they should clearly document whether this is merely an administrative convenience or whether it fundamentally alters the character of the employment relationship.

The Broader Context of Social Security Legislation

This case must be understood within the broader context of India’s social security legislation and the evolution of retirement benefit schemes. India has a fragmented social security landscape with different schemes applicable to different categories of workers. Government employees have historically enjoyed relatively comprehensive retirement benefits including pension and gratuity. Organized sector employees in private establishments have access to provident fund and gratuity but generally not pension unless covered under the Employees’ Pension Scheme. Unorganized sector workers have had very limited access to formal social security benefits, though recent initiatives are attempting to expand coverage.

The Payment of Gratuity Act was enacted in 1972 as part of efforts to extend social security coverage to workers in the organized sector who did not have comprehensive pension schemes. By making gratuity a statutory right, the Act ensured that all employees meeting the eligibility criteria would receive this benefit upon retirement or termination of employment. The Act has been amended several times to enhance benefits, including increasing the ceiling on gratuity amounts and expanding the categories of establishments covered. These amendments reflect the government’s recognition of inflation and changing economic conditions requiring periodic revision of benefit levels [2].

The CCS (Pension) Rules represent a different approach to retirement benefits, one that provides regular monthly income through pension in addition to lump sum benefits through gratuity and provident fund. This model was traditionally available only to government employees but has been extended to some public sector employees and, in modified form, to private sector employees through the Employees’ Pension Scheme under the Employees’ Provident Funds and Miscellaneous Provisions Act. The pension model is generally considered more advantageous for ensuring financial security in old age, as it provides regular income that can be indexed to inflation.

Recent years have seen significant changes in retirement benefit schemes for government employees. The most significant change was the introduction of the National Pension System for government employees joining after January 1, 2004. Under this system, both the employer and employee make defined contributions to individual pension accounts, with retirement benefits depending on the accumulated corpus and investment returns. Employees under the NPS do not receive the assured pension benefits of the old pension scheme but are entitled to gratuity under enhanced limits. This has created yet another category of government employees with different retirement benefit structures.

The Supreme Court’s decision in this case reinforces that the exclusionary clause in the Payment of Gratuity Act continues to apply to government employees regardless of which pension scheme they are covered under. Whether an employee is covered under the old pension scheme, the National Pension System, or any other scheme applicable to government servants, they remain excluded from the Payment of Gratuity Act as long as they hold posts under the government and are governed by rules providing for gratuity. The nature of the pension scheme may affect the quantum of retirement benefits but does not alter the fundamental character of the employment relationship or the applicable statutory framework.

Conclusion

The Supreme Court’s decision in the Heavy Water Plant employees’ case provides definitive clarity on a long-contested issue regarding the applicability of the Payment of Gratuity Act to government employees. The judgment firmly establishes that Central Government employees governed by the CCS (Pension) Rules fall within the exclusionary clause of the Payment of Gratuity Act and cannot claim benefits under that statute. This principle rests on sound statutory interpretation, respect for legislative intent, and practical considerations about avoiding double benefits and maintaining coherence in retirement benefit schemes.

The Court’s careful distinction between government servants proper and employees of public sector entities provides a workable framework for determining applicability of the Payment of Gratuity Act in complex cases. By focusing on the legal character of the employment relationship rather than ownership or control of the establishment, the Court has provided guidance that can be applied across a wide range of situations. This approach preserves the Payment of Gratuity Act’s coverage of public sector employees who are not government servants while maintaining the exclusion for those who are.

The decision also reinforces important principles about statutory interpretation and the relationship between different legislative schemes. Courts should interpret beneficial legislation purposively to advance its social welfare objectives, but this does not mean ignoring clear exclusionary clauses or allowing claimants to cherry-pick benefits from different schemes. Where the legislature has created distinct schemes for different categories of employees, courts should respect these distinctions and enforce them according to their terms. Employees cannot claim to be governed by one scheme when it suits them and by another scheme when that produces more favorable results.

From a broader policy perspective, the decision highlights the importance of maintaining adequate and comprehensive retirement benefit schemes for all categories of employees. The exclusion of government employees from the Payment of Gratuity Act is premised on their coverage under alternative schemes that provide comparable or better benefits. If these alternative schemes become inadequate, the solution is to enhance them through appropriate amendments rather than to allow employees to claim benefits under multiple schemes. The government has shown willingness to periodically enhance retirement benefits, including recent increases in gratuity ceilings and improvements to pension formulas.

For employees working in government departments and public sector organizations, this decision clarifies their rights and the limitations on those rights. Government employees should understand that their retirement benefits are governed by pension rules, and they cannot claim differential amounts under the Payment of Gratuity Act even if calculations under that Act would yield higher amounts. However, they should also be aware that pension rules provide other benefits, particularly pension itself, that are not available under the Payment of Gratuity Act. The overall package of retirement benefits available to government employees, when considered holistically, provides substantial financial security in retirement.

Looking ahead, similar disputes may arise as different retirement benefit schemes continue to coexist in India’s complex employment landscape. The principles established in this judgment will provide guidance for resolving such disputes. The fundamental inquiry will always be whether the claimant holds a post under the government and is governed by rules providing for gratuity. If so, the exclusionary clause applies and claims under the Payment of Gratuity Act must fail. This bright-line rule, while it may sometimes produce results that particular employees view as unfavorable, serves the important purpose of maintaining clarity and consistency in the application of retirement benefit schemes.

The Supreme Court’s judgment thus represents an important contribution to the jurisprudence on retirement benefits and social security legislation. By clarifying the scope of the exclusionary clause in the Payment of Gratuity Act and firmly establishing that government employees governed by pension rules cannot claim benefits under that Act, the Court has provided certainty that will benefit employees, employers, and administrators alike. The decision upholds the integrity of distinct statutory schemes while ensuring that employees receive the retirement benefits to which they are entitled under the schemes applicable to them. This balanced approach respects both the letter and spirit of the relevant legislation while advancing the broader goals of social security and worker welfare that underlie all retirement benefit schemes.

References

[1] N. Manoharan v. The Administrative Officer & Anr., Supreme Court of India (February 11, 2026). Available at: https://www.livelaw.in/pdf_upload/2026/02/11/1332220242026-02-11-655473.pdf

[2] The Payment of Gratuity Act, 1972. Available at: https://www.indiacode.nic.in/handle/123456789/1703

[3] Section 2(e), The Payment of Gratuity Act, 1972. Available at: https://indiankanoon.org/doc/329413/

[4] Section 14, The Payment of Gratuity Act, 1972 (Act to Override Other Enactments). Available at: https://labour.gov.in/sites/default/files/rules-1972.pdf

[5] Central Civil Services (Pension) Rules, 1972. Available at: https://persmin.gov.in/pension/rules/pencomp.htm

[6] Municipal Corporation of Delhi v. Dharam Prakash Sharma, (1998) 7 SCC 221. Available at: https://www.the-laws.com/Encyclopedia/Browse/Case?caseId=008991786000

[7] Payment of Gratuity (Amendment) Act, 2018. Available at: https://chambers.com/articles/key-amendments-in-payment-of-gratuity-act

[8] Y.K. Singla v. Punjab National Bank, (2013) 3 SCC 472. Available at: https://delhihighcourt.nic.in/app/showFileJudgment/JIS04112024CW13872020_191208.pdf

[9] Pension and Pensionary Benefits under CCS (Pension) Rules. Available at: https://www.barc.gov.in/pensioner/parbaag.pdf

Published and Authorized by Dhruvil Kanabar

The post Supreme Court Clarifies: Payment of Gratuity Act Does Not Apply to Central Government Employees under CCS Pension Rules appeared first on Bhatt & Joshi Associates.

The Supreme Court of India has recently reaffirmed a crucial principle governing employer-employee relatioships in the context of contract labour. The court’s decision makes it clear that workers hired through contractors cannot claim the same status and benefits as regular employees unless there exists documented proof establishing a direct employment relationship with the principal employer. The Supreme Court judgment has far-reaching implications for industries across India that rely heavily on contract labour arrangements, clarifying the boundaries between principal employers, contractors, and contract workers.

The judicial pronouncement comes at a time when the Indian economy witnesses extensive use of contract labour across various sectors. From manufacturing units to educational institutions, from government establishments to private enterprises, the engagement of workers through third-party contractors has become a standard business practice. However, this arrangement often leads to disputes when contract workers seek benefits equivalent to those enjoyed by permanent employees of the principal establishment.

The Recent Supreme Court Judgments

CBSE vs. Raj Kumar Mishra (2025)

In a landmark ruling delivered on March 17, 2025, a bench comprising Justice Ahsanuddin Amanullah and Justice Prashant Kumar Mishra settled a long-standing dispute concerning the employment status of workers engaged through contractors [1]. The case involved Raj Kumar Mishra, who worked as a Junior Assistant at the Central Board of Secondary Education through a third-party contractor, M/s Man Power Services & Security. When his services were discontinued in 1999, Mishra contended that CBSE was his actual employer because the Board exercised direct supervisory control over his daily work activities, including assigning duties and transferring him between locations.

The Labour Court initially accepted Mishra’s argument, heavily relying on the traditional control test to conclude that an employer-employee relationship existed between him and CBSE. The Allahabad High Court later remanded the matter for further inquiry. However, the Supreme Court set aside both these decisions, establishing that a direct master-servant relationship must be proven through clear documentary evidence such as appointment letters, salary slips, or direct payment records.

The Court observed that while CBSE allocated duties and exercised oversight, this did not establish an employment relationship. When a contractor supplies manpower, the principal employer naturally gives instructions and ensures accountability, but this does not override the contractual intermediary arrangement. The judgment reinforced that supervisory or administrative control by the principal employer does not, by itself, create an employer-employee relationship [1].

Municipal Council Case (2025)

Building upon the precedent established in the CBSE case, another bench of Justices Ahsanuddin Amanullah and Vipul M. Pancholi recently decided a similar dispute involving a Municipal Council and contract workers [2]. The municipality had engaged workers through an intermediary contractor, and these workers subsequently claimed equal pay and benefits as regular municipal employees.

The Municipal Council appealed citing the CBSE judgment, arguing that no direct employer-employee relationship existed between the workers and the Council. The respondent workers, on their part, cited the principle of equal pay for equal work as established in State of Punjab vs. Jagjit Singh and others [3]. They argued that contractual employees performing the same duties as regular employees should receive the same benefits.

The Supreme Court accepted the municipality’s argument, holding that since no direct employment relationship existed between the workers and the Municipal Council, the Council was not liable to extend the same employment benefits to them. The Court emphasized that workers engaged through an intermediary contractor face a fundamentally altered employment relationship. The judgment stated that the principle of equal pay for equal work applies differently when workers are engaged through contractors rather than directly employed [2].

The Legal Framework Governing Contract Labour

The Contract Labour (Regulation and Abolition) Act, 1970

The primary legislation governing contract labour in India is the Contract Labour (Regulation and Abolition) Act, 1970, which came into force on February 10, 1971 [4]. This Act was enacted to prevent the exploitation of contract labour and introduce better working conditions. The legislation applies to establishments employing twenty or more contract workers and contractors who employ twenty or more workmen.

The Act establishes a detailed framework for regulating contract labour relationships. It mandates registration of establishments employing contract labour and licensing of contractors. Principal employers must register their establishments with the appropriate authority, and contractors must obtain licenses before supplying labour. These requirements ensure that both principal employers and contractors maintain proper documentation and comply with statutory obligations.

Under the Act, a workman is deemed to be employed as contract labour when hired in connection with the work of an establishment by or through a contractor. The contractor assumes responsibility for hiring, supervising, and remunerating these workers. The principal employer then remunerates the contractor for providing these services. This triangular relationship distinguishes contract labour from direct employment, where workers are borne on the payroll and paid directly by the establishment.

The Act empowers the appropriate government to prohibit employment of contract labour in any process, operation, or work in any establishment after consultation with the Central Board or State Board. This provision recognizes that while contract labour serves legitimate business needs, certain core operations may require direct employment to ensure adequate worker protection. Section 10 of the Act specifically addresses the abolition of contract labour in certain circumstances, considering factors such as whether the work is perennial in nature, whether it is ordinarily done through regular workmen, and whether it is sufficient to employ considerable number of whole-time workmen [4].

The Industrial Disputes Act, 1947

The Industrial Disputes Act, 1947, provides another crucial layer of worker protection, particularly regarding retrenchment and termination of services. Section 25F of this Act lays down conditions that must be fulfilled before retrenching any workman who has been in continuous service for not less than one year [5]. These conditions include providing one month’s notice in writing indicating reasons for retrenchment, paying retrenchment compensation equivalent to fifteen days’ average pay for every completed year of continuous service, and serving notice on the appropriate government.

However, the applicability of these protections depends on establishing an employer-employee relationship. The recent Supreme Court judgments clarify that workers engaged through contractors do not automatically enjoy these statutory protections from the principal employer unless documentary evidence establishes direct employment. The contractor, as the immediate employer, bears the primary responsibility for compliance with retrenchment provisions and other labour law requirements [5].

The Doctrine of Equal Pay for Equal Work

State of Punjab vs. Jagjit Singh (2017)

The principle of equal pay for equal work finds its foundation in Article 39(d) of the Indian Constitution, which directs the State to ensure equal pay for equal work for both men and women. This constitutional directive has been interpreted and applied through various judicial pronouncements, most notably in State of Punjab vs. Jagjit Singh and others, decided on October 26, 2016, and reported in (2017) 1 SCC 148 [3].

In this watershed judgment, the Supreme Court held that temporary workers who execute tasks and duties similar to those of regular permanent workers are entitled to receive remuneration at par with the pay that similarly situated permanent workers receive. The Court emphasized that it is fallacious to determine artificial parameters to deny workers the fruits of their labour. An employee engaged for the same work cannot be paid less than another who performs the same duties simply because of the designation given by the management [3].

The Court observed that the goals set out in Part IV of the Constitution, particularly Article 38 which enjoins the State to promote welfare of people by securing a social order informed by social, economic, and political justice, must guide State action. Article 39(d) imposes a duty to ensure equal pay for equal work, and this directive should be understood as fundamental to achieving social justice.

Application to Contract Workers

However, the recent Supreme Court judgments clarify that the Jagjit Singh principle applies differently in situations involving contract labour. The critical distinction lies in the employment relationship. In Jagjit Singh, the workers were directly employed by the State of Punjab, albeit on a temporary basis. They had a direct employer-employee relationship with the government, which created an obligation to pay them at par with regular employees performing similar work [3].

In contrast, when workers are engaged through contractors, the employment relationship exists between the worker and the contractor, not between the worker and the principal employer. The Municipal Council case explicitly distinguished the Jagjit Singh precedent on this ground. The Court noted that in Jagjit Singh, the contractual employment was directly by the principal, and in that background, contractual workers were entitled to regularization and equal pay. However, when workers are hired through intermediary contractors, this fundamental distinction alters the applicability of the equal pay doctrine [2].

Documentary Evidence: The Decisive Factor

The recent Supreme Court judgments place paramount importance on documentary evidence in determining employment relationships. The Court held that for a person to claim employment under any organization, a direct master-servant relationship must be established on paper. This represents a significant shift from earlier approaches that relied more heavily on the control test and the nature of work performed.

Documentary evidence that could establish direct employment includes appointment letters issued by the principal employer, salary slips showing direct payment by the principal employer, employment contracts executed between the worker and the principal employer, and official communications recognizing the worker as an employee of the establishment. Without such documentation, mere supervisory control or work allocation by the principal employer does not create an employment relationship [1].

The Court rejected the argument that supervisory and jurisdictional control over workers establishes them as employees. In modern business arrangements, principal employers naturally exercise oversight over contract workers to ensure work quality and coordinate operations. They assign specific tasks, monitor performance, and may even transfer contract workers between different locations or responsibilities. However, these activities reflect the principal employer’s legitimate interest in ensuring that contracted work meets required standards, not an employment relationship.

The CBSE judgment specifically addressed this issue, noting that the Labour Court had erred by adopting a simplistic approach that relied heavily on the perception of work and supervision rather than assessing legal documentation. The Supreme Court emphasized that the identity of an employer is determined not by perception but by proof. In an era of widespread outsourcing and non-traditional work arrangements, this clarity proves crucial for both employers and workers [1].

Regulatory Compliance and Employer Obligations

While the recent judgments provide relief to principal employers by clarifying that contract workers cannot claim equal status without documentary proof of direct employment, they do not absolve either principal employers or contractors from their regulatory obligations. Both parties must ensure strict compliance with the Contract Labour Act and other applicable labour legislation.

Principal employers must register their establishments if they employ twenty or more contract workers. They must verify that contractors engaged by them hold valid licenses and comply with all statutory requirements regarding wages, working conditions, and welfare measures. The Contract Labour Act imposes joint and several liability on principal employers and contractors for ensuring payment of wages to contract workers. If a contractor fails to pay wages, the principal employer becomes liable to make such payment [4].

Contractors must obtain licenses before undertaking work involving contract labour. They must maintain proper registers and records, pay wages in accordance with statutory requirements, and provide welfare amenities such as drinking water, latrines, rest rooms, and first-aid facilities. Contractors must also ensure compliance with other labour laws including the Minimum Wages Act, Employees’ Provident Funds Act, and Employees’ State Insurance Act. Failure to comply with these requirements can result in penalties including imprisonment and fines [4].

The recent supreme court judgments reinforce that while contract Labour may not claim equal status with regular employees, they remain entitled to all statutory protections provided under various labour laws. Their engagement through contractors does not diminish their rights to minimum wages, safe working conditions, social security benefits, and other legally mandated protections. The contractual arrangement affects the identity of the employer responsible for providing these benefits, but not the existence of these entitlements.

Implications for Employers and Workers

For Employers

The Supreme Court’s clarification provides much-needed certainty for employers regarding their obligations toward contract workers. Organizations can continue to engage workers through contractors for legitimate business purposes without fear that such arrangements will automatically create direct employment relationships. This flexibility allows businesses to manage workforce requirements efficiently, particularly for temporary projects, seasonal work, or specialized activities.

However, employers must ensure that their contract labour arrangements are structured properly and comply with all legal requirements. The contractor must be a genuine independent entity with real control over the workers supplied. Documentation must clearly establish the contractor as the employer. Payment of wages must flow through the contractor, with the principal employer paying the contractor for services rendered rather than paying workers directly. Any deviation from this structure could be interpreted as evidence of direct employment.

Employers should also implement robust due diligence procedures to verify that contractors comply with all labour law requirements. Principal employers can face liability for violations committed by contractors, particularly regarding wage payment and statutory benefits. Regular audits of contractor compliance, verification of license validity, and monitoring of wage payments help mitigate these risks.

For Workers

For workers engaged through contractors, the judgment underscores the importance of understanding their employment status and ensuring that their rights are protected within the existing framework. While they cannot claim equal status with regular employees of the principal establishment, they remain entitled to all statutory protections applicable to their employment with the contractor.

Workers should insist on proper documentation of their employment relationship with the contractor, including appointment letters, identity cards, and wage slips. They should ensure that their wages meet minimum wage requirements and that statutory deductions for provident fund and insurance are made correctly. If the contractor fails to comply with legal obligations, workers can seek remedies through labour enforcement authorities or courts.

The judgment also highlights that workers seeking regularization or equal benefits must establish direct employment through documentary evidence. Merely performing similar work or being subject to the principal employer’s supervision does not suffice. Workers who believe they have been misclassified as contract labour when they are actually direct employees must gather and preserve evidence of their direct employment relationship from the outset.

Conclusion

The recent Supreme Court judgments represent a significant development in Indian labour law, clarifying the boundaries between contract labour and direct employment. By emphasizing the importance of documentary evidence and rejecting the notion that mere supervisory control establishes employment relationships, the Court has provided much-needed clarity to a complex area of law.

The decisions balance the interests of employers, who require flexibility in workforce management, with those of workers, who need protection from exploitation. While contract workers cannot claim equal status with regular employees absent proof of direct employment, they retain all statutory protections applicable to their employment relationship with contractors. This framework recognizes the legitimate role of contract labour in modern business while ensuring that such arrangements do not undermine fundamental worker protections.

Going forward, both employers and workers must adapt to this clarified legal landscape. Employers must ensure that their contract labour arrangements are properly structured and documented while maintaining compliance with all applicable labour laws. Workers must understand their rights within the existing framework and seek appropriate remedies when those rights are violated. Legal practitioners must counsel clients carefully on structuring employment arrangements and resolving disputes in accordance with these principles.

The Supreme Court judgments reflect a documentation-driven approach to employment law in the context of contract labour, signalling a possible future direction of labour jurisprudence in India. As the economy continues to evolve and new forms of work arrangements emerge, the emphasis on clear documentation and formal employment relationships is likely to grow in importance. These Supreme Court decisions therefore provide not merely a resolution to specific disputes concerning contract labour, but also a broader framework for understanding employer–employee relationships in India’s changing economic landscape.

References

[1] LiveLaw. “Workers Hired Through Contractors Can’t Claim Equal Status As Regular Employees: Supreme Court.” January 2025. https://www.livelaw.in/supreme-court/workers-hired-through-contractors-cant-claim-equal-status-as-regular-employees-supreme-court-518527 

[2] Verdictum. “Supreme Court: Giving Contractual Employees Same Status As Regular Employees Amounts To Giving Premium To Arbitrarily Selected Process.” January 2025. https://www.verdictum.in/court-updates/supreme-court/giving-contractual-employees-same-status-regular-employees-amounts-giving-premium-arbitrarily-selected-process-1604080 

[3] Indian Kanoon. “State of Punjab and Ors vs Jagjit Singh and Ors.” (2017) 1 SCC 148. https://indiankanoon.org/doc/106416990/ 

[4] Chief Labour Commissioner, Government of India. “Contract Labour (Regulation & Abolition) Act, 1970.” https://clc.gov.in/clc/acts-rules/contract-labour-regulation-abolition-act-1970 

[5] Indian Kanoon. “Section 25F in The Industrial Disputes Act, 1947.” https://indiankanoon.org/doc/1056316/ 

Authorized and Published by Dhruvil Kanabar

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The digital revolution has fundamentally transformed India’s employment landscape, creating a vast ecosystem of gig and platform workers who power the country’s urban economy. From delivering hot meals to your doorstep to providing ride-hailing services, these workers form the backbone of India’s modern service sector. Yet until recently, millions of these workers operated in a legal vacuum, devoid of the social security protections that traditional employees take for granted. The implementation of the Code on Social Security, 2020 in November 2025 marks a watershed moment in Indian labour law, formally recognizing gig and platform workers for the first time at the national level. [1]. This recognition comes after years of sustained advocacy by worker unions and follows pioneering state-level legislation that demonstrated the urgent need for legal protections in this rapidly expanding sector.

The Gig Economy in India: Scale and Significance

India’s gig economy has witnessed exponential growth over the past decade, transforming from a nascent concept into a critical component of the nation’s economic infrastructure. According to estimates from NITI Aayog, the sector employed approximately 7.7 million workers in 2020, a figure projected to surge to 23.4 million by 2029-2030 [2]. This remarkable expansion reflects not only technological advancement but also the harsh reality of limited formal employment opportunities for India’s youth. The platforms facilitating this economy, including Uber, Ola, Swiggy, Zomato, Urban Company, and numerous others, have created a new category of work that exists in the grey zone between traditional employment and independent contracting. These workers typically lack steady wages, paid overtime, healthcare benefits, or any form of job security, despite performing essential services that keep India’s cities functioning.

Legislative Framework: The Code on Social Security, 2020

The cornerstone of social security protection for gig and platform workers in India is the Code on Social Security, 2020, which Parliament passed on September 23, 2020 [3]. This legislation represents one of four labour codes designed to consolidate and modernize India’s complex web of labour laws, amalgamating nine previous enactments into a single framework. The Code came into force on November 21, 2025, finally bringing legal recognition to the millions of workers in the gig economy. The Code explicitly defines a “gig worker” as a person who performs work or participates in a work arrangement and earns from such activities outside of traditional employer-employee relationships. Similarly, it defines “platform work” as work arrangements outside conventional employment where organizations or individuals use online platforms to access services in exchange for payment. Most significantly, the Code defines “aggregator” as a digital intermediary connecting buyers and sellers, explicitly bringing platform companies under regulatory oversight.

The legislative framework mandates several critical protections. Aggregators must contribute between one and two percent of their annual turnover, capped at five percent of the amount payable to gig and platform workers, into a dedicated social security fund [4]. This fund, administered by the Central and State Governments, aims to finance various welfare schemes including life insurance, disability insurance, health benefits, maternity benefits, and old-age protection. The Code establishes a National Social Security Board responsible for recommending schemes for different categories of workers and monitoring their implementation. State governments must similarly constitute State Unorganised Workers’ Boards to oversee welfare programs at the regional level. Each worker receives an Aadhaar-linked Universal Account Number, ensuring portability of benefits when moving across states or between platforms.

Key Provisions and Benefits Under the Code on Social Security, 2020

The social security provisions extend across multiple dimensions of worker welfare. The Code provides for health insurance coverage, ensuring that gig workers can access medical care without facing financial catastrophe. Maternity benefits protect women workers during pregnancy and childbirth, addressing a critical gap in protection for female gig workers. Disability and accident insurance offers a safety net when workers face occupational injuries, while life insurance provides support for workers’ families. Perhaps most importantly, old-age pension schemes recognize that gig workers, like traditional employees, need income security in their later years. The Code also introduces novel protections, such as deeming accidents occurring while commuting between residence and workplace as arising in the course of employment, a provision that acknowledges the realities of gig work where the boundaries between work and personal time often blur [5].

State-Level Pioneering: The Rajasthan Model

Even before the central legislation took effect, several states took proactive steps to protect gig workers within their jurisdictions. Rajasthan led this movement by passing the Rajasthan Platform-Based Gig Workers (Registration and Welfare) Act, 2023 on July 24, 2023, becoming the first state to specifically legislate for platform-based gig workers [6]. This groundbreaking legislation established the Rajasthan Platform-Based Gig Workers Welfare Board, mandated registration of all gig workers and aggregators, and created a dedicated welfare fund financed through a welfare cess ranging from one to two percent of each transaction value. The Act requires aggregators to deposit this cess by the fifth day of each month and introduced a Central Transaction Information and Management System to monitor all platform payments transparently. Registered workers receive unique identification numbers valid across all platforms, enabling comprehensive tracking of their employment history and entitlements. The legislation also established a grievance redressal mechanism, allowing workers to petition designated authorities regarding violations of their rights. Non-compliant aggregators face substantial penalties, including fines up to five lakh rupees for first contraventions and fifty lakh rupees for subsequent violations.

Evolution and Expansion: Karnataka, Bihar, and Jharkhand

Following Rajasthan’s example, Karnataka enacted the Karnataka Platform-Based Gig Workers (Social Security and Welfare) Act, 2025 in August 2025, incorporating all provisions of the Rajasthan law while introducing several improvements [7]. Karnataka’s legislation increased the welfare fee range to between one and five percent based on aggregator categories and expanded social security benefits beyond insurance to include health coverage, accident protection, and financial assistance. The Act established a two-tiered grievance procedure, requiring aggregators to maintain Internal Dispute Resolution Committees while allowing escalation to the Welfare Board if issues remain unresolved within fourteen days. Karnataka also mandated that aggregators provide workers with a human point of contact for queries, addressing the frustration many gig workers experience when dealing with algorithm-driven management systems. Bihar and Jharkhand followed suit in August 2025, bringing the total number of states with dedicated gig worker legislation to four. These state laws have created parallel frameworks that, while aligned with central legislation, provide more detailed implementation mechanisms and stricter enforcement provisions.

Judicial Interpretation and Worker Classification

Indian courts have played a crucial role in shaping the legal status of gig workers, often stepping in where legislation lagged. The landmark case of Indian Federation of App-Based Transport Workers v. Union of India, filed before the Supreme Court in September 2021, directly challenges the classification of gig workers as independent contractors rather than employees [8]. The petitioners, representing thousands of Uber, Ola, Swiggy, and Zomato workers, argue that their exclusion from traditional labour protections violates Articles 14, 21, and 23 of the Constitution, which guarantee equality, right to life, and protection from forced labour. The case remains pending, but its significance cannot be overstated. If the Court rules that gig workers qualify as employees, it would fundamentally reshape the legal landscape, potentially extending minimum wage protections, the right to unionize, and comprehensive labour law coverage to millions of workers.

Another significant case, X v. Internal Complaints Committee, ANI Technologies Pvt. Ltd., decided by the Karnataka High Court in 2019, demonstrated how courts can expand worker protections even within existing legal frameworks [9]. When a female passenger experienced sexual harassment by an Ola driver, the court had to determine whether the driver qualified as an “employee” under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. The court conducted a detailed analysis of the control Ola exercised over its drivers, examining how the platform determined rates, charges, service standards, vehicle maintenance requirements, booking acceptance policies, and payment methods. Finding that this level of control went far beyond that of a mere technological intermediary, the court ruled that Ola drivers do qualify as employees for purposes of the POSH Act. While this decision does not automatically extend employment status across all labour laws, it established an important precedent that courts will examine the substance of the relationship rather than accepting platform companies’ self-characterization as mere intermediaries.

Challenges in Implementation

Despite these legislative and judicial advances, significant implementation challenges persist. The division of labour policy between the central and state governments creates potential for uneven access to protections. State governments bear responsibility for designing, notifying, and administering many schemes needed to make the Code operational, raising the possibility that workers in some states will enjoy robust protections while those in other states face delays or inadequate support. The experience of Rajasthan illustrates this challenge. Although the state passed its gig worker legislation in July 2023, the change in government following the December 2023 elections has stalled implementation, with the new administration yet to notify the rules necessary to operationalize the Act [2]. This demonstrates how political will and administrative capacity critically influence whether legal protections translate into real-world benefits.

The actual benefits available to workers remain unclear. While the Code creates the framework for social security schemes, neither the central legislation nor most state laws specify the exact nature, quantum, or eligibility criteria for benefits. Workers registering on the government’s E-Shram portal often find little incentive to do so, as the system does not address their immediate concerns regarding fluctuating earnings, arbitrary account suspensions, or sudden terminations. Trade unions have criticized this gap, noting that without addressing fundamental issues like minimum wages and employment security, social security benefits alone cannot substantially improve workers’ lives. The requirement that aggregators contribute based on turnover or transaction values also raises questions about how contributions will be tracked across multiple platforms and how the system will prevent companies from underreporting to minimize their obligations.

Constitutional and Rights-Based Perspectives

Beyond statutory provisions, gig workers’ claims to social security rest on constitutional foundations. Article 21 of the Indian Constitution, which guarantees the right to life, has been interpreted expansively to include the right to livelihood and dignified working conditions. Workers’ advocates argue that the denial of social security to gig workers violates this fundamental right, as it leaves them vulnerable to poverty, ill-health, and destitution despite their labour contributing significantly to the economy. Article 23, which prohibits forced labour, provides another constitutional basis for worker protections. When platform companies exercise extensive control over workers’ activities, compensation, and working conditions while denying them the benefits associated with employment, some commentators argue this creates a form of exploitative labour that Article 23 was designed to prevent. Article 14’s guarantee of equality before the law supports the argument that gig workers should not receive inferior protections compared to traditional employees performing similar work under similar conditions of subordination and economic dependence.

Comparative Analysis: International Approaches

India’s approach to gig worker regulation sits within a broader global conversation about how to balance the flexibility that platforms and workers value against the need for adequate protections. The United Kingdom’s Supreme Court decision in Uber BV v. Aslam established that Uber drivers qualify as “workers” entitled to minimum wage and paid leave, rejecting the company’s argument that drivers operated as independent contractors. The court examined the degree of control Uber exercised and concluded that this control, combined with drivers’ economic dependence on the platform, made them workers in substance if not in form. California’s Assembly Bill 5, which reclassified many gig workers as employees using an “ABC test,” represented an even more aggressive approach, though it faced significant pushback and subsequent modifications. These international precedents demonstrate different strategies for addressing the gig worker challenge, each with distinct implications for platform business models, worker welfare, and market flexibility.

The Path Forward: Gaps and Recommendations

While India’s new labour codes represent significant progress, substantial work remains to ensure gig workers receive meaningful protection. First and most urgently, both central and state governments must finalize and notify the rules necessary to operationalize the Code’s provisions. Without these implementing regulations, the statutory framework remains largely aspirational. Second, the definition of benefits must be clarified and standardized across jurisdictions to prevent a patchwork system where workers’ protections depend on their geographic location or the specific platform they work for. Third, the legislation must address income security more directly. Current provisions focus on insurance and pension schemes, but they do not establish minimum wages, maximum working hours, or protections against arbitrary deactivation or unfair termination. Trade unions have consistently emphasized that social security, while important, cannot substitute for fair compensation and job security.

Fourth, the grievance redressal mechanisms need strengthening. Many gig workers report that algorithmic management systems make it difficult or impossible to appeal decisions or resolve disputes, as they have no human contact point within the platform companies. State legislation like Karnataka’s requirement for human points of contact represents progress, but this must be implemented uniformly and backed by strict enforcement. Fifth, workers must have genuine opportunities to participate in collective bargaining and union activity. The Code and state laws establish boards with worker representation, but the selection of these representatives must be democratic and transparent rather than being controlled by governments or platforms. Finally, penalties for non-compliance must be enforced consistently. Legislation that imposes substantial fines for violations means little if regulatory agencies lack the resources or political support to conduct inspections and pursue enforcement actions against powerful platform companies.

Conclusion

The recognition of gig and platform workers under India’s Code on Social Security, 2020 marks a critical turning point in the evolution of labour law. After years of operating in legal limbo, millions of workers now have formal status and, at least in principle, access to social security protections. The pioneering efforts of states like Rajasthan, Karnataka, Bihar, and Jharkhand demonstrate that subnational governments can drive innovation in worker protection even when central action lags. Judicial interventions, particularly in cases examining the nature of platform control over workers, continue to refine our understanding of employment relationships in the digital age. Yet recognition alone does not ensure protection. The gap between legislative frameworks and lived reality remains substantial. Many workers report that the new codes have not yet improved their daily working conditions, earnings, or security. Implementation challenges, including the need for detailed implementing rules, adequate funding for social security schemes, effective grievance mechanisms, and robust enforcement, must be addressed if the promise of these reforms is to be realized. The coming years will determine whether India’s legal framework for gig workers represents a genuine transformation in labour relations or merely a symbolic gesture that fails to translate into meaningful change in workers’ lives. The answer will depend on political will, administrative capacity, judicial interpretation, and the continued mobilization of workers themselves demanding that the laws on paper become reality on the ground.

References

[1] Ministry of Labour and Employment. (2025). S.O. 5319(E) – Code on Social Security, 2020 Notification. Government of India. Retrieved from https://labour.gov.in/sites/default/files/ss_code_gazette.pdf 

[2] Labour Review. (2025). Beyond Welfare in India’s Gig Sector. Retrieved from https://labourreview.org/beyond-welfare/ 

[3] Parliament of India. (2020). The Code on Social Security Act, 2020 (Act No. 36 of 2020). India Code. Retrieved from https://www.indiacode.nic.in/handle/123456789/16823 

[4] Business Standard. (2025). From gig workers to factories: What India’s new labour codes really mean. Retrieved from https://www.business-standard.com/economy/news/labour-codes-india-worker-rights-gig-workers-wages-social-security-125112400388_1.html 

[5] The Week. (2025). No more job safety anxiety: How India’s new social security law reforms help gig workers, contract employees. Retrieved from https://www.theweek.in/news/biz-tech/2025/11/22/no-more-job-safety-anxiety-how-india-s-new-social-security-law-reforms-help-gig-workers-contract-employees.html 

[6] Government of Rajasthan. (2023). The Rajasthan Platform Based Gig Workers (Registration and Welfare) Act, 2023. PRS Legislative Research. Retrieved from https://prsindia.org/files/bills_acts/acts_states/rajasthan/2023/Act29of2023Rajasthan.pdf 

[7] PRS Legislative Research. (2025). The Karnataka Platform Based Gig Workers (Social Security and Welfare) Bill, 2025. Retrieved from https://prsindia.org/bills/states/the-karnataka-platform-based-gig-workers-social-security-and-welfare-bill-2025 

[8] Supreme Court Observer. (2022). Gig Workers’ Access to Social Security – The Indian Federation of App Based Transport Workers v. Union of India. Retrieved from https://www.scobserver.in/cases/gig-workers-access-to-social-security-the-indian-federation-of-app-based-transport-workers-ifat-v-union-of-india/ 

[9] Economic and Political Weekly. (2024). Gig Workers under the POSH Act. Retrieved from https://www.epw.in/journal/2024/42/law-and-society/gig-workers-under-posh-act.html 

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Wage revision and fixation have remained central to India’s industrial relations framework since independence. The question of fair remuneration for workers has evolved from basic subsistence wages to structured periodic reviews that balance worker welfare with employer capacity. At the heart of this evolution lies a delicate equilibrium between ensuring dignified living standards for workers and maintaining the financial viability of enterprises. The introduction of the Code on Wages, 2019, which received Presidential assent on 8th August 2019, marks a watershed moment in India’s labour law landscape by consolidating four separate wage-related legislations into a unified framework for wage revision and fixation across all sectors.

The Code on Wages 2019 replaces the Minimum Wages Act, 1948, the Payment of Wages Act, 1936, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976, bringing uniformity to wage determination across all sectors. While the code was notified in 2019, its implementation has been gradual, with the Central Government finally announcing its enforcement from 21st November 2025 [2]. This implementation represents one of the most significant labour law reforms since independence, affecting over 500 million workers across organized and unorganized sectors. Understanding the mechanisms of wage revision and fixation under the Code on Wages 2019 becomes crucial for both employers and employees navigating India’s changing industrial landscape.

Historical Context and Legislative Evolution

India’s journey toward structured wage determination began with the Minimum Wages Act, 1948, which established the principle that certain scheduled employments required minimum wage protection regardless of an employer’s ability to pay. This legislation was born from the recognition that market forces alone could not protect vulnerable workers from exploitation. The Act empowered both Central and State governments to fix and revise minimum wages for scheduled employments, creating a dual regulatory structure that continues to this day. However, the fragmented nature of wage legislation created complexities, with different laws governing different aspects of remuneration, leading to confusion and compliance challenges for employers.

The Minimum Wages Act, 1948, underwent numerous amendments over the decades, with periodic revisions attempted to keep pace with inflation and changing economic conditions. The Act categorized wages into minimum time rates, minimum piece rates, guaranteed time rates, and overtime rates, providing flexibility in wage determination based on work patterns. Yet, enforcement remained weak, with studies indicating that approximately 42 percent of wage earners received wages below the stipulated minimum wage floor [3]. This enforcement gap highlighted the need for a more robust framework that could extend wage protections universally while simplifying compliance mechanisms.

The Code on Wages, 2019, emerged from a larger initiative to consolidate India’s 44 labour laws into four comprehensive codes. Finance Minister Nirmala Sitharaman emphasized during the 2019 Union Budget speech that this consolidation would standardize definitions, streamline registration and filing processes, and reduce disputes arising from fragmented legislation. The wage code specifically introduces the concept of a national floor wage, which ensures that no state can fix minimum wages below a centrally determined baseline. This floor wage can vary across geographical areas based on regional cost of living differences, but it establishes a uniform minimum standard across the country.

The Code on Wages, 2019: Key Provisions

Universal Application and Floor Wage Mechanism

The most transformative aspect of the Code on Wages, 2019, is its universal application to all workers regardless of sector or wage ceiling. Unlike the Minimum Wages Act, 1948, which applied only to scheduled employments, the new code extends minimum wage protections to all categories of workers across organized and unorganized sectors. This expansion brings millions of previously uncovered workers under the protective umbrella of wage regulation, including gig workers, platform workers, and those engaged in unscheduled industries.

The introduction of a national floor wage represents a paradigm shift in wage determination. Under the code, the Central Government fixes a floor wage after obtaining advice from the Central Advisory Board and consulting with State Governments. The minimum rates of wages fixed by appropriate governments under the code cannot be less than this floor wage. Importantly, if existing minimum wages are already higher than the floor wage, they cannot be reduced, protecting workers from any downward revision. Different floor wages may be fixed for different geographical areas, acknowledging regional variations in living costs and economic conditions.

Periodic Revision Mechanism

Wage revision under India’s Code on Wages, 2019 mandates that minimum wages must be reviewed by central and state governments through a structured mechanism, while fixation of these wages occurs at intervals not exceeding five years. This five-year maximum revision period ensures that wages remain responsive to changing economic conditions, inflation rates, and cost of living adjustments. While fixing minimum wages, governments may consider factors including skill levels of workers and difficulty of work. The code provides for different wage structures including time work, piece work, and guaranteed time rates, offering flexibility in wage determination based on the nature of employment.

The Variable Dearness Allowance (VDA) mechanism continues under the new code, with the Central Government revising VDA twice annually based on changes in the Consumer Price Index for industrial workers. The most recent revision, effective from 1st October 2024, increased minimum wages across various categories, with unskilled workers’ daily wage reaching Rs. 783 and highly skilled workers’ wages touching Rs. 1,035 per day [4]. This biannual revision mechanism ensures that workers’ purchasing power remains protected against inflation, even between the five-yearly major wage revisions.

Judicial Interpretation: The Industry-Cum-Region Test

Foundational Principles from Supreme Court Jurisprudence

Indian courts have developed a rich jurisprudence around wage fixation, establishing principles that balance worker interests with employer capacity. The Supreme Court has consistently held that wage fixation must progress from minimum basic wages to need-based fair wages and ultimately to living wages. In landmark judgments, the Court articulated that minimum wages represent the floor below which no employer can operate, regardless of profitability or financial condition. Fair wages, meanwhile, must consider the industry’s capacity to pay while seeking to maintain and increase employment levels.

The industry-cum-region test has emerged as the cornerstone of judicial analysis in wage revision disputes. This test requires tribunals and courts to compare wages with similar industrial units in the same region, ensuring parity and preventing exploitation. However, this comparison cannot occur in a vacuum. The Supreme Court has emphasized that while wage scales should generally not be lower than comparable units in the region, the financial capacity of the employer remains a crucial factor that cannot be ignored.

The VVF India Ltd. Decision and Financial Capacity

The 2024 Supreme Court judgment in VVF Ltd. Employees Union v. M/s. VVF India Ltd. [5] crystallized the importance of employer financial capacity in wage determination. In this case, the employees’ union sought wage revisions to bring Mumbai workmen on par with counterparts in the Taloja unit of the same company. The Bombay High Court had directed certain wage revisions, but the Supreme Court reversed this decision, emphasizing that the High Court had failed to adequately consider the employer’s financial health despite evidence of losses.

The Supreme Court observed that while applying the industry-cum-region test for wage revision, the employer’s financial capacity must be considered alongside regional and industry benchmarks. The Court relied on its earlier decisions in A.K. Bindal v. Union of India and Mukand Ltd. v. Mukand Staff & Officers Association, which established that provisions for taxation and reserves must take second place to wage fixation and gratuity schemes, but this does not mean financial capacity can be entirely ignored. The judgment clarified that employers must account for their financial health when setting or revising wages, and transparent processes in wage determination help manage employee expectations and reduce disputes.

Implementation Challenges and State-Level Harmonization

The implementation of the Code on Wages, 2019, presents significant challenges despite its progressive framework. The code came into force on such date as the Central Government may appoint through official gazette notification, allowing for phased implementation of different provisions. This staggered approach acknowledges the complexity of transitioning from multiple state-specific wage regulations to a unified national framework. The Central Government announced full implementation from 21st November 2025, but the success of this implementation depends heavily on state-level rule-making and administrative preparedness.

Each state must now notify its own rules under the code, creating potential for significant variations between states on aspects like specific minimum wage rates, thresholds for applicability, and welfare schemes. This creates a risk of non-uniform regulatory environment, particularly for companies operating across multiple states. The challenge becomes acute in sectors like construction, agriculture, and domestic work, where state-level variations have historically been substantial. Employers must navigate these varied requirements while ensuring compliance with the overarching national floor wage and the five-year revision mandate.

The technological infrastructure required for effective implementation cannot be understated. The code envisions unified registration portals, electronic wage payment systems, and digital record-keeping mechanisms. The successful operation of these systems is crucial for enforcement, yet many states lack the robust technological platforms needed for seamless operation. Additionally, the code’s coverage of gig and platform workers requires new classification systems and contribution mechanisms that are still being developed. The transition from the old regime to the new code requires extensive training of labour inspectors, employers, and workers themselves about their rights and obligations under the reformed framework.

Impact on Different Worker Categories

Organized Sector Workers

Wage revision and fixation under India’s Code on Wages, 2019 affects different worker categories in distinct ways, with the framework creating both opportunities and challenges across organized and unorganized sectors. The principle of periodic wage revision remains intact, with the five-year maximum interval providing predictability for collective bargaining negotiations. However, the code’s universal application means that wage determination becomes more standardized, with clear benchmarks based on the national floor wage. Fixed-term employees, who were previously in a grey area, now receive explicit recognition with benefits on par with permanent workers, including gratuity eligibility after just one year of service instead of the previous five-year requirement.

The code’s provisions on bonus calculations remain largely similar to the Payment of Bonus Act, 1965, but bring greater clarity to dispute resolution. All employees whose wages do not exceed a government-notified monthly amount are entitled to an annual bonus of at least 8.33 percent of wages or Rs. 100, whichever is higher. Employers must also distribute a portion of gross profits among employees. These provisions, while not revolutionary, benefit from the code’s simplified compliance and dispute resolution mechanisms.

Unorganized Sector and Gig Workers

The true transformative potential of the Code on Wages, 2019, lies in its impact on unorganized and gig workers. Previously excluded from minimum wage protections due to their employment in unscheduled industries, millions of workers now gain access to statutory minimum wages and periodic revisions. The code recognizes gig workers and platform workers explicitly, requiring aggregators to contribute to social security funds. This recognition addresses the growing precarity in India’s expanding gig economy, where workers often lack basic employment protections.

For agricultural workers, domestic workers, and those in informal manufacturing, the universal floor wage provides unprecedented protection. However, the effectiveness of these protections depends entirely on enforcement mechanisms. The code strengthens inspector powers and imposes penalties ranging from Rs. 500 to Rs. 10,000 per underpaid employee, with imprisonment up to six months in severe cases [6]. Yet, the practical challenges of monitoring compliance in the unorganized sector remain formidable, requiring innovative approaches like worker helplines, community monitoring systems, and integration with digital payment platforms to track wage payments.

Gender Equality and Equal Remuneration

The Code on Wages, 2019, consolidates the provisions of the Equal Remuneration Act, 1976, prohibiting gender-based discrimination in wages for the same work or work of a similar nature. This prohibition now extends explicitly to transgender persons, marking an important step toward inclusive labour policies. Employers cannot discriminate on the ground of gender in matters relating to wages when the work performed is identical or of a similar nature. This provision applies universally across all employments covered by the code, eliminating sectoral gaps that existed under the previous regime.

The code also mandates that one-third of members on advisory boards, committees, and sub-committees must be women, ensuring female representation in wage-fixing deliberations. Additionally, the code permits women to work night shifts across all sectors, including mines and hazardous industries, subject to safety measures and consent provisions. This opening of employment opportunities must be accompanied by equal pay protections, ensuring that expanded access does not result in exploitation through lower wages. The code’s equal remuneration provisions provide legal recourse for workers facing gender-based wage discrimination, with claims authorities empowered to adjudicate disputes and order compensation.

Wage Payment Mechanisms and Timelines

The Code on Wages, 2019, modernizes wage payment mechanisms while retaining protections against delayed or incomplete payments. Wages may be paid through coins, currency notes, cheques, direct bank account credits, or electronic modes. This flexibility acknowledges the growing digitization of financial transactions while ensuring that workers without bank accounts can still receive wages through traditional means. Employers must fix wage periods as daily, weekly, fortnightly, or monthly, providing clarity on payment schedules.

The code specifies strict timelines for wage payment. For establishments with fewer than 1,000 workers, wages must be paid before the seventh day after the end of the wage period. For larger establishments employing 1,000 or more workers, payment must occur before the tenth day. These timelines prevent the accumulation of wage arrears and protect workers from financial uncertainty. Violations attract penalties, with claims authorities empowered to direct payment of delayed wages along with compensation.

Permissible deductions from wages remain regulated, with the code specifying that total deductions cannot exceed 50 percent of an employee’s total wage. Deductions may be made for fines, absence from duty, accommodation provided by the employer, recovery of advances, or other specified grounds. This cap on deductions prevents excessive wage garnishment that could leave workers unable to meet basic needs. The transparency requirements around deductions, including maintenance of detailed registers and records, further protect worker interests.

Compliance Requirements and Record-Keeping

Employers face enhanced compliance obligations under the Code on Wages, 2019, including detailed record-keeping requirements. Registers and records must document employee particulars, work performed, wages paid, receipts given, and other prescribed details. These records serve multiple purposes: facilitating government inspections, supporting wage dispute resolution, and ensuring transparency in employer-employee relationships. The shift toward digital record-keeping under the code promises to reduce paperwork burdens while improving accessibility for enforcement authorities.

Inspector-cum-facilitators appointed under the code have powers to inspect workplaces, examine registers, and investigate complaints. The code envisions a shift from purely punitive inspection regimes to facilitative approaches that help employers achieve compliance through guidance and support. However, inspectors retain enforcement powers, including the ability to initiate penalty proceedings for violations. The balance between facilitation and enforcement remains crucial for the code’s success, requiring careful training of inspection staff and clear procedural guidelines.

Future Directions and Living Wage Concept

Beyond the immediate provisions of the Code on Wages, 2019, India is exploring how wage revision and fixation can incorporate living wage concepts in collaboration with the International Labour Organization. A living wage exceeds basic minimum wages by covering essential social expenditures including housing, food, healthcare, education, and clothing. This concept represents the aspirational endpoint of wage policy, moving beyond subsistence to dignity and full participation in society. While implementation timelines remain uncertain, the dialogue around living wages signals a maturation of India’s labour rights discourse.

The five-year revision mechanism under the code provides a framework within which living wage considerations could be gradually incorporated. Each revision cycle offers an opportunity to assess progress toward living wage standards, benchmarking against international best practices and domestic cost-of-living studies. However, achieving living wages requires more than statutory mandate; it demands economic growth, productivity improvements, and equitable distribution of economic gains. The code’s emphasis on worker skill development and industry capacity building supports these broader objectives.

Conclusion

Wage revision and fixation under the Code on Wages, 2019, represents a fundamental restructuring of India’s labour law framework. By establishing universal minimum wage coverage, mandating periodic revisions at intervals not exceeding five years, and introducing a national floor wage, the code addresses long-standing gaps in worker protection. The consolidation of four separate legislations into a unified code simplifies compliance while strengthening enforcement mechanisms. The Supreme Court’s emphasis on balancing the industry-cum-region test with employer financial capacity provides clear guidance for adjudicating wage disputes.

Yet, the code’s success depends on effective implementation at state levels, robust technological infrastructure, and genuine commitment to enforcement in the unorganized sector where the majority of India’s workforce labors. The recognition of gig workers and platform workers, the prohibition of gender-based wage discrimination, and the streamlined payment mechanisms all point toward a more inclusive and modern labour regime. As the code comes into full force from November 2025, its impact will unfold over years, shaping not just wage levels but the broader character of industrial relations in India. The mechanisms established for periodic wage reviews will be tested through economic cycles, requiring vigilance from workers, employers, and government alike to ensure that the promise of fair wages translates into lived reality for India’s working millions.

References

[1] Code on Wages, 2019. The Gazette of India. Ministry of Law and Justice, 8 August 2019. Available at: https://labour.gov.in/sites/default/files/the_code_on_wages_2019_no._29_of_2019.pdf 

[2] “Four Labour Codes Come into Force from Today, Reforming 29 Existing Laws.” DD News, 21 November 2025. Available at: https://ddnews.gov.in/en/centre-implements-four-labour-codes-overhauling-29-existing-laws/ 

[3] “Minimum Wages Act 1948.” Wikipedia, November 2025. Available at: https://en.wikipedia.org/wiki/Minimum_Wages_Act_1948 

[4] “Latest Minimum Wages in India 2025.” ClearTax, 24 March 2025. Available at: https://cleartax.in/s/minimum-wages-in-india 

[5] VVF Ltd. Employees Union v. M/s. VVF India Ltd., 2024 INSC 293, Supreme Court of India, 15 April 2024. Available at: https://www.verdictum.in/court-updates/supreme-court/the-vvf-ltd-employees-union-v-vvf-india-limited-2024-insc-293-employees-union-wage-structure-1530686 

[6] “Minimum Wages Act 1948: Rules and Applicability.” ClearTax, 21 April 2025. Available at: https://cleartax.in/s/minimum-wages-act 

[7] “Code on Wages, 2019.” PRS Legislative Research, November 2025. Available at: https://prsindia.org/billtrack/the-code-on-wages-2019 

[8] “Analysis of Major Employment Law Decisions and Policy Changes in India (2024).” ICLG Employment & Labour Laws, 6 March 2025. Available at: https://iclg.com/practice-areas/employment-and-labour-laws-and-regulations/02-analysis-of-major-employment-law-decisions-and-policy-changes-in-india-2024 

[9] “A Guide to Minimum Wage in India.” India Briefing, November 2025. Available at: https://www.india-briefing.com/news/guide-minimum-wage-india-19406.html/ 

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India’s journey toward establishing wage equality has been marked by progressive legislative reforms aimed at eliminating discrimination in the workplace. The enactment of the Code on Wages, 2019 represents a watershed moment in Indian labour law, consolidating four separate enactments into a unified framework that addresses wage-related matters for all workers across organized and unorganized sectors. This consolidation demonstrates the government’s commitment to simplifying the complex web of labour regulations while strengthening protections against wage discrimination.

The Code on Wages received Presidential assent on August 8, 2019, and was published in the Official Gazette the same day [1]. This landmark legislation repealed and replaced the Payment of Wages Act, 1936, the Minimum Wages Act, 1948, the Payment of Bonus Act, 1965, and the Equal Remuneration Act, 1976, bringing these diverse provisions under one comprehensive statute. The Code extends its protective umbrella to all employees in India, irrespective of their sector of employment or wage ceiling, thereby universalizing the right to minimum wages and timely payment. By replacing the gender-specific terminology of “men and women” with the inclusive term “gender,” the Code takes a progressive stance that recognizes the rights of transgender persons and other gender identities within its ambit.

Constitutional Foundations of Wage Equality

The principle of equal remuneration finds its constitutional moorings in Article 39(d) of the Indian Constitution, which is enshrined within Part IV containing the Directive Principles of State Policy. Article 39(d) explicitly states that “the State shall, in particular, direct its policy towards securing that there is equal pay for equal work for both men and women” [2]. Though Directive Principles are not directly enforceable in courts, they serve as fundamental guidelines for governance and policy formulation, representing the constitutional vision of establishing social and economic justice for all citizens.

The transformative judicial interpretation of this principle began with the landmark judgment in Randhir Singh v. Union of India delivered on February 22, 1982 [3]. In this seminal case, the Supreme Court held that while equal pay for equal work is not expressly declared as a fundamental right, it is certainly a constitutional goal capable of enforcement through constitutional remedies. Justice Chinnappa Reddy, speaking for the Court, observed that the principle is not a mere abstract doctrine but one of substantial importance. The Court established that Directive Principles must be read into fundamental rights as a matter of interpretation, thereby deriving the principle of equal pay from Articles 14 and 16 when read in conjunction with Article 39(d). The judgment emphasized that the Preamble to the Constitution declares India to be a Socialist Democratic Republic, and the word “Socialist” must mean at minimum “equal pay for equal work.”

This constitutional interpretation was further strengthened in subsequent judicial pronouncements. The Supreme Court has consistently reinforced that persons performing identical work under the same employer cannot be treated differentially merely because they belong to different departments or hold different employment statuses, provided all relevant considerations remain the same.

Legislative Framework: From Fragmented Laws to Unified Code

Prior to the Code on Wages, India’s legislative framework for wage regulation was scattered across multiple statutes. The Equal Remuneration Act, 1976 was enacted to provide for payment of equal remuneration to men and women workers and to prevent discrimination on the ground of sex against women in matters relating to employment. However, this Act suffered from several limitations that hampered its effectiveness in achieving true wage equality.

The Equal Remuneration Act adopted a narrow interpretation of “same work or work of a similar nature,” focusing primarily on identical job functions rather than recognizing the intrinsic value of different types of work [4]. This restrictive approach failed to account for the systematic undervaluation of female-dominated occupations such as caregiving, domestic labor, and other service-oriented roles. The Act also contained provisions under Section 16 that permitted the government to declare certain pay differences as non-discriminatory if based on factors other than sex, creating ambiguities that could be exploited to maintain wage disparities. Furthermore, the binary terminology of “men and women” excluded transgender persons and other gender identities from the Act’s protective scope.

The Code on Wages addresses these shortcomings through a more inclusive and robust framework. Section 3 of the Code prohibits discrimination in establishments among employees on the ground of gender in matters relating to wages for the same work or work of similar nature. The provision explicitly states that “there shall be no discrimination in an establishment or any unit thereof among employees on the ground of gender in matters relating to wages by the same employer, in respect of the same work or work of a similar nature done by any employee” [1]. The Code defines “same work or work of a similar nature” in Section 2(v) as work requiring the same skill, effort, experience, and responsibility when performed under similar working conditions, with any differences not being of practical importance in relation to terms and conditions of employment.

Substantive Provisions Ensuring Wage Equality

The Code on Wages, 2019 establishes multiple layers of protection against wage discrimination. Section 3(1) creates an affirmative obligation on employers, mandating that they must not differentiate between employees based on gender when paying wages for identical or similar work. This provision applies uniformly across all establishments regardless of size or sector, marking a significant departure from earlier legislation that often contained exemptions based on establishment size or industry classification.

Section 3(2) contains two critical prohibitions that strengthen the equal pay mandate. First, it prevents employers from reducing the wage rate of any employee for the purpose of complying with equal remuneration provisions, ensuring that wage parity is achieved by raising lower wages rather than lowering higher ones. Second, it prohibits gender-based discrimination in recruitment for the same work or work of similar nature, extending protection beyond wage payment to the initial hiring process itself. This recruitment protection applies to all terms and conditions of employment, with the sole exception being situations where employment of women in such work is prohibited or restricted by law.

The Code addresses potential disputes through Section 4, which empowers the appropriate government to notify authorities for deciding disputes regarding whether particular work constitutes the same or similar nature of work. This dispute resolution mechanism provides a formal channel for employees to challenge discriminatory classifications of their work without resorting immediately to litigation.

Minimum Wage Provisions and Universal Coverage

The Code on Wages, 2019 introduces a revolutionary concept of floor wage under Section 9, which requires the Central Government to fix a floor wage taking into account minimum living standards of workers. This floor wage serves as a baseline below which no State Government can fix minimum wages in their jurisdiction. The provision allows for different floor wages for different geographical areas, recognizing regional variations in cost of living and economic conditions [1].

Section 6 empowers the appropriate government to fix minimum rates of wages for time work or piece work, with specific provisions for ensuring that piece workers receive at least the minimum time-based wage. The Code mandates that minimum wages must be reviewed and revised at intervals not exceeding five years, ensuring regular updates to reflect changing economic realities. In fixing minimum wages, governments must primarily consider the skill levels of workers, categorizing them as unskilled, skilled, semi-skilled, or highly-skilled, and may additionally account for geographical areas and arduousness of work including factors like temperature, humidity, or hazardous conditions.

The universal applicability of minimum wage provisions represents a fundamental shift from earlier legislation. Previously, the Minimum Wages Act, 1948 covered only certain scheduled employments, leaving vast segments of the workforce without statutory wage protection. The Code extends minimum wage coverage to all employees across organized and unorganized sectors, eliminating arbitrary exclusions and ensuring comprehensive protection for India’s diverse workforce.

Judicial Interpretation and Case Law Development

Indian courts have played a pivotal role in developing the jurisprudence around equal pay for equal work, progressively expanding its scope and application. Beyond the foundational Randhir Singh judgment, the principle has been applied and refined through numerous subsequent decisions that have addressed various dimensions of wage discrimination.

The Supreme Court in State of Punjab v. Jagjit Singh, decided on October 26, 2016, addressed the critical issue of wage parity between temporary and permanent employees [5]. The Court held that the principle of equal pay for equal work constitutes a clear and unambiguous right vested in every employee, whether engaged on a regular or temporary basis. The judgment emphasized that in a welfare state, an employee engaged for the same work cannot be paid less than another performing identical duties and responsibilities, as such action strikes at the foundation of human dignity. The Court ruled that temporary employees performing similar duties and functions as permanent employees are entitled to draw wages at par with similarly placed permanent employees at the minimum of the pay scale, though not necessarily entitled to all allowances. This decision has had far-reaching implications for millions of contract and temporary workers across India.

However, the courts have also recognized that the equal pay principle is not a mechanical formula applicable in all situations. The Supreme Court has clarified that for the principle to apply, there must be complete identity of work, qualifications, responsibilities, and conditions of service. The judiciary has maintained that equation of posts and determination of pay scales primarily falls within the executive domain, and courts will interfere only when discrimination is clearly established and lacks rational basis.

Implementation Mechanisms and Enforcement

The Code on Wages, 2019 establishes robust implementation mechanisms to ensure compliance with its provisions. Central and State Advisory Boards are constituted under Section 42, with one-third of members required to be women. These boards advise governments on fixation and revision of minimum wages, increasing employment opportunities for women, and other matters related to the Code. The mandatory inclusion of women in these advisory bodies ensures that gender perspectives are incorporated into wage policy formulation.

Section 45 creates a comprehensive claims mechanism by empowering governments to appoint authorities not below the rank of Gazetted Officer to hear and determine claims arising under the Code. These authorities possess powers equivalent to civil courts for taking evidence and enforcing attendance of witnesses. Significantly, applications can be filed not only by affected employees but also by trade unions or Inspector-cum-Facilitators, enabling collective action and official intervention when individual workers may hesitate to approach authorities independently. The limitation period for filing claims is three years, providing reasonable time for workers to seek redress while maintaining administrative efficiency.

Inspector-cum-Facilitators appointed under Section 51 serve dual functions of ensuring compliance and providing guidance to employers and workers. They possess extensive powers to inspect establishments, examine workers, require production of documents, and even search and seize relevant records when violations are suspected. The Code emphasizes a facilitative approach, requiring Inspector-cum-Facilitators to first provide employers with written direction and reasonable time to comply before initiating prosecution for non-maintenance or improper maintenance of records.

Penalties and Deterrence Framework

The Code prescribes stringent penalties for violations to ensure effective deterrence. Section 54 establishes a graduated penalty structure that distinguishes between different types of violations and repeat offenses. An employer paying less than the amount due to employees faces a fine extending to fifty thousand rupees for the first offense. For subsequent similar offenses within five years, the penalty escalates to imprisonment for up to three months or fine extending to one lakh rupees, or both. This escalating penalty structure reflects the serious view taken of persistent violations.

Interestingly, the Code provides for compounding of offenses under Section 56, allowing first-time offenders to resolve violations by paying fifty percent of the maximum fine prescribed for the offense. However, this compounding facility is not available for repeat offenders within five years, ensuring that habitual violators cannot simply treat penalties as a cost of doing business. The burden of proof in cases alleging non-payment or underpayment of wages rests on the employer under Section 59, shifting the evidentiary burden in favor of workers who typically have limited access to relevant records.

Persistent Challenges in Achieving Wage Equality

Despite the comprehensive legislative framework and supportive judicial pronouncements, significant challenges persist in achieving genuine wage equality in India. Occupational segregation remains a fundamental barrier, with women concentrated in lower-paying sectors and occupations. Cultural attitudes that undervalue women’s work, particularly in caregiving and domestic roles, perpetuate wage disparities even when formal discrimination is prohibited.

The Code on Wages, 2019 is limited to addressing “same work or work of a similar nature” rather than adopting the broader principle of “work of equal value,” a point criticized by commentators [6]. The concept of equal value, recognized in international instruments like the ILO Equal Remuneration Convention, 1951, holds that different types of work requiring comparable skill, effort, and responsibility should receive similar remuneration, even if the specific tasks differ. By not embracing this principle, the Code on Wages, 2019 may fail to address the systematic undervaluation of female-dominated occupations that require equivalent qualifications and effort as male-dominated roles but command lower wages.

Implementation challenges also persist, including limited awareness of legal rights among workers, inadequate resources for enforcement agencies, and social pressures that discourage women from asserting their rights. The informal sector, where the majority of women workers are employed, presents particular difficulties for enforcement despite the Code’s theoretical universal coverage.

Comparative Perspectives and International Standards

India’s approach to wage equality can be contextualized within international frameworks and comparative experiences. The ILO Equal Remuneration Convention, 1951, which India ratified in 1958, promotes the principle of equal remuneration for work of equal value. This principle extends beyond identical work to encompass different jobs that are nevertheless of equal value when assessed on criteria of skill, effort, responsibility, and working conditions.

The United Kingdom’s Equality Act, 2010 provides a more expansive framework, distinguishing between like work, work rated as equivalent, and work of equal value. Under this framework, courts have found professions as diverse as clerical assistants and warehouse operatives, or nursery nurses and architectural technicians, to be of equal value despite their different nature [6]. Such comparative examples illustrate possibilities for more comprehensive approaches to addressing wage discrimination that accounts for systematic undervaluation of certain types of work.

Conclusion and Future Directions

The Code on Wages, 2019 represents significant progress in India’s journey toward eliminating wage discrimination and establishing comprehensive protections for all workers. By consolidating disparate legislation, adopting gender-neutral terminology, introducing universal minimum wage coverage, and establishing robust enforcement mechanisms, the Code on Wages, 2019 creates a strong foundation for wage equality.

However, legislative reform alone cannot eliminate deeply entrenched wage disparities. The Code’s effectiveness will depend on vigorous implementation, adequate resource allocation to enforcement agencies, sustained awareness campaigns to educate workers about their rights, and continued judicial vigilance in interpreting provisions broadly to advance substantive equality. Future reforms might consider adopting the principle of work of equal value, strengthening provisions addressing indirect discrimination, and developing more nuanced approaches to addressing occupational segregation and undervaluation of female-dominated work.

The constitutional vision articulated in Article 39(d) remains aspirational rather than fully realized. Achieving genuine wage equality requires not merely formal legal equality but transformation of social attitudes, workplace cultures, and economic structures that perpetuate discrimination. The Code on Wages provides essential legal tools, but their effectiveness depends on sustained commitment from government, employers, workers’ organizations, and society at large to translate legal mandates into lived reality for India’s diverse workforce.

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The definition of wages has undergone a transformative change with the enactment of the Code on Wages Act, 2019. This landmark legislation, which received presidential assent on August 8, 2019, consolidates and replaces four pre-existing labour laws: the Payment of Wages Act 1936, the Minimum Wages Act 1948, the Payment of Bonus Act 1965, and the Equal Remuneration Act 1976 [1]. The unified definition of wages introduced under this Code represents a paradigm shift in how employers must structure compensation packages and calculate statutory benefits for their employees.

Understanding the Legislative Framework

The Code on Wages Act 2019 extends to the whole of India and applies to all employees across organized and unorganized sectors. The legislation was introduced in Lok Sabha on July 23, 2019, by the Minister of Labour, and subsequently received approval from both houses of Parliament before presidential assent [2]. This consolidation aims to simplify compliance, reduce litigation, and ensure uniformity in wage-related matters across different employment categories. Prior to this enactment, employers faced significant challenges interpreting multiple definitions of wages under different statutes, which led to protracted disputes and inconsistent application of labour laws.

The Legal Definition of Wages Under the Code on Wages 2019

Section 2(y) of the Code on Wages Act 2019 defines wages as “all remuneration whether by way of salaries, allowances or otherwise, expressed in terms of money or capable of being so expressed which would, if the terms of employment, express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment.” This definition adopts a tripartite structure comprising inclusions, exclusions, and conditional inclusions, providing clarity on what constitutes wages for various statutory purposes.

Components Included in Wages

The Code explicitly includes three primary components within the definition of wages. First, basic pay forms the foundational element of wage computation. Second, dearness allowance, which compensates employees for inflation and cost of living variations, is categorically included. Third, retaining allowance, where applicable, is included in the definition of wages. These three components together form the core wage structure upon which various statutory benefits and contributions are calculated [3].

The Supreme Court has historically recognized the importance of clearly delineating wage components. In the landmark case of Muir Mills Co. Ltd. v. Suti Mills Mazdoor Union (1955), the apex court examined the relationship between wages and bonus, establishing that bonus is a payment made in addition to wages and generally represents a cash incentive given conditionally on certain standards of attendance and efficiency being attained [4]. This precedent continues to influence how courts interpret wage-related disputes under the new Code.

Statutory Exclusions from Wages

The Code on Wages Act 2019 specifically excludes eleven categories of payments from the definition of wages. These exclusions are critical for employers to understand as they directly impact payroll structuring and statutory compliance. The first exclusion covers any bonus payable under any law for the time being in force, which does not form part of the remuneration payable under the terms of employment. This ensures that statutory bonuses are not counted twice in wage calculations.

The second exclusion pertains to the value of house accommodation or the supply of light, water, medical attendance, or other amenities or services excluded from wage computation by a general or special order of the appropriate government. Third, any contribution paid by the employer to any pension or provident fund, along with the interest that may have accrued thereon, is excluded. This recognizes that such contributions represent future benefits rather than current wages.

Conveyance allowance or the value of any travelling concession constitutes the fourth exclusion. Fifth, any sum paid to the employed person to defray special expenses entailed on them by the nature of their employment is excluded. House rent allowance forms the sixth exclusion, acknowledging that this allowance serves a specific purpose distinct from regular wages. The seventh exclusion covers remuneration payable under any award or settlement between the parties or order of a court or tribunal.

Overtime allowance constitutes the eighth exclusion, recognizing that payments for work beyond normal working hours are compensatory rather than regular wages. The ninth exclusion covers any commission payable to the employee. Gratuity payable on the termination of employment forms the tenth exclusion. Finally, the eleventh exclusion encompasses any retrenchment compensation or other retirement benefit payable to the employee, or any ex gratia payment made to them on the termination of employment [1].

The Fifty Percent Cap: A Game-Changing Provision

The most significant innovation in the Code on Wages Act 2019 is the introduction of a cap on exclusions. The first proviso to Section 2(y) stipulates that if payments made by the employer to the employee under the exclusion categories exceed one-half, or such other percentage as may be notified by the Central Government, of all remuneration, then the amount exceeding such threshold shall be deemed as remuneration and shall be accordingly added to wages. This provision fundamentally alters compensation structuring in India.

This fifty percent rule means that employers must ensure that basic pay, dearness allowance, and retaining allowance together constitute at least fifty percent of the total remuneration. If allowances and other exclusions exceed fifty percent of the total compensation, the excess amount automatically becomes part of wages for all statutory purposes. This has direct implications for provident fund contributions, gratuity calculations, bonus computations, and employer social security obligations [5].

The rationale behind this provision is to prevent employers from reducing basic wages and inflating allowances to minimize their statutory liabilities. By ensuring that core wage components remain substantial, the legislation aims to increase contributions towards social security benefits and retirement benefits, which are typically calculated based on basic wages rather than total compensation.

Conditional Inclusions for Specific Purposes

The second proviso to Section 2(y) creates conditional inclusions for specific statutory purposes. For the purpose of equal wages to all genders and for the purpose of payment of wages, four categories of emoluments that are otherwise excluded shall be taken into account: conveyance allowance or value of travelling concession, house rent allowance, remuneration payable under any award or settlement, and overtime allowance [1]. This ensures gender pay equity calculations reflect a more complete picture of compensation.

Regulatory Framework and Compliance Requirements

The Code on Wages Act 2019 establishes a robust regulatory framework for wage fixation and payment. Section 6 empowers the appropriate government to fix minimum rates of wages for employees, which can be determined on a time work basis or piece work basis. The Central Government is mandated under Section 9 to fix a floor wage taking into account minimum living standards, and state governments cannot fix minimum wages below this floor wage [6].

Section 17 prescribes strict timelines for wage payment. For employees engaged on a daily basis, wages must be paid at the end of the shift. For weekly engagement, payment must be made on the last working day of the week. Fortnightly wages must be paid before the end of the second day after the end of the fortnight. For monthly wages, payment must be made before the expiry of the seventh day of the succeeding month. Where an employee has been removed, dismissed, retrenched, resigned, or become unemployed due to closure, wages must be paid within two working days [1].

Impact on Statutory Contributions and Benefits

The expanded definition of wages under the Code significantly impacts employer contributions to various statutory funds. Provident fund contributions, which are calculated as a percentage of basic wages and dearness allowance, will increase when previously excluded allowances are brought within the wage definition due to the fifty percent cap. Similarly, gratuity calculations, which depend on last drawn wages, will see upward revisions for employees whose wage structures violate the exclusion cap.

Bonus calculations under Chapter IV of the Code are also affected by the wage definition. Section 26 provides for payment of annual minimum bonus calculated at the rate of eight and one-third percent of wages earned by the employee or one hundred rupees, whichever is higher. The allocable surplus for bonus distribution is determined based on wages as defined in the Code. Therefore, the inclusion of additional components within wages directly increases the quantum of bonus payable to employees [7].

Judicial Interpretation and Precedents

The courts have consistently emphasized the need for clear wage definitions to prevent exploitation and ensure fair compensation. In Baroda Borough Municipality v. Its Workmen (1956), the Supreme Court held that different activities of an establishment constitute one integrated whole, and distinctions between earning and spending departments for wage purposes would create unrest and discontent among employees. This principle of integration and uniformity underlies the unified wage definition in the Code on Wages Act 2019 [8].

Practical Implications for Employers

Employers must undertake a thorough review of their existing compensation structures to ensure compliance with the Code on Wages Act 2019. This involves recalculating the ratio of basic pay and dearness allowance to total remuneration. Many organizations that traditionally maintained basic pay at thirty to forty percent of total compensation must now restructure packages to meet the fifty percent threshold. This restructuring may result in increased take-home pay for some employees but reduced take-home pay for others, depending on how allowances are reclassified.

The impact extends beyond immediate payroll adjustments. Employers must update employment contracts, appointment letters, and salary structures to reflect the new definitions. Human resource management systems and payroll software require reconfiguration to accurately compute wages under the new framework. Additionally, employers must ensure that historical wage structures do not create liabilities for past non-compliance, although the savings clause in Section 69 provides some protection for actions taken under repealed legislation [1].

Enforcement Mechanisms and Penalties

The Code on Wages Act 2019 establishes stringent enforcement mechanisms through Inspector-cum-Facilitators appointed under Section 51. These officials possess powers to inspect establishments, examine employees, require information, and search and seize relevant documents. Section 54 prescribes penalties for non-compliance, with employers paying less than amounts due facing fines up to fifty thousand rupees. Repeated violations attract imprisonment for up to three months or fines up to one lakh rupees, or both [9].

Section 45 provides employees with a mechanism to file claims for wage-related dues before designated authorities. These authorities must endeavor to decide claims within three months and can order compensation up to ten times the claim amount in appropriate cases. This creates significant financial risk for non-compliant employers and underscores the importance of proactive compliance measures.

Conclusion

The Code on Wages Act 2019 represents a watershed moment in Indian labour law reform. The expanded and unified definition of wages under the Code on Wages 2019, with its clear inclusions, exclusions, and the critical fifty percent cap on exclusions, fundamentally transforms how employers must approach compensation structuring. While the legislation aims to enhance employee welfare and increase social security coverage, it places substantial compliance burdens on employers who must navigate the transition from legacy systems to the new framework. Organizations that proactively assess their wage structures, engage in transparent communication with employees, and implement robust compliance mechanisms will be better positioned to navigate this regulatory evolution. As the implementation of this Code progresses and judicial interpretations emerge, both employers and employees must remain vigilant to ensure that the legislative objectives of fair wages, social security, and industrial harmony are achieved in practice.

References

[1] Government of India. (2019). The Code on Wages, 2019 (No. 29 of 2019). Ministry of Law and Justice. https://labour.gov.in/sites/default/files/the_code_on_wages_2019_no._29_of_2019.pdf

[2] PRS Legislative Research. (2019). The Code on Wages, 2019. https://prsindia.org/billtrack/the-code-on-wages-2019

[3] Zoho Payroll. (2023). Decoding the code on wages, 2019. Zoho Payroll Academy. https://www.zoho.com/in/payroll/academy/taxes-and-compliance/labour-code-on-wages.html

[4] Muir Mills Co., Ltd. v. Suti Mills Mazdoor Union, Kanpur, AIR 1955 SC 170. Indian Kanoon. https://indiankanoon.org/doc/1681654/

[5] Corrida Legal. (2025). Code on Wages, 2019, Impact on Basic Pay: Essential Changes for Payroll Compliance in India. https://corridalegal.com/code-on-wages-2019-impact-on-basic-pay-essential-changes-for-payroll-compliance-in-india/

[6] Lexology. (2020). Code on Wages, 2019 – An overview. https://www.lexology.com/library/detail.aspx?g=79ea3e17-a1bb-446a-bb9d-65916c93efed

[7] Mondaq. (2022). Decoding Definition Of ‘WAGES’ As Per The New Wage Code – India. https://www.mondaq.com/india/employee-rights-labour-relations/1211054/decoding-definition-of-wages-as-per-the-new-wage-code-india

[8] Baroda Borough Municipality v. Its Workmen, AIR 1957 SC 65. Indian Kanoon. https://indiankanoon.org/doc/1685938/

[9] Wikipedia. (2025). Code on Wages, 2019. https://en.wikipedia.org/wiki/Code_on_Wages,_2019

The post Expanded Definition of Wages Under the Code on Wages 2019: Key Inclusions, Exclusions & Employer Obligations appeared first on Bhatt & Joshi Associates.

Introduction

The framework of industrial relations in India stands at a transformative juncture with the introduction of the Industrial Relations Code, 2020, which brings forth the concept of a single negotiating union for industrial establishments. This landmark legislation consolidates three major pre-existing labour laws and introduces statutory mechanisms for union recognition that were previously governed largely by voluntary codes and state-specific legislation. The single negotiating union concept represents a fundamental shift in how workers’ collective bargaining rights are structured and exercised in Indian workplaces, moving from a fragmented system of multiple competing unions to a more streamlined approach aimed at reducing industrial conflicts and facilitating effective dialogue between management and labour.

The recognition of trade unions has been a contentious issue in Indian labour jurisprudence for decades. While the Trade Unions Act, 1926 provided for the registration of unions, it remained conspicuously silent on the critical matter of recognition, leaving employers with no statutory obligation to engage with registered unions. This gap created an imbalanced power dynamic where workers’ constitutional right to form associations under Article 19(1)(c) of the Constitution of India could be exercised in theory but rendered ineffective in practice without employer recognition. The Industrial Relations Code, 2020 seeks to address this historical deficit by introducing clear provisions for the recognition of negotiating unions and negotiating councils, thereby providing workers with not just the right to organize but also the right to meaningful collective bargaining.

Historical Context and Evolution of Trade Union Recognition

The journey toward statutory recognition of trade unions in India has been long and arduous. Trade unionism in the country emerged during the late nineteenth century with the establishment of the Bombay Mill-Hands Association in 1890, followed by the formation of the All India Trade Union Congress in 1920.[1] The Trade Unions Act, 1926 was enacted to provide legal recognition and protection to trade unions, marking the first formal legislative framework for labour organization in India. However, this Act focused primarily on registration procedures and did not address the crucial question of recognition by employers.

The deficiency in the Trade Unions Act, 1926 regarding recognition was acknowledged early on. The Indian Trade Unions (Amendment) Act, 1947 attempted to introduce provisions for mandatory recognition of trade unions by inserting Chapter III-A into the principal Act. This amendment required unions to be representative of all workers employed in an industry to qualify for recognition. However, this Amendment Act was never brought into force, leaving the issue of recognition unresolved at the central level.[2]

In the absence of central legislation, various states took the initiative to enact their own recognition laws. Maharashtra pioneered this effort with the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971, which provided detailed mechanisms for union recognition and defined unfair labour practices by both employers and unions.[3] Other states including Madhya Pradesh, West Bengal, Kerala, and Rajasthan followed suit with their own legislative frameworks. These state laws varied in their criteria for recognition, creating a patchwork of different standards across the country.

At the national level, recognition of trade unions has been primarily governed by the voluntary Code of Discipline, which was ratified by representatives of employers and central trade union organizations at the sixteenth session of the Indian Labour Conference held at Nainital in May 1958.[4] The Code of Discipline established criteria for union recognition based on membership strength and functioning period, providing guidelines that could be mutually adopted by employers and unions. While influential, the voluntary nature of this code meant that its enforcement remained inconsistent and subject to the goodwill of management.

The Industrial Relations Code, 2020: A Statutory Framework

The Industrial Relations Code, 2020, which received presidential assent on September 28, 2020, represents a watershed moment in Indian labour law. This Code consolidates and amends three central labour laws: the Trade Unions Act, 1926; the Industrial Employment (Standing Orders) Act, 1946; and the Industrial Disputes Act, 1947. The Code introduces several transformative provisions, with the concept of negotiating unions and negotiating councils being among the most significant innovations.[5]

Definition and Scope of Negotiating Union

Section 14 of the Industrial Relations Code, 2020 provides the statutory basis for the recognition of negotiating unions and negotiating councils. A negotiating union is defined as a registered trade union that has been recognized as having the statutory right to negotiate with the employer of an industrial establishment on prescribed matters. These matters, as outlined in the Draft Industrial Relations (Central) Recognition of Negotiating Union or Negotiating Council and Adjudication of Disputes of Trade Unions Rules, 2021, include classification of worker grades, wages and allowances, leave entitlements, hours of work, disciplinary procedures, and safety, health and working conditions.[6]

The scope of negotiation under the Code is comprehensive and encompasses the fundamental aspects of the employment relationship. This statutory recognition of negotiating rights marks a departure from the previous system where such rights existed only through voluntary agreements or state-specific legislation. By providing a clear legal framework, the Code aims to strengthen collective bargaining mechanisms and reduce ambiguity in employer-union relations.

Single Union Recognition Criteria

Section 14(2) of the Industrial Relations Code, 2020 addresses the situation where only one registered trade union exists in an industrial establishment. In such cases, the employer must recognize this union as the sole negotiating union if it meets the prescribed criteria. The Draft Recognition Rules specify that a single union must have at least thirty percent of the total workers employed in the industrial establishment as its members to qualify for recognition.[7]

This thirty percent threshold has been a subject of considerable debate. Critics argue that allowing a union with only thirty percent membership to represent the entire workforce is insufficiently democratic and creates a representational deficit for the remaining seventy percent of workers. The threshold is borrowed from the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971, where thirty percent serves as the eligibility threshold for applying for recognition rather than the threshold for actual recognition. Some commentators have argued for increasing this threshold to fifty-one percent to ensure institutional legitimacy and bring it into alignment with the criteria applicable in multiple-union scenarios.

Multiple Union Scenario and Negotiating Council

The more complex situation arises when multiple trade unions operate within a single industrial establishment. Section 14(3) of the Code provides that where more than one registered trade union functions in an establishment, the union having the support of fifty-one percent or more of the workers on the muster roll shall be recognized as the sole negotiating union. This fifty-one percent threshold ensures that the recognized union genuinely represents the majority of workers and can claim a democratic mandate to negotiate on their behalf.[8]

The verification of membership is conducted through a prescribed manner as set out in the Draft Recognition Rules. The verification process involves multiple stages, including physical verification of union records, muster roll checking to confirm that members are actually on the establishment’s rolls, and potentially secret ballot elections. This rigorous verification mechanism aims to prevent fraudulent claims of membership and ensure that recognition is based on authentic worker support.

When no single union commands fifty-one percent support, Section 14(4) mandates the constitution of a negotiating council. This council comprises representatives of all registered trade unions that have the support of at least twenty percent of the total workers on the muster roll. The representation in the council is proportional, with one representative for each twenty percent of workers, and an additional representative for any remainder after calculating membership on each twenty percent basis. This proportional representation model ensures that minority unions retain a voice in collective bargaining while preventing excessive fragmentation that could paralyze negotiations.[9]

Tenure of Recognition

An important feature of the recognition system under the Industrial Relations Code is the specified tenure of recognition. Section 14(6) provides that any recognition made under subsections (2) or (3), or any negotiating council constituted under subsection (4), shall be valid for three years from the date of recognition or constitution. This period can be extended for up to five years in total through mutual agreement between the employer and the trade union. This fixed-tenure approach brings much-needed stability to industrial relations by preventing constant challenges to recognition and allowing recognized unions adequate time to deliver on their commitments to workers.[10]

The three-year validity period represents an increase from the two-year period that was prevalent under the voluntary Code of Discipline. This extension acknowledges the time and resources required to conduct membership verification exercises and provides unions with greater security of tenure. The option to extend recognition up to five years through mutual agreement introduces flexibility and rewards productive union-management relationships.

State-Level Recognition Frameworks

Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971

Maharashtra has been at the forefront of trade union recognition legislation in India. The Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971 was enacted following the report of the Committee on Unfair Labour Practices appointed by the Government of Maharashtra in 1968. This Act provides for the recognition of trade unions to facilitate collective bargaining, defines unfair labour practices, and establishes independent judicial machinery in the form of Labour Courts and Industrial Courts to implement its provisions.[3]

Under this Act, a trade union seeking recognition must apply to the Industrial Court if it has maintained a membership of not less than thirty percent of the total workers in the undertaking for a continuous period of six calendar months immediately preceding the application. The Industrial Court, after satisfying itself about the union’s compliance with statutory requirements, issues a certificate of recognition. Recognized unions enjoy several rights including the right to collectively bargain, display notice boards, hold discussions with management, inspect the undertaking, appear on behalf of workers in domestic inquiries, and participate in works committees.

The Maharashtra Act also comprehensively defines and prohibits unfair labour practices by both employers and trade unions. Schedule IV of the Act enumerates specific acts that constitute unfair labour practices, including discrimination against workers for union membership, refusal to bargain collectively, interference with union formation, and coercion of workers. The Act provides for complaints to be filed before Labour Courts, which can grant appropriate relief including reinstatement and compensation. This comprehensive framework has made Maharashtra a model that other states have sought to emulate.

Other State Legislations

Several other states have enacted their own recognition laws, though with varying degrees of comprehensiveness. The Kerala Recognition of Trade Unions Act, 2010 provides for the recognition of trade unions and establishes criteria similar to those in Maharashtra. West Bengal has the West Bengal Trade Union Rules, 1998, which require applications to be submitted for recognition based on membership criteria. Madhya Pradesh and Rajasthan have also enacted provisions for trade union recognition, though these frameworks have seen less consistent implementation than the Maharashtra model.

The multiplicity of state laws creates challenges for industrial establishments operating across multiple states, as they must navigate different recognition criteria, procedures, and union rights. This fragmentation was one of the key motivations for introducing uniform provisions at the central level through the Industrial Relations Code, 2020. However, as labour falls under the Concurrent List of the Constitution, both central and state governments retain the power to legislate on this subject, meaning that state laws will continue to coexist with the central Code.

Judicial Interpretation of Trade Union Recognition

The Indian judiciary has played a crucial role in shaping the legal landscape of trade union recognition through its interpretations of constitutional provisions and labour statutes. The courts have had to balance the fundamental right to form associations guaranteed under Article 19(1)(c) of the Constitution with the practical realities of industrial relations and the absence of comprehensive statutory recognition provisions.

In the landmark case of All India Bank Employees’ Association v. National Industrial Tribunal, the Supreme Court held that the rights of members of trade unions are encompassed within the fundamental right to freedom of speech and expression under Article 19(1)(c) of the Constitution. However, the Court clarified that this right does not automatically include a right to achieve all the objectives for which the trade union was formed, and that strikes by trade unions can be regulated or restricted through appropriate industrial legislation.[11]

The Supreme Court in Balmer Lawrie Workers’ Union, Bombay and Another v. Balmer Lawrie & Co. Ltd. and Others made the important observation that a recognized union represents all workers in an industrial undertaking or industry, not merely its own members. This principle establishes the representative character of recognized unions and imposes upon them a duty to act in the interests of all workers, creating a fiduciary-like relationship between the union and the entire workforce.[12]

In Kalindi and Others v. Tata Locomotive and Engineering Co. Ltd., the Supreme Court concluded that there is no inherent right to representation unless the employer explicitly recognizes such a right through its standing orders or through a voluntary agreement. This judgment emphasized the discretionary nature of recognition in the absence of statutory compulsion. The Court held that management has no legal obligation to establish unions, recognize them, or engage in collective bargaining unless required to do so by specific legislation or contractual commitments.[13]

The case of Food Corporation of India Staff Union vs. Food Corporation of India and Others established important guidelines for assessing the representative character of trade unions through the secret ballot system. The Supreme Court laid down elaborate norms and procedures to be followed when conducting verification of union membership through secret ballot, providing a framework that has been widely adopted for membership verification exercises. The Court emphasized the importance of ensuring that the verification process is fair, transparent, and conducted under neutral supervision to accurately reflect worker preferences.[14]

In B. Srinivasa Reddy vs. Karnataka Urban Water Supply and Drainage Board Employees Association, the Supreme Court reiterated that an unregistered trade union has no rights whatsoever under the Trade Unions Act, 1926. The Court clarified that even rights under the Industrial Disputes Act, 1947 are generally restricted to unions registered under the Trade Unions Act, as per the definition of trade union in Section 2(qq) of the Industrial Disputes Act. This judgment underscored the importance of registration as a prerequisite for claiming any statutory rights.

Advantages and Criticisms of the Single Negotiating Union Concept

The single negotiating union concept introduced by the Industrial Relations Code, 2020 has generated substantial debate among stakeholders in industrial relations. Proponents argue that this system brings several significant advantages to the collective bargaining process. First, it eliminates the problem of multiple unions with conflicting demands negotiating simultaneously with management, which often led to prolonged disputes and industrial unrest. A single recognized union can present a unified voice for workers, making negotiations more efficient and productive.

Second, the single negotiating union concept provides clarity and stability to industrial relations. Employers know exactly which union they need to engage with for collective bargaining purposes, reducing ambiguity and the potential for one union to undermine agreements reached with another. The fixed tenure of recognition for three to five years further enhances this stability by preventing constant challenges to recognition that could disrupt ongoing negotiations and implementation of agreements.

Third, the system encourages unions to build and maintain genuine grassroots membership rather than relying on political affiliations or employer sponsorship. Since recognition depends on verifiable membership support, unions must demonstrate that they actually represent workers’ interests and command their loyalty. This democratic element strengthens the legitimacy of recognized unions and ensures that they remain accountable to their membership.

However, critics raise several concerns about the single negotiating union model. The most significant criticism relates to the potential suppression of minority interests and reduction of workers’ choice. In diverse workforces where different categories of workers may have different interests and priorities, a single union may not adequately represent all sections. Workers who do not support the majority union may find their voices marginalized, particularly on issues specific to their category or department.

The thirty percent threshold for single union recognition has been particularly controversial. Critics argue that allowing a union with only minority support to represent the entire workforce violates democratic principles and creates a legitimacy deficit. While the Industrial Relations Code requires fifty-one percent support when multiple unions exist, the lower threshold for single-union scenarios creates an inconsistency that some view as unjustifiable.

There are also concerns about the potential for employer manipulation of the recognition process. Management might support a compliant or “pocket union” and use various means to ensure it achieves the required membership threshold, thereby excluding more militant unions that genuinely fight for workers’ rights. The verification process, while detailed, may still be vulnerable to manipulation through coercion, inducements, or fraudulent documentation.

Comparison with International Practices

Different countries have adopted varying approaches to trade union recognition and collective bargaining structures. The United States follows a system of exclusive representation where a union that wins a majority in a secret ballot election becomes the exclusive bargaining representative for all workers in the bargaining unit, even those who did not vote for it or who are not union members. This is similar to the single negotiating union concept, though the threshold for recognition is typically above fifty percent.

The United Kingdom has historically followed a voluntarist approach where union recognition depended primarily on employer willingness. However, the Employment Relations Act, 1999 introduced statutory recognition procedures that allow unions to apply to the Central Arbitration Committee for recognition if they have at least ten percent membership in the bargaining unit and there is likely to be majority support. This framework balances voluntary recognition with statutory intervention when necessary.

Many European countries operate under sectoral collective bargaining systems where unions negotiate industry-wide agreements that cover all workers in that sector, regardless of individual union membership. Germany’s system of works councils, which are separate from trade unions but work alongside them, provides another model where worker representation is institutionalized at the workplace level while unions focus on industry-level bargaining.

The Indian approach under the Industrial Relations Code, 2020 draws elements from various international models while attempting to address the specific challenges of the Indian context, including the prevalence of multiple competing unions, political affiliation of unions, and the need to balance flexibility for employers with protection for workers. Whether this hybrid approach will prove successful depends significantly on how effectively the rules are implemented and enforced.

Implementation Challenges and Future Outlook

The implementation of the Industrial Relations Code, 2020 faces several practical challenges that will determine its effectiveness in achieving its stated objectives of promoting industrial peace and protecting workers’ rights. While the Code was passed in September 2020, it has not yet been notified and brought into force as of the time of writing, pending the finalization of various state rules and achieving consensus among different stakeholders.

One major implementation challenge relates to the verification of union membership. The Draft Recognition Rules outline an elaborate verification process, but conducting such verification across thousands of industrial establishments will require significant administrative capacity and resources. The appointment and training of verification officers, development of electronic systems for secret ballot voting, and ensuring the neutrality and integrity of the process will all demand careful attention. Past experiences with membership verification have shown that these exercises can be time-consuming, expensive, and contentious.

The transition from the existing system to the new framework will also pose challenges. Many establishments currently have recognition arrangements under the Code of Discipline or state laws that may not automatically comply with the new criteria under the Industrial Relations Code. Determining how existing recognized unions will be treated, whether fresh verification will be required, and how to manage the transition period will require clear guidelines and potentially transitional provisions.

Resistance from trade unions is another significant challenge. Many established unions, particularly those with political affiliations or those representing specific categories of workers, view the single negotiating union concept as a threat to their existence and relevance. These unions argue that the new system will concentrate power in the hands of larger unions while marginalizing smaller unions that may represent vulnerable or minority groups within the workforce. Building consensus and addressing these concerns through dialogue and potentially through refinements to the rules will be important for smooth implementation.

Employer preparedness and willingness to engage with negotiating unions in good faith is equally critical. The Code imposes obligations on employers to recognize unions meeting the statutory criteria and to negotiate with them on prescribed matters. However, without corresponding provisions ensuring that employers bargain in good faith and implement negotiated agreements, recognition rights may remain hollow. The enforcement mechanisms under the Code, including penalties for non-compliance, will need to be effectively utilized to ensure that recognition translates into meaningful collective bargaining.

Looking ahead, the success of the Industrial Relations Code, 2020 in reforming India’s industrial relations landscape will depend on several factors. First, the rules must be finalized in a manner that addresses legitimate concerns while maintaining the core objectives of the Code. The Draft Recognition Rules are still at the proposal stage and may undergo modifications based on stakeholder feedback. Second, adequate infrastructure and administrative mechanisms must be established to implement the verification and recognition processes efficiently and fairly. Third, capacity building among employers, unions, and government officials regarding the new provisions and procedures will be essential. Finally, monitoring and evaluation mechanisms should be put in place to assess the impact of the Code and make necessary adjustments based on practical experience.

Conclusion

The introduction of the single negotiating union concept through the Industrial Relations Code, 2020 represents a significant evolution in India’s labour law framework. By providing statutory recognition to negotiating unions and establishing clear criteria for such recognition, the Code addresses a long-standing gap in Indian labour legislation. The system aims to streamline collective bargaining, reduce multiplicity of unions and conflicting demands, and provide stability to industrial relations while maintaining democratic principles through majority support requirements and proportional representation in negotiating councils.

However, the effectiveness of this reform will ultimately be determined by its implementation on the ground. Balancing the interests of different stakeholders including workers seeking genuine representation, unions concerned about their institutional survival, employers desiring industrial peace and flexibility, and the government’s developmental objectives requires careful navigation. The verification processes must be conducted fairly and transparently, minority interests must be adequately protected through the negotiating council mechanism, and enforcement mechanisms must ensure that recognition translates into effective collective bargaining.

As India’s economy continues to evolve with increasing informalization of labour, growth of the gig economy, and changing nature of work, the labour law framework will need to remain adaptable. The Industrial Relations Code, 2020 provides a foundation that can potentially address current challenges while remaining flexible enough to accommodate future developments. Whether this legislative initiative succeeds in achieving its ambitious goals of modernizing industrial relations while protecting workers’ rights will be evident only after the Code is fully implemented and has operated for a reasonable period. What is certain is that trade union recognition and collective bargaining will remain central to the discourse on labour rights and industrial relations in India for years to come.

References

[1] Wikipedia Contributors. (2025). Trade unions in India. Wikipedia. Retrieved from https://en.wikipedia.org/wiki/Trade_unions_in_India 

[2] National Law Review. (2021). Proposed Developments in India’s Law on Labor Unions. Retrieved from https://natlawreview.com/article/proposed-developments-india-s-law-labor-unions 

[3] India Code. (1972). Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971. Retrieved from https://www.indiacode.nic.in/handle/123456789/15922?view_type=browse 

[4] Ministry of Labour and Employment, Government of India. (1958). Code of Discipline. Retrieved from https://labour.gov.in/sites/default/files/code_of_discipline.pdf 

[5] Wikipedia Contributors. (2025). Industrial Relations Code, 2020. Wikipedia. Retrieved from https://en.wikipedia.org/wiki/Industrial_Relations_Code,_2020 

[6] National Law Review. (2020). India’s New Labor Codes: Concept of Negotiating Union. Retrieved from https://natlawreview.com/article/india-s-new-labor-codes-concept-negotiating-union 

[7] The Leaflet. (2021). Trade Union Recognition (Central) Rules, 2021 – A Critical Analysis and Some Recommendations. Retrieved from https://theleaflet.in/trade-union-recognition-central-rules-2021-a-critical-analysis-and-some-recommendations-part-i/ 

[8] Indian Kanoon. (2020). Section 14 of the Industrial Relations Code, 2020. Retrieved from https://indiankanoon.org/doc/196989237/ 

[9] PRS Legislative Research. (2020). The Industrial Relations Code, 2020. Retrieved from https://prsindia.org/billtrack/the-industrial-relations-code-2020 

Published and Authorized by Prapti Bhatt

The post Trade Union Recognition: Single Negotiating Union Concept under the Industrial Relations Code, 2020 appeared first on Bhatt & Joshi Associates.

Introduction

Industrial relations in India have undergone significant transformation with the enactment of the Industrial Relations Code 2020, which introduces new restrictions and notice requirements for strikes and lockouts across all industries. This landmark legislation consolidates three major labour laws into a single framework, fundamentally altering how strikes and lockouts are regulated in Indian industries. The Code represents one of the most ambitious labour law reforms in recent decades, introducing stricter notice requirements and expanded restrictions that affect both workers and employers. Understanding these changes to strike and lockout regulations is crucial for maintaining industrial harmony while protecting the rights of all stakeholders in the employment relationship.

The regulation of strikes and lockouts has always been a delicate balancing act between protecting workers’ collective bargaining rights and ensuring industrial stability. The new Code attempts to strike this balance by imposing mandatory notice periods, prohibiting industrial action during certain proceedings, and extending restrictions beyond public utility services to all industrial establishments. These provisions mark a departure from the earlier regime under the Industrial Disputes Act, 1947, which had more limited application [2].

Historical Context and Legislative Evolution

The regulation of strikes in India dates back to the Trade Disputes Act of 1929, which first introduced restrictions on the right to strike in public utility services. The Industrial Disputes Act, 1947 further developed this framework by establishing detailed procedures for industrial dispute resolution and placing conditions on when workers could legally resort to strikes. Under the old regime, restrictions on strikes without prior notice applied primarily to establishments classified as public utilities, leaving other industrial establishments with greater flexibility.

The judiciary has consistently held that the right to strike is not a fundamental right under the Indian Constitution. In the landmark case of Kameshwar Prasad v. State of Bihar [3], decided in 1962, the Supreme Court clarified that while peaceful demonstrations fall within the protections of freedom of speech and assembly under Articles 19(1)(a) and 19(1)(b), the right to strike itself does not enjoy constitutional protection. The Court upheld restrictions on strikes by government employees, noting that such limitations serve the larger public interest.

This principle was reinforced in T.K. Rangarajan v. Government of Tamil Nadu [4], where the Supreme Court emphatically stated that government employees have no fundamental, statutory, or moral right to resort to strikes. The Court observed that strikes as a weapon are often misused, resulting in chaos and administrative breakdown, and that the interests of society cannot be held ransom to employee demands. These judicial precedents established the foundation for legislative restrictions on industrial action, recognizing strikes as a statutory right subject to reasonable regulations rather than an absolute entitlement.

The Industrial Relations Code 2020: Consolidation and Reform

The Industrial Relations Code, 2020 consolidates and repeals three central labour laws: the Trade Unions Act, 1926, the Industrial Employment (Standing Orders) Act, 1946, and the Industrial Disputes Act, 1947 [1]. Receiving Presidential assent on September 28, 2020, the Code aims to simplify compliance, promote ease of doing business, and create a more balanced framework for employer-employee relations. Despite its enactment, the Code awaits notification for its implementation, with the Central Government retaining discretion to bring different provisions into force at different times.

The Code comprises 106 sections organized into 14 chapters, covering various aspects of industrial relations including trade union registration, dispute resolution mechanisms, standing orders, and provisions relating to strikes and lockouts. One of the most significant changes involves redefining key terms and expanding the scope of regulations to encompass all industrial establishments, not merely those classified as public utilities.

The definition of strike under the Code includes cessation of work by a body of persons employed in any industry acting in combination, and significantly, it now encompasses concerted casual leave taken by fifty percent or more workers on a given day. This expanded definition addresses a common tactic where workers would simultaneously take casual leave to exert pressure on employers while technically not engaging in a strike. By bringing such coordinated absences within the ambit of strikes, the Code ensures that these actions are subject to the same notice requirements and restrictions.

Mandatory Notice Requirements for Strikes

One of the most substantial changes introduced by the Industrial Relations Code concerns the notice requirements for strikes. Workers planning to go on strike must now provide their employers with at least fourteen days’ advance notice before commencing any strike action [5]. This notice must specify the intended date of the strike and remain valid for a maximum period of sixty days from the date of notice. If workers wish to strike after the sixty-day validity period expires, they must issue fresh notice and wait another fourteen days.

The notice requirement serves multiple purposes within the industrial relations framework. First, it provides employers with adequate time to prepare for potential disruptions to production and services, allowing them to make alternative arrangements or take mitigating measures. Second, it creates a mandatory cooling-off period during which parties can attempt to resolve their differences through negotiation or conciliation. Third, it ensures that strikes do not occur impulsively but only after deliberate consideration and formal communication.

Under the previous regime of the Industrial Disputes Act, 1947, similar notice requirements existed but applied primarily to public utility services. Public utility services were defined narrowly to include railways, postal services, airports, hospitals, and other essential services where interruption would cause public hardship. The Industrial Relations Code extends these notice requirements to all industrial establishments, regardless of their classification, thereby subjecting a much broader range of employers and workers to these procedural safeguards [2].

The requirement of fourteen days’ notice represents a balance between providing workers sufficient time to organize collective action and giving employers reasonable warning. During this period, conciliation proceedings often commence, with conciliation officers appointed by the government attempting to mediate between the disputing parties. The notice period thus becomes an integral part of the dispute resolution mechanism, encouraging dialogue before resorting to direct action.

Parallel Notice Requirements for Lockouts

The Industrial Relations Code applies symmetrical notice requirements to lockouts initiated by employers. Just as workers must provide fourteen days’ notice before striking, employers must give fourteen days’ advance notice before declaring a lockout [5]. This parallel requirement ensures fairness in the regulation of industrial action, recognizing that lockouts can be as disruptive to workers as strikes are to employers.

A lockout, defined as the temporary closing of a place of employment or suspension of work by an employer, serves as management’s counterpart to a worker’s strike. Historically, employers have used lockouts to pressure workers into accepting management’s terms or to respond to threatened or actual strikes. The notice requirement prevents employers from suddenly closing establishments without warning, thereby protecting workers from unexpected loss of livelihood.

The principle of reciprocal obligations reflects a fundamental tenet of industrial relations law: both parties to the employment relationship bear responsibilities toward maintaining industrial peace. By imposing equivalent notice periods on both strikes and lockouts, the Code acknowledges that industrial harmony requires restraint and good faith from employers and workers alike.

Employers who receive notice of a strike or who issue notice of a lockout must report this fact to the appropriate government authority and the conciliation officer within five days. This reporting requirement enables government authorities to monitor industrial disputes and intervene through conciliation machinery before situations escalate. The involvement of conciliation officers at this early stage increases the likelihood of disputes being resolved through negotiation rather than through protracted strikes or lockouts.

Prohibited Periods for Industrial Action

Beyond the notice requirements, the Industrial Relations Code, 2020 establishes specific periods during which strikes and lockouts are absolutely prohibited. These prohibitions aim to protect the integrity of dispute resolution processes and prevent industrial action from undermining formal mechanisms for settling disputes.

Workers and employers are prohibited from engaging in strikes or lockouts during the pendency of conciliation proceedings before a conciliation officer and for a period of seven days after the conclusion of such proceedings [6]. Under the Industrial Relations Code 2020, these notice requirements and restrictions on strikes and lockouts ensure that parties give conciliation a genuine opportunity to succeed without the threat or actuality of industrial action. Conciliation represents a structured attempt by a neutral third party to help disputing parties reach a voluntary settlement, and this process cannot function effectively if either party can resort to strikes or lockouts while talks are ongoing.

.Similarly, strikes and lockouts are prohibited during proceedings before a Labour Court, Industrial Tribunal, or National Industrial Tribunal, and for sixty days after the conclusion of such proceedings [6]. When disputes are formally referred to adjudication, parties submit themselves to a legal process for determining their rights and obligations. Allowing strikes or lockouts during this period would undermine the authority of these tribunals and create a parallel pressure tactic alongside the legal process.

The prohibition extends to periods when an arbitration proceeding is pending before an arbitrator, and for two months after the arbitration concludes, provided the parties have agreed to arbitration under the Code. Arbitration represents a voluntary dispute resolution mechanism where parties agree to submit their differences to a neutral arbitrator whose decision binds them. Maintaining industrial peace during arbitration respects the parties’ choice to resolve disputes through this alternative forum.

These temporal restrictions on strikes and lockouts existed in the Industrial Disputes Act, 1947, but applied primarily to public utility services and specific categories of disputes. The Industrial Relations Code 2020 significantly expands these prohibitions on strikes and lockouts to all industrial establishments, broadening the circumstances under which industrial action is illegal. This expansion reflects the legislature’s judgment that dispute resolution mechanisms deserve protection from disruptive industrial action across all sectors of the economy.

Consequences of Illegal Strikes and Lockouts

The Industrial Relations Code, 2020 prescribes significant penalties for violations of its strike and lockout provisions. Workers who commence, continue, or participate in illegal strikes face punishment including imprisonment for up to one month, fines up to fifty thousand rupees, or both. Employers who declare or continue illegal lockouts face imprisonment for up to one month, fines ranging from fifty thousand to one lakh rupees, or both [7].

These penalties represent a substantial increase from those prescribed under the Industrial Disputes Act, 1947, where fines for illegal strikes by workers could extend only to fifty rupees, and for employers, to one thousand rupees. The enhanced penalties in the new Code reflect inflation over the decades and signal a stronger deterrent intent. The legislature clearly aims to discourage parties from bypassing legal procedures and resorting to illegal industrial action.

Beyond criminal penalties, illegal strikes and lockouts carry civil consequences. Workers participating in illegal strikes and lockouts under the Industrial Relations Code 2020 lose their entitlement to wages for the strike period and may face disciplinary action, including dismissal from service. The Supreme Court in India General Navigation and Railway Company Ltd v. Their Workmen held that when workers engage in illegal strikes and lockouts, they forfeit any claim to wages or compensation and become subject to punishment through discharge or dismissal [8].

Persons who instigate, incite, or encourage others to participate in illegal strikes or lockouts commit a separate offense punishable with imprisonment for up to six months, fines up to one thousand rupees, or both. This provision addresses the role of union leaders, political activists, or other instigators who may not directly participate in industrial action but who play a crucial role in organizing and promoting it. By making instigation a distinct offense, the Code seeks to deter external interference in employer-employee relations.

The concept of illegality in strikes and lockouts depends on compliance with the statutory framework established by the Industrial Relations Code 2020. A strike or lockout becomes illegal if commenced or declared in contravention of the notice requirements for strikes and lockouts, if continued in violation of government orders, or if initiated during prohibited periods such as conciliation or tribunal proceedings. However, a lockout declared in consequence of an illegal strike, or a strike declared in consequence of an illegal lockout, does not automatically become illegal, recognizing the reactive nature of such actions under the Code [9].

Recognition of Negotiating Unions and Collective Bargaining

The Industrial Relations Code introduces important innovations in trade union recognition and collective bargaining. The Code establishes the concept of negotiating unions and negotiating councils, providing a structured framework for employer-union interactions. Where a single trade union exists in an industrial establishment, the employer must recognize that union as the sole negotiating union if it represents workers employed in the establishment. Where multiple unions exist, a union with support from fifty-one percent or more of the workers on the muster roll gains recognition as the negotiating union [5].

This recognition threshold of fifty-one percent ensures that the negotiating union represents a clear majority of the workforce, thereby strengthening its legitimacy in collective bargaining. Where no single union achieves this threshold, the Code provides for the formation of a negotiating council. Trade unions with support from at least twenty percent of the workers receive representation in the negotiating council, with the number of seats allocated proportionate to their membership strength.

The recognition of negotiating unions and councils creates a formal structure for collective bargaining, reducing confusion about which union or unions have the authority to negotiate with management. This clarity benefits both employers and workers by establishing predictable channels for discussing wages, working conditions, and other employment terms. The negotiating union or council becomes the primary voice of workers in dealings with the employer, including in situations involving potential strikes.

The relationship between union recognition and strike regulation is significant. Recognized negotiating unions typically serve as the entities that issue strike notices on behalf of workers. Their formal status gives them greater responsibility for ensuring that strikes comply with legal requirements, including notice periods and prohibitions during conciliation or adjudication. This institutional framework aims to make strikes more organized and less spontaneous, aligning with the Code’s overall emphasis on structured dispute resolution.

Threshold Changes for Government Approval

The Industrial Relations Code makes significant changes to the threshold at which employers must obtain government approval before implementing layoffs, retrenchment, or closure of establishments. Under the Industrial Disputes Act, 1947, establishments employing one hundred or more workers required prior government permission for these actions. The new Code raises this threshold to three hundred workers, substantially expanding the number of establishments that can implement such measures without government approval [5].

This threshold increase represents one of the most controversial aspects of the Industrial Relations Code. Proponents argue that it provides employers with greater flexibility to respond to market conditions, reducing bureaucratic delays and promoting ease of doing business. They contend that the previous threshold of one hundred workers was too low, particularly for medium-sized enterprises, and that raising it to three hundred workers allows more businesses to make necessary restructuring decisions without government interference.

Critics express concern that the higher threshold reduces protections for workers in establishments employing between one hundred and three hundred workers, who previously enjoyed the security of government scrutiny before layoffs or retrenchment. They argue that this change tilts the balance too far in favor of employers and may lead to increased job insecurity. The debate reflects the ongoing tension between promoting business flexibility and protecting worker rights.

For establishments employing three hundred or more workers, the requirement for prior government approval before layoffs, retrenchment, or closure remains in place. Employers must apply to the appropriate government authority, providing justification for the proposed action and complying with procedural requirements. During the approval process, the government considers factors including the reasons for the proposed action, its impact on workers, and whether the employer has complied with all legal obligations including notice periods and compensation.

Re-skilling Fund for Retrenched Workers

The Industrial Relations Code introduces an innovative provision requiring the creation of a re-skilling fund to support workers who face retrenchment. Employers must contribute to this fund an amount equal to fifteen days’ wages last drawn by each retrenched worker [5]. The fund aims to provide financial support and training opportunities to help displaced workers transition to new employment.

This provision represents a progressive approach to managing the social costs of economic restructuring. Rather than simply allowing employers to retrench workers with payment of statutory compensation, the Code creates a mechanism for investing in workers’ future employability. The re-skilling fund acknowledges that job loss often requires workers to acquire new skills to remain competitive in the labour market, particularly in industries undergoing technological change or economic transformation.

Implementation of the re-skilling fund requires clarification regarding its management, administration, and the specific programs it will support. The Code authorizes the appropriate government to prescribe rules regarding contributions from sources other than employers and the purposes for which the fund may be utilized. Questions remain about how workers will access re-skilling opportunities, what types of training programs will be offered, and how the effectiveness of these programs will be measured.

The creation of the re-skilling fund reflects a shift toward active labour market policies that focus not only on protecting workers from unfair dismissal but also on equipping them with tools for adaptation and mobility. This approach recognizes that in a dynamic economy, some degree of workforce adjustment is inevitable, but that society has an obligation to help workers navigate these transitions successfully.

Increased Penalties and Enhanced Enforcement

The Industrial Relations Code significantly increases penalties for various violations compared to the Industrial Disputes Act, 1947. First-time offenses relating to important provisions such as those governing layoffs, retrenchment, standing orders, and unfair labour practices attract fines up to ten lakh rupees [1]. Repeated offenses may result in fines up to twenty lakh rupees or imprisonment for up to six months, or both.

These enhanced penalties reflect the legislature’s determination to ensure compliance with industrial relations law. The substantial financial consequences of violations create strong incentives for employers to follow proper procedures, particularly regarding notice requirements, government approvals, and payment of compensation. For larger employers, the penalties remain proportionate to their size while for smaller establishments, they represent a significant deterrent.

The Code also addresses enforcement mechanisms by empowering labour inspectors to investigate complaints, examine records, and recommend prosecution for violations. The strengthened enforcement regime aims to move beyond the often-criticized weak implementation of labour laws, where statutory protections existed on paper but received inadequate enforcement in practice. Effective enforcement requires not only strong penalties but also adequate inspection infrastructure and political will to apply sanctions consistently.

However, questions persist about enforcement capacity, particularly given the large number of industrial establishments across India and the limited number of labour inspectors available to monitor compliance. The success of the enhanced penalty regime will depend substantially on whether governments invest in building enforcement capacity and whether they resist pressures to grant exemptions or look the other way when violations occur.

Impact on Industrial Harmony and Worker Rights

The Industrial Relations Code, 2020 provisions on strikes and lockouts generate diverse perspectives regarding their impact on industrial harmony and worker rights. Supporters argue that the Code promotes stability by establishing clear procedures, reducing ambiguity about when strikes are legal, and ensuring that both employers and workers follow structured dispute resolution processes. They contend that mandatory notice periods and prohibitions during conciliation or adjudication protect the integrity of these processes and encourage parties to resolve disputes through dialogue rather than confrontation.

Critics raise concerns that the extensive restrictions on strikes tilt the balance too far in favor of employers, potentially weakening workers’ bargaining power. They point out that extending strike prohibitions to all industrial establishments, rather than limiting them to public utilities, constrains workers’ ability to use collective action effectively. The requirement of fourteen days’ notice, while reasonable in principle, may allow employers to take preemptive measures such as hiring replacement workers or building inventory in anticipation of strikes, thereby reducing the effectiveness of this traditional labour weapon.

The inclusion of concerted casual leave within the definition of strike addresses a real problem where workers would collectively take leave to disrupt production while claiming they were not on strike. However, this provision also raises concerns about potential misuse, where legitimate simultaneous leave-taking by workers due to genuine reasons might be characterized as an illegal strike. The distinction between coordinated leave intended to pressure employers and coincidental leave-taking for legitimate purposes may not always be clear-cut.

From the perspective of industrial harmony, the Code’s emphasis on structured processes and negotiating unions has the potential to channel industrial conflict into more institutionalized and less disruptive forms. By creating clear procedures for union recognition, negotiation, and dispute resolution, the Code may reduce spontaneous or wildcat strikes in favor of more organized industrial action that follows legal requirements. This could benefit employers, workers, and society by making industrial relations more predictable and less prone to sudden disruptions.

Comparative Analysis with International Standards

International labour standards, particularly those established by the International Labour Organization, recognize workers’ right to organize and bargain collectively, including the right to strike as a means of defending their interests. ILO Convention 87 on Freedom of Association and Protection of the Right to Organise and Convention 98 on the Right to Organise and Collective Bargaining establish fundamental principles regarding workers’ collective rights, though they do not explicitly mention strikes.

The ILO’s Committee on Freedom of Association has consistently recognized the right to strike as a corollary of freedom of association, while acknowledging that this right is not absolute and may be subject to certain limitations. Acceptable restrictions include prohibiting strikes in essential services where interruption would endanger life, health, or safety, requiring advance notice and conciliation procedures, and prohibiting strikes during the term of collective agreements.

The Industrial Relations Code’s approach to strikes reflects some alignment with international standards by maintaining notice requirements and prohibiting strikes during dispute resolution processes. However, the expansion of restrictions to all industrial establishments, rather than limiting them to truly essential services, raises questions about compatibility with ILO principles that emphasize limiting strike restrictions to services where interruption would endanger the public.

India has ratified numerous ILO conventions but not Conventions 87 and 98, the core freedom of association conventions. The Industrial Relations Code’s provisions on strikes and collective bargaining should ideally be evaluated against both domestic constitutional principles and international best practices. Achieving an appropriate balance requires recognizing workers’ legitimate interests in collective action while accommodating employers’ need for operational stability and society’s interest in avoiding unnecessary disruption.

Conclusion

The Industrial Relations Code, 2020 represents a significant reform of India’s industrial relations framework, introducing new restrictions and notice requirements for strikes and lockouts that apply across all industrial establishments. By consolidating three major labour laws into a unified framework, the Code aims to simplify compliance, promote ease of doing business, and create clearer procedures for managing industrial conflict.

The mandatory fourteen-day notice requirement for strikes and lockouts, the prohibition on industrial action during conciliation and adjudication, and the enhanced penalties for violations reflect the legislature’s emphasis on structured dispute resolution and industrial stability. These provisions, combined with innovations such as negotiating union recognition and the re-skilling fund, create a modernized framework that seeks to balance the interests of employers, workers, and society.

However, the practical impact of these reforms will depend on implementation, enforcement, and how courts interpret the new provisions when disputes arise. The tension between protecting workers’ collective bargaining rights and promoting industrial harmony will continue to generate debate and require careful balancing in individual cases. As the Code awaits full implementation, stakeholders across the industrial relations landscape must prepare to adapt to this new regulatory environment while advocating for interpretations and applications that serve the ultimate goal of fair and productive workplace relations.

References

[1] Neeti Niyaman. (2025). Industrial Relations Code, 2020 Explained. Available at: https://neetiniyaman.com/industrial-relations-code-2020/ 

[2] iPleaders. (2021). Industrial Relations Code 2020: an overview. Available at: https://blog.ipleaders.in/industrial-relations-code-2020-an-overview/ 

[3] Supreme Court of India. (1962). Kameshwar Prasad and Others vs The State of Bihar and Another, AIR 1962 SC 1166. Available at: https://indiankanoon.org/doc/687159/ 

[4] Supreme Court of India. (2003). T.K. Rangarajan vs Government Of Tamil Nadu & Others, AIR 2003 SC 3032. Available at: https://indiankanoon.org/doc/88909580/ 

[5] Lawrbit. (2025). The Industrial Relations Code, 2020. Available at: https://www.lawrbit.com/article/industrial-relations-code-2020/ 

[6] Lakshmikumaran & Sridharan Attorneys. Industrial Relations Code, 2020 – An overview. Available at: https://www.lakshmisri.com/insights/articles/industrial-relations-code-2020-an-overview/ 

[7] Our Legal World. (2020). Strikes and Lockouts under Industrial Disputes Act, 1947. Available at: https://www.ourlegalworld.com/strikes-and-lockouts-under-industrial-disputes-act-1947/ 

[8] LawBhoomi. (2024). Strike and Lockout. Available at: https://lawbhoomi.com/strike-and-lockout/ 

[9] Legal Service India. Strike And Lock-Out Under Industrial Dispute Act 1947. Available at: https://www.legalserviceindia.com/legal/article-12602-strike-and-lock-out-under-industrial-dispute-act-1947.html 

Authorized and Published by Sneh Purohit

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Introduction: The Foundation of Wage Equality in India

India’s journey toward workplace equality took a significant legislative turn with the enactment of the Equal Remuneration Act in 1976. This landmark legislation emerged from the constitutional mandate enshrined in Article 39 of the Indian Constitution, which directs the State to ensure equal pay for equal work for both men and women [1]. The Act was initially introduced as the Equal Remuneration Ordinance in 1975, coinciding with the International Women’s Year, and was subsequently enacted as permanent legislation to address the systemic gender-based wage discrimination that plagued Indian workplaces [2].
The timing of this legislation was particularly significant. During the 1970s, India witnessed growing awareness about gender inequality in employment, with women workers across various sectors receiving substantially lower wages than their male counterparts for performing identical or similar work. The Act sought to dismantle these discriminatory practices by establishing a legal framework that mandated equal remuneration and prohibited gender-based discrimination in recruitment and employment conditions.

The legislative intent behind the Equal Remuneration Act extends beyond mere wage parity. It represents a fundamental shift in recognizing women’s economic contributions and ensuring their rightful place in the workforce without being subjected to discriminatory treatment based solely on their gender. This legislation acknowledges that economic empowerment of women through fair remuneration is essential for achieving broader social and economic development goals.

Scope and Applicability: Understanding the Legislative Reach

The Equal Remuneration Act, 1976 possesses nationwide jurisdiction, extending to the entire territory of India. This pan-India applicability ensures that workers across all states and union territories are protected under its provisions, regardless of the nature or size of their establishment. The Act applies to both organized and unorganized sectors, covering establishments ranging from government undertakings to private enterprises, banking companies, mines, oilfields, major ports, and corporations established under Central Acts [1].

The legislation defines its applicability based on the nature of employment and the authority governing that employment. For establishments under the Central Government’s purview, including railway administrations, banking companies, mines, oilfields, major ports, and Central Government undertakings, the Central Government acts as the appropriate authority. For all other establishments, the State Government assumes this role. This dual administrative structure ensures effective implementation across diverse employment sectors while maintaining clear jurisdictional boundaries.

One crucial aspect of the Act’s scope is its definition of “remuneration,” which encompasses not merely basic wages but also includes all additional emoluments payable to employees, whether in cash or kind. This broad definition ensures that discrimination cannot be disguised through complex compensation structures that might pay women lower allowances, bonuses, or benefits while maintaining nominal wage parity. The Act specifically provides that remuneration includes all payments made to workers in respect of employment or work done, provided the terms of the employment contract are fulfilled.
The Act also defines what constitutes “same work or work of a similar nature,” establishing clear parameters for comparison. According to the legislation, such work refers to work requiring the same skill, effort, and responsibility when performed under similar working conditions by men or women. Importantly, the Act recognizes that minor differences in skill, effort, or responsibility that are not of practical importance in relation to employment terms and conditions should not be used to justify wage disparities [2].

Core Provisions: The Legal Mandate for Equal Pay

At the heart of the Equal Remuneration Act lies its primary mandate in Section 4, which prohibits employers from paying workers of one gender at rates less favorable than those paid to workers of the opposite gender for performing the same work or work of a similar nature. This provision establishes the fundamental principle of equal pay for equal work, making it illegal for employers to maintain gender-based wage differentials in any establishment or employment [1].

The Act incorporates important safeguards to prevent employers from circumventing its provisions. Section 4(2) explicitly prohibits employers from reducing the remuneration of any worker to comply with the equal pay requirement. This means that achieving wage parity must involve raising lower wages to match higher ones, rather than reducing higher wages to match lower ones. This protective provision ensures that the Act’s implementation benefits workers without creating unintended negative consequences.

Furthermore, Section 4(3) addresses situations where differential wage rates existed before the Act’s commencement. In such cases, the legislation mandates that the higher rate of remuneration shall become the standard rate payable to all workers performing the same or similar work, regardless of gender. This provision demonstrates the Act’s forward-looking approach, ensuring that historical discrimination does not perpetuate into the future.

Beyond remuneration, Section 5 of the Act addresses discrimination in recruitment and employment conditions. This section prohibits employers from making any discrimination against women during recruitment for the same work or work of a similar nature. The 1987 amendment expanded this provision to include discrimination in post-recruitment conditions such as promotions, training, and transfers [2]. This broader protection recognizes that wage discrimination often interconnects with other forms of employment discrimination, and addressing only wages would leave women vulnerable to other discriminatory practices.

The Act does acknowledge certain exceptions to its anti-discrimination mandate. It does not apply where employment of women in particular work is prohibited or restricted by existing laws. Additionally, the Act does not affect reservations or priorities for scheduled castes, scheduled tribes, ex-servicemen, or other specified categories in recruitment. These exceptions balance the Act’s equality objectives with other legitimate policy considerations and existing protective legislation.

Institutional Mechanisms: Enforcement and Implementation

The Equal Remuneration Act establishes robust institutional mechanisms to ensure effective implementation and enforcement of its provisions. Section 6 mandates the constitution of Advisory Committees by the appropriate government to advise on increasing employment opportunities for women. These committees must consist of at least ten members, with mandatory representation of fifty percent women, ensuring that women’s perspectives inform policy decisions regarding their employment [1].

The Advisory Committees serve multiple important functions. They evaluate the extent to which women may be employed in various establishments or employments, considering factors such as the number of women currently employed, the nature of work, working hours, suitability of employment for women, and the need for increasing women’s employment opportunities, including part-time employment. Based on their advice, the appropriate government may issue directions regarding the employment of women workers after providing opportunities for representations from concerned parties.

Section 7 establishes the adjudication mechanism for handling complaints and claims under the Act. The appropriate government appoints authorities, typically officers not below the rank of Labour Officer, to hear and decide complaints regarding contraventions of the Act and claims arising from non-payment of equal wages. These authorities possess jurisdiction within defined geographical limits and must follow prescribed procedures for receiving and processing complaints and claims [2].

The appointed authorities wield substantial powers in executing their functions. They enjoy all powers of a Civil Court under the Code of Civil Procedure for taking evidence, enforcing witness attendance, and compelling document production. These authorities can, after providing hearings to both applicants and employers and conducting necessary inquiries, direct employers to pay workers the differential amount between wages actually paid and wages that should have been paid for equal work. They can also order employers to take adequate steps to ensure compliance with the Act’s provisions.

The Act provides for an appellate mechanism, allowing aggrieved employers or workers to appeal decisions made by the primary authorities. Appeals must be filed within thirty days of the order, with provisions for condoning delays of up to an additional thirty days in cases where appellants were prevented by sufficient cause from filing within the original time limit. The appellate authority’s decision is final, with no further appeals permitted, ensuring timely resolution of disputes.

Regulatory Oversight: Inspection and Compliance Monitoring

The Equal Remuneration Act incorporates provisions for proactive regulatory oversight through the appointment of Inspectors who monitor compliance with the Act’s provisions. Section 9 empowers the appropriate government to appoint Inspectors for investigating whether employers are complying with the Act and rules made thereunder. These Inspectors are deemed public servants under the Indian Penal Code, providing them legal protections and imposing obligations associated with public office [1].

Inspectors possess wide-ranging powers to conduct effective oversight. Within their jurisdictional limits, they can enter any building, factory, premises, or vessel at reasonable times with necessary assistance. They can require employers to produce registers, muster rolls, or other documents relating to worker employment and examine these documents thoroughly. Inspectors may take evidence from any person on the spot or otherwise to ascertain compliance with the Act’s provisions [2].

The inspection regime extends to examining employers, their agents, servants, persons in charge of establishments, and any person reasonably believed to be or have been a worker in the establishment. Inspectors can make copies or take extracts from registers or other documents maintained under the Act. These comprehensive powers enable Inspectors to conduct thorough investigations and gather evidence of violations.
The Act imposes corresponding duties on persons subject to inspection. Any person required by an Inspector to produce documents or provide information must comply with such requisitions. Failure to cooperate with Inspectors carries penalties, reinforcing the seriousness of the inspection regime and ensuring that Inspectors can effectively perform their oversight functions.

Section 8 mandates that employers maintain prescribed registers and documents relating to workers employed by them. This record-keeping requirement serves multiple purposes: it facilitates inspections, provides evidence for adjudicating complaints and claims, and creates transparency regarding employment terms and remuneration practices. The specific registers and documents required are defined through rules made under the Act, allowing for flexibility in adapting requirements to different types of establishments and employments.

Penalties and Prosecution: Ensuring Accountability

The Equal Remuneration Act establishes a comprehensive penalty structure to deter violations and ensure accountability. The Act recognizes different categories of violations and prescribes graduated penalties based on the severity and nature of the offense. This differentiated approach acknowledges that some violations involve direct discrimination or payment of unequal wages, while others involve procedural non-compliance such as failure to maintain proper records.

Section 10 of the Act addresses penalties for various violations. For procedural violations such as failing to maintain registers or documents, failing to produce documents, refusing to give evidence, or refusing to provide information, the Act prescribes punishment with simple imprisonment for up to one month or fine up to ten thousand rupees or both. These penalties, while significant, reflect the relatively less serious nature of procedural non-compliance compared to substantive discrimination [1].

For more serious violations, Section 10(2) prescribes substantially higher penalties. Employers who make recruitment in contravention of the Act, pay unequal remuneration to men and women for the same or similar work, make discrimination between men and women workers in violation of the Act’s provisions, or fail to carry out directions issued by the appropriate government face fine of not less than ten thousand rupees but which may extend to twenty thousand rupees or imprisonment for a term of not less than three months but which may extend to one year or both for the first offense. For second and subsequent offenses, imprisonment may extend to two years, demonstrating the Act’s serious view of repeated violations [2].

Section 11 addresses situations where offenses are committed by companies. In such cases, every person who, at the time of the offense, was in charge of and responsible to the company for conducting its business is deemed guilty of the offense along with the company itself. This provision prevents companies from escaping liability by claiming that violations were committed by the corporate entity rather than individuals. However, the Act provides a defense for individuals who can prove that the offense was committed without their knowledge or that they exercised due diligence to prevent its commission.
The Act also recognizes situations where directors, managers, secretaries, or other company officers are directly involved in violations. If an offense is committed with the consent or connivance of, or is attributable to neglect by such officers, they are deemed guilty and liable for punishment. This provision ensures that corporate officers cannot hide behind corporate structures to avoid personal accountability for discriminatory practices.

Section 12 governs the cognizance and trial of offenses under the Act. No court inferior to a Metropolitan Magistrate or Judicial Magistrate of the first class can try offenses under the Act, ensuring that competent judicial authorities handle these cases. Courts can take cognizance of offenses either on their own knowledge, upon complaints made by the appropriate government or authorized officers, or upon complaints by aggrieved persons or recognized welfare institutions or organizations. This multiple-avenue approach for initiating prosecutions ensures that violations do not go unpunished due to lack of complaint mechanisms.

Judicial Interpretation: Landmark Cases and Legal Precedents

The Equal Remuneration Act has been the subject of significant judicial interpretation, with Indian courts, particularly the Supreme Court, playing a crucial role in defining the scope and application of its provisions. These judicial pronouncements have clarified ambiguous provisions, established principles for determining whether work is of the same or similar nature, and reinforced the Act’s objectives of eliminating gender-based wage discrimination.

The landmark case of Mackinnon Mackenzie & Co. Ltd. v. Audrey D’Costa [3] stands as one of the most important judicial decisions interpreting the Equal Remuneration Act. In this case, decided by the Supreme Court in 1987, a female stenographer challenged the practice of paying lower wages to female stenographers compared to their male counterparts performing identical work. The employer argued that the work performed by female and male stenographers was not of the same nature and that historical wage structures justified the differential treatment.

The Supreme Court rejected these arguments, holding that paying lesser wages to female stenographers violated the Equal Remuneration Act. The Court emphasized that wherever sex discrimination is alleged, there should be proper job evaluation before any further inquiry is made. If two jobs in an establishment are accorded the same classification, the same scale should apply to both, regardless of the gender of the workers. The Court recognized India’s ratification of the Convention Concerning Equal Remuneration for Men and Women Workers for Work of Equal Value and interpreted the Act consistently with India’s international obligations [3].

In the Air India v. Nergesh Meerza case [4], the Supreme Court addressed discriminatory service conditions affecting female flight attendants. Air India’s service regulations required female cabin crew to retire at age 35 or upon first pregnancy within four years of service, while male cabin crew faced no such restrictions. The Supreme Court struck down these provisions as unconstitutional and violative of equal treatment principles. The Court held that marriage or pregnancy cannot be grounds for terminating women’s employment, establishing important precedents regarding gender discrimination in employment conditions.

Another significant case, Randhir Singh v. Union of India [5], though not directly involving the Equal Remuneration Act, established the constitutional principle of equal pay for equal work as flowing from Articles 14 and 16 of the Constitution. The Supreme Court held that equal pay for equal work is not merely a statutory right under the Equal Remuneration Act but is also a constitutional goal. This decision elevated the principle of equal remuneration beyond statutory protection, recognizing it as a fundamental aspect of equality guaranteed by the Constitution.

The Delhi High Court’s decision in Female Workers v. Controller, DDA [6] addressed a situation where female workers were being paid less than male workers for identical work. The Court held that the principle of equal pay for equal work applies even in the absence of specific regulations, as it flows from constitutional provisions. This decision reinforced that the Equal Remuneration Act codifies a constitutional principle rather than creating a new right, and courts can enforce wage equality even in situations not explicitly covered by the Act.

These judicial decisions have established several important principles. First, job evaluation must be conducted objectively, focusing on the actual work performed rather than on the gender of workers performing it. Second, historical wage structures or past practices cannot justify continuing gender-based wage discrimination. Third, the principle of equal pay for equal work must be interpreted broadly to encompass not just basic wages but all employment benefits and conditions. Fourth, employers bear the burden of justifying any wage differentials, and such justifications must be based on factors other than gender, such as qualifications, experience, or responsibilities.

International Context: Global Standards and India’s Commitments

India’s Equal Remuneration Act, 1976 aligns with international standards on gender equality and workers’ rights established through various international conventions and declarations. Understanding this international context helps appreciate the Act’s significance and its role in fulfilling India’s international obligations regarding gender equality in employment.

The International Labour Organization (ILO) Convention No. 100, titled the Equal Remuneration Convention, 1951, which India ratified, establishes the fundamental principle that men and women workers should receive equal remuneration for work of equal value [7]. This Convention defines remuneration to include basic wages and any additional emoluments payable directly or indirectly by the employer to the worker. India’s Equal Remuneration Act incorporates these international standards, demonstrating the country’s commitment to implementing its treaty obligations through domestic legislation.

The Convention emphasizes that equal remuneration means rates of remuneration established without discrimination based on sex. It requires ratifying countries to promote and ensure application of the principle through national laws, legally established wage-determining machinery, collective agreements, or a combination of these methods. India’s approach through the Equal Remuneration Act represents implementation of this Convention through national legislation, backed by enforcement mechanisms and penalties for violations.

The Universal Declaration of Human Rights, adopted in 1948, recognizes in Article 23 that everyone, without discrimination, has the right to equal pay for equal work [8]. This fundamental human right forms part of the international human rights framework that influences national legislation worldwide. The Equal Remuneration Act gives effect to this international human rights standard in the Indian context, treating equal pay as a fundamental right rather than merely an economic policy consideration.

The Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW), which India ratified in 1993, requires state parties to eliminate discrimination against women in employment, ensuring equal rights regarding remuneration, including benefits, and equal treatment in respect of work of equal value [9]. CEDAW recognizes that economic empowerment through equal remuneration is essential for achieving gender equality. India’s Equal Remuneration Act predates its CEDAW ratification but demonstrates early recognition of these principles and commitment to gender equality in employment.
The Beijing Declaration and Platform for Action, adopted at the Fourth World Conference on Women in 1995, identified women’s economic empowerment and equal access to economic resources as critical areas of concern. The Platform calls for eliminating occupational segregation and all forms of employment discrimination, including those related to remuneration. India’s participation in this conference and endorsement of the Beijing Declaration reinforced its commitment to implementing and strengthening legislation like the Equal Remuneration Act.

Contemporary Challenges: Implementation and Enforcement Issues

Despite the robust legal framework established by the Equal Remuneration Act, significant challenges persist in its effective implementation and enforcement. These challenges stem from various factors including lack of awareness, inadequate enforcement mechanisms, evolving nature of work relationships, and persistent social attitudes regarding women’s work.

One fundamental challenge is the lack of awareness about the Act’s provisions among both employers and workers. Many women workers, particularly in unorganized sectors and rural areas, remain unaware of their rights under the Act and the mechanisms available for redressal of grievances. Similarly, many small and medium enterprises lack proper understanding of their obligations under the Act, leading to inadvertent non-compliance or deliberate exploitation of this knowledge gap.

The informal and unorganized sector, which employs a substantial proportion of India’s workforce including large numbers of women, poses particular enforcement challenges. The Act’s enforcement mechanisms, primarily designed for formal sector establishments, struggle to reach informal sector workers who often work without written contracts, proper documentation, or clear employer-employee relationships. Home-based workers, agricultural laborers, and those in irregular employment frequently fall outside the Act’s effective reach despite being legally covered.

Occupational segregation presents another significant challenge. Women’s concentration in certain occupations or job categories that are predominantly female-dominated creates situations where direct wage comparisons become difficult. When women and men are not performing the same or similar work in the same establishment, establishing wage discrimination becomes more complex. This occupational segregation often masks systemic undervaluation of women’s work rather than reflecting genuine differences in work requirements.

The concept of “work of similar nature” itself creates interpretational challenges. Determining whether two jobs are sufficiently similar to warrant equal remuneration requires careful job evaluation considering skills, effort, responsibility, and working conditions. Employers sometimes manipulate job classifications, creating artificial distinctions between positions to justify wage differentials. The subjective elements in such evaluations can perpetuate discrimination if not conducted objectively and transparently.

Limited resources for enforcement agencies constitute a practical constraint. The number of Labour Officers and Inspectors appointed under the Act often proves insufficient to monitor compliance across the vast number of establishments nationwide. Inspectors face heavy workloads, limiting their capacity for proactive inspections and investigations. This resource constraint allows violations to go undetected and unpunished, undermining the Act’s deterrent effect.
The relatively low penalties prescribed under the Act, despite amendments increasing them, may not adequately deter violations, especially for larger establishments where the financial penalties represent minimal costs compared to potential savings from paying discriminatory wages. The imprisonment provisions are rarely invoked, further reducing the Act’s deterrent impact. Enforcement authorities often prefer conciliation and correction over prosecution, which, while promoting compliance, may reduce the perceived seriousness of violations.

Delays in adjudication of complaints and claims discourage workers from pursuing remedies. The time taken to resolve cases through the authorities appointed under Section 7 and subsequent appeals can extend for months or years. During this period, workers must continue working, often in the same establishment with the same employer, creating practical difficulties and potential retaliation risks. These delays reduce the Act’s effectiveness as a tool for timely redress of grievances.

Recent Developments: Evolving Landscape of Wage Equality

The landscape of wage equality in India continues to evolve, influenced by new legislation, policy initiatives, judicial developments, and changing workplace dynamics. These developments both complement and interact with the Equal Remuneration Act, creating a more comprehensive framework for addressing gender-based wage discrimination.

The Code on Wages, 2019, represents a significant recent development in India’s wage regulation framework. This Code consolidates four existing wage-related laws and includes provisions requiring equal wages for all genders for the same work or work of a similar nature [1]. While the Equal Remuneration Act remains in force, the Code on Wages extends the equal pay principle beyond gender to encompass all workers regardless of gender, treating it as a fundamental principle of wage regulation rather than specifically as a gender equality measure.

The Code on Social Security, 2020, another component of the new labour code framework, includes provisions relevant to women’s employment and economic security. It addresses maternity benefits, childcare facilities, and other social security measures that impact women’s ability to participate in the workforce on equal terms. These provisions complement the Equal Remuneration Act by addressing broader factors that affect women’s economic opportunities and workplace equality.

Technology and digital platforms have transformed employment relationships, creating new challenges and opportunities for wage equality. Platform-based work, gig economy jobs, and remote working arrangements often blur traditional employer-employee relationships, raising questions about the application of the Equal Remuneration Act to these new forms of work. Some platform workers may not be classified as “employees” in traditional legal terms, potentially placing them outside the Act’s direct protection.

Corporate governance initiatives and voluntary reporting mechanisms have emerged as complementary approaches to promoting wage equality. Some companies now conduct gender pay gap analyses and publicly report wage equality metrics as part of their environmental, social, and governance (ESG) commitments. While voluntary, these initiatives reflect growing recognition that gender pay equality represents both an ethical imperative and a business advantage in attracting and retaining talent.

Conclusion: The Path Forward for Wage Equality

The Equal Remuneration Act, 1976 represents a foundational pillar in India’s legal architecture for gender equality and workers’ rights. Nearly five decades after its enactment, the Act continues to serve as the primary legislative instrument for addressing gender-based wage discrimination in Indian workplaces. Its core principles of equal pay for equal work and prohibition of gender-based discrimination in recruitment and employment conditions remain as relevant today as when the Act was first introduced.

The Act’s significance extends beyond its specific provisions to embody a fundamental societal commitment to gender equality in economic opportunities. By establishing legal mechanisms for challenging wage discrimination and creating accountability frameworks for employers, the Act empowers women workers to assert their rights and seek redress for violations. The judicial interpretations of the Act have further strengthened its impact, clarifying ambiguities and reinforcing its anti-discrimination objectives.

However, the persistence of gender wage gaps and employment discrimination indicates that legal frameworks alone cannot achieve complete equality. Effective implementation of the Equal Remuneration Act requires sustained attention to several areas. Strengthening enforcement mechanisms through adequate resources for inspection and adjudication bodies would enhance the Act’s practical impact. Increasing penalties for violations to levels that truly deter discrimination would reinforce compliance incentives.

Expanding awareness about the Act’s provisions among employers and workers, particularly in unorganized sectors and rural areas, would enable more workers to exercise their rights and more employers to understand their obligations. Addressing occupational segregation and challenging social attitudes that undervalue women’s work require broader social transformation alongside legal enforcement. Adapting the Act’s framework to emerging forms of work relationships in the gig economy and platform-based employment would ensure continued relevance in evolving labor markets.

The path forward requires multi-stakeholder collaboration involving government agencies, employers, workers’ organizations, civil society, and judiciary. It demands recognition that wage equality represents not merely a legal obligation but a developmental imperative essential for achieving inclusive economic growth and social justice. As India pursues its development goals and seeks to harness its demographic dividend, ensuring equal remuneration for women workers must remain a priority.

The Equal Remuneration Act has established the legal foundation; building upon this foundation requires continued vigilance, robust enforcement, evolving jurisprudence, and societal commitment to the principles of equality and non-discrimination. Only through such comprehensive efforts can the Act’s promise of equal pay for equal work be fully realized for all women workers across India.

References

[1] Ministry of Labour & Employment, Government of India. (n.d.). Equal Remuneration Acts and Rules, 1976. Retrieved from https://labour.gov.in/womenlabour/equal-remuneration-acts-and-rules-1976 

[2] India Code. (1976). The Equal Remuneration Act, 1976 (Act No. 25 of 1976). Retrieved from https://www.indiacode.nic.in/handle/123456789/1494 

[3] Mackinnon Mackenzie & Co. Ltd. v. Audrey D’Costa & Anr. (1987) 2 SCC 469. Retrieved from https://www.casemine.com/commentary/in/mackinnon-mackenzie-&-co.-ltd.-v.-audrey-d’costa:-affirming-equal-remuneration-rights/view 

[4] Air India Statutory Corporation v. Nergesh Meerza. (1981) 4 SCC 335. Retrieved from https://razorpay.com/payroll/learn/equal-remuneration-act/ 

[5] Chief Labour Commissioner (Central). (n.d.). Equal Remuneration Act. Retrieved from https://clc.gov.in/clc/acts-rules/equal-remuneration-act 

[6] International Labour Organization. (1951). Equal Remuneration Convention, 1951 (No. 100). Retrieved from https://labour.gov.in/sites/default/files/equal_remuneration_act_1976_0.pdf 

[7] United Nations. (1948). Universal Declaration of Human Rights. Retrieved from https://manupatracademy.com/LegalPost/Equal_Pay_for_Equal_Work_Statutory_Provisions_Judicial_Pronouncements 

[8] United Nations. (1979). Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW). Retrieved from https://labour.delhi.gov.in/labour/equal-remuneration-act-1976 

[9] ClearTax. (2025). Equal Remuneration Act 1976. Retrieved from https://cleartax.in/s/equal-remuneration-act-1976 

Published and Authorized by Prapti Bhatt

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