EMPLOYMENT LAW UPDATE
14th May 2024
Issue No. 3/24-25
KARNATAKA HIGH COURT HOLDS INTERNATIONAL WORKER PROVISIONS UNDER PF ACT UNCONSTITUTIONAL
BACKGROUND:
- On 1st October, 2008, the Union of India vide notification introduced para 83 in the Employee provident Funds Scheme, 1952 (“EPF Scheme”) and further para 43A under the Employee’s Pension Scheme, 1995 (“Pension Scheme”) covering international workers.
- On 25th April, 2024, The Karnataka High Court pronounced its judgement in the matter of Stone Hill Education Foundation vs the Union of India & Ors (IN W.P. No.18486/2012) under article 226 of the Constitution of India, wherein, the Petitioners had prayed to declare the Employees Provident Fund (Third Amendment) Scheme, 2008 vide Annexure-A as discriminatory, arbitrary, violative of Article 14 of the Constitution of India.
- With the introduction of para 83, international workers came to be covered under the EPF Scheme and the salient features of para 83 are:
- An international worker is required to be covered on his entire salary.
- The amount at the credit of the international worker when he leaves India would be payable to him only upon his attaining the age of 58 years.
BRIEF ARGUMENTS
The Union of India inter alia expressed that they have effected changes to the Employee Provident Fund and Miscellaneous provisions Act, 1952 (“The Act”) by making special provisions for different types of workers. They stated that with respect to para 83, it was inserted into the EPF Scheme to extend the coverage of international workers under it and for the correspondingly introduced para 43A in the EPS Scheme. The Union of India further contended that in view of the interest of international workers and in order to honour bilateral agreements with foreign countries [being the Social Security Agreements (“SSA”)], the EPF Scheme has been amended on certain occasions, wherein the intention of the Parliament has been to ensure that no person can be deprived of social security benefits and also that no Indian deputed to work outside the country should be deprived of the benefits.
Further, they stated that this move was also to protect the rights of the Indian workers on their posting in the overseas countries for a limited period who were required to make mandatory social security contributions in accordance with the laws of those countries.
The grievance of the petitioners on the other hand was that the Act provides for a ceiling limit of Rs.15,000/-. Any person who crosses the salary of Rs.15,000/- per month is an excluded employee, but in the case of an international worker, such limit is not prescribed. As a result, the employer is required to pay a contribution on the gross salary of several lakhs of rupees per month, which is in total contravention of the Act. A domestic worker although, who draws monthly pay exceeding the prescribed statutory ceiling (i.e. Rs 15,000 per month) is said to be outside the purview of the Scheme.
Further the international workers do not work till retirement, they work only for a limited period and thus, requiring them to pay PF contribution on their entire global salary would cause irreparable injury.
The Petitioners also contended that though the Act was legislated to primarily protect employees drawing lower salaries, only foreign nationals, who are holding higher positions like consultants and technicians drawing several lakhs of salary per month with high perks are brought under the Scheme, which is not only arbitrary, illegal, but also unconstitutional as it is opposed to the very intendment and the object of the Act.
WHAT THE COURT HELD
In the Judgement, Justice K S Hemalekha notes that Para 83 of the EPF Scheme is in the nature of subordinate legislation and therefore, the subordinate legislation cannot travel beyond the scope of the mother Act. Keeping in view the aims and objects of the Act, when a ceiling amount of Rs.15,000/- per month has been placed as a threshold for an employee to be a member to the EPF Scheme, para 83 of the EPF Scheme ought not to have an unlimited threshold for international workers while denying the same benefit to Indian workers.
Further, there is discrimination between the Indian employees working in a non-SSA country (who are not international workers as per the definition) and foreign employees from a non-SSA working in India who are classified as international workers. There is no rational basis for this classification nor there is reciprocity that compels to classify foreign employees from non-SSA countries as international workers. The respondents have stated whether or not the Indian employees working in non- SSA countries are required to contribute their entire pay without statutory limit towards PF of that country. In the absence of parity and also in the absence of reciprocity, there is no justification to demand a contribution on the entire pay of a foreign employee from a non-SSA country.
Justice Hemalekha observed that an international worker from a non-SSA country is not allowed to withdraw accumulation until he reaches the age of 58 years. Therefore, para 83 eventually applies to international workers from countries with which the Government of India does not have SSA, and therefore, the claim of reciprocity does not arise and thus the claim of the Government that the obligation of reciprocity has made the Government of India to enact para 83 is unsustainable.
The order concludes by recording that the legislation has arbitrarily and unreasonably enacted para 83, the introduction of para 83 of EPF Scheme and para 43A of EP Scheme is violative of Article 14 and the classification made is unreasonable and would defeat the very intent of the Act. The legislation cannot run beyond the parameters of the Parent Act and always there must be some principles to guide the exercise of discretion and for the foregoing reasons, the point framed for consideration is answered. Accordingly, para 83 of Employees’ Provident Fund Scheme and para 43A of Employees’ Pension Scheme are struck down as unconstitutional and arbitrary and consequently, all the orders passed thereof are unenforceable.
It is likely that this judgement will be challenged by the Centre and the EPFO in the Apex Court due to the impact on the thousands of expatriates who have contributed to the social security scheme or are currently part of it.
One view is that the Order currently holds only persuasive value in other Courts outside of Karnataka as any orders, writs or a judgment of the High Court will operate only within its territorial jurisdiction. However, when a high court gives a judgment against central law or staying a central law, it is generally applicable throughout the country. Further, considering the strong probability that the government will challenge this order to a larger bench or Supreme Court, it is difficult to advise companies to stop contributions towards international workers at this stage. Further, there is no clarity if the authorities should refund the contributions already made towards international workers. The order seems to be well reasoned however; it still leaves some open questions. Guess, we still need to wait and watch – if and when this matter reaches the Apex Court!
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