Karnataka High Court declares provisions for 'International Workers' in the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 unconstitutional.
In a landmark judgment of Stone Hill Education Foundation v. Union of India and Ors. (WP No. 18486/2012), the Karnataka High Court ("KHC"), declared certain provisions regulating the provident fund contributions for international workers in an establishment, unconstitutional. These are Paragraphs 83 and 43A of the Employees' Provident Fund Scheme, 1952 ("EPF Scheme") and Employees' Pension Scheme, 1995 ("EPS") respectively.
The main objective of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 ("EPF Act") and the two schemes in contention, i.e., the EPF Scheme and EPS, is to provide social security to the employees working in factories and other establishments. As per the EPF Act, an employer is mandated to provide 12% of the employee's wages as provident fund contributions to the employee's account with the Employees Provident Fund Organisation ("EPFO"). A matching contribution of 12% is also to be done by the employer. The EPF Act provides that contributions can be made on the ceiling limit of INR 15,000/- ("Wage Limit"). However, this Wage Limit was not applicable to 'international workers' as defined under the EPF Act.
The inclusion of 'international workers' in an Indian social security legislation was done by the Union of India in 2008. The introduction of Paragraph 83 in the EPF Scheme and Paragraph 43A in the EPS brought 'International Workers' under its purview. Paragraph 83 of the EPF Scheme defines an "International Worker" as (a) an Indian employee who has worked or will work in a foreign country with which India has a social security agreement, making them eligible for benefits under that country's social security program due to their eligibility under the agreement; (b) a non-Indian employee, holding a passport other than Indian, employed by an establishment in India covered by the EPF Act. In the case of an 'international worker', the Wage Limit is not prescribed. Accordingly, employers were mandated to contribute to the provident fund based on the gross salary of international workers with no ceiling limit, i.e. the Wage Limit was not applicable to such employees, causing a higher contribution to be matched by employers of such workers. This differentiation between classes of employees and contributions by employers, resulted in the current judgment.
The KHC, in this judgment, held that the aforesaid provisions violated Article 14 of the Indian Constitution that mandates equality before law as it discriminates between Indian employees abroad and foreign employees in India, by the non-applicability of the Wage Limit for the foreign employees. It stated that the claim of reciprocity under limited Social Security Agreements executed by the Indian Government with certain countries (Belgium, Denmark, France, etc.) did not justify such discriminatory treatment. Further, the EPF Act, being the parent legislation determined the Wage Limit as the threshold for an employee to be a member of the scheme. The EPF Scheme, being a subordinate legislation cannot have an unlimited threshold for International Workers, as that travels beyond the scope of the parent legislation.
As a consequence of this judgment, employers can benefit from the cost saving measure, as employers currently contributing on an uncapped salary for the provident fund for an International Worker may limit their contributions to the Wage Limit. The legal landscape may evolve as various stakeholders analyse the situation. This could involve appeals, differing judgments from other courts, or further clarifications from the EPFO. As of now, the EPFO hasn't issued any official circulars recognizing this change. Hence, employers should be aware of the changing landscape and stay informed about any updates in this regard.
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