Provident Fund: Can employer deny benefits, seek EPF exemption? Check SC’s twin tests

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Updated: January 24, 2020 8:57:21 AM

EPF Rules 2020: Out of a total workforce of 840 employees, Pawan Hans, a government-owned aviation company, had engaged 570 employees on a regular basis, while 270 employees were engaged on ‘contractual’ basis.

provident fund rules 2020EPFO’s notification dated 22.03.2001 had specified certain establishments including the airlines industry, other than airlines owned or controlled by the Central
or State Government, to be covered under the EPF Act. Representational image

Employees Provident Fund (EPF) Rules: To seek exemption from the EPF Act 1952, a company/establishment having more than 20 employees has to pass the twin tests laid out by the Supreme Court in the Regional Provident Fund Commissioner vs Sanatan Dharam Girls Secondary School case. The apex court noted this last week in the case of Pawan Hans Ltd vs Aviation Karmachari Sanghatana. These conditions are: First, the establishment must be either “belonging to” or “under the control of” the Central or the State Government.

Second, the employees of such an establishment should be entitled to the benefit of contributory provident fund or old age pension in accordance with any scheme or rule framed by the Central Government or the State Government governing such benefits. “If both tests are satisfied, an establishment can claim exemption/exclusion under Section 16(1)(b) of the EPF Act,” SC observed.

Out of a total workforce of 840 employees, Pawan Hans, a government-owned aviation company, had engaged 570 employees on a regular basis, while 270 employees were engaged on ‘contractual’ basis. Even though the company’s PF regulations’ definition of “employee” included “any person” employed “directly or indirectly” under the PF Trust Regulations, the regulations were implemented only with respect to the regular employees.

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The employees’ union of the company had demanded the extension of the benefit of the PF Trust Regulations through several representations as they were directly engaged by the company on contractual basis. Some of them were working for almost 20 years. However, the company failed to respond to those representations. Following which, the union filed a petition before the High Court in 2017.

During the pendency of the Writ Petition, the Regional Provident Fund Commissioner, Bandra issued a letter dated 24.05.2017 to the Company, saying: “even though the EPF Act would not apply to establishments owned/controlled by the Central Government as per S.16(1)(b) and (c), however social security benefits such as provident fund must be provided to all “employees/workers who are engaged on contractual/casual/daily wages basis” since there is no distinction between a person employed on permanent, temporary, contractual, or casual basis under S.2 (f) of the EPF Act.”

The High Court allowed the petition of the employees, directing the company to provide benefits under the EPF Act to members of the trade union and similarly situated employees. The company appealed against the HC order before the apex court.

EPFO’s notification dated 22.03.2001 had specified certain establishments including the airlines industry, other than airlines owned or controlled by the Central
or State Government, to be covered under the EPF Act.

The apex court held that ” the Company does not satisfy the second test, since the members of the Respondent­Union and other similarly situated contractual workers were not getting the benefits of contributory provident fund under the PF Trust Regulations framed by the Company, or under any Scheme or any rule framed by the Central Government or the State Government. Consequentially, the exemption under Section 16 of EPF Act would not be applicable to the AppellantCompany.”

The SC said that the Company has failed to make out a case of exclusion from the applicability of the provisions of the EPF Act. “We find that the members of the Respondent­Union and all other similarly situated contractual employees, are entitled to the benefit of provident fund under the PF Trust Regulations or the EPF
Act.”

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