Case: Jay Engineering Works Ltd And Others Vs. The Union Of India And Others

This writ petition was heard along with writ petition No. 62 of 1962 (Bridge and Roof Company (India), Limited v. Union of India), as the short question in both of them was whether production bonus was excluded from the term "basic wages" as defined in s.2 (b) of the Employees Provident Funds Act, No. 19 of 1952, (hereinafter referred to as the Act). A further question also arose in this writ petition as to the nature of the production bonus scheme in force in the petitioner company, and the patties were given time to file additional affidavits in that connection. The main point raised in the two writ petitions was decided in Bridge and Roof Company (India) Limited v. of India The only question that now remains is whether the production bonus scheme in force in the petitioner-company is of the same type as in Bridge & Roof Company. If it is of the, same nature the present petition would be governed by that decision and production bonus would be excluded from the term "basic wages" as defined in the Act. The parties have filed additional affidavits and it now remains to determine the nature of production bonus in force in the petitioner- company and to decide whether the decision in the Bridge and Roof Company([1963] 3 S.C.R. 978.) would apply in the present case, and if so, to whatmain dispute centers around production between the quota and the norm. The petitioners case is that the entire payment for production above the quota is payment of production onus and therefore cannot be taken into account for the purpose of provident fund, in view of the decision in Bridge and Roof Company . The workmen however, contend that the scheme in force in the petitioner-company is a peculiar one which does not correspond to any standard scheme of production bonus as known in standard books on such schemes. It is contended that no scheme dealing with production bonus or incentive wage has two bases of the kind in force in the petitioner-company. The workmen, therefore, contend that in a scheme of the kind prevalent in the petitioner-company, production bonus as well understood in industry only starts after the norm and that payment for production between the quota and the norm is nothing more than basic wage as defined in the Act and that the exception of bonus from basic wage will only apply to that part of the payment which is made for production above the norm. The workmen further point out that the straight piece-rate system was in force in the petitioner-company before the major engineering awards fixing minimum basic wages and dearness allowance. When such minimum basic wages and dearness allowance were fixed by the awards they became applicable to the petitioner company also. It was then that the system was evolved of having a quota which would represent production for the minimum basic wages and dearness allowance and the rest of the production was to be paid on a piece-rate basis. The change that resulted was that instead of a straight piece-rate system, the petitioner-company introduced the piece-rate system along with a guaranteed time wage. The workmen contend that the quota which was to represent payment for production upto the basic wages and dearness allowance was fixed arbitrarily and had no relation to the productive capacity of the workmen, which is the basis for fixing the base or standard in a typical scheme of production bonus. Therefore, what happened was that the petitioner-oompany though it fixed the quota, expected much higher production even before the agreement of 1958 for a fair days work and used to pay extra for this production. This matter was finally stabilised by the agreement of 1958 by which norms were fixed and the workmen were expected to give production upto the norms as a rule and any deliberate deviation from such production amounted to go-slow tactics, resulting in misconduct, which might lead to the dismissal of the workman.

Court's reasoning:
In such a case all payments would be basic wage as defined in s. 2 (1)) of the Act, even though the worker is working under an incentive wage plan. But the difficulty arises where the straight piece-rate system cannot work. In such cases the system of production bonus by tonnage or by any other standard is introduced. The core of such a plan is that there is a base or a standard above which extra payment is carried for extra production in addition to the basic wages which is the payment for work upto the base or standard. Such a plan typically guarantees time wage up to the time represented by standard performance and gives workers a share in the savings represented by superior performance.The typical scheme thus has only one base or standard and time wages are guaranteed upto that base or standard and any production above that base or standard is production bonus. But it is clear that in such a scheme of production bonus the workers are not bound to produce beyond the base or standard and no disciplinary action can be taken against them for riot producing above the base orpassage appears under the heading "Management Safeguards", and apparently is concerned primarily with time studies for the purposes of setting up production standards.Therefore that passage cannot be taken as an indication that a typical production bonus scheme can fix two bases or standards, at the best the passage only indicates that disciplinary action may be taken in certain cases where the established standard is not reached by a workman without a reason mutually satisfactory to both union and company. We may add that learned counsel relied on this book which deals with a large number of various types of incentive wages plans or production bonus plans; but he was unable to draw our attention to any plan in this book which fixes two bases or standards. It is true that when fixing a base or standard the employers sometimes fix a standard which is below the normal production worked out on the basis of time studies. Not infrequently such base is fixed at 80 per centum of the normal production found on time studies and in some cases it has been known to go as low as 67 per centum. That if; however a matter of agreement between the employer and the employee and depends upon various factors. But the reason behind fixing the base or standard somewhat below the normal which might have been found by time studies is to make an allowance for workers who may be little slower than the average and also to allow for some incentive even before the normal is reached so that there may be an effort on the part of the workman to produce not merely the normal but something more than normal. This is helped by fixing the base or standard somewhat below the normal production as found by time studies and gives the workmen a greater incentive to produce without fail not only upto the normal but also beyond the normal. The fact however that the standard or the base may be fixed somewhat below the normal production found by time studies is of no help to the petitioner, for the scheme in the present case is not a typical production bonus scheme, if the quota is taken to be the base. As we have already indicated, in a typical production bonus scheme the worker is not bound to produce more than the base or standard, though he way do so in order that his earnings may go up. In the scheme in force in the petitioner-company however the worker cannot stop at the quota; he must produce up to the norm on pain of being charged with misconduct in the shape of go-slow and being liable to be dismissed. It seems to us therefore that the real base or standard which is the core of a typical production bonus scheme is, in the case of the petitioner- company, the norm. Any payment for production above the norm would be real production bonus under the scheme in force in the petitioner-company. The production upto the norm is the standard which is expected of a workman in the company and payment into that production must be basic wages as defined in the Act. it is true that this payment is split up into two parts. The first part consists of basic wages and dearness allowance fixed in the awards for production up to the quota and the latter part is payment at piece-rate for production upto the norm; but the two together in our opinion represent the base or standard of a typical production bonus scheme and so only payment above the norm in the case of the petitioner-company can be properly called production bonus. The mere fact that part of the basic wage as defined in the Act is paid in one form as a time wage and part in another form as a piece rate wage would make no difference to the whole being basic wage within the meaning of the Act. The real base of production bonus scheme in force in the petitioner company is the norm and not the quota and therefore payment upto the norm whether made in one form or the other, is basic wage for the purpose of thethat to be so, we are of opinion that does not affect the validity of the conclusion as to base or standard in the present scheme at which we have arrived. It may be possible to punish for go slow even where wages are paid on a piece-rate system because the employee deliberately does not produce what he had been normally producing. But in the present case, the position has been crystallised by the agreement and what is go-slow has been precisely defined; usually it is rather a difficult matter for the employer to prove a case of go-slow, more particularly when the piece-rate system of payment is in vogue. Under the agreement however any deliberate deviation from production norms immediately becomes go-slow and the workman is liable to disciplinary action which may even result in dismissal. In these circumstances when go-slow is precisely defined it is obvious that of two bases to be found in the scheme in the petitioner-company it is the norm which is the real base to be found in all typical production bonus schemes and that it is only when payment is made for production above the "norm" that it can be said that the workman is earning production bonus as generally understood in industry. It would in our opinion be utterly wrong and unrealistic in the present ease to call payment for production between the quota and norm as production bonus when the employee is bound to produce up to norm practically on pain ofin our opinion is a disingenuous argument and the unions reply show that though norms have been fixed by agreement only with respect to a small proportion of workmen in actual practice there are norms for all workmen governed by the scheme, these norms being based on normal performance before the agreement of 1958. It is not disputed that these actual norms are much higher than the quota. Finally, it was urged that even if the payment for production between the quota and the norm is not production bonus which can be taken out of definition of basic wages in the Act, it should be treated as payment in the nature of "other similar allowance" appearing in s. 2 (b) (ii). We are of opinion that this payment for work done between the quota and the norm cannot be treated as any other similar allowance". The allowances mentioned in the relevant clause are dearness allowance, house-rent allowance, overtime allowance, bonus., and commission. Any "other similar allowance", must be of the same kind. The payment in this case for production between the quota and the norm has nothing of the nature of an allowance, it is a straight payment for the daily work and must be included in the words defining basic wage i.e.,"all emoluments which are earned by an employee while on duty or on leave with wages in accordance with terms of the contract of employment".