CONCEPT OF BACK WAGES UNDER INDIAN LABOUR LAWS

Author: Cauveri Birbal

Advocate at Supreme Court of India & High Court of Delhi




In the field of industrial jurisprudence, a declaration can be given by the court that the termination of a workman is wrong and that such workman continues to be in service. The doctrine that contract of personal service cannot be enforced does not apply in case of Industrial Disputes Act, 1947 (I.D. Act). What happens when such a declaration is given? Does the workman simply join duty and is paid from the date of joining or is the workman also entitled to receive back wages for the period of wrongful termination? The term ‘back wages’ does not find mention in the I.D. Act and it is through judicial pronouncement that the concept came to be evolved.


In the initial years, grant of full back wages was the normal rule. In Hindustan Tin Works v. Employees[1]The Supreme Court held that ordinarily, a workman whose service has been wrongfully terminated would be entitled to full back wages and a divergent view would be a premium on the unwarranted litigative activity of the employer. The idea behind grant of full back wages was to put the workman at the same position as he/she was prior to the illegal termination. If the service was not terminated, the workman would have continued to work and would have earned his/her wages. In Hindustan Tin Works, it was observed that for challenging an illegal termination, a workman has to go through a gamut of litigation, his capacity to sustain himself throughout the protracted litigation is itself such a big factor that he may not survive to see the day when relief is granted. If after such a protracted time and energy consuming litigation during which period the workman just sustains himself, ultimately he is to be told that though he will be reinstated, he will be denied the back wages which would be due to him, the workman would be subjected to a sort of penalty for no fault of his and it is wholly undeserved. Ordinarily, therefore, a workman whose service has been illegally terminated would be entitled to full back wages. There are also instances where an employer acts in gross violation of the statutory provisions or principles of natural justice or is guilty of victimising the employee/workman, in such cases the Court ought to direct payment of full back wages. In Deepali Gundu Surwase v. Kranti Junior Adhyapak Mahavidyalaya[2], the Supreme Court opined that the Courts must keep in mind that in matters of illegal/ wrongful termination, an employee suffers on account of wrongdoings of the employer. By not awarding full back wages to the employee in such cases, it would amount to giving a premium to the employer of his wrongdoings. Deepali Gundu Surwase’s case has been recently followed by the Supreme Court in Jayantibhai Raojibhai Patel v. Municipal Council, Narkhed & Ors. Municipal Council, Narkhed & Ors.[3]


Over the years, the law on grant of back wages has undergone a change. There has been a shift from grant of full back wages to partial back wages or no back wages at all. In Novartis India Ltd. v. State of W.B[4]., the Apex Court held that back wages cannot be claimed as a matter of right. In Divisional Controller, Gujarat SRTC v. Kadarbhai J. Suthar[5], it was held that there is no automatic entitlement to full back wages on the finding that termination was not lawful. In M.P. SEB v. Jarina Bee[6], it was ruled that when an order of dismissal/ termination/removal is set aside and the employee is reinstated, back wages do not automatically follow unless and until the order expressly directs payment of back wages. In P.V.K. Distillery Ltd. v. Mahendra Ram[7], the Supreme Court observed that even if the workmen have been illegally and unjustifiably terminated, the same does not create a right of reinstatement with full back wages. The Court was of the view that with the passage of time, a pragmatic view should be taken and the management should not be compelled to pay for the period for which the workman made no contribution at all. In another case namely U.P. Drugs & Pharmaceuticals Co. Ltd. v. Ramanuj Yadav[8],while dealing with wrongful retrenchment, the Supreme Court refused to interfere with the finding of denial of back wages on the ground of the financial position of the management and pending proceedings before the Board for Industrial and Financial Reconstruction. The workmen were directed to be reinstated with consequential service benefits but without any back wages. In M.P. v. Arjunlal Rajak[9], the services of the workman were terminated on the ground of closure of the production unit. Since the unit itself was closed, the Supreme Court, instead of granting back wages, granted monetary compensation of rupees ten thousand.


While considering the grant of back wages, the court takes into account various factors[10]. One of the most important factors being whether the employee/ workman was gainfully employed at another place during the period of his/her termination/ removal. The onus is on the employee to establish that he/she was not gainfully employed during this period. Even the employer has the right to establish with the aid evidence that the employee/workman concerned was gainfully employed and hence not entitled to back wages. If it is proved that the workman/ employee was gainfully employed, the court would not grant any back wages. There are also instances where an employee is terminated or dismissed by way of a departmental enquiry on account of misconduct and the court confirms the misconduct but interferes with punishment for being disproportionate to the misconduct and awards a lesser punishment resulting in reinstatement of the employee. In such cases, reinstatement itself is a consequential benefit arising from imposition of lesser punishment and hence no back wages are awarded in such a case.


Apart from the above, the courts in India have also applied the principle of “no work no pay” in some cases while declining to award back wages and limiting the relief to reinstatement only. The principle of “no work no pay” applies in cases where the workman/employee has remained absent without leave or justification. These are cases where the absence is proved but the termination is set aside on account of procedural lapses on the part of the employer in terminating the employee.[11]


There is no straight jacket formula on what the quantum of back wages should be. There is a discretionary element involved and it has to be dealt with on case by case basis depending upon the facts and circumstances. The adjudicatory authority or the court takes into account various factors such as length of service of the workman, employee, nature of misconduct if any, whether such misconduct has been proved or not, financial condition of the employer and similar other factors. One of the important criteria for awarding back wages is the length of service that an employee/workman has rendered. If the workman has rendered a considerable period of service and his services are wrongfully terminated, he may be awarded full or partial back wages keeping in view the fact that at his age and the qualification possessed by him he may not be in a position to get another employment. However, where the total length of service rendered by a workman/employee is very small, the award of back wages for the complete period i.e. from the date of termination till the date of the award, which is often quite large, is considered inappropriate. Another consideration is whether there has been any delay on the part of the workman/employee in availing legal remedy. In Executive Engineer, O&M Division, Karnataka Electricity Board v. C. Guddappa[12], the Supreme Court set aside the order of the High Court granting full back wages to the workman on the ground that there was a long delay on the part of the workman in approaching the Labour Court and the said issue was not examined by the Courts below.


Another important factor, which requires to be taken into consideration is the nature of employment. A regular service of permanent character cannot be compared to short or daily wager[13]. While in the case of a regular/permanent workman, back wages are awarded, however, in case of a daily wages, compensation is awarded instead of reinstatement and back wages. In BSNL v. Bhurumal[14] followed in State of Uttarakhand v. Raj Kumar[15], Supreme Court held that when it comes to illegal termination of a daily wage worker (violation of Section 25-F I.D. Act), in such cases instead of reinstatement with back wages, the workman should be given monetary compensation. Reason being that a daily wager can neither claim regularization nor has a right to continue as a daily wager.


There is no fixed criteria or basis for awarding back wages. Ultimately, it is the discretion of the court/tribunal which is based on various factor such as the situation of the industry i.e. whether it is operating or not, whether the financial position of the management is sound, whether granting of back wages would place an impossible burden on the employer, whether the workman/employee concerned has secured another employment or not, etc. Based on these factors, there is a vestige of discretion left in the court/tribunal to make appropriate consequential orders relating to the quantum of back wages.

[1] (1979) 2 SCC 80 [2] (2013) 10 SCC 324 [3] 2019 SCC OnLine SC 1071 [4] (2009) 3 SCC 124 [5] (2007) 10 SCC 561 [6] (2003) 6 SCC 141 [7] (2009) 5 SCC 705 [8] (2003) 8 SCC 334 [9] (2006) 2 SCC 711 [10] Surendra Kumar Verma v. Central Government Industrial Tribunal-cum-Labour Court (1980) 4 SCC 443 [11] United India Insurance Co. Ltd. v. Siraj Uddin Khan, (2019) 7 SCC 564 [12] (2002) 10 SCC 577 [13]Haryana Roadways v. Rudhan Singh, (2005) 5 SCC 591 [14] (2014) 7 SCC 177 [15] (2019) 14 SCC 353



About the Author

Cauveri Birbal is a practicing

Advocate at Supreme Court of India & High Court of Delhi

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