Through Alternate Dispute Resolution and By Weakening of Penal Provisions for the Employer!

As part of the present government’s attempts to dilute all existing legal rights of the working class and clear the path for employers to refuse workers their legal rights, the Employees’ Provident Fund Organisation (EPFO) has proposed major changes in the enforcement mechanism of EPF. While the implementation of the labour Codes is still pending, there are consistent attempts to introduce the anti-worker provisions of the Codes through back door methods. The EPFO called for a meeting of Central Trade Unions in April to introduce its proposal for an Alternate Dispute Resolution mechanism for disputes arising out of the course of implementation of EPF and to dilute the penal provision for employers in case of violations.

AICCTU submitted a memorandum with following contents to the Provident Fund Commissioner demanding immediate withdrawal of ADR Mechanism and of the proposed dilution of penal provision.

We are submitting this representation to record our strong opposition to the proposed introduction of Alternative Dispute Resolution (ADR) mechanisms for the enforcement of the EPF Act; and the proposal to reduce penal damages from the current 5–25% to a flat 1%.

These proposed changes amount to a serious dilution of the legal protections guaranteed to workers, undermine the statutory enforcement framework, and violate India’s obligations under international labour laws — particularly the International Labour Organization’s Convention No. 81 (Labour Inspection Convention, 1947), ratified by India in 1949.

The EPF Act is a mandatory social security legislation that seeks to ensure social security to workers. Non-compliance with such obligations is a statutory offence, not a private dispute. Introducing ADR mechanisms such as mediation, arbitration, or conciliation in this context undermines the very premise of the law — that EPF contributions are non-negotiable legal entitlements of workers.

ADR processes are voluntary, non-binding, and based on mutual agreement — a model completely inappropriate for adjudicating violations of a statutory obligation. Permitting employers to "settle" such violations through out-of-court or non-statutory channels will only encourage systematic non-compliance, legal evasion, and denial of workers’ dues.

It is necessary to point out that India has ratified the ILO Labour Inspection Convention, 1947 (No. 81), which imposes a binding obligation on the State to ensure that labour laws are enforced through a strong, independent, and effective inspection system. Article 3 of the Convention requires that the labour inspection system ensure the enforcement of legal provisions relating to conditions of work and the protection of workers. Article 18 mandates that adequate penalties for violations of legal provisions enforceable by labour inspectors shall be provided for by national laws or regulations and effectively enforced.

Introducing ADR mechanism in enforcement processes would violate India’s obligations under Convention No. 81, weaken the authority of labour inspectors, and transform them into facilitators of settlement — which is contrary to their mandated role as enforcers of workers’ rights.

We are equally concerned by the proposal to reduce penal damages to a uniform 1% from the existing 5% to 25% depending on the number of months. These penalties are meant to serve as a deterrent and are essential to ensure timely compliance. Reducing penalties to a nominal 1% effectively renders violations inconsequential for employers, especially those who chronically default. Such a step would erode the intent and spirit of the law and signal a shift in favour of employers impunity over worker protection. In fact, appropriate step would have been to increase the penalty in order to ensure proper compliance and to act as a deterrent.

Above changes, in the name of reforms, appear to be part of a larger policy trend, reflected in the Labour Codes, where enforcement mechanisms are being weakened, penalties diluted, and employers offered excessive leeway, while attacking the rights of workers.

The Supreme Court while upholding the provisions of Section 14-B of the Act in Organo Chemical Industries and Ors. vs. Union of India (UOI) and Ors. had held
“2…the scheme of the Act is that each employer and employee in every 'establishment' falling within the Act do contribute into a statutory fund a title , viz. 6 1/4% of the wages to swell into a large Fund wherewith the workers who toil to produce the nation's wealth during their physically fit span of life may be provided some retiral benefit which will 'keep the pot boiling' and some source where-from loans to face unforeseen needs may be obtained. This social security measure is a humane homage the State pays to Articles 39 and 41 of the Constitution. The viability of the project depends on the employer duly deducting the workers' contribution from their wages, adding his own little and promptly depositing the nickel into the chest constituted by the Act. The mechanics of the system will suffer paralysis if the employer fails to perform his function. The dynamics of this beneficial statute derives its locomotive power from the funds regularly flowing into the statutory till.
3. The pragmatics of the situation is that if the stream of contributions were frozen by employers' defaults after due deduction from the wages and diversion for their own purposes, the scheme would be damnified by traumatic starvation of the Fund, public frustration from the failure of the project and psychic demoralisation of the miserable beneficiaries when they find their wages deducted and the employer get away with it even after default in his own contribution and malversation of the workers' share. 'Damages' have a wider socially semantic connotation of pecuniary loss of interest on non-payment when a social welfare scheme suffers mayhem on account of the injury. Law expands concepts to embrace social needs so as to become functionally effectual.

The attempts of the EPFO is an attempt to paralyse this statute. This is completely unacceptable and we express our strong opposition to them. We demand -

1. Immediate withdrawal of any proposal to introduce ADR mechanisms for enforcement under the EPF Act.
2. Increase of the existing penal damages structure to ensure proper compliance

 We urge the EPFO to remember and to uphold  its statutory duty to enforce compliance, protect workers' rights, and maintain the integrity of India’s social security framework.