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Sandoz and the journey thereafter: a re-examination of the status of sales promotion employees under the industrial relations regime in India

Thursday 25 November 2021

Anshul Prakash
Khaitan & Co, Mumbai
anshul.prakash@khaitanco.com

Abhinav Rastogi
Khaitan & Co, Mumbai
abhinav.rastogi@khaitanco.com

Deeksha Malik
Khaitan & Co, Mumbai
deeksha.malik@khaitanco.com

Divya Kumar
Khaitan & Co, Mumbai
divya.kumar@khaitanco.com

Introduction

Over the past several years, one of the areas in the labour law landscape in India that has seen a perplexing jurisprudence is the coverage of sales promotion employees within the purview of ‘workman’ as defined under the Industrial Disputes Act 1947 (‘ID Act’). The issue assumes relevance, not only because India has a considerable work populace as on-field sales personnel across different notified industries, but also because the ID Act and the related central and state laws that apply to ‘workman’ as defined under the ID Act offer a robust legal regime for ‘workman’, providing them with protection against redundancies and adverse changes to conditions of service, facilitation of collective bargaining, and application of model terms and conditions of employment including standing orders.

India enacted the Sales Promotion Employees (Conditions of Service) Act 1976 (‘SPE Act’). Originally applicable to establishments in the pharmaceutical industry, in 2011, the SPE Act was extended to establishments in several other industries that have sales representatives as a major part of their workforce, including automobiles, cosmetics, electronics and electrical appliances. The term ‘sales promotion employee’ refers to employees engaged in promotion of sales and/or business but excludes: (a) employees who, being employed in a supervisory capacity, draw wages exceeding INR1,600 per month; and (b) employees who are employed mainly in a managerial or administrative capacity.

Interestingly, section 6(2) of the SPE Act provides that the ID Act shall apply to sales promotion employees as it applies to a ‘workman’ within the meaning of the ID Act. The term ‘workman’ is defined under the ID Act to mean any person employed to perform manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, excluding: (a) persons occupying a managerial position in the establishment; and (b) supervisory persons in the organisation drawing wages more than INR10,000 per month. As can be seen here, instead of expressly covering sales promotion employees within the definition of ‘workman’ under the ID Act, the legislature enacted a specific legislation in the form of the SPE Act for such employees and incorporated a provision extending the application of the ID Act to them. While this may seem that what was not done directly was achieved indirectly, the absence of direct coverage of sales promotion employees within the ambit of ‘workman’ under the ID Act lead to complex situations, as discussed in the below.

Sandoz ruling and legislative developments

In the case of H R Adyanthaya and Others v Sandoz (India) Limited and Others [AIR 1994 SC 2608] (‘Sandoz’), the Supreme Court of India was dealing with a case under Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act 1971 (‘MRTU PULP Act’). The said statute, applicable to establishments in the state of Maharashtra, facilitates collective bargaining and prohibits unfair labour practices in respect of a ‘workman’ as defined under the ID Act and, therefore, the question before the court was whether a sales promotion employee would fall within the ambit of ‘workman’ under the ID Act and accordingly protected under MRTU PULP Act.

The court, without delving much into the nature of work performed by sales promotion employees, noted that ‘the work of promotion of sales of the product or services of the establishment is distinct from and independent of the types of work covered by the definition’. Accordingly, the court held, a sales promotion employee will not be considered as a ‘workman’ as defined under the ID Act.

Interestingly, prior to the Sandoz ruling, the legislature had passed the Industrial Disputes (Amendment) Act 1982 (‘1982 Amendment’). This Amendment sought to modify the definition of ‘wages’ under the ID Act to include commission payable for the promotion of sales and/or business, as well as the definition of ‘industry’ under the said statute to include activities relating to promotion of business and/or sales carried on by any establishment. The 1982 Amendment simultaneously sought to repeal section 6(2) of the SPE Act, perhaps because the intent was to cover sales promotion employees directly under the ID Act by widening the scope of ‘wages’ and ‘industry’ (as noted above). As of today, only the part of the 1982 Amendment amending the definition of ‘wages’ under the ID Act has been enforced, but the parts amending the definition of ‘industry’ under the ID Act and repealing section 6(2) of the SPE Act are yet to become effective as law. Having said that, unfortunately, these amendments were not assessed by the Supreme Court of India in Sandoz, as an examination of the 1982 Amendment would have indicated the legislative intent of bringing sales promotion employees within the purview of the ID Act.

It is worthwhile to note that few states have realised the gap that Sandoz left in addressing the issue and gone ahead ahead to expressly cover sales promotion employees within the definition of ‘workman’ by making suitable amendments to the ID Act (as per the Constitution of India, both the centre and the states can legislate on labour-related matters, as a result of which states can make appropriate amendments to a central labour legislation). These states are Assam, Bihar, Jharkhand, Kerala, Odisha, Punjab, Tamil Nadu, Tripura and West Bengal.

Judicial decisions post Sandoz

Far from thoroughly examining the nature of work performed by sales promotion employees to ascertain whether they fall within the ambit of ‘workman’, the judiciary has, in several cases, denied relief to such employees by holding that, by virtue of the 1982 Amendment, section 6(2) of the SPE Act is no longer in force. Apparently, it has been forgotten that the part of the 1982 Amendment that repeals section 6(2) of the SPE Act has never been brought into effect.

For instance, the Jharkhand High Court, in the matter of Indian Drugs and Pharmaceuticals Limited v State of Jharkhand and Other [2004 (3) JCR 231 (Jhr)], held that the labour court incorrectly allowed sales promotion employees to avail the provisions of the ID Act for redressal of their grievances by resorting to section 6(2) of the SPE Act. The Jharkhand High Court arrived at its conclusion by relying on the omission of section 6(2) of the SPE Act and its potential consequences, thereby not considering that the amendment omitting the said provision has not been brought into force by the executive. A similar stance was taken by the Madras High Court in The Manager, The Scientific Fertilizer Company Private Limited v The Presiding Officer, Labour Court and Others [(2007) 6 MLJ 1723]. In this case, the writ petitioner challenged the order of the Labour Court, Coimbatore, as per which they were disallowed from utilising the dispute resolution machinery under the ID Act on account of their role as a sales promotion employee. The Madras High Court ruled that the Labour Court, Coimbatore, was right in its approach ‘because of the fact that sub-section (2) of section 6 of the Sales Promotion Employees (Conditions of Service) Act 1976, relating to the application of the ID Act has been omitted on the enforcement of section 24 of the Industrial Disputes (Amendment) Act 1982.

Concluding observations

It appears that the case of sales promotion employees in respect of their coverage under the ID Act and related protections have not been addressed adequately. Courts have simply applied Sandoz without expressing their discontent over the limited examination undertaken in respect of the nature of work performed by such employees, or the legislative developments that have happened thus far (particularly the amended definition of ‘wages’ under the ID Act, which covers a commission payable in return for sales promotion activity). What is worse is that the dispute resolution machinery extended to such employees by virtue of section 6(2) of the SPE Act has also been denied to them by misunderstanding the legislative developments as noted earlier. It is time for both the judiciary and the executive to deal with this legal quagmire. What may serve as a respite for sales promotion employees, however, is that the Industrial Relations Code 2020 – which will replace the ID Act among other statutes upon its enforcement – expressly includes sales promotion employees within the definition of ‘worker’ therein. This code is yet to be brought into force, leading the present legal vacuum to persist at least for the immediate future.

* Disclaimer: The views of the author(s) in this article are personal and do not constitute legal/professional advice of Khaitan & Co. For any further queries or follow up, please contact the firm at editors@khaitanco.com.