TRAINEES AS EMPLOYEES UNDER EPF REGIME: A SEEMINGLY CONFUSING TALE

It Will Be Interesting to See Where The EPFO's Position Stands in The Overall New Regime Envisaged Under the Upcoming Code On Social Security, 2020…

India has a myriad employment and labour laws, each law aiming to achieve a unique objective vis-à-vis wages, social security, working conditions, or industrial relations. Keeping the objective in view, the ambit of the term 'employee' also varies, with some statutes going beyond the traditional notion of the existence of an employer-employee relationship to cover persons who are engaged by an entity in other capacities.

Such is the case with the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act). The term 'employee' is defined therein to mean (a) any person who is employed for wages, and (b) any person engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961 or under the standing orders of the establishment. In other words, an apprentice is also covered in the definition of 'employee' in case he / she / they are not covered under the Apprentices Act, 1961, or the standing orders on terms and conditions of service issued under the Industrial Employment (Standing Orders) Act, 1946 (IESO Act).

In this article, we keep the above definition of 'employee' in consideration and examine the coverage of different kinds of trainees thereunder, bringing to thefore the concerns of employers who have often struggled to understand the paradox of coverage of some trainees in the definition and exclusion of some others therefrom.

Apprentices engaged under the Apprentices Act, 1961

All industries in India are covered under the Apprentices Act, 1961. An establishment with 30 or more workers (including contract labour) is required to engage apprentices in a band of 2.5% to 15% of the total strength of the establishment (including contract labour). Broadly, apprentices could be of two kinds, those engaged in a designated trade (meaning a trade identified as such by the Central Government, such as computer operator, programming assistant, call centre assistant, etc.), and those engaged in an optional trade (meaning any trade other than a designated trade). When persons are engaged under the Apprentices Act, 1961, the establishment is required to comply with certain obligations concerning the duration of the training, the stipend to be paid to the apprentices, the working conditions of such apprentices, etc. However, over and above the mandate to engage such apprentices in a certain range, the law does not prohibit establishments from engaging interns and trainees outside of the Apprentices Act, 1961 framework.

Apprentices engaged under the standing orders of the establishment

The IESO Act is applicable to industrial establishments such as factories, mines, and plantations, and to commercial establishments, in some states, if they have employed a specified number of workmen (non-managerial employees). Such covered establishments are required to either comply with the model standing orders laid down by the relevant state governments or adopt their own standing orders, as the case may be.

Notably, the model standing orders, for the purpose of limited compliances in respect of apprentices, define an 'apprentice' to mean a person who is a learner and who may or may not be paid an allowance during the training period. Arguably, the definition is broad enough to cover any trainee who joins an organisation for the limited purpose of receiving practical training. In fact, the Supreme Court of India in the case of RPFC v Central Arecanut and Coca Marketing and Processing Co-op Limited [2006 LLR 263 (SC)] opined that such trainees who are paid a stipend during the training period and in respect of whom there is no underlying right to employment or obligation to accept employment would be considered an 'apprentice' under the model standing orders.

The unique case of NEEM trainees

In view of the above legal regime, it was thought for a long time that there would be practically no traineeship arrangement that would get covered under the framework of the EPF Act unless there is a nexus between such arrangement and a future guaranteed employment. However, here lies the unique case of trainees engaged under the All India Council for Technical Education [National Employability Enhancement Mission (NEEM)] Regulations, 2017 (NEEM Regulations).

The purpose of the NEEM programme as envisaged under the NEEM Regulations is to develop the skills of students for the purpose of improving their employability. As regards their coverage under the EPF Act, the FAQs released under the NEEM Regulations note as follows:

"PF and ESI authorities go by their Act which is Statutory and supreme over all others. AICTE has written to the PF Commissioner for exempting PF and ESI to NEEM trainees at par with Apprenticeship Act. The decision lies with the office of the Commissioner. The outcome of the decision will be updated when received."

Interestingly, the Employees' Provident Fund Organization(EPFO) issued a circular dated 12 February 2019 clarifying that individuals covered under the NEEM Regulations will be considered as 'employees' for the purposes of the EPF Act unless the EPF Act is amended to reflect a contrary understanding.

Yet again, the EPFO issued a circular dated 24 February 2022 reiterating its position that the trainees engaged by an establishment under the NEEM Regulations will not be exempted from the definition of 'employee' under the EPF Act. The said circular further appears to suggest that as regards trainees outside of the NEEM Regulations framework, the coverage within the definition of 'employee' would depend on the specific facts of the case. The circular also makes note of the following guidelines that establishments should take into consideration for this purpose:

"It is a matter of common observation that nowadays, most technical / professional educational institutes impart industrial training/ practical training to their students as an integral component of the academic curriculum. During such training period, student-trainees are exposed to modern technical development and hands-on training of working on sophisticated equipment / instruments etc. Stipend may also be provided to such student trainees, sometime. After such industrial training, the student-trainee goes back to his respective institution for completion of the academic course. In such cases, it is made clear that employer-employee relationship does not exist between the industry and student-trainee."

Observations

While EPFO has attempted to distinguish a trainee engaged under the NEEM Regulations from a trainee engaged under the standing orders on the basis that the standing orders do not cover trainees engaged under a special law, some stakeholders and industry experts have argued that the underlying purpose of engagement of both kinds of trainees i.e. provision of practical training without guarantee of employment is the same. To this extent, they have expressed concern and pointed toward the possibility of the EPFO's position having the potential of dissuading establishments from engaging trainees under the NEEM framework.

It will be interesting to see where the EPFO's position stands in the overall new regime envisaged under the upcoming Code on Social Security, 2020 as the definition of 'employee' under this code does not expressly include apprentices and is prima facie not as wide as the one under the EPF Act. It is hoped that the Central Government would weigh in on the issue to ensure clarity in compliance by the industry. After all, as Lon Fuller notes, the rule of law envisages consistency, practicability, and stability.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.