Employees Compensation: The Key Concepts

The Explanation defines "serious bodily injury" as an injury which involves, or in all probability will involve:

• the permanent loss of the use of, or permanent injury to, any limb; or
• the permanent loss of or injury to the sight or hearing; or
• the fracture of any limb; or
• the enforced absence of the injured person from work for a period exceeding twenty days.

Section 73(2). The State Government may extend the sub-section to other classes of premises by notification, and specify who is to report.

Section 73(3). Nothing in section 73 applies to establishments to which Chapter IV applies. Those are covered by the insurance scheme and report through it.

Section 2(26) and 2(27): employee and employer

Both are fully worked in [Definitions under the Social Security Code]. What matters for Chapter VII is the shape of them.

Employee, section 2(26): any person, other than an apprentice under the Apprentices Act 1961, employed on wages by an establishment, directly or through a contractor, on skilled, semi-skilled or unskilled, manual, operational, supervisory, managerial, administrative, technical, clerical or other work, on express or implied terms; excluding members of the Armed Forces.

The wage ceiling does not apply here. The first proviso to section 2(26) restricts "employee" to those at or below the notified ceiling only for Chapters III and IV. Chapter VII has no such limit, so a highly paid employee is still an employee for compensation.

Employer, section 2(27): includes the occupier of a factory, the owner or qualified manager of a mine, the person with ultimate control of any other establishment, the contractor, and the legal representative of a deceased employer.

Who is covered by Chapter VII at all. The First Schedule applies Chapter VII, subject to the Second Schedule, to employers and employees to whom Chapter IV does not apply. The Second Schedule lists the employments in which a person is an employee for this Chapter. So the first question in any compensation problem is: is this worker covered by the insurance scheme instead? If he is, section 41(7)(a) bars the Chapter VII claim.

Section 2(28): employment injury

A personal injury to an employee caused by accident or an occupational disease, arising out of and in the course of his employment, and for Chapter VII it applies whether the accident occurs or the disease is contracted within or outside the territorial limits of India.

The phrase "arising out of and in the course of" has two limbs and is the whole battleground of this Chapter. It is worked in [Employer's Liability for Compensation], and the standard statement of it is this case.

Mackinnon Mackenzie & Co. Pvt. Ltd. v. Ibrahim Mahommed Issak, AIR 1970 SC 1906.

Facts. Shaikh Hassan Ibrahim was a deck-hand on the ship s.s. Dwarka. The medical log recorded that on 13 December 1961 he complained of chest pain and was examined. He was last seen on deck at about 3 a.m. on 16 December 1961 and was found missing at 6.25 a.m. His dependant claimed compensation. The Additional Commissioner held there was no evidence that the seaman was dead and, in any event, none to justify the inference that any death was caused by an accident arising out of the employment. The Bombay High Court reversed.

Held. The appeal was allowed and the Commissioner restored. The injury by accident must arise both out of and in the course of the employment. "In the course of employment" means in the course of the work the employee is engaged to do and what is incidental to it. "Arising out of the employment" means the injury resulted from some risk incidental to the duties of the service which, but for the duty owed to the employer, it is reasonable to believe he would not have suffered; and the phrase extends beyond the nature of the employment to its conditions, obligations and incidents. The onus of proving both limbs is on the applicant, though both may be inferred where the proved facts justify it. The Commissioner must not surmise, conjecture or guess, but may draw an inference such as would induce a reasonable person to draw it.

Why it matters here. It is the definition of both limbs, and the rule on burden of proof. Two cautions. It was decided under the Workmen's Compensation Act 1923, repealed by item 1 of section 164(1) of this Code, though section 74(1) uses the same governing words. And the worker's dependant lost, which is the opposite of how the case is usually summarised.

Section 2(24): dependant

This decides who is paid when the employee dies, and it is a graded list in three classes. Learn the classes rather than the names, because the grading is the point.

Class (a), dependants without any need to prove dependence:

• a widow;
• a minor legitimate or adopted son;
• an unmarried legitimate or adopted daughter;
• a widowed mother.

The proviso adds that for Chapter IV a legitimate adopted son who has not attained twenty-five is a dependant. That expansion belongs to the insurance Chapter, not to Chapter VII.

Class (b), dependants who must be wholly dependent: a legitimate or adopted son or daughter who has attained eighteen and is infirm, if wholly dependant on the employee's earnings at the time of death. For Chapter IV, "eighteen" reads as "twenty-five".

Class (c), dependants who must be wholly or in part dependent on the earnings at the time of death:

1. a widower;
2. a parent other than a widowed mother;
3. a minor illegitimate son, an unmarried illegitimate daughter, or a daughter legitimate, illegitimate or adopted if married and a minor, or if widowed and a minor;
4. a minor brother, an unmarried sister, or a widowed sister if a minor;
5. a widowed daughter-in-law;
6. a minor child of a pre-deceased son;
7. a minor child of a pre-deceased daughter where no parent of the child is alive;
8. a grandparent if no parent of the employee is alive.

The Explanation provides that in class (b) and in items (vi) and (vii) of class (c), references to a son, daughter or child include an adopted son, daughter or child.

The structure is the answer to most dependant questions. A widow, a minor son, an unmarried daughter and a widowed mother are dependants because of who they are. Everybody else must prove dependence, wholly for class (b) and wholly or partly for class (c). Several entries in class (c) also carry their own condition: a grandparent only if no parent of the employee is alive, a minor child of a pre-deceased daughter only if no parent of that child is alive.

The three kinds of disablement

MU's topic label says "Disablement and its kinds", so this is asked directly.

Two distinctions carry the marks.

Temporary against permanent is about duration: whether the condition passes or lasts.

Partial against total is about extent, and it is measured differently in each. Permanent partial disablement is measured by a reduction in earning capacity, and the words "in every employment which he was capable of undertaking" mean the reduction must run across the board, not merely in the job he happened to hold. Permanent total disablement is measured by incapacity for all work he could do at the time.

Note what is being measured: earning capacity, not earnings, and not the injury itself. A pianist who loses a finger may have lost a great deal of earning capacity; a labourer who loses the same finger may have lost less. That is why section 76(1)(c)(ii) sends an unlisted injury to a medical practitioner to assess.

How each is paid, taken in full in [The Amount of Compensation]:

Notice the oddity, because it is worth a sentence: permanent total disablement attracts sixty per cent and death only fifty. That is deliberate. A dead employee needs no further care; a permanently disabled one may need it for life.

A worked example

Bhaskar, a fitter aged 40, is killed by a falling girder at a workshop not covered by Chapter IV. He leaves a widow, a son aged 12, a married daughter aged 22 who is not a minor, an infirm son aged 26 who lived on his earnings, and his own father.

Is he an employee? Yes, if his employment is one specified in the Second Schedule. The wage ceiling in the first proviso to section 2(26) does not apply to Chapter VII.

Must the employer report? Yes. If any law required notice of the death to an authority, the person required to give it must within seven days send a report to the competent authority giving the circumstances: section 73(1). Had the establishment been covered by Chapter IV, section 73(3) would exclude it.

Who are his dependants?

• the widow and the son aged 12: class (a), dependants without proving anything;
• the married daughter aged 22: not a dependant. Class (a) covers an unmarried daughter, and class (c)(iii) covers a married daughter only if she is a minor;
• the infirm son aged 26: a dependant under class (b) if he was wholly dependent on Bhaskar's earnings at the time of death. He was, so he qualifies;
• his father: class (c)(ii), a parent other than a widowed mother, if wholly or in part dependent. He must prove that.

Now change the injury. Bhaskar survives but loses the sight of one eye, an injury listed in Part II of the Fourth Schedule.

Which disablement? Permanent partial, section 2(55), since it permanently reduces his earning capacity in every employment he could undertake.

How much? The percentage stated in Part II of the Fourth Schedule against that injury, applied to the compensation that would have been payable for permanent total disablement: section 76(1)(c)(i).

And if the injury were not listed? Section 76(1)(c)(ii): the percentage of the permanent total disablement figure proportionate to the loss of earning capacity permanently caused, as assessed by a medical practitioner, who by Explanation 2 must have regard to the percentages the Fourth Schedule gives for other injuries.

Change it once more. He is off work for six weeks with a fracture and then recovers fully.

Which disablement? Temporary, section 2(83): the condition required medical treatment and rendered him, as a temporary result, incapable of the work he was doing.

How much? A half-monthly payment of twenty-five per cent of his monthly wages, under section 76(1)(d), paid as section 76(4) directs.

What this does NOT mean

Chapter VII does not require fault. The employer is liable under section 74(1) whether or not he was negligent, subject only to the exceptions in the proviso.

Chapter VII does not apply where Chapter IV does. The First Schedule applies it to those to whom Chapter IV does not apply, and section 41(7)(a) bars a claim against the employer by anyone eligible for dependants' or disablement benefit under the insurance scheme.

Not every relative is a dependant. Only those in section 2(24), and only class (a) is free of a requirement to prove dependence.

Permanent partial disablement is not about the body part. It is about the permanent reduction of earning capacity in every employment the employee could undertake.

The wage ceiling does not limit this Chapter. It is confined to Chapters III and IV by the first proviso to section 2(26).

Limits and criticism

The compensation is a formula, not damages. A worker who has lost a career recovers fifty or sixty per cent of a monthly wage times a multiplier, which will very often be far less than his actual loss. That is the price of the no fault bargain and it is the standard criticism.

"Monthly wages" can be capped by notification. Section 76(3) lets the Central Government specify the monthly wages to be used, so the base of the calculation is executive.

The dependant list is dated in places. A married daughter is a dependant only if a minor; an adult unmarried son who is not infirm is not a dependant at all, whatever his actual dependence.

Class (c) puts the burden on the person least able to discharge it. A parent or a widowed daughter-in-law must prove dependence at the moment of a death they have just suffered.

Quick revision

• Section 73: report to the competent authority within seven days of a death or serious bodily injury, which the Explanation defines as permanent loss of use of or injury to a limb, loss of or injury to sight or hearing, fracture of a limb, or enforced absence from work exceeding twenty days. Does not apply where Chapter IV applies.
• Employee, 2(26): no wage ceiling for this Chapter. Employer, 2(27): includes the occupier, the mine owner or manager, the person with ultimate control, the contractor and a deceased employer's legal representative.
• Employment injury, 2(28): personal injury by accident or occupational disease, arising out of and in the course of employment, within or outside India.
• Dependant, 2(24), three classes. (a) widow, minor legitimate or adopted son, unmarried legitimate or adopted daughter, widowed mother, no proof of dependence needed. (b) son or daughter over eighteen and infirm, if wholly dependant. (c) widower, parent other than a widowed mother, minor illegitimate son, unmarried illegitimate daughter, married or widowed minor daughter, minor brother, unmarried or widowed minor sister, widowed daughter-in-law, minor child of a pre-deceased son, minor child of a pre-deceased daughter where no parent of the child is alive, grandparent if no parent of the employee is alive, all if wholly or in part dependent.
• Three disablements: temporary 2(83), needs treatment and is incapable as a temporary result; permanent partial 2(55), permanently reduces earning capacity in every employment; permanent total 2(56), incapacitates for all work he could then do.
• Rates: death 50 per cent, permanent total 60 per cent, both times the relevant factor or the notified amount whichever is more; permanent partial by the Fourth Schedule percentage or a medically assessed proportion; temporary a half-monthly 25 per cent.

Test yourself

1. Define permanent partial disablement and distinguish it from permanent total disablement. Permanent partial disablement, section 2(55), is a disablement which permanently reduces the employee's earning capacity in every employment he was capable of undertaking at the time of the injury. Permanent total disablement, section 2(56), is one which incapacitates him for all work he was capable of performing at that time. The first is a reduction of earning capacity; the second is total incapacity.

2. Is a married daughter aged nineteen a dependant? No. Class (a) covers an unmarried legitimate or adopted daughter, and class (c)(iii) covers a daughter who is married only if she is a minor. At nineteen and married she falls in neither.

3. Which dependants need not prove dependence? Those in class (a) of section 2(24): a widow, a minor legitimate or adopted son, an unmarried legitimate or adopted daughter and a widowed mother.

4. What is "serious bodily injury" for the purposes of section 73? An injury involving, or in all probability going to involve, the permanent loss of the use of or permanent injury to any limb, the permanent loss of or injury to sight or hearing, the fracture of any limb, or the enforced absence of the injured person from work for a period exceeding twenty days.

5. Does the wage ceiling in section 2(26) limit who may claim under Chapter VII? No. The first proviso to section 2(26) applies the wage ceiling to Chapter III, except the Provident Fund Scheme, and to Chapter IV. Chapter VII is not restricted by it.

6. Why is the rate for permanent total disablement higher than for death? Because section 76(1)(b) fixes sixty per cent for permanent total disablement and section 76(1)(a) fifty per cent for death. The disabled employee may need care and support for the rest of his life, whereas the compensation on death provides for dependants rather than for continuing care.

7. On whom does the burden of proving that an injury arose out of and in the course of employment lie? On the applicant, though both limbs may be inferred where the proved facts justify the inference: Mackinnon Mackenzie & Co. Pvt. Ltd. v. Ibrahim Mahommed Issak. The authority must not surmise, conjecture or guess, but may draw an inference such as would induce a reasonable person to draw it.