Relevance Of Unorganized Workers Under The Employee’s Compensation Act 1923
Author: LawSphereX
Category: Labour & Employment
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RELEVANCE OF UNORGANIZED WORKERS UNDER THE
EMPLOYEE’S COMPENSATION ACT 1923 Hruday Injallikar, B.A. LL.B. (Hons.), Tamil Nadu National Law University, Tiruchirappalli
ABSTRACT
This research examines the relevance of unorganized workers with respect to the Employees Compensation Act, 1923, in safeguarding employee rights and ensuring fair compensation for workplace injuries. It explores whether employees are sufficiently aware of their rights under the Act and whether employers frequently evade liability through worker misclassification or delays in compensation claims. A critical analysis of judicial decisions interpreting key provisions, particularly "accidents arising out of and in the course of employment," is undertaken to assess their impact on employer liability. Furthermore, the study investigates whether India’s compensation framework aligns with international labor standards set by the International Labour Organization (ILO).
By comparing India’s approach with global best practices, the research aims to highlight necessary reforms to bridge existing gaps. This research paper will be examining the relevance of the Employee’s Compensation Act, 1923, to unorganized workers in India, analyzing its scope, implementation challenges, and potential reforms to enhance its effectiveness for this vulnerable workforce. Keywords: unorganized workers, employee rights, workplace injuries, worker misclassification, employer liability.
INTRODUCTION
The Employees Compensation Act, 1923 which was earlier known as the Workmen’s Compensation Act is a crucial piece of legislation in India that aims to protect the rights of employees by ensuring fair compensation in cases of workplace injuries. The Act places a legal obligation on employers to compensate workers who suffer injuries or death due to accidents arising out of and in the course of employment. Arising out of employment means that there must be a direct link between the work duties and the accident or injury. 1 The event causing harm should be related to the employee's role. In the course of employment means that the injury must occur while the employee is performing their job duties or is engaged in activities that can be deemed as part of their work. 2 Despite being in force for over a century, the Act continues to evolve with judicial interpretations and amendments.
However, with the changing nature of employment in India, including the rise of gig workers, remote work, and psychological injuries, significant gaps have emerged in its applicability and effectiveness. This act places a liability on employers to provide compensation to the workmen or the employees, employers are to compensate the workers in case of the injuries or maybe death which may be caused by workplace accidents. The amount of compensation mostly depends on the nature and the severity of the injury. 3The compensation amount also varies based on factors which may be like the workers wage and the extent of the injury.
The act also provides a structure formula to calculate the amount payable to the employees by the employers, the compensation is not payable in the cases whether the injuries caused due to intoxication or necks on the part of workers and also if the injury is self-inflicted4. The workers or their dependents can file claims before the commissioner for employees compensation, if an employer refuses to pay the compensation. There are a certain set of criteria which has to be fulfilled for claiming compensation under the act i. e. the injured worker must be employed under the definition provided by the act which is 1 “K. N. Rahul & Prathyusha Prasad, A Critical Analysis of the Reliefs Available to the Employees & the Scope of Liabilities on the Employer Under the Employee’s Compensation Act, 1923, IV(4) Indian J. Integrated Res. L. 449-469 (2024)”
2 “Arthur Larson, Nature and Origins of Workmen’s Compensation, 37 Cornell L. Rev. 206 (1952).”
3 “Srishti Virat & Budh Ankur, The Employee’s Compensation Act, 1923 & Code on Social Security, 6 Int'l J. Law Mgmt. & Humanities 785, 785-802 (2023).” 4 “T.J. Vidyasagar & Abhishek Mukherjee, An Empirical Study of the Challenges and Exploitation faced by Women Workforce in Unorganized Sector, Judicial Interpretation, IV(4) Indian J. Integrated Res. L. 421, 451-
464 (2023)”
provided under Section 2(1)(dd)5 of the Employees Compensation Act. There should be a formal employer-employee relationship for this act to be applied. This act may include some hazardous occupations but mostly exclude certain Unorganized sector who lack formal employer-employee relationship. The injury, disability or death must have been arising out of and in the course of employment. The nature of injury is one of the important criteria to provide compensation, the compensation is payable for the injuries that result in total or partial, disablement or death. The actors classified injuries into temporary disablement, permanent partial disablement and also permanent total disablement. 6 The injury must not be self-inflicted, and the worker should be acting under employer’s instruction at the time, and the injury should be caused due to worker negligence.
The worker or the dependence must report the injury within the prescribed timeframe and submit necessary, medical and employment records and the claims must be filed before the commissioner for employees compensation in case of disputes. RESEARCH PROBLEM Many workers, especially in the informal sector are unaware of their rights which has lead to underreporting and non-receipt of compensation. By misclassifying the workers or postponing lawsuits, employers frequently avoid liability, putting injured workers in financial hardship. Additionally, the Act is out of date in addressing contemporary workplace hazards because it makes no allowances for gig workers or psychological harm.
RESEARCH
OBJECTIVES
Ø To analyze the effectiveness of the Employees Compensation Act, 1923 in protecting employee rights and ensuring fair compensation for workplace injuries. Ø To identify gaps in the act concerning the Unorganized workers Ø To evaluate judicial interpretations of key provisions and their impact on employer liability.
5 ‘Employees’ Compensation Act, 1923, §2, No. 8, Acts of Parliament, 1923 (India).”
6 “P. D. Chatterjee, Labourers of Unorganized Sectors and their Problems. International Journal of Emerging Trends in Science and Technology, 4397-4405. (2016).”
RESEARCH QUESTIONS
Ø Whether employees are sufficiently aware of their rights under the Employees Compensation Act, 1923? Ø Whether employers frequently evade liability under the Act by misclassifying workers or delaying compensation claims? Ø Whether India’s approach to employee compensation is aligned with international labor standards set by the International Labour Organization (ILO)?
RESEARCH
METHODOLOGY
Doctrinal Research is an essential component of the research. Doctrinal in the sense theoretical information are gathered from a variety of sources, including textbooks and online resources. The study is based on a combination of primary and secondary sources, such as case judgements and books, articles, magazines, and law journals.
1. RELEVANCE TO UNORGANIZED WORKERS
1.1 How is the Act relevant to unorganized workers
Unorganized workers form a significant part of India’s workforce.7 The social security act
20088 defines Unorganized workers as those working in the prizes, which has fewer than 10
employees, which includes home-based or self-employed and also casual wage workers, basically lacks formal employment benefits. Primarily, these workers are always engaged in agriculture, kinds of domestic works, construction works, street, vendors and also small-scale manufacturing workers. They do not have a proper wage, have irregular wages and there is a lack of job security and also these workers have minimum access to social security benefits9. The Employees Compensation Act, 1923 is even relevant to Unorganized workers because it provides legal recognition through which the workers can claim compensation in the case of occupational injuries. But however, there are gaps in application to the organized sector in
7 “Rajrishi Ramaswamy & Anuradha Binnuri, An Analysis Of The Impact Of India's Labour Codes On Its
Organized And Unorganized Sectors, Cogent Econ. & Fin., Vol. 11, Issue 1, (2023).”
8 “The Unorganized Workers’ Social Security Act, No. 33 of 2008 (India).”
9 “Arthur Larson, Nature and Origins of Workmen’s Compensation, 37 Cornell L. Rev. 206 (1952).”
relation to this act. There is a limited coverage of workers or maybe Unorganized workers which come under the purview of this act that is the act applies to only certain hazardous employment listed in the schedule but does not explicitly cover all the Unorganized workers. Many of the informal workers such as domestic workers, Street, vendors, and home-based employment workers are excluded and do not come under the purview of this act.10
1.2 Requirements to claim compensation
One of the fundamental requirements to claim compensation under this act is that it should be proved that there should be employer employee relationship which lacks in an informal sector or Unorganized sector. In the Unorganized sector, employment contracts are mostly verbal which makes it difficult for the workers to prove their employment status and also makes it difficult to claim compensation from the employers. 11 There is a low awareness among workers that is many Unorganized workers are not aware of the rights. Under this act, as a result, they cannot file claims even when they are entitled to compensation. 12 There are financial and legal barriers that is the process of claiming the compensation can be very lengthy and requires legal assistance which the Unorganized workers often cannot afford.
The employers in the informal sector may also be untraceable or maybe even financially incapable of providing compensation. 13 There is an absence of proper record, keeping in relation to the Unorganized workers that is many Unorganized sector workers do not receive formal wages or the employment records which makes it difficult to establish the wage based calculation for compensation. 14
1.3 Judicial precedents
The judiciary has played a very crucial role in interpreting the provisions of the employees compensation act, 1923, particularly concerning Unorganized workers. In National Insurance 10 “T.J. Vidyasagar & Abhishek Mukherjee, An Empirical Study of the Challenges and Exploitation faced by Women Workforce in Unorganized Sector, Judicial Interpretation, IV(4) Indian J. Integrated Res. L. 421, 451-
464 (2023)”
11 “P. D. Chatterjee, Labourers of Unorganized Sectors and their Problems . International Journal of Emergning Trends in Science and Technology , 4397-4405. (2016).” 12 “Srishti Virat & Budh Ankur, The Employee’s Compensation Act, 1923 & Code on Social Security, 6 Int'l J. Law Mgmt. & Humanities 785, 785-802 (2023).” 13 “K.N. Rahul & Prathyusha Prasad, A Critical Analysis of the Reliefs Available to the Employees & the Scope of Liabilities on the Employer Under the Employee’s Compensation Act, 1923, IV(4) Indian J. Integrated Res. L. 449-469 (2024)”
14 “Arthur Larson, Nature and Origins of Workmen’s Compensation, 37 Cornell L. Rev. 206 (1952).”
Co. Ltd. v. Mastan & Anr 15 the Supreme Court held that even the casual and temporary workers which are engaged in risky occupations are entitled to compensation under this act. This case mostly focused that the nature of the work should be the determining factor rather than the existence of a formal contract between the employer and the employee. The court also emphasized that the employer employee relationship can also be inferred from the nature of the work and dependency, and the absence of a formal written agreement can be considered. In Lingegowda v.
Karnataka State Road Transport Corporation 16, the Karnataka High Court held that when our workers livelihood is entirely dependent upon an employer and there is no other means to fulfil the daily needs, it is reasonable to assume that an employment relationship is there which makes the work eligible for the compensation under the act. In Laxmibai Atmaram v. Chairman and Trustees, Bombay Port Trust 17, it was held that the act should be interpreted liberally according to how it works in the favour of the workers rather than applying as it is, reinforcing the principal that any ambiguity in the law should benefit the employee and not to be used as a tool to evade liability by the employers.
1.4 Challenges
in recognition of unorganized workers under the act Even though the judiciary has tried to recognize the worker’s rights to claim compensation in this act, there are several challenges. There is a lack of formal employer employee relationship that is many Unorganized sector workers are lacking formal contracts which makes it difficult to prove their employment status to claim the compensation. 18 The employees often evade the liability by denying any formal relationship with the workers. Since many unorganized workers work in informal settings, mostly there is no proper documentation to prove the workplace accidents. The murder of proof to claim compensation from the employer rests on the worker which makes it challenging to establish claims of compensation.
19The employers try to avoid the liability to pay compensation by finding ways, such as claiming that the injury occurred outside of work or that the worker was not formally employed by them. Since most of the Unorganized workers are employed by small scale employers who own a small business with
15 2006 (2) SCC 641
16 “2015 (4) SCC 515”
17 “AIR 1954 BOMBAY 180”
18 “Srishti Virat & Budh Ankur, The Employee’s Compensation Act, 1923 & Code on Social Security, 6 Int'l J. Law Mgmt. & Humanities 785, 785-802 (2023).”
19 “Rajrishi Ramaswamy & Anuradha Binnuri, An Analysis Of The Impact Of India's Labour Codes On Its
Organized And Unorganized Sectors, Cogent Econ. & Fin., Vol. 11, Issue 1, (2023).” limited financial capacity, even though the liabilities established by the worker, the the employer might not have the resources to pay the compensation which leaves the workers without adequate financial support.
2. EVASION OF LIABILITY BY THE EMPLOYERS
Employers evading liability pose a major hazard to the enforcement of the Employee's Compensation Act, 1923. Under this Act, employees are entitled to damages against employers for injuries sustained in the course of their employment. However, an overwhelming number of employers, particularly in the unorganized sector, leave workers high and dry without financial cover by attempting to evade their legal obligations. 20 The employers use various types of tactics or methods to evade liability to pay compensation to the employees. One of the most common strategy used by the employers to evade the liability is misclassifying the workers like they categorize the employees as independent contractors, casual workers or temporary employees which helps in avoiding the obligation of compensation.
21 Since the Act primarily applies to workers who have an employer-employee relationship, misclassifying workers helps employers bypass their responsibilities. For instance, in construction and gig economy jobs, many workers are engaged on a per-task basis without formal employment status. This misclassification denies them the right to claim compensation under the Act. In the case of Hussainbhai v. Alath Factory Thezhilali Union22, the Supreme Court held that even if a worker is formally classified as a contractor’s employee, if their economic dependence is on the principal employer, they must be considered an employee under labor laws. One more critical consideration that allows employers to escape liability is the absence of written contracts and proper employment records. In relatively unorganized sector jobs, no one is literally hired with a written agreement.
Therefore, when an accident occurs, employers will deny the existence of an employer-employee relationship; on the other hand, workers generally cannot show documentary proof, making it extremely hard for them to prove the fact of
20 “Rajrishi Ramaswamy & Anuradha Binnuri, An Analysis Of The Impact Of India's Labour Codes On Its
Organized And Unorganized Sectors, Cogent Econ. & Fin., Vol. 11, Issue 1, (2023).” 21 “P. D. Chatterjee, Labourers of Unorganized Sectors and their Problems . International Journal of Emergning Trends in Science and Technology , 4397-4405. (2016).”
22 “1978 4 SCC 257”
employment. 23 This is considered especially true in domestic work, small-scale industries, and agriculture, where verbal contracts are the order of the day. Without written proof of employment, workers have difficulty in claiming their dues for injuries sustained at work. In the case of Birdhichand Sharma v. First Civil Judge, Nagpur 24 it was held that even though there is no formal contract between the employer and employee regarding the employment, the worker can claim compensation if there is a substantial proof of an employer-employee relationship. Employer’s failure to report workplace accidents is mainly to evade legal scrutiny and avoid liability for any damages. Most of these accidents, especially in high-risk industries like mining and construction, remain unreported and undocumented, thus conferring no compensation to injured workers.
Employers may also choose to encourage their employees to seek private medical treatment, whereby no formal accident report is written25. This leaves authorities unable to track workplace injuries and denies workers their entitlement under the Act. In the case State of Rajasthan v. Ram Prasad26 it was held that the failure to report an accident which has taken place in the workplace and also suppressing of the facts amounts to the violation of statutory duties and this action is punishable under the law. Harassment and force are among tactics that may operate to suppress claims for compensation. Workers suffering from injuries at their workplaces may be threatened with possible job loss or blacklisting if they make attempts to file a claim.
Most of the time, migrant and unorganized sector workers are more vulnerable to such options because of their lack of legal knowledge and the fear of retaliation from their employers. Such retaliation prevents them from asserting their rights under the Employee's Compensation Act. In the case of Workmen of Firestone Tyre & Rubber Co. v. Management27 it was held that the coercion of the workers in the workplace amounts to unfair labour practices. The Act specifies that the compensation is to be quantifiably based on wages, thereby 23 “K. N. Rahul & Prathyusha Prasad, A Critical Analysis of the Reliefs Available to the Employees & the Scope of Liabilities on the Employer Under the Employee’s Compensation Act, 1923, IV(4) Indian J. Integrated Res. L. 449-469 (2024)”
24 “1961 AIR 644”
25 “Arthur Larson, Nature and Origins of Workmen’s Compensation, 37 Cornell L. Rev. 206 (1952).”
26 “2001 SCC 9 395”
27 “1973 (1) SCC 813”
encouraging the contribution of wages at a low margin to lessen their liability.28 Whereas in the so-called unorganized labor sectors, workers are often paid in cash, with no records preserved in regard to these payments, allowing employers to falsely claim that the worker earned less than his actual income. This practice results in significantly lower compensation payouts, depriving injured workers of their rightful financial support. In the case of Oriental Insurance Co. Ltd. v. Dyamavva & Ors.29 The Supreme Court held that in the cases of wage disputes the court should consider the evidences which are indirect also , like witness statements and the industry wage standards to determine fair compensation.
3. COMPARISION WITH ILO STANDARDS
The Employee's Compensation Act, 1923 (ECA) provides for payments to employees within India in case of injury or occupational disease during the course of their employment. However, the international labor standards established by the International Labour Organization (ILO) provide a more comprehensive framework for worker protection, ensuring adequate social security, fair compensation, and strict employer liability.
3.1 Key ILO Conventions on Workers Compensation
The ILO has established several conventions and recommendations regarding compensation to workers and their social security. Among these most important are the ILO Convention 1730 (1925) mandating compensation for work-related injuries and the ILO Convention No. 12131 (1964) regarding a more detailed framework of employment injury benefits such as medical care, rehabilitation, and compensation. Furthermore, ILO Convention 121 urges the establishment of compulsory insurance schemes along with the minimum requirements of ILO Convention 10232 (1952) dealing with social security employed for the provision of employment injury benefits.
3.2 Gaps between ECA and ILO Standards
The ECA mainly deals with employees in hazardous jobs and does not cover many parts of the 28 “Piyali Sengupta, Personal Injury Under Employees' Compensation Act, 1923 – Judicial Interpretation, IV(4) Indian J. Integrated Res. L. 421, 421-433 (2023)”
29 “2013 (9) SCC 406”
30 “ILO Convention No. 17, Nov. 10, 1925, 38 L.N.T.S. 115.”
31 “ILO Convention No. 121, July 8, 1964, 965 U.N.T.S. 37.”
32 “ILO Convention No. 102, June 28, 1952, 210 U.N.T.S. 131.”
workforce, especially those in the informal or unorganized sector. On the other hand, the ILO standards provide for general coverage including informal workers. As such, the ECA does not allow many vulnerable workers to access compensation, bringing to the fore the need for legislative amendments to widen its scope to cover a larger part of the workforce. Under the ECA, the responsibility for compensation rests solely on employers. 33 It generates problems, especially when employers hide behind liability or if workers belong to the unorganized sector. Compulsory state-run insurance system is mandated by the ILO for compensation, diminishing the dependency on employers34. A centralized employment injury insurance scheme in India will create hurdles for workers in getting security in case of insolvency or untraceability of the employer.
Claims under the ECA are to be based on wages and the severity of the injury, but certain factors like wage underreporting by employers tend to limit the real compensation that a worker receives. According to ILO Convention No. 121, compensation needs to be sufficient to support the worker and such dependents as may be affected at a level just above subsistence. But much of the Indian compensation framework doesn't offer that, prompting the need for reforms that will benefit fair compensation to workers. 35 It is mostly monetary coverage that the ECA really emphasizes while extending to peripheral non-coverage of medical care, vocational rehabilitation, or long-standing disability support. Under ILO Convention No. 121, considerable medical treatment is ensconced, including hospital services, rehabilitation, and reintegration into employment.
36 This state breaches the employee with respect to medical and rehabilitation provisions under ECA, which further precludes employees' efficiency in returning to work after treatment.
3.3 Aligning with ILO Standards
Despite the ratification of several International Labour Organization Conventions, full implementation has continued to face several socio-economic and legal hurdles. Informal 33 “T.J. Vidyasagar & Abhishek Mukherjee, An Empirical Study of the Challenges and Exploitation faced by Women Workforce in Unorganized Sector, Judicial Interpretation, IV(4) Indian J. Integrated Res. L. 421, 451-
464 (2023)”
34 “P. D. Chatterjee, Labourers of Unorganized Sectors and their Problems . International Journal of Emergning Trends in Science and Technology , 4397-4405. (2016).”
35 “Rajrishi Ramaswamy & Anuradha Binnuri, An Analysis Of The Impact Of India's Labour Codes On Its
Organized And Unorganized Sectors, Cogent Econ. & Fin. , Vol. 11, Issue 1, (2023). ” 36 “P. D. Chatterjee, Labourers of Unorganized Sectors and their Problems . International Journal of Emergning Trends in Science and Technology , 4397-4405. (2016). ” employment remains a huge sector in India, where over 90% of the workers do not have formal job security-and it limits the reach of the ECA substantially37. There is no broad-based social security system; employers resist the payment of higher compliance costs; regulatory enforcement is weak; and, in any case, legal proceedings take unreasonably long, which hampered their effective implementation. Addressing these challenges will require a multipronged approach involving the amendment of relevant laws, more vigorous enforcement, and administrative reforms.
In order to align the ECA standards with the ILO instruments, India can think of extending its reach towards coverage of all categories of workers, including unorganized and informal workers38. The establishment of a statesponsored employment injury insurance scheme would guarantee compensation for workers irrespective of their employer's ability to pay. Improvements in compensation mechanisms, mandatory medical and rehabilitation assistance provisions, data collection by means of a digital accident reporting system, and smooth dispute resolution would all consolidate worker protections and provide instant access to compensation.
CONCLUSION
The Employees Compensation Act, 1923, has been a crucial law in safeguarding the rights of employees by ensuring they receive compensation for workplace injuries. It has been in existence for over a century, yet it still remains relevant in the modern employment landscape. However, with the rise of new forms of employment, particularly in the unorganized sector, there are many gaps in its implementation and effectiveness. A significant issue is that many workers, especially in informal sectors, are either unaware of their rights or struggle to establish an employer-employee relationship, making it difficult for them to claim compensation. Employers, especially in unorganized industries, often find ways to evade their responsibilities under the Act, either by misclassifying workers, failing to report accidents, or simply denying the existence of an employment relationship.
This leaves many injured workers without any financial support, pushing them further into economic hardships. The judiciary has played an essential role in interpreting the Act in a way that benefits workers, but challenges still remain in terms of enforcement and accessibility. 37 “Piyali Sengupta, Personal Injury Under Employees' Compensation Act, 1923 – Judicial Interpretation, IV(4) Indian J. Integrated Res. L. 421, 421-433 (2023)” 38 “Jyotsna Nath Mallik, Workmen’s Compensation Act and Some Problems of Procedure, 3(2) J. Indian L. Inst. 131, 131-60 (1961)” While the Act has provided a legal framework for compensation, its limited scope in covering unorganized workers and the lack of strict enforcement mechanisms has made it less effective in some cases.
Many workers still face difficulties in filing claims due to legal and financial barriers, and employers continue to find loopholes to avoid liability. There is a pressing need for reforms to make the Act more inclusive, especially for gig workers and those in informal employment. The effectiveness of the Employees Compensation Act depends not only on its legal provisions but also on how well it is implemented in practice. Raising awareness among workers, ensuring stricter penalties for non-compliant employers, and simplifying the claims process can go a long way in making this law truly effective in protecting the rights of injured employees. Until then, many vulnerable workers will continue to struggle for justice in the face of legal and bureaucratic challenges.
BIBLIOGRAPHY
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