CA
Associated Newspapers of Ceylon Ltd. v
Commissioner of Labour and others
407
ASSOCIATED NEWSPAPERS OF CEYLON LTD.V
COMMISSIONER OF LABOUR AND OTHERSCOURT OF APPEALJ.A.N. DE SILVA. J.
CA 519/99JANUARY 18. 2000MARCH 1,2000MAY. 2000
Payment of Gratuity Act No. 12 of 1983, Section 6(2)b – Section 20 -Wage? Salary ? – Commission earned – Could it be considered forpurpose of computing gratuity? – Employees Provident Fund Act -Amended to include commission? – Difference between piece rates and
commissions?
Held:
In terms of Section 20 of the Payment of Gratuity Act Wage or Salarymeans
Basic/consolidated salary.
Cost of Living allowance, special allowance or other similarallowance.
Piece rates.
It is clear that commissions do not fall within the purview of any of theitems (1), (2) and (3) above.
There is a clear distinction between piece rates and commissionswhich had been taken into account by the legislature which use thetwo terms in contradistinction to each other.
Per J.A.N. de Silva, J.
"The character of a commission is that it is always a variable which doesnot have a fixed price. It is always co-related to the ultimate value or profit
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made and or the sale price. However in a piece rate there is a constant,invariable sum paid in respect of each specific piece produced.”
Held further:
As far as the Employees Provident Fund Act is concerned in theoriginal regulations piece rate was included but there was noreference to commission, this position was changed by anamendment to include – the remuneration if any paid to an employeeby way of commission for any services rendered to the employer”.
Duty to pay Gratuity arises upon the termination of employment.
AN APPLICATION for a writ of certiorari.
Faiz Musthapha PC with Sanjeewa Jayawardane for petitioner.
Bimba Tillakaratne SSC for 1st and 2nd respondents.
S. Gunasekera for 3rd respondent.
Cur.adv.vuit.
May 5, 2000J.A.N. DE SILVA, J.
The petitioner company viz the Associated Newspapers ofCeylon Ltd. by this application seeks a writ of certiorari toquash the decision of the Commissioner of Labour, the 1strespondent to this application, regarding its liability to paygratuity to the 3rd respondent employee under and interms of the payment of Gratuity Act No. 12 of 1983 asamended.
The petitioner's fundamental complaint is that theCommissioner of Labour had directed the petitioner to pay the3rd respondent as a sum of Rs. 5,537,526/- and a further sumof Rs. 1,661,257.80/- as surcharge for the delay in paymentmaking a total sum of Rs. 7,198,783.80/- and that in computingthe said figure the Commissioner had erroneously,
decided the terminal date of the 3rd respondent'semployment to be 11.11.1996 when in fact he wasretired on 30.06.1993 on reaching the compulsory ageof retirement viz sixty years;
CA
Associated Newspapers of Ceylon Ltd. v
Commissioner of Labour and others (J.A.N. de Silva, J.)
409
applied a scheme of gratuity to the 3rd respondent towhich he is not entitled to;
taken into account the "Commissions" earned by the3rd respondent contrary to the provisions of thepayment of Gratuity Act as amended;
failed to appreciate the distinction between “piece rate"and Commissions.
When this application was taken up for hearing LearnedCounsel for the 3rd respondent raised a prelimfnary objectionon the basis that the petitioner has suppressed and mis-represented material facts and for that reason alone thisapplication should be dismissed. It was submitted that it hadbeen falsely averred in paragraph five of the petition that the3rd respondent had accepted a gratuity of Rs. 9700/- when hehad not in fact done so. The petitioner had explained thecorrect position in the counter affidavit and it appears to havebeen a genuine error made in the petition. The petitioner evenat the stage of inquiry before the Labour Commissioner hadproceeded on the same basis as the cheque had been postedto the 3rd respondent by registered post. During the course ofthe argument the legal officer of the petitioner's companybrought to the notice of Court that even before theCommissioner the 3rd respondent had not contradictedthis position but kept silent having returned the chequeto the accounts department without informing the PersonalDivision.
The second objection was that in paragraph 6 of the petitionthe petitioner averred,
that at or about the time of the 3rd respondentsretirement he requested an extension which thepetitioner refused but offered by letter dated 19th July1983 (P6) to engage him as an advertising canvas-ser.
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that terms and conditions of the said offer differedsubstantially from those which applied to him as apermanent employee.
on the above basis he was appointed as a Free LanceAdvertising Representative for a period of one yearfrom 01.07.1983.
As averred by the 3rd respondent in paragraph 6.1 of hisstatement of objections the said letter p6 had nothing to dowith the extension of service beyond the age of 60.
The said letter had been written in a different context in1983. Therefore annexing of P6 cannot be by any parity ofreasoning be considered to be a device to deceive court. P6has no relevance to the petitioner's case. It has been written10 years prior to 3rd respondent's retirement. LearnedCounsel for the petitioner stated that it was a mistakecommitted by a junior who drafted the papers. However it mustbe noted that seniors should not put the blame on the juniorsand wash their hands off for such lapses. If there was propersupervision this could have been avoided. I must remark thatthis sort of mistakes should not be repeated at any level in thefuture. As there are two important questions of law involved Ido not wish to dismiss this application on the preliminaryobjections.
The facts relevant to this application are briefly as follows:-The 3rd respondent who was first employed by the petitionerin 1954 as a process server was subsequently appointed as anadvertising representative on the 1st of April 1956. Initially hewas paid a travelling allowance of Rs. 100/- per month and acommission varying from 4% to 10% on the value of theadvertisements canvassed by him for the respectivenewspapers published by the petitioner. The travellingallowance was increased from time to time and in 1993 thetravelling allowance so paid was Rs. 250/-. The petitionermade contributions to the Employee's Provident Fund andEmployee's Trust Fund on the basis of commissions earned byhim for the respective months. The 3rd respondent reached
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Associated Newspapers of Ceylon Ltd. v
Commissioner of Labour and others (J.A.N. de Silva. J.)
411
the age of 60 years on the 30th June 1993 which is the age ofcompulsory retirement. All the superannuation benefits due tothe 3rd respondent had been paid to him on the basis ofretirement. His gratuity had been calculated at Rs. 9750/- anda cheque in his favour for the said sum had been dispatchedby the petitioner to him by registered post.
The 3rd respondent had subsequently returned this to theAccounts Department of the petitioner company and it hadbeen lying in the suspense account. The said sum had beencomputed on the basis of one months travelling' allowance foreach completed year of service (250.00 x 39 = 9750) givinghim the benefit of a scheme which was in operation of thepetitioner's company where terms were more favourable tohim than the gratuity payable under the Act.
When the petitioner intimated to the 3rd respondent that on30.06.1993 he would be completing 60 years the 3rdrespondent requested an extension of his contract ofemployment with the petitioner. This request the petitionerturned down, but offered him the position of a free lanceadvertising representative, as suggested by the 3rdrespondent by his letter dated 14th 1993. This contract was forone year to be affective from 01.07.1993. The saidappointment was subjective to the special terms andconditions contained in letter dated 7th July 1993 (P.7).He was paid a retainer of Rs. 1000/- per month subjectto minimum targets specified therein. If those targets wereachieved the retainer to be increased to Rs.1500/-Commissions were payable on the rates specified therein.
Before the end of the above period the 3rd respondent wentabroad and on his return he was re-engaged in the sameposition for a period of 1 year from 01.11.1994 to 31.10.1995.His term was again extended and finally terminated on
The retainer paid to him as at that date wasRs.2000/- per month.
On the termination of his services the 3rd respondent madea complaint to the Commissioner of Labour claiming that he
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was entitled to be paid a gratuity for his entire period of servicefrom 1954 to the 10th of December 1996 and to have suchgratuity computed on the basis of both the retainer and thecommissions earned by him under and in terms of section 6(2)of the Payment of Gratuity Act No. 12 of 1983 as amended.
He also claimed that he was entitled to the one and a halfmonths wage as gratuity for every year of service in terms of ascheme of gratuity payments announced by the petitioner bynotice dated 10th August 1994 (P.10).
The Commissioner of Labour commenced an inquiry andthe questions that he had to decide were as follows:
When did the liability to pay arise,
What was the period of service in respect of whichgratuity was payable.
What was the last salary or wage.
What was the rate of payment applicable.
At the conclusion of the inquiry the Commissioner of Labourawarded the 3rd respondent a gratuity in a sum ofRs. 5,537,526,00/- for 42 years of service taking thecommissions earned by him as being part of wages. He alsodirected the petitioner to pay a surcharge of Rs. 1,661,257.80/-for delay in paying the said gratuity.
Under Section 5 of the Payment of Gratuity Act employer'sliability to pay a gratuity arises on termination of the servicesof a workman, whether by the employer or workman or onretirement or by the death of the workman or by operation oflaw or otherwise, of the services of a workman who has aperiod of service not less than five years.
It is common ground that the 3rd respondent reached theage of sixty years on 30th of June 1993. The only issue iswhether the 3rd respondent retired on the 30th of June 1993or on being given an extension he was in continuousemployment till his services were terminated on the 10th of
CA
Associated Newspapers of Ceylon Ltd. v
Commissioner of Labour and others (J.A.N. de Silva. J.)
413
December 1996. In this respect the document marked P2under the heading "Service Particulars" is very relevant. Item4 thereof refers to the cause of leaving as being "retirement".In terms of item 6th period of service is 38 years and item 7,the "Final Salary/Wage Drawn" is the travelling allowance Rs.250/-. Item 8 states as follows: "On reaching the age 60 years,he was retired and re-employed as a free lance advertisingrepresentative with effect from 01.07.1993."
It is also relevant to note the contents of the letter written bythe 3rd respondent dated 14th May 1993 marked (3R3). Thatletter was written when the petitioner informed the 3rdrespondent that on 30.06.93 he would be reaching thecompulsory age of retirement namely sixty years.
The letter referred to above contains the following para-graph.
“Although several openings and avenues have drawnbefore me, both remunerative and attractive (thanks to mycontacts) I have decided to service "mother" A.N.C.L. as oneof her beloved sons till I fade away eventually and say "thusand no further please".
Therefore I would be thankful if you and the Board ofDirectors of A.N.C.L. consider the appeal requesting forgranting a further period to serve A.N.C.L. as a Free LanceAdvertising Representative on terms now in operation or onbetter terms. I eagerly await your very early response to thisAppeal so that I will be able to prepare myself for the periodahead."
From the contents of the above letter it is clear that theletter 3R3 had been written in clear anticipation of theimminent retirement and consequent loss of employment.
As mentioned earlier in consequence of letter of 3rdrespondent dated 14th May 1993, the petitioner offered the 3rdrespondent a fresh appointment as a free lance advertisingrepresentative for one year to be effective from 1st July 1993.However before the expiry of this period the 3rd respondent
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left the country and on his return wrote to the petitioner on the20th October 1994 in the following terms.
7 retired from permanent service of the company with effectfrom 30th June 1993. On an application for an extension for afurther period I was given one year's extension as free lanceadvertising representative. I am thankful for it. When thisperiod ended I was out of the country on leave for six monthsand this period too ended on the 6th instant. However duringthis period in August I returned to the island prematurely andwas quite busy meeting people and attending to variousobligations. Amidst those due to an oversight, I could not applyfor a re-extension although it should have been a priority. I amsorry about it. I would be grateful if you could kindly considergiving me a further extension."
The duty to pay gratuity arises upon the termination ofemployment. According to section 5 of the Payment of GratuityAct No. 12 of 1983 termination of employment can be by anumber of ways including retirement."
From the facts stated above it is manifestly clear and the 3rdrespondent too had accepted that his period of service endedon the 30th of June 1993 due to his retirement on reaching theage of 60 years. Therefore the 3rd respondent does not qualifyfor any gratuity after his retirement on 30.06.93 unless hequalifies again under section 5 of the Payment of Gratuity ActNo. 12 of 1983 with five completed years. In the circumstancesthe 3rd respondent's gratuity entitlement is limited to his mainperiod of service that is upto the date of retirement from thepetitioner company. Thus the Commissioner has clearly erredby granting the 3rd respondent gratuity in respect of a period forwhich he does not qualify. It is also to be observed that thespecial scheme of gratuity applicable to A.N.C.L. employeeswhere one and a half months salary to be paid as gratuity hadbeen brought into operation only on 01.08.1994. That is afterthe 3rd respondent had retired from service on 30th June 1993.Therefore in this respect too the Commissioner has committeda grave error.
Associated Newspapers of Ceylon Ltd. v
CACommissioner of Labour and others (J.A.N. de Silva, J.)415
The next important question for determination is whetherthe commissions earned by the 3rd respondent can be takeninto account in computing gratuity.
The Learned Counsel for the 3rd respondent submitted thatthe 3rd respondent was paid a monthly travelling allowance ofRs. 250/- in addition to “piece rate" earnings by way ofcommissions on advertisements brought in by him at the timeof his said retirement on the 30th of June 1993. Thereafter oncontract from 1st of July 1993 he was paid a monthly "retainer"of Rs. 1000/- which was subsequently raised to Rs. 2000/- upto the termination of his services on the 10th of December1996. Learned Counsel contended that the real wage of the3rd respondent was his commissions and not the aforesaidtravelling allowance of Rs. 250/- per month or retainer ofRs.1000/- – Rs. 2000/-. He'further submitted that such pitifulsums which are much less than even the wages of an unskilledlabourer could ever have been considered by either thepetitioner or the 3rd respondent to be the wage of anadvertising canvasser after 40 or more years of service. Mr.Gunasekara drew the attention of Court to a letter written bythe petitioner to the Deputy Commissioner of Inland Revenuedated 16.04.1999 marked 3R6 where the earnings of the 3rdrespondent are mentioned. The gross commissions earned for
for the period July-December was Rs. 285,580.44/-. In
the gross commissions was Rs. 321,006.47/-. In 1995the commissions has risen to Rs. 5,72,179.75/- and in 1996the commissions rose further to Rs. 7,38,543.02/-.
Mr. Gunasekara also submitted that the said amountsconstituted the wages of the 3rd respondent and the fact thatthe petitioner recognized the said commissions as constitutingwages is also borne out by the fact that contributions to theEmployees Provident Fund and Trust Fund as well as paye taxwere paid on such commissions by the petitioner.
The petitioner's position is that the Commissioner hadmade a grave error of law in taking into account thecommissions received by the 3rd respondent in computing the
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gratuity payable to him. As a result of this error, theCommissioner had ordered the petitioner to pay the 3rdrespondent a monumental sum of Rs. 5,537,526/- plusanother Rs.1,661,257/- amounting to a grand total ofRs.7,198,783.80/- as gratuity.
Counsel for the 3rd respondent submitted that the 3rdrespondent is entitled to have the commissions earned by himtaken into account in determining his wages for the purpose ofcomputing the gratuity payable to him in terms of section6(2)(b) of the Payment of Gratuity Act inasmuch as suchcommissions fall within the ambit of piece rate in the definitionof the term wage or salary in section 20 of the Payment ofGratuity Act.
Section 6(2) provides that gratuity is payable in respect ofworkman's wage or salary in respect on each completed yearof service. According to section 20 "wage or salary means,
the basic or consolidated wage or salary;
cost of living allowance, special living allowance orother similar allowance and
piece rates."
From the above definition it is clear that commissions donot fall within the purview of any of the items in (a)(b) or (c).
Learned Counsel for the petitioner brought to the notice ofCourt that the original regulations framed under theEmployees Provident Fund Act which are known as theEmployees Provident Fund Regulations of 1958, published inGazette No. 11,573 of 31.1978 provided the items which couldbe taken into account for purposes of computing EmployeesProvident Fund. In the said original regulations, although piecerate was included there was no reference to commissions.Vide regulation 60(3). However this position was changed by
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Associated Newspapers of Ceylon Ltd. v
Commissioner of Labour and others (J.A.N. de Silva, J.)
417
an amendment to the original regulations which werepublished in the Government Gazette of 11.05.1962. After theamendment the regulation reads as follow: "piece rates andthe remuneration if any, paid to him by way of commissions forany services rendered to the employer."
Therefore it is clear that originally for the purpose of EPFalthough piece rates were considered, albeit commissionscould not be considered. But commissions were expresslyincluded by the legislature after the Regulations wereamended in 1962.
Learned Counsel submitted that the position with regard togratuity is identical i.e. Whilst piece rates have to beconsidered in computation of gratuity commissions areeliminated. Counsel pointed out that Gratuity Act was enactedin 1983 long after the amendments to EPF regulations.However the legislation in its wisdom has specificallyexcluded commissions from the Gratuity Act. Although theGratuity Act was amended subsequently in 1990 no suchcorresponding amendment was made to include commissionsearned by a workman to be considered for the purpose ofcomputing gratuity. The resulting position is that thecommissions earned by the workman continue to beexcluded.
As piece rates are included in the computing of gratuity atthis junction it is pertinent to consider what is meant by thephrase "a piece rate payment."
A piece rate payment is made in respect of a strictlydefined/specified piece and the payment on that piece is notrelated to the revenue or the profits earned by the sale of thatpiece.
In order to clarify the above definition Counsel for thepetitioner highlighted the following illustration. An estab-lishment which sells shoes may hire a cobbler to make shoesfor it. The parties will agree that for a particular style of shoe
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that the cobbler makes and supplies to the shoe seller that thelatter will pay him Rs. 10/-. This payment is a fixed one andhas no relation to the profit which the seller will derive uponits sale. The seller can sell the shoe for Rs. 50/- orRs. 100/- or even Rs. 200/-. The cobbler will be paid a fixedsum of Rs. 10/-.
The character of a commission is that it is always avariable which does not have a fixed price. It is always co-related to the ultimate value or profit made and/or the saleprice. However in a piece rate there is a constant, invariablesum paid in respect of each specific piece produced. I am inagreement with this submission of the Counsel for thepetitioner.
However the instant case is distinguishable from the aboveillustration. The 3rd respondent is paid a percentage of thevalue of advertisements. All newspapers have a standard,fixed price for every type of advertisement. The 3rdrespondent is paid a pre-arranged percentage of the value ofevery advertisement he procures for the petitioner company.Thus the 3rd respondent directly partakes a percentagein the revenue earned by the petitioner from hisadvertisements.
There is a clear distinction which exists between piecerates and commissions, which had been taken into account bythe legislature which uses the two terms in contra-distinctionto each other. As the Counsel for the petitioner pointed out itis not merely the affixing of labels.
The Commissioner of Labour had completely failed toidentify this important distinction and therefore fallen into agrave error. In the circumstances the decisions of theCommissioner is totally unsupportable by objective reasoning.It is also to be noted that the Commissioner has not givenreasons for his order and thereby exposed himself to theinference that he has no reasons to give.
CA
Associated Newspapers of Ceylon Ltd. v
Commissioner of Labour and others (J.A.N. de Silva, J.)
419
Having taken the totality of circumstances enumeratedabove I quash the determination and or decision of theCommissioner of Labour dated 08,04.1999 contained indocument P.12. This application is allowed. I make no orderwith regard to costs.
Application allowed.
