Grasim Industries ruling and retirement age in private sector employment: Analysing the recent decision of Karnataka High Court

In its recent judgment in the case of Grasim Industries Limited v Employees Union and Others [Writ Appeal Number 100250 of 2021] (Grasim Industries), Hon’ble High Court of Karnataka (Court) held that the retirement age of 60 years for workmen as set out in the certified standing orders of the appellant (which, in turn, were modified pursuant to a similar stipulation made in the model standing orders by the state government) must be complied with by the employer. The judgment holds relevance because employers in the private sector generally have been able to retain flexibility as regards determination of the retirement age for their employees.

Understanding the law

The Industrial Employment (Standing Orders) Act, 1946 (IESO Act) applies to industrial establishments with 100 or more workmen (non-managerial employees), although this headcount threshold varies in some states. The term ‘industrial establishment’ here largely refers to factories, mines, railways, air transport services, and plantations, although few states have extended the application of the statute to commercial establishments. Once the IESO Act becomes applicable to an establishment, it requires formulating of standing orders by the establishment and certification thereof by the competent authority. Standing orders govern certain aspects of employer-workmen relationship including classification of workmen into different categories (permanent, temporary, probationers, casual, fixed-term, and so on), manner of notifying workmen about periods and hours of work, holidays, pay-days and wage rates, connotation of ‘misconduct’ and manner of dealing with the same through a disciplinary process, amongst others.

Having said that, each state has framed rules under the IESO Act which also contain model standing orders, and the IESO Act provides that the standing orders proposed to be certified or already certified by the establishment must be in conformity with the provisions of these model standing orders so far as is practicable.

The Karnataka Industrial Employment (Standing Orders) Rules, 1961 were amended through a notification dated 27 March 2017, whereby the state government modified the model standing orders to increase the age of retirement of a workman to 60 years from 58 years (Amendment). With this amendment in effect, the model standing orders provide that the age of retirement “may be 60 years or such other age as may be agreed upon between the employer and the workman by any agreement, settlement or award which may be bind on the employer and the workman under any law for the time being in force”. 

The case under reference and the Court’s decision

In the case under reference, certified standing orders of the appellant provided for retirement age of 58 years. Pursuant to the Amendment, the respondent-union applied for modification of the said standing orders to bring up the retirement age to 60 years. The competent authority went ahead with the proposed modification and accordingly increased the retirement age. The appellant’s statutory appeal against such modification stood dismissed, which ultimately led the appellant to challenge the action of the union and the competent authority before the Court.   

The appellant took the plea that the age of retirement was fixed at 58 years pursuant to a mutual settlement between the employer and the union, and therefore, the statutory authorities could not have interfered with such agreement at the instance of the union. The appellant also submitted that the enhancement of the retirement age to 60 years would cause significant financial cost to the establishment.

At the outset, the Court did acknowledge that determination of the retirement / superannuation age falls within the domain of the employer’s prerogative. At the same time, the Court noted that in a welfare state, there can be legislative regulation around such prerogative. The age of retirement / superannuation in any employment is determined keeping in view the contemporary life expectancy of the work populace. Now, when the state government brought about the Amendment and increased the age of retirement / superannuation to 60 years, the same was done in view of the increased life expectancy of the workforce. Therefore, the competent authority was not wrong in bringing about a modification to the appellant’s certified standing orders pursuant to the Amendment and application of the union in accordance with the IESO Act.

As regards the contention of the appellant that the retirement age of 58 years was determined pursuant to a settlement with the union, the Court noted that such settlement was arrived at many years back and that “the substratum on which the age was fixed had undergone enormous change”. Accordingly, the workmen cannot be compelled to “cling on to the settlement of th[is] kind”. As regards the appellant’s contention of increase in financial cost as a result of the increased retirement / superannuation age, the Court noted that the appellant had failed to produce any authentic material on record to show a significant financial burden in its books.

On the basis of the above rationale, the Court ordered the appellant to continue the employment of the workmen currently on its payroll till they attain the age of 60 years. As regards the workmen who retired from service on attaining the age of 58 years on or after the operation of the Amendment, the Court directed the appellant to pay such workmen their back wages for the period between the date of their retirement and the date on which they attain 60 years or the date of death, whichever is earlier.

Comment

Grasim Industries may have a notable impact on the terms and conditions of employment as regards establishments which are covered under the IESO Act. This is because even if the employment contract or collective bargaining agreement of a covered establishment could provide for a lower age of retirement than 60 years, the competent authority under the IESO Act and the judiciary may emphasise upon aligning the retirement age to the one under the model standing orders (i.e., 60 years), once an application in this regard is made by the workmen / union of such covered establishment as per the procedure under the IESO Act.

Interestingly, the model standing orders themselves state that the retirement or superannuation age “may be” 60 years “or such other age as may be agreed upon between the employer and the workman by any agreement, settlement or award”. Notably, this option of having a different retirement / superannuation age based on an underlying agreement was not elaborately examined by the Court, and even though there was a settlement between the employer and the workmen on a lower retirement age in the instant case, the same was not given importance considering the time that had elapsed since the execution of the settlement and the increase in life expectancy in the interim that was recorded in official data.

-         Anshul Prakash (Partner) and Deeksha Malik (Senior Associate)

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