Factories Act | Wages Mean What You Actually Earn — Not What the Bureaucrat Thinks: Supreme Court Rebukes Ministries for Denying Full Overtime Benefits to Factory Workers

“Executive Instructions Cannot Override a Parliamentary Statute”, In a landmark ruling that reinforces the primacy of statutory language over executive fiat, the Supreme Court of India on January 20, 2026, dismissed appeals filed by the Union of India challenging the inclusion of various compensatory allowances like House Rent Allowance (HRA), Transport Allowance (TA), Clothing and Washing Allowance (CWA), and Small Family Allowance (SFA) in the calculation of overtime wages payable under the Factories Act, 1948. The case was titled Union of India & Ors. v. Heavy Vehicles Factory Employees’ Union & Anr., Civil Appeal Nos. 5185–5192 of 2016, and was decided by a bench of Justices Rajesh Bindal and Manmohan.

Rejecting the government's attempt to limit the meaning of “ordinary rate of wages” through a series of Office Memorandums, the Court held that executive instructions issued by Ministries have no authority to dilute, rewrite, or reinterpret a clear statutory provision passed by Parliament.

“No power is vested in the Central Government or any of its Ministries to issue clarifications with reference to Section 59(2) of the Factories Act, especially to exclude allowances not expressly excluded by the statute itself.” — Justice Rajesh Bindal

“Parliament Said What It Meant — Only Bonus and Overtime Wages Are Excluded”: Literal Rule of Interpretation Reaffirmed

At the heart of the case was the interpretation of Section 59(2) of the Factories Act, 1948, which defines “ordinary rate of wages” for the purpose of paying overtime. The provision reads:

“...‘ordinary rate of wages’ means the basic wages plus such allowances… as the worker is for the time being entitled to, but does not include a bonus and wages for overtime work.”

The Supreme Court upheld the literal interpretation adopted by the Madras High Court, affirming that only two specific exclusions — bonus and overtime wages — are permitted by the statute. Thus, the inclusion of allowances such as HRA, TA, and others, which the worker is “for the time being entitled to,” is mandated by the law, not optional.

“It is a well-settled principle of statutory construction that the Legislature never wastes its words. Once only two items are excluded — bonus and overtime wages — no authority can widen the exclusions by mere administrative instruction.”

“Central Ministries Cannot Rewrite State Laws”: Court Reiterates Federal Scheme of Factories Act

Tracing the scheme of the Factories Act, the Court examined the federal distribution of powers under Sections 64, 65, 112, and 113. These provisions exclusively empower State Governments to frame rules and issue exemptions, not the Central Ministries.

“Chapter VI of the Factories Act vests all rule-making and exempting powers in State Governments. The Central Government’s role is limited to issuing directions to States — it cannot assign new meanings to statutory provisions through Office Memorandums.”

Highlighting that the Ministry of Defence, Ministry of Labour, and Ministry of Finance had each issued conflicting Office Memorandums between 1959 and 2009 attempting to exclude various allowances from overtime computation, the Court stated:

“These communications are inconsistent, lack statutory authority, and amount to nothing more than executive opinions — not law.”

“Same Law, Different Rules? Unacceptable.” Court Slams Discriminatory Application Across Ministries

The respondents had drawn the Court’s attention to a circular from the Ministry of Railways dated May 20, 2011, which included allowances like HRA and TA for overtime wage computation. The Court found the divergent interpretations adopted by different Ministries to be “arbitrary, discriminatory, and legally unsustainable.”

“Different Ministries of the Government of India cannot assign different meanings to the same provision of law. A Parliamentary enactment must be interpreted and applied uniformly across all establishments.”

“Overtime Is a Social Safeguard, Not a Managerial Concession”: Factories Act Must Be Construed Beneficially

Referring to its recent ruling in Gujarat Mazdoor Sabha v. State of Gujarat (2020) 10 SCC 459, the Court reiterated that the Factories Act is a welfare statute enacted to prevent labour exploitation, particularly through excessive working hours without adequate compensation.

“The principle of paying overtime at double the rate of wages is a bulwark against the inequity inherent in labour-management relations. A restrictive interpretation curtailing worker rights must be avoided.”

In this context, the Court affirmed that any interpretation of Section 59(2) must favour the employee, and “such allowances” cannot be excluded merely because they are termed “compensatory.”

“Office Memorandums Cannot Override the Law”: Kerala HC Judgment Overruled

The Court also took the opportunity to explicitly overrule a conflicting decision of the Kerala High Court in V.E. Jossie & Ors. v. Flag Officers Commanding-in-Chief, which had upheld the exclusion of HRA and other allowances from overtime wages. Calling the High Court’s view “contrary to the correct position of law”, the Supreme Court held:

“The Kerala High Court’s judgment does not lay down the correct law and stands overruled.”

“Financial Burden Cannot Be a Justification to Deny Statutory Wages”: Court Rejects Government's Argument

The Union of India had argued that including various allowances in overtime wages would impose a significant financial burden on the Defence factories. The Court flatly rejected this plea:

“Compliance with statutory obligations cannot be avoided on the ground of financial burden. What is due under the law must be paid.”

The Court also noted that employees had been receiving overtime computed with these allowances for years, and the sudden reversal by executive instruction in 2009 lacked justification, legality, and fairness.

 “Executive Cannot Rewrite Law in the Name of Clarification”

Dismissing the appeals, the Supreme Court upheld the Madras High Court’s decision, which had set aside the Central Administrative Tribunal’s order denying full overtime wages to workers. It reaffirmed that compensatory allowances paid to workers must be included in their “ordinary rate of wages” for the purpose of overtime calculations under the Factories Act.

“Statutory interpretation is the sole prerogative of the Courts. Ministries cannot dilute Parliamentary commands through letters and memos.”

There was no order as to costs, but the decision marks a major victory for factory employees across India, restoring their entitlement to overtime wages that reflect their actual earnings, not a narrow bureaucratic calculation.

Date of Decision: January 20, 2026
Case Title: Union of India & Ors. v. Heavy Vehicles Factory Employees’ Union & Anr.