WORKERS’ PARTICIPATION IN THE COMPANY’S PROFIT

Subject: Establishment of funds under Chapter-XV of the Bangladesh Labour Act 2006 (the
‘BLA’) (as amended in 2013)

The following Acts are relevant:

1. The Bangladesh Labour Act 2006 along with its amendments read with Bangladesh Labour Rules
2015;
2. Bangladesh Workers’ Welfare Foundation Act 2006;
3. Bangladesh Workers’ Welfare Foundation (Amendment) Act 2013;
4. The Companies’ Profit (Workers’ Participation) Act 1968; and
5. The Companies Act, 1994.

We are assuming that X Ltd is a company doing business in Bangladesh.

The position is as follows:

Applicability of Workers’ Participation in Companies Profit (“WPCP”)

1. Chapter XV of the BLA 2006 deals with WPCP. Prior to 2013 amendments, under the BLA
2006, WPCP was applicable only to those establishments which were companies engaged in
industrial undertakings and which also satisfied one of the three conditions given in S. 232 (1) of
BLA 2006. S. 233(1)(g) of BLA 2006, which provides the definition of the term ‘Industrial
Undertaking’, has been amended by BL(A)A2013, to now define the term as “Any establishment,
business establishment, industry, factory, bank, arthalognikari establishment or insurance
company, which is run for profit, shall be considered to be ‘industrial undertaking’ or an
establishment which is involved in one or more of the following activities:” and then there is a list
of eight types of activities. X Ltd. clearly falls within the said definition of Industrial Undertaking
since it is a company run for profit.

2. Interestingly however, the amendment itself is not free from vice. After the amendment, whether
X Ltd. falls within the ambit of Industrial Undertaking is irrelevant. S 232 of BLA 2006, which
deals with the Application of the Chapter (WPCP), has been repealed and replaced whereby the
section no longer contains the term ‘Industrial Undertaking’. On the contrary, S. 233 as amended
by BL(A)A 2013, providing the ‘Special Definitions’, has not omitted the definition of ‘Industrial
Undertaking’. Rather, the 2013 amendment added to the list of establishments falling under the
definition of ‘Industrial Undertaking’. This has created confusion, since the applicability section
does not contain a term which is otherwise defined in details in the definition section. The
confusion is further deepened since S. 251 contains this term and the section was not even
amended by the BL(A)A 2013. It is, therefore, humbly submitted that there is a lack of
consistency in this chapter. While the definition of Industrial Undertaking has been amended to

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 expand the same, the section related to the application of the chapter has altogether omitted the
term 'Industrial Undertaking'. Hence, the term Industrial Undertaking does not have any
application.

3. The recent changes brought about by the BL(A)A 2013, to some extent, simplified the situation,
putting an end to the confusion surrounding the applicability of WPCP to different
establishments. Now, under Section 232 as amended by the BL(A)A 2013, the Chapter on WPCP
(XV) is applicable to all establishments or companies, subject to the fact that it qualifies the
criteria provided in the section, namely: -
- the paid up capital of the establishment or company is one crore taka or more at the end of the
accounting year; or
- the value of the fixed assets at cost on the last day of the accounting year is not less than two
crore taka or more.

X LTD. satisfies both of the above mentioned criteria. Hence, on a plain reading, it appears that the
chapter is applicable to X LTD. After the amendments, whether by satisfying the present criteria given in
Section 232or whether falling within the ambit of Industrial Undertaking, X LTD. anyhow falls within the
scope of this chapter on WPCP and hence it is abundantly clear that X LTD. now has to establish funds
for beneficiaries under WPCP.

Detailed Outline on the Execution of WPCP.

4. Under section 234 of the BLA, such establishments are obliged to establish two funds:

- (i) Participation Fund, and

- (ii) Welfare Fund

5. Accordingly, X LTD. is obliged to create two funds and pay 5% of the Net Profits of the
company accrued in the previous year to the aforesaid two funds along with another fund created
under Bangladesh Labour Welfare Foundation Act 2006 in the proportion of 80:10:10
respectively to the Participation Fund, Welfare Fund, and Workers’ Welfare Foundation Fund as
established by the government under section 14 of the Bangladesh Labour Welfare Foundation
Act 2006 within nine months from the closure of every year.

6. Accordingly, X LTD. needs to create two funds under the BLA, while it has to deposit 5% of its
profits in total 3 funds as per the prescribed ratio. As per section 235, the said two funds to be
created under the BLA, shall have to be managed by the Board of Trustees of X LTD. appointed
under instrument of trust.

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7. The third fund which is created by the government under the Bangladesh Labour Welfare
Foundation Law 2006 is managed and governed by the government. X LTD. only needs to make
the payment thereto and has no role to play in managing, administering or otherwise dealing with
this fund.

Eligibility: Beneficiary, not Worker

8. It is worth mentioning that Chapter XV of the BLA 2006 is called the ‘Workers’ Participation in
Companies Profit’ and the 2006 Act contemplated the profit sharing with the ‘Worker’ category
of employees only. The 2013 amendment has made it very clear that the profit sharing will not
only be done with the ‘Worker’ category of employees but with every employee, who can be
categorized as a ‘Beneficiary’. The 2013 amendment has accordingly replaced all reference to
‘Worker’ with ‘Beneficiary’ for the purpose of this chapter despite the fact that the name of the
chapter itself remained unchanged.

9. As per Section 233(1) (i) as added by the BL(A)A 2013 the term ‘Beneficiary’ has been defined
as: “any person including a probationer, who has been serving the company for at least nine-
months, other than Owner or partner or any member of the governing board” The term ‘Owner’
as stated above is defined in section 233(1) (EE) (as inserted by section 64(a) of the 2013 Act) in
the following manner: “Owner means owner of a company or establishment or management
authority or the Chief Executive or any other person substituting thereof.”

10. Once someone qualifies as a Beneficiary, he is entitled to the benefits under the funds. However,
as per section 241(2) of the BLA, the Beneficiary has to work for at least (6) months in the
company in any accounting year to be eligible for the fund of that particular year.

11. As per section 242(1) of the BLA, 2/3 (two-third) of the early deposited amount in the
Participation fund shall be distributed amongst all the Beneficiaries in equal proportion and the
remaining 1/3 (one third) of the Participation Fund can be invested in any government owned
investment sector. The accrued profit of the said investment shall also have to be distributed
amongst the Beneficiaries in equal proportion.

12. As per section 243 of the BLA, the fund created as the Welfare Fund shall be utilized in the
manner and for the purpose as decided by the Board of Trustee of the said fund.

Amount is to be deposited in these funds

13. For the purposes of these funds, 5 % of the Net Profit shall have to be distributed in the aforesaid
three funds as per the ratio mentioned in Para 5 hereinabove.

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14. ‘Net profits’ as per the BL(A)A 2013 is defined as per the definition laid out in Section 119 of the
Companies Act 1994. As per Section 119 of the Companies Act, ‘net profits’ has been defined as:
‘the profits of company calculated after allowing for all the usual working charges, interest on
loans and advances, repairs and outgoing, depreciation, bounties, or subsidies received from
Government or from a public statutory body, profits by way of premium on shares sold, profits on
sale proceeds of forfeited shares, or profits from the sale of the whole or part of the undertaking
of the company, but without any deduction in respect of income-tax or super-tax, or any other tax
or duty on income or for expenditure by way of interest, debentures, or otherwise on capital
account or on account of any sum which may be set aside in each year out of the profits for
reserve or any other special fund’.

The legal timeframe to constitute the trust fund

15. The Welfare Fund and Participation Fund were to be established by X LTD. for its beneficiaries
within a month of the date of which the Act (2013 Amendment) became applicable to it, i.e. one
month from the date of the amendment coming into force on 22.07.2013.

How the trustee board would be constituted

16. As per Section 235 of the BLA, as soon as may be, after the establishment of the Participation
Fund and the Welfare Fund, a Board of Trustees will be constituted, which shall consist of the
following members namely:

(a) two persons nominated by the Collective Bargaining Agent and if there be no Collective
Bargaining Agent in the company as in X LTD., two persons elected by the workers of the
company from amongst themselves; and

(b) two persons nominated by the management of the company of whom at least one shall be a
person from the accounts branch of the company.

The Chairman of the Board shall be elected for one year from amongst the members under
Section 235(1)(a) and (b), with the first Chairman being from amongst the members under
Section 235(1)(b).

Participation fund and Welfare fund: separate trusts with separate trustee board or same trust for both
funds?

17. As per Section 235 of the BLA 2006 as amended by the BL(A)A 2013 both the funds will be
under the same Board of Trustees.

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Distribution of Participation Fund

18. The BLA has stated that the fund is to be disbursed in ‘equal proportion’ amongst the
beneficiaries. However, ‘equal proportion’ has not been defined in the BLA 2006 or its
subsequent amendments and there is no legal reference to it. This has created another problem as
many companies, including reputed multinationals in Bangladesh, are construing the meaning in
their own ways to best suit their best interests. There are varying market practices as to the
disbursement: some distribute as equal multiple of basic/gross salary, while some make
disbursement in the proportion of seniority or designation or based on performance, while others
distribute in ‘equal amount’ to all employees. Question arises regarding the correct approach to
disburse the fund, the approach which is according to the law.

19. The BLA states the term ‘equal proportion’. When dealing with proportionality, there has to be
two variable figures/factors. The Act did not go into giving details as to equal proportion of
what/to what. Hence, the safest and a purposive approach in interpreting this law would be to
distribute the funds equally amongst all the beneficiaries.

20. Thus, regardless of amount of salary, gross or basic, regardless of seniority, designation,
performance, years of service etc., each beneficiary should receive the same amount of money.

Utilization of Welfare Fund: Areas/benefits that are allowed or are typically provided in practice from the
Welfare Fund

21. As per Section 243 of the BLA 2006 as amended by the BL(A)A 2013, the amounts deposited in
the Welfare Fund shall be utilized for such purposes and in such manner as the Board of Trustees
may decide and the Board shall inform the government of such decision.

22. No further reference has been given in the Act for utilization of the Welfare Fund. However, it is
clear that the amount under the Welfare Fund need not be distributed amongst the Beneficiaries
rather the same shall be used/utilized. From the title of the fund, it is clear that it has to be utilized
for the ‘welfare’ of the beneficiaries. The term ‘welfare’ has been defined in the Black’s Law
Dictionary as “well-being in any respect; prosperity”.

23. Accordingly, the amount under the Welfare Fund may be used for well-being of the beneficiaries
in any respect, e.g.: health, peace, safety, morals, economics etc. However, it shall be kept in
mind that the amount cannot be used for an activity, which the company is otherwise obliged to
do under any law of the land.

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Penalty for not establishing a Participation Fund or Welfare Fund

24. Section 236 of BLA 2006 as amended by BL(A)A 2013 has laid down a detailed procedure for
penalty for not establishing a Participation Fund or Welfare Fund in accordance with Section 234
of the BLA 2006 as amended by the BL(A)A 2013.

25. As per Section 236(1) of BLA 2006 as amended by BL(A)A 2013, if any Company or trustee
board fails to follow the provisions as set out in section 234 of the BLA 2006 as amended by the
BLA(A)A 2013 then in such circumstances the government may order to ensure compliance in
line with the concerned provision and within the time stipulated in the order.

26. Furthermore, under Section 236(2) if any company or trustee board fails to carry out its
obligations as per order made under sub-section (1) within due time, the Government may by
order impose fine on every director, manager or anyone directly or indirectly involved in the
managerial functions of the company or where applicable chairman of the concerned trustee
board, member or anyone involved with the management of the board an amount not exceeding
one (1) lac taka and in case of continuous default an amount of taka five thousand for each day
commencing from the first day of default and may order to pay the total amount of the fine within
next thirty days. Provided where anyone is in breach of the provision of this section or fails to
perform the same will be fined with an amount which is twice of the amount provided hereunder.

27. Please note that under Section 236(3) of the BL(A)A 2013, if any amount payable under section
234 remains unpaid and if any fine imposed under this section remains unpaid within the time
frame provided in the concerned order, such unpaid amount and fine shall be treated as the claim
of the Government and shall be recoverable according to the provisions of Public Demands
Recovery Act 1930 (Act No. IX of 1930).

28. There is a similar provision regarding the Workers’ Welfare Fund as established under section 14
of Bangladesh Labour Welfare Foundation Act 2006 as stipulated in section 14A of the
Bangladesh Labour Welfare Foundation Act 2006 (As amended in 2013).