Lesson 2 of 5 · Employees' Compensation Insurance

Who Is Covered and When the Employer Is Liable

Who counts as an employee under Chapter VII of the Code on Social Security, 2020, how it fits with Employees' State Insurance, the test for the employer's liability, and the exceptions and their limits.

Fact-checked 8 October 20266 practice questions in the game

Not every worker

Chapter VII does not cover every person who works. The Code's general definition of employee is wide, but its third proviso says that for Chapter VII employee means only the persons in the employments listed in the Second Schedule, plus any added by notification.

The Second Schedule as enacted has 50 items. They range from factory, mine and construction work to watchmen and sales promotion employees. The last item keeps in cover employees of establishments to which the 1923 Act applied in a State just before the Code began. Governments can add to the Schedule by notification. There is no minimum number of employees for Chapter VII to apply.

The line with Employees' State Insurance

Chapter IV of the Code is the Employees' State Insurance (ESI) chapter. The First Schedule applies Chapter VII only to employers and employees to whom Chapter IV does not apply.

Section 41(7)(a) adds a direct bar: a person eligible for dependant or disablement benefit under Chapter IV is not entitled to claim employees' compensation from the employer under Chapter VII. The two schemes are alternatives for a given injury, not additions to each other.

When the employer is liable

Section 74(1) makes the employer liable where personal injury is caused to an employee by accident, or by an occupational disease listed in the Third Schedule, arising out of and in the course of employment. The section does not ask whether the employer was at fault, and it is not limited to the employer's premises.

Occupational disease has a presumption in section 74(3). Where an employee in a Second Schedule employment contracts a Third Schedule disease peculiar to that employment while in the service of an employer under whom the employee has worked continuously for not less than six months, the disease is deemed an injury by accident. Unless the contrary is proved, it is also deemed to have arisen out of and in the course of employment.

Commuting is dealt with in section 74(4). An accident while commuting from residence to the place of employment for duty, or back after duty, is deemed to arise out of and in the course of employment if a nexus between the circumstances, time and place of the accident and the employment is established. The rule is written into the Code, so older material may not mention it.

Exceptions and their limits

The proviso to section 74(1) removes liability in two situations. First, there is no liability for an injury that does not disable the employee, totally or partially, for more than three days.

Second, there is no liability for an injury caused by an accident directly attributable to the employee being under the influence of drink or drugs, to wilful disobedience of an order or rule expressly made for safety, or to wilful removal or disregard of a safety guard or device the employee knew was provided for safety. This second exception covers only an injury not resulting in death or permanent total disablement. Where the employee dies or is permanently totally disabled, these three exceptions do not relieve the employer.

Rules at a glance

Employee for Chapter VIIPersons in Second Schedule employments (50 items as enacted), plus additions by notificationCode on Social Security, 2020 — section 2(26), third proviso; Second Schedule

Bar where ESI benefit is availableNo Chapter VII claim by a person eligible for dependant or disablement benefit under Chapter IVCode on Social Security, 2020 — section 41(7)(a); First Schedule

Liability testInjury by accident or Third Schedule occupational disease arising out of and in the course of employmentCode on Social Security, 2020 — section 74(1)

Occupational disease presumptionContinuous service of not less than six months with the employerCode on Social Security, 2020 — section 74(3)

Commuting accidentDeemed in the course of employment if nexus of circumstances, time and place with the employment is establishedCode on Social Security, 2020 — section 74(4)

Short disablementNo liability if disablement does not exceed three daysCode on Social Security, 2020 — proviso to section 74(1)

Illustration

Two workers, one scaffold

Illustration: at a building site two masons fall when a scaffold board slips. Both had unhooked their safety harnesses, which they knew were provided for their safety. One fractures a wrist and is off work for six weeks. The other dies. The employment is construction work, which is in the Second Schedule, and assume the ESI chapter does not apply to them. For the first mason, whose injury did not result in death or permanent total disablement, the employer can rely on the safety-device exception if the accident was directly attributable to his wilful disregard of it. For the second the exception is not available at all, because the injury resulted in death.

Key points

For Chapter VII, employee means only persons in the employments listed in the Second Schedule, plus any added by notification.
Chapter VII applies where the ESI chapter (Chapter IV) does not; eligibility for ESI disablement or dependant benefit bars a Chapter VII claim.
The employer is liable for injury by accident, or a Third Schedule occupational disease, arising out of and in the course of employment.
Liability does not depend on the employer's fault and is not limited to the employer's premises.
A commuting accident counts if a nexus with the employment is established.
The drink or drugs, wilful disobedience and safety-guard exceptions do not apply to death or permanent total disablement.

Common misunderstandings

Chapter VII is not for all employees: only those in Second Schedule employments are covered.
A person cannot claim under both schemes: eligibility for ESI disablement or dependant benefit bars a claim under Chapter VII.
The employer's fault is not the test: the question is whether the injury arose out of and in the course of employment.
Commuting cover is not automatic: a nexus between the accident's circumstances, time and place and the employment has to be established.
Drunkenness or disobedience does not defeat every claim: those exceptions fall away where the injury results in death or permanent total disablement.

Questions people ask

Does the accident have to happen inside the employer's premises?

No. Section 74(1) is not limited to the employer's premises; the test is whether the injury arose out of and in the course of employment.

Is every illness caught at work an occupational disease?

No. The presumption applies to a disease listed in the Third Schedule that is peculiar to the employment, with not less than six months of continuous service under that employer.

Is a two-day absence after a minor injury compensable?

No. There is no liability for an injury that does not disable the employee for more than three days.

What this lesson relies on

Code on Social Security, 2020 — section 2(26), section 41(7)(a), section 74, First Schedule, Second Schedule and Third Schedule

This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.