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In light of the Government’s Notifications on Wages to Workers – Employers Responsibilities and Obligations and Legal Issues: COVID-19

On 20th of March 2020, the Ministry of Labour and Employment (‘MLE’) issued a notification advising all employers of public and private establishments to refrain from terminating their employees or reducing their wages (‘Notification’).

Subsequently, on 29th of March 2020, the Ministry of Home Affairs (‘MHA’) issued an order aimed at mitigating the economic hardships faced by Migrant Workers. However, this order directs all employers to mandatorily pay 100% wages to all their workers for the period their establishments are closed during the lockdown (‘Order’).

The Order has severely compounded the employer’s problems as the businesses have taken a severe hit due to the current pandemic and there has not been a single sale or revenue generation since the beginning of the lockdown.

Presently, the lockdown has been extended further and each state and district authorities have their own rules governing the manufacturing units and factories located therein. However, the social distancing norms prescribed by the government continue to remain in place despite certain relaxations which makes it very difficult to start operations of any office/factory with full capacity. Migrant workers going back to their native places is another cause of concern for the employers at the time, especially when the restrictions during the lockdown have been eased out. Moreover, while the government has allowed 12 hr shifts instead of the 8 hr shift as before, having to comply with the social distancing guidelines the employer would most likely end up paying more to the workers and wages will go up.

In view of such difficult situations, where the Government is, in simple terms, directing employers to pay complete wages to all workers/employees, irrespective of the type of industry the employer is established in, and when the employer is unable to restart the business, it becomes important to address the question as to how can an employer reduce and hopefully, eliminate any potential liability towards its employees.

 

The Need for the Order

 

Wages to workers

It has to be understood that the Notification is in the nature of an advisory. Meaning that there would be no repercussions if an employer decides not to follow it. However, this is not the case for the Order.

When the lockdown was initially announced, there was massive hue and cry that migrant workers, in an attempt to try and return their native states, were walking from the State where they were employed to their native States.

The Government’s main concern was to mitigate the consequences of the COVID-19 pandemic and it was decided that migrant workers needed to be taken care of so that they do not break all rules of lockdown while attempting the travel to their native States. As a result, the Order was issued to secure some form of finance for migrant workers and to ease their worries.

However, since an Order has been issued, it needs to be followed. Whether the Order is bad in law or good in law will be eventually decided by the Judiciary. But as long it stands, all employers in all industries will have to comply with the Order or face the legal consequences. The MHA while issuing the Order, has claimed to invoke its powers under Section 10 (2) (1) of the Disaster Management Act, 2005 (‘DM Act’). Meaning, that if somebody does not follow the guidelines or directions enumerated in the Order, they shall face legal repercussions.

 

The Disaster Management Act, 2005

The objective of the DM Act, as stated in its preamble is the effective management of a disaster. It calls for one (1) central authority which will manage the disaster. The National Executive Authority (‘NEA’) was created for this purpose.

The duties, roles and responsibilities of the NEA were to formulate a Disaster Management Plan for a foreseeable disaster, to implement it, to monitor the implementation and to ensure that the instructions being issued to the Central, State and UT Governments and their Sub-Ordinate Authorities are being executed in the appropriate manner to prevent a disaster from happening or alternatively, to control the spread and the damage caused by a disaster.

Pertinently, no provision of the DM Act blocks or prevents a private person from exercising their rights available under another law presently in force in the territory of India. For example, the Industrial Disputes Act, 1947 (‘ID Act’) guarantees the employer with certain rights, such as the right to retrench workers, close down the factory etc. There is no provision under the DM Act which claims that the Central, State or UT Government, or any other authority for that matter, can take away the rights given to a private person under any other law or legislation which is in force in the territory of India.

In a similar manner, the DM Act does not provide the Central, State or UT Governments, or any other authority for that matter, with the power to interfere or override private contracts such as a contract of employment (between an employer and an employee), a contract between the employer and contractor providing contract labour etc. The DM Act does not differentiate between different classes or standards or levels of contract labour or between workers that are contractual, probationer, temporary etc. The DM Act does not even have an over-riding provision which details how to deal/treat these kinds of workers.

 

Universal Nature of the Order

The Central Government has seen it fit to issue one single Order, containing one single set of, rigid and inflexible guidelines. However, the Indian Economy and the Indian Job Market is not made out of one single industry. There are dozens of different industries, all working together efficiently, in harmony. On one hand, these guidelines can very easily be adopted and applied in industries where employees are capable of working from home, such as the Information Technology industry, the Customer Service industry etc. But for industries which are labour intensive, such as the Apparel Export industry, the Manufacturing industry, the Construction industry etc. which require 100’s and 1000’s of workers, these guidelines will result in many employers going bankrupt

 

Remedies available to the Employer

An employer has various remedies available to them under the ID Act. To begin, we must first understand that there are two types of employees – (i) workmen and (ii) non-workmen.

The ID Act provides for different categories of employers such as those who employee: (i) 49 or less workmen; (ii) 50- 99 workmen; and (iii) 100 or more workmen. Section 25C, 25M and 25J of the ID Act provide for compensation and manner in which lay-offs will occur. Pertinently, Supreme Court in the Bangalore Water Supply & Sewage Board vs. A. Rajappa, has elaborately discussed the term ‘industry’ and held that ID Act is not only restricted to manufacturing units, but also encompasses in itself non-manufacturing companies as well. It is only Chapter VB under the ID Act that will be applicable specifically to manufacturing.

Where the no. of employees is 50-99, Section 25C provides for compensation being 50% of the total of the basic wages and dearness allowance. The same amount of compensation is applicable in Section 25M where no. of employees is 100 or more. However, Section 25M also states that if lay-offs are made due to a natural calamity, then prior permission from the appropriate government is not required.

Proviso to Section 25C gives a right to the employer to not to pay 50% of compensation if a lay off extends to more than 45 days provided it is mentioned in the agreement with the workmen. However, if this is not mentioned in the standing orders or the employment agreement, then the employers have an option to raise an industrial dispute for the said period in order to reduce the compensation to less than 50%.

Section 25J provides that if some local or state Acts provide for lay-off and retrenchment benefits which are better than the ones provided for under the ID Act, then those will be payable.

But, for employers who employ 49 or less workmen, there is no specific provision for lay-off under the ID Act, and therefore, those employers will have to pay complete wages to their employees.

For those employers who are employing non-workmen, they are free in as far as the order is concerned, as it does not apply them.

Notably, the lay-off, defined under Section 2 (kkk), can even be resorted to or be continued even after the period of lockdown is over for there is no requirement that it must commence or be continued only during the existence of natural calamity. Consequently, if the effects of epidemic were to last for some time (which they probably will), the action can be said to be on account of such “natural calamity” as long as it can be shown that it is due to its after effects. Hence, it will not be wrong to say that the layoff can continue even after the lockdown ends.

Besides the workmen covered under the ID Act, other categories of employees and the remedies available to the employers are as follows:

 

  • Apprentices and the persons engaged in the NEEM scheme

Persons engaged as “apprentices” under the Apprentices Act are not “workmen” under the ID Act and are not entitled to the benefits of these orders anyway. Hence their contracts can be terminated in accordance with law though the employer cannot lay off any of them. However, if they have not been engaged under the Apprentices Act then they will be workmen. The contracts of those engaged under the National Employability Enhancement Mission (‘NEEM’) are neither offers of employment nor do not constitute employment contracts. They can be terminated “by notifying in writing to the other party by giving a notice thirty days in advance”.

 

  • Contract workers

The issue that arises in regard to the contract workers is that whether they are to be counted for the purposes of applicability of Chapter VB of the ID Act. In case they are taken as part of the establishment, would take many such establishments above the threshold and certain other establishments might fall within the scope of sections 25 C to 25 E and make use of these provisions. It is also borne in mind that if the employer does not pay compensation to such persons(on the ground that they are not its employees but of the contractor) and such action is challenged (of which there could be a very high probability), a larger question arise whether the practice of engaging workers on contract is valid. Consequently, it would need to be considered in each case whether to count these persons for determining the applicability of chapter VB / Section 25C to 25E and to pay them compensation as to the regular workers or to find some solution with the contractor’s assistance.

 

  • Management and other personnel

Managerial personnel are governed by their contracts with the employer. Hence, they cannot be unilaterally laid off. Therefore, the option available with the employer is to either renegotiate these contracts with them or terminate them in accordance with their terms.

 

Alternative Sources of Funds

For years and years, money has been deposited into various funds such as provident fund, ESIC funds, etc. These are contributions made by the employers as well as by the employees. These funds had been put in place to look after, care for and provide financial assistance to those employees who, for a short amount of time, are unable to work. For example, the Employee State Insurance Corporation Act (‘ESIC Act’) states that if a worker is sick and is abstained from duty then he can draw some money from the ESIC Fund.

The prevalent presumption is the everyone is infected with COVID-19 and that we all should quarantine and self-isolate so that we do not spread it forward to other people. So, every one of us can be deemed to be suffering from COVID-

19. And this is sufficient ground to conclusively state that, as per the ESIC Act, a worker is sick. In such a case, workers should be compensated from the ESIC Fund, as is dictated by the provisions of the ESIC Act. The Central Government’s act of forcing the private employers to act in lieu of the provisions of the ESIC Act is illegal, to say the least.

 

Reaction of the Indian Judiciary

Furthermore, considering the one uncertain and unpredictable aspect of all industries, the workmen, we have to consider the matter of attendance. After partial lockdown has been lifted, many workmen will be genuinely interested in re-joining their employment. However, many might be more interested in exploiting the situation and making excuses of not being able to report to work due to COVID-19. But since the Central Government has passed an order for payment of complete wages, the employers would not be able to punish those employees who are exploiting the situation.

This raises a bigger and more important question. Will private employers from every individual state have to approach their own High Courts for relief? Hopefully, the answer will be “no”. Numerous companies and petitioners have already approached the Supreme Court of India claiming:

 

  • That the Central Government does not have powers under the DM Act to issue such guidelines;
  • That the Notification and the Order is violative of Article 14, 19, 39, 300A etc. of the Constitution of India;
  • That rights under ID Act are being curtailed and the Order to pay 100% wages goes against those provisions;

The Supreme Court of India has issued notices in all of these petitions and has directed the Central Government to not only file a reply to the allegations raised but also to provide a plan on how the Central Government plans to enforce and implement the directions of the Order.

It is to be borne in mind that the timing of passing an Order by the Supreme Court and/or the High Court will be crucial as the establishments cannot announce lay-off retrospectively. It’s only after announcing lay off that the establishment will be able to invoke 25C and 25M and reach a position of negotiation with workmen and employees with regards to any further settlement talks, but in case it’s not announced then the establishment is legally bound to pay full salary.

However, this is a new situation and it is possible that Courts may try to find out a middle path. Hence, it may be advisable to raise an industrial dispute about the quantum of payment even if layoff has not been declared and full payments are being made.

Options available with the Employers

These are abnormal times and it is difficult to predict the outcome of any of these options or comment thereon. However, it is important to set down the various options available with any employer/management so that they can decide the best option suitable for their business or establishment:

 

  • Declare a lay-off and challenge the Order before the Supreme Court as under Article 142 of the Constitution of India, 1950, the Supreme court has wide powers. Under this option, the industry associations here could play a crucial role in coming forward and taking the matter to the Court as it may also have an added value coming from them as each industry has its own facts and grounds which can only be raised by the specific industry in the truest sense. On the contrary, if the employers from a particular industry wish to take benefit of an order passed by the Court in another similar matter, it might not be necessary that the order coming from the Supreme Court will provide you with same level of relief.

 

  • The other option is to claim that the Order was illegal and use these as mitigating factors in government prosecution. One can defend and challenge the Order and say that the law on the subject is ID Act which governs this situation between an employer and servant. Also, DM Act does not have any provision to empower and impose any such order on an employer.

 

  • At the same time, employers also need to keep in mind that in future if such situations arise, there should be a clause in the employment contracts, stating that in such circumstances both employer and employee should get together and agree regarding the revision of wages, so that there is a clear cut understanding between the employer and employees so that these situations can be handled mutually.

 

Conclusion

In these difficult times, where the options with the employers are hardly there or very limited, employers have to act fast and take quick decisions, whether to pay full wages to the employees and go bankrupt leading to closure of business, or face prosecution. In these circumstances, where the employer has been pushed to the wall, the only option left with the employers is to announce lay-off wherever the provisions under the ID Act are applicable and at the same time, seek judicial remedy being their prerogative under Articles 14 and 19 of the Constitution of India, 1950.

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