COVID - 19 - Liability of employers - Bar on Termination - Mandated Wages - Practical solutions within ambit

: Liability of the employers to remunerate its employees in current pandemic situations namely COVID-19 – Lock Down – Bar on Termination and mandated payment of wages 

• Industry Impact and alternative options

1.  FOREGROUND: 

Date Sequence of Emergence of Covid & Impacting scenario
31 Dec 19 The outbreak of COVID-19 or novel Coronavirus started from Wuhan, China and by March 2020, spread across various parts of the world, thus, adversely affecting the international and national economic activities.
11 Mar 20 WHO (World Health Organization) declared COVID-19 as pandemic. With sudden spurt of cases in India, various State Governments imposed lock-downs, owing to which the work was ceased at various industries, organizations, enterprises, companies.
24 March 20 The Central Government, declared nation-wide, 21 day period lock-down, thus, only allowing essential services and other ancillary services to function.
27 Mar20 The Ministry of Labour and Employment issued a circular, advising the public/private establishments not to retrench any employee and continue paying the wages/salaries.
29 Mar 20 The Ministry of Home Affairs issued an order for constituting Empowered Committee under Disaster Management Act, 2005 and requiring payment of full wages to the workmen.

29 Mar 20 The Ministry of Home Affairs issued an order for constituting Empowered Committee under the Disaster Management Act, 2005 and requiring payment of full wages to the workers be it in the industry or commercial establishments without any deductions.

 2. Global Impact

The COVID 19 impact and the distress is across the world and Companies/Industries/Associations and their workforces are facing the brunt of the disruption during this lock down and sure to face thereafter over the period.
As a consequence of lockdown nearly all business activities have come to halt due to the restricted movement and shutting down off all non- essential services which have impacted the business entities and economy at large.

3. QUERY: 

Whether the employers will be liable and bound to remunerate its employees in the present-like situation when the work at the industry/enterprises/organizations/companies are affected or ceased owing to the outbreak of an epidemic and the subsequent lockdown by the government?

 

4. CORE EMPLOYMENTS SECTOR IMPACTED

A. Public Sector
B. Private Sector
(i) Workmen including contract worker, casual workers, migrant workmen, including sales promotion employees as defined in Section 2(d) of Sales promotion Employees (Condition of Service) Act, 1976

5. ANALYSIS OF KEY LEGAL PROVISIONS RE: EMPLOYER’S OBLIGATIONS/LIABILITY 

This analysis is confined only to Private Sector as the Public Service will be governed by the respective governments’ guidelines.
Private Sector
(i) Employees/Workmen/Workers [including contract worker, casual workers, migrant workmen, including sales promotion employees as defined in Section 2(d) of Sales promotion Employees (Condition of Service) Act, 1976 ]
 Highlight of the Advisory/Order:
Ministry of Labour and Employment issued a circular dated 20.03.2020 All the Employers of Public/Private Establishments are advised to extend their co-operation by not terminating their employees’ particularly casual or contractual workers from jobs or reduce their wages.
MHA Order dated 29.03.2020 Whereas, to deal with the situation and for effective implementation of the lockdown measures, and to mitigate the economic hardship of the migrant workers…………………………………….iv) All the employers, be it in the Industry or in the shops and commercial establishments, shall make payment of wages of their workers………”

 The Powers under the Disaster Management Act 2005 (DM Act)
Significantly, the order dated 29.03.2020, was issued by the National Executive Committee, under Section 10(2)(l) of the Disaster Management Act, and binding on the enforcing States and the Employers. The other impacting provisions of this Act,are :
Section Provisions/Impact
51 Punishment for non-compliance – imprisonment or fine, or both
71 Only the Supreme Court shall have the jurisdiction on any matters to entertain any suit relating to any order, regulation or guidelines under this Act
72 The provisions of this Act, shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.

State Government circulars:
Several State Governments, namely Maharashtra, Haryana, Uttar Pradesh, Telangana, Karnataka, West Bengal have issued advisories/orders or, have adopted the Ministry of Home Affairs order and required the employers to refrain from terminating their employees/workers and to reduce their wages.

APPLICABILITY – What Categories Of Workman/Worker/Employees Or Supervisory/ Managerial are covered?

Pre- requisite for determination of Applicability.
 It is expedient to browse through the definitions of workman, worker, employees and any distinctive features  between these definitions and the supervisory/managerial categories.
Act Definition Remarks
ID Act –
Section 2(s) “Workman” means any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied, and for the purposes of any proceeding under this Act in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of, that dispute, or whose dismissal, discharge or retrenchment has led to that dispute, but does not include any such person-
(iii)who is employed mainly in a managerial or administrative capacity, or
(iv)who, being employed in a supervisory capacity, draws wages exceeding Ten Thousand per mensem or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature. Excludes
(i)Person employed in managerial or administrative capacity or
(ii) Supervisor drawing more than ten thousand per month


Shops & Establishment Act (s) 1948 "Employee" means a person wholly or principally employed, whether directly or through any agency, and whether for wages or other consideration in or in connection with any establishment; and includes an apprentice, but does not include a member of the employer's family;
The Model Shops & Establishments  (Regulation of Employment and Conditions of Service) Act “worker” means any person (except an apprentice under the Apprentices Act, 1961) employed to do any manual, unskilled, skilled technical, operational or clerical work for hire or reward, whether the terms of employment be express or implied The act does not apply to :
(i)A worker occupying position of confidential, managerial or supervisory character in an establishment,
(ii) A worker whose work is inherently intermittent;

It would be apparent that the definition of workman by the ID Act and Maharashtra Act 2017 are similar, except that the Model S&E Act does not include the supervisory under the definition.  The ID Act does not exclude any workman from the scope merely basis the wage limit of Rs.10,000/- as highlighted above and while the organizations internally categorize workers/supervisors/managers basis  wage limit/job profiles, the perspectives are challengeable at this critical juncture.

Can an industry like a commercial establishment distinguish workman/non-workman basis their wages more than Rs. 10,000 p.m.?
One may endeavour to find recourse under the wage ceiling under section 2(iv) of ID Act, i.e., Rs.10,000/- p.m.   However,  such recourse may be available only if such employee(s) being employed in a supervisory capacity and, draws wages exceeding 10,000/0 p.m., or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature.
Therefore, such recourse or a defence that those employees drawing salary of more than Rs. 10000 per month and neither comes under the definition of workmen nor governed by any of the legislation relating to labours has no avail.  Though such employees may be governed by the employer and employee contract agreement which governs the terms and conditions of their employment, their interests under the labour law remains protected.
Provisions/Obligations of the employers under current employment legislations for current situation like lockdown
Applicability of Payment of Wages Act
 The PW Act applies to all “employed persons:” Whose wages/salaries does not exceed Rs.24,000/-
Significantly, the statutory legislations like Industrial Disputes Act, 1947, Payment of Wages Act, 1937, Code on Wages, 2019, Contract Labour Act, 1970, Inter-State Migrant Workmen Act, 1979, etc. do not envisage any situation of force-majeure or intervening circumstances like the present wherein the work is ceased owing to any epidemic or its implication relating to payment of wages. Even, vice-versa, there is no legislation in India mandating the payment of wages and salaries by the employer in case of forced shutting of businesses for a period of time due to force majeure conditions such as natural calamities. Special laws/regulations for review:
Model/certified Standing Orders under ISEO
The Standing Order, if notified may be examined to avail any recourse in the context of stoppage work, intervening circumstances to check for lay off/payment of mere sustenance allowance at reduced rates
 However, while the major industries having factories either would have adopted the model standing order or its own standing orders, not many establishments under the S&E Act have applied either of these orders. While the S&E Act of several States like Maharashtra had, by an amendment to their S&E Act had applied the IE (SO) Rules to certain establishments basis number of workman, not every State has such amendments. While such mandate was not strictly enforced by the authorities, the Model S&E Act introduced by the Central Government does not contain such provision and wherever the States have adopted the Model S&E Act, (for example Maharashtra) the IE(SO) Rules no more applies to the establishments of these States.

Force-majeure – Two edged sword 

Another recourse thought to be available in COVID 19  - that wherever the employment is governed by a contract comprising suitable force majeure clause, employers may be released from their contractual obligations to pay workers or continue their employment!
This argument is extended further that, in the absence of clause of force-majeure from the contract agreement, then Section 56 of the Contracts Act, 1872 will be applicable in the present situation of outbreak of Pandemic and cessation of work, which is relating to the doctrine of frustration, which entails the law of discharge of contract by reason of supervening impossibility of the act agreed to be done!
Unlike a commercial contract, an employment contract is drawn with much less freedom by the employee, viz. bargaining power, market forces, etc. Also the supervening impossibility to honour the contract has to be established, which is complicated in a situation where the lock down is enforced by the Government, with a caveat to protect the wages and employment.
Way Forward:
The Lockdown was imposed till 14th April 2020 and while writing this view, has been recommended by the Central Government to be extended till 30th April 20 and many a States have aligned with this recommendation.
Recommendation:
- Ensure that the employees/associates at bottom of the pyramid gets the wage components structured within the minimum wages slab and any other allowances/incentives, e.g., conveyance allowance, performance incentives are excluded – a legitimate stand in accordance with law
- For Supervisory/Managerial structure a fixed per cent cut from the Gross and while deducting this cut, ensure it is applied on the components other than Basic + DA and
HRA.
- There will be a certain impact on the profits of March 20 onwards and the FY 2020-21 and will have a major hit on profits. This can be estimated for determination of bonus for this period, including the monthly component wherever applicable.

While this opinion covers comprehensive situations arising out, there could be special situations with unique circumstances, client alignment either having casual connection to COVID 19 lockout or independent. These situations better be reviewed as and when it arise for exceptional solutions, within the ambit of law.