The world is currently struck by an unprecedented situation of large-scale lockdowns being imposed upon people in most impacted, crowded areas. India continues to be in a state of nation-wide lockdown for the fifth consecutive week now, and businesses have taken a terrible hit as a consequence. With inevitable economic struggles on the horizon, a question in the minds of many is whether salaries ought to be paid by businessmen during this crisis.
Some of those questions have been addressed below:
A Government Order dated March 29, 2020, namely No. 40-3/2020-DM-I(A) issued by Ministry of Home Affairs, Government of India, under section 10(2)(I) of the Disaster Management Act, 2005, directed the State governments and the Union Territories (SGs/UTs) to issue orders, compulsorily requiring all the employers in the industrial sector and shops and commercial establishments to pay wages to their workers at their workplaces on the due date without any deduction during their closure due to lockdown. This Order, however, was passed in the context of restricting movement of migrants, after hordes of struggling migrant workers collected on the roads of Delhi, in the hope of finding buses that would help them leave the expensive capital city and ferry them to their hometowns during lockdown. The notification particularly states that it aims to “mitigate the economic hardships of migrant workers”.
The general applicability of this Order then becomes debatable, and has already been challenged before the Supreme Court on April 18, 2020. The Disaster Management Act is for the purpose of controlling and mitigating disasters, and in the present case, the spread of the virus. In such a situation, it becomes understandable to impose an obligation to pay migrant workers, else they will travel to their home towns and that will lead to the spread of the virus. However, it is not clear how the state can impose such a directive in general, considering the limited scope of the Disaster Management Act.
Thus, it is currently a government directive that full salaries must be paid to employees during the lockdown period. However, this directive appears to have passed looking into the present extraordinary situation to support the workers so their migration from one state to the other due to unemployment can be stopped. However whether it is beyond the scope of the legislation or not is the question which has not been examined by the courts until now.
Payment of Wages: The payment of wages of workers is governed by the Payment of Wages Act, 1936. However, the Industrial Disputes Act, 1947 delineates certain scenarios discussed below wherein wages may be altered according to that Act in special circumstances. Such exceptional circumstances have in fact been created during the COVID-19 crisis, and the provisions under the Industrial Disputes Act, 1947 will govern in these times.
Lockout: Lockout is a temporary closing of a place of employment or suspension of work, which may be done in a number of reasons including continued or accumulated financial loss for the employer [See S. 2(1), ID Act]. Thus, after the lockdown, an employer may impose temporary lockout to recover from the losses.
Layoff: Layoff is a temporary termination of employment. As per the Industrial Disputes Act, 1947, layoff means the temporary removal of employees because of deficit of inputs which are related to productivity, breakdown of machinery, or as an effect of a natural calamity [see S. 25C and 25M of ID Act; see also S. 12, Sch. I, Industrial Employment (Standing Orders) Central Rules, 1946]. Thus, the current pandemic may be considered as a “natural calamity” and is a valid reason for layoffs. Employees may be reinstated when things improve. During this period of layoff, employers have to pay only 50% of the wages of the employee.
Retrenchment: Permanent layoff is called retrenchment. Retrenchments would be highly discouraged in these times of unprecedented hardships and should not be resorted to except as a matter of last resort. After giving due notice to the employee and obtaining consent of the appropriate government, an employer may retrench an employee [See S. 25F of ID Act].
Persons covered by the Government Order: Firstly, the Government Order issued by the Ministry of Home Affairs dated March 29, 2020 is only applicable for the period of the lockdown. Secondly, the Order applies only to “workers” and not all employees. Section 2(s) of the Industrial Disputes Act, 1947 defines workman as “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.” As per the Payment of Wages Act, 1936, anyone earning more than Rs. 24,000 per month is not a workman.
Therefore, any person not falling under the above definition or earning more than Rs. 24,000 per month is not covered by the MHA’s Order.
Agreements for reduced pay: With employees not falling within the definition of workmen, the employer may attempt to reach mutual agreements of reduced pay to keep the business afloat. Any such terms of reduced pay agreed upon by the employer and employee, if not already part of the employment agreement, will be governed by the provisions of the Indian Contract Act, 1872.
Therefore, during the period of the lockdown, the Government Order dated March 29, 2020 under the Disaster Management Act remains supreme, but once the lockdown ends on April 20, 2020 or March 3, 2020 or until any date which the Government may decide for a particular business, the employers can resort to measures provided for in the Industrial Disputes Act till the period that the situation stabilizes and the business reaches a stage where it can recover the losses and sustain itself.
There is a reason that while the government is imposing obligations upon people, there are also repeated advisories being issued at the level of the state and centre, for businessmen to continue paying their workers.
While times are unpredictable and definitely inducing hardship upon businesses, the lockdown has led to a situation where people are encouraged to stock up (but not hoard) essentials and not repeatedly visit shops and other crowded places where they could potentially expose themselves to the novel corona virus. In such a situation, there is a greater need than ever that workers be given their full salaries regularly, so that they can survive the pandemic and provide adequately for those dependent on them.
Even though there exists a mandate to pay all workers, it is understood that the hardships currently being faced by businesses are all unforeseen, and very severe.
Nonetheless, as responsible citizens, it is ideal that businessmen at least ensure that their neediest workers are not denied pay, and are able to sustain themselves.
There are a few alternatives that could ease the situation for businessmen.
One option is to compensate with future work. Many businesses and corporates are considering making their holidays during the rest of the year working. This option poses several other challenges though, since an economic slowdown is inevitable, and business may not pick up in the coming year. Mainly however, employers are within their capacity to demand extra days of work in the future without increased pay.
Another alternative is voluntary pay-cuts. Senior and settled employees who are comfortably placed in large businesses and corporates can consider volunteering to take pay cuts during the crisis if they are capable of managing without the pay during this period. Such efforts on the part of employees can greatly ease the burden on the businesses, as salaries of senior employees are some of the biggest expenses incurred by these businesses.
Therefore, businesses must engage with their employees and try to come to an agreement using the above methods. An inclusive approach with contributions and efforts from both side is likely to be more sustainable.
The Indian government was quick to respond and wise in taking the threat of COVID-19 seriously. A timely lockdown, though not able to flatten the curve yet, ensured that cases rose in a relatively controlled manner which the state has been able to attend to thus far.
Nearly all of the state’s funds and resources are currently being directed towards medical supplies and infrastructure to handle the pandemic. Countries across the world have dealt differently with the unemployment or lack of income facing its citizens in times of lockdown. Towards the end of March, the United States government announced a $1200 bailout to most Americans, small industry loans, and help to hard-hit industries. In early April, France announced a £4 billion grant for start-ups and small businesses in wake of the COVID-19 crisis. Other badly hit European nations, including Italy, also announced grants for the self-employed and wage-compensation funds, to cushion the economic impact of the crisis.
It will not be fair to expect similar dole outs from the Indian government, keeping in mind the developing economy and large population to be provided for. Nonetheless, the state can still make grants to small businesses and selectively provide support to extremely poor households. While the central government in India has been funding research and releasing funds to states for the overall support to fight the present extraordinary situation.
It does appear that if such a situation continues the central and state governments would take up the larger call as how to provide the best possible bailouts to the most affected sectors, otherwise, several businesses may be unable to sustain themselves through the course of this pandemic.
By Shiv Mangal Sharma
Advocate Supreme Court