These are extraordinary times. People are unsure as to when pandemic created by the novel coronavirus (Covid-19) would cease and the normalcy would return. With the vast majority of the labour force having returned to their homes, most factories across the country have either suspended operations or operating significantly below their stated capacity. The economic burden will be staggering and establishments shall have to take a relook at their wage cost. The present FAQs is an attempt to explain the extant labour specific laws in a simple manner to the countless employers, who are searching for solutions for various issues.
Please note that FAQ has been prepared for general information purpose only and nothing in this FAQ should be treated as a legal advice. Needless to mention that any decision to lay-off or retrench will naturally be weighed against social and political issues apart from the impact on the reputation of the employer/group.
1. Is it true that the Government has prohibited termination of employment during the lockdown period? What happens if one contravenes such directive?
The Ministry of Labour & Employment on March 20, 2020 (DO No. M-11011/08/2020-Media) ("March 20 Circular"), has issued the following advisory:
In the backdrop of such challenging situation, all the Employers of Public/Private Establishments may be advised to extend their cooperation (sic) by not terminating their employees, particularly, casual or contractual workers from job or reduce their wages. If any worker takes leave, he should be deemed to be on duty without any consequential deduction in wages for this period. Further, if the place of the employment is to be made non-operational due to COVID-19, the employees of such unit will be deemed to be on duty. (emphasis supplied)
The aforesaid March 20 Circular has been taken note of by the Chief Labour Commissioner in his communication bearing no. CLC(C)/Covid-19/Instructions/LS-1 dated March 30, 2020, directing appropriate authority to take up the issue of loss of employment and non-payment of wages to the workers. Certain States, like Maharashtra, have also adopted the contents of the March 20 Circular.
Apart from the aforesaid directives/ circulars, we have not come across any other orders where specific direction has been given to not to terminate the existing employment arrangements. For instance, the circular bearing number 40-3/2020-DM-I(A) issued on March 29, 2020 by Ministry of Home Affairs ("MHA Circular") under Section 10(2)(l) of the Disaster Management Act, 2005 ("DM Act"), restricted itself in stipulating the obligation to make payment of wages, without any deduction, to the workers.
As per our observation, the language of the March 20 Circular suggests that the same to be merely advisory in nature and whilst the objective is laudable, it may be argued that the directive does not have authority to curtail the employer's right to terminate employment arrangement.
2. If the directives issued by the Government, directing employers to not to terminate employees is merely advisory in nature, what about the directives directing employers to not to deduct wages during this period? Can one ignore such directions and refuse to pay salary to the employees basis no work no pay principle?
Whilst the March 20 Circular advocated the need to protect the wages of the employees, the subsequently issued MHA Circular inter alia directed the following:
All the employers, be it in the industry or in the shops and commercial establishments, shall make payment of wages of their workers, at their workplaces, on the due date, without any deduction, for the period their establishments are under closure during the lockdown. (emphasis supplied)
We note that the MHA Circular was issued in exercise of powers conferred under the provisions of DM Act. Notably, in terms of Section 51(b) of DM Act, refusal to comply with any direction given in pursuant to the DM Act is a punishable offence and hence, non compliance of the same would attract penal consequences.
In any case, as per settled judicial precedents, the principle of no work no pay has no application where the employee/workman is kept away from duty or is prevented or rendered ineligible to discharge duties. In fact, in one of the cases, the Madras High Court (1999) had noted that where the workmen were prevented from attending the duty due to bus strike, the employer was not entitled to deduct wages on the basis of no work no pay principle.
Such obligation to pay, however, in our view, would have to be read subject to statutory rights available to an employer in the nature of lay-off of workmen, where the employer becomes entitled to pay a reduced rate of compensation, subject to compliance with certain conditions.
3. Considering that reliance on no work no pay principle is not possible in the instant case, what are the options that an employer may take to tide over the financial crisis?
Any option, which involves mutual consultation and discussion with the employees, would be a preferred option. Accordingly, any settlement arrangement that an employer can reach with its employees/workmen may offer most amicable and acceptable solution. However, in view of the prevailing situation, the settlement may not amount to one arrived in the course of conciliation proceeding and hence, its ability to bind non-signatories would not be free from doubt.
The other alternative options that an employer may consider vis-à-vis its workmen are as follows:
- Lay-off: This is an option entitling the employer to pay eligible workmen only 50% (fifty percentage) of one's basic wages and dearness allowance during the period a workman is laid-off, without severing the master-servant relationship;
- Retrenchment: This implies complete severance of master-servant relationship and is intended to be used as a rationalisation tool;
- Closure: Where the circumstance does not justify continuance of the operation, the employer may also consider permanent closure of the place of employment or part thereof.
Needless to say, all these options would have their own respective social, political and reputational ramifications and consideration of all those issues would have an impact on selection of a specific option.
4. Are these options available vis-à-vis all the persons employed or only certain category of people?
The options discussed in the previous question emanate from Industrial Disputes Act, 1947 ("ID Act") which governs the relationship between an employer and a workman. Consequently, if an employed person does not answer the description of a workman, the options are not applicable vis-à-vis such person.
5. But how do I identify if an employee is a workman or not?
One may refer to the definition of workman appearing in Section 2(s) of ID Act, where the expression has been defined to include any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work, but does not include certain categories of person, which inter alia includes persons
- who is employed mainly in a managerial or administrative capacity; or
- who, being employed in a supervisory capacity, draws wages exceeding ten thousand rupees 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.
6. Would an employer be right to assume then that any person who is not employed mainly in a managerial or administrative capacity or a supervisory capacity drawing wages exceeding a stipulated limit would qualify as a workman?
Not really. The status of a workman is not dependent upon whether you fall outside the excluded category, but whether you discharge such nature of work which is manual, unskilled, skilled, technical, operational, clerical or supervisory in nature. Until and unless the nature of work discharged by a person falls under the categories mentioned herein above, such person would not qualify as workman. For instance, a law clerk would not qualify as a workman, as his work would involve mastery of specialised knowledge. Same is the case with respect to a doctor or a teacher.
7. Slightly confusing. You had mentioned in Question 5 that supervisors fall outside the ambit of workman. But in your previous response you noted that nature of activities that one may need to discharge also may include activities which are supervisory in nature. How do you reconcile the contradiction?
Simple. You check whether the person discharging supervisory work is earning wages exceeding ten thousand rupees per month or not. If the wages being earned are less than the ceiling limit, he would be a workman.
8. Would that imply that a workman, who discharges manual, unskilled, skilled, technical, operational or clerical work and draws wages in excess of ten thousand rupees per month would also be excluded from being treated as workman?
This is a common and widespread misconception. The wage ceiling specified is applicable only vis-à-vis a person discharging supervisory work and not any other activities. In other words, just because a person is drawing wages in excess of ten thousand rupees per month would not take him outside the ambit of workman, if the other criteria are fulfilled.
9. If an employer has a few employees who discharge both supervisory function as well as some clerical functions, how would such employees be catergorised?
You have to see what is the dominant part of the work being discharged by such employee. If the dominant activity is manual, unskilled, skilled, technical, operational or clerical in nature, such employee would qualify as a workman.
10. What about those employees who have been engaged through various contractors engaged in the establishment? For instance, they are treated as employees for the purpose of certain legislations, such as EPF Act and ESI Act. Would they also be treated as workman if they satisfy the criteria you mentioned above?
No. a contract labour, engaged through a contractor, would not be a workman for the purpose of ID Act. Situation would be different, if any specific state amends the definition to include such contract labourers to also within the ambit of workmen, as State of Rajasthan had done.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
