Sarthak Advocates & Solicitors | View firm profile
Authored by Abhishek Tripathi & Rajat Kumar
The near halting of economic activities in the aftermath of Covid-19 has put a severe strain on employer-employee relations. The central and state governments have issued several directions, orders and advisories to employers (state and private) directing them to provide security of employment and wages to its workforce. It is easy to gauge the humanitarian crisis that may follow if wages are not paid and employees are terminated. However, the flip side of the coin is that businesses need to ensure their survival beyond the pandemic. These are unprecedented times and this is a rare instance, when governments have interfered so freely with the contractual rights of parties.
Following on our series of articles on various aspects of the Covid-19 crisis, which may be found here, here, here, here and here, this article takes a look at the impact of Covid-19 on employment relations, particularly in view of various government advisories and directions.
Government Advisories/ Orders on Covid-19
The governments, both at the central and state levels, have issued multiple directions and advisories against termination of employment, and for protection of wages during the times of the Covid-19 crisis. Many of these advisories and directions went beyond the classic domain of protecting the workmen and casual workers and applied to even, blue- and white-collar employees. In many cases, the directions and advisories have been backed with specific statutory provisions, and in many others, they are appeals to the conscience of the employers. These directions/ advisories have opened up a Pandora’s box as questions arise as to the power of the state/ central government to frame such directions, the binding effect of such directions/ advisories and the penal consequences that may flow from the breach thereof. After all, it is on this basis only that employers would assess if they are required to follow the directions and advisories as they are being issued.
Epidemic Diseases Act, 1897
A colonial era legislation, Epidemic Diseases Act, 1897 (“Epidemics Act”) has come to the aid of various state governments as they struggle to manage the impact of the ‘novel’ corona virus. Section 2 of the Epidemics Act confers wide powers on the state governments to make regulations and to issue orders to prevent outbreak or spread of epidemic diseases. As long as state governments are able to justify that a regulation may aid in prevention or the spread of the epidemic, such regulations and orders may hold good. Most state governments, such as Delhi, Haryana, Maharashtra, Karnataka, Telangana, Uttarakhand, and Uttar Pradesh, have already promulgated regulations under the Epidemics Act. Many of these regulations[i] mandate that the advisories issued by the Government of India on Covid-19 shall be considered as directions under the Epidemics Act, and hence shall be binding.
The regulations, orders and directions issued by several state governments, (a) restrain employers from terminating the employment of their employees and other workers, (b) direct employers to grant paid leaves to their employees during the period of the lock-down, and (c) direct employers to grant paid leaves to employees suffering from Corona virus. For example, an order issued by the Government of Delhi on March 22, 2020, directed that the employees, including temporary, contractual and outsourced, of all private establishments shall be treated to be on duty, and shall be paid full wages. Uttar Pradesh Government’s regulations under the Epidemics Act too contain a similar provision. Through an advisory Haryana[ii] too advised the establishments not to terminate the employment of employees and workers, and not to deduct wages.
The effect of the regulations, orders and directions issued under Epidemics Act is that where such directions as to non-termination of employment, payment of full wages or paid leave to employees are not complied with, the establishments may be liable to be prosecuted under Section 188 of the Indian Penal Code (“IPC”) read with Section 3 of the Epidemics Act. Section 188 of the IPC provides for both imprisonment and fine.
Ministry of Labour’s advisory
The Ministry of Labour and Employment, issued an advisory on March 20, 2020, advising employers, both public and private, not to terminate the employment of their employees, particularly casual or contractual workers from the job or reduce their wages. It further added that if workers take leave or if the establishment is non-operational, the employee shall be considered to be on duty and paid full wages. This has also been followed by a similar request by the Hon’ble Prime Minister on his address to the nation on April 14, 2020.
The language of this advisory did not contain any directive and therefore, may have been construed as advisory and nothing more[iii]. However, the Supreme Court in the case of Alakh Alok Srivastava vs UOI, issued an order on March 31, 2020, holding that advisories issued by public authorities are in the nature of order made by a public authority, violation of which would be considered as an offence under Section 188 of the IPC. On a fine reading of the SC’s order, one may be able to limit its applicability to orders issued under Disaster Management Act, 2005, however, the SC order offers enough scope for public authorities to take the view that all advisories issued under Covid-19 crisis have a binding character. This view may also be buttressed by specific regulations and orders in the states, where advisories issued by Central Government have been given a binding character under Epidemics Act.
It is unclear from the Ministry of Labour’s advisory if it applies only during the lockdown or thereafter. Since the advisory was issued before the announcement of the lockdown, it can be argued that it is not limited to only the lockdown period but may extend beyond the same. However, more clarity may emerge in days to come.
Disaster Management Act, 2005
The Central Government has taken a slew of measures under the Disaster Management Act, 2005 (“DMA”). With a view to prevent migration of workers in India, On March 29, 2020, Government of India, issued an order under the DMA, directing all the employers, be it in the industry or in the shops and commercial establishments, to make payment of wages of their workers, at their work places, on the due date, without any deduction, for the period their establishment are under closure during the lockdown period. While the circular did not specify, on the face of it and given the context of its application the order appeared to apply to workers, which is a term defined under the Code of Wages Act, 2019. The definition of workers under the Code of Wages Act, 2019 excludes persons employed in managerial and administrative or supervisory capacity[iv]. There are indications, however, that the field officers on the ground are reading the MHA’s order together with the earlier advisory of the Ministry of Labour, on March 20, 2020 to apply it for all employees, including workers.
Reliefs on Employee Provident Fund
With a view to aid medium and small enterprises largely employing low wage workforce, the Government announced on March 28, 2020, that it will pay the employee provident fund contribution (12% each) of both the employers and the employees for the months of March, April and May, 2020. This benefit was extended only to establishments that employ upto 100 employees, 90% of whom earn wages below Rs. 15,000/- per month. Employees’ Provident Funds Scheme, 1952 was also amended to allow employees to withdraw upto 75% of the amounts to their credit in their employee provident fund account, subject to a maximum of three months’ basic wages and dearness allowance. The employers will need to file the electronic challan-cum-return to claim the benefit.
A quick summary of various advisories, regulations and directions indicates that the employers should not terminate the services of their workforce or reduce their wages during the lockdown. Whether the advisory must be followed even after the lockdown is lifted will have to be assessed on state to state basis, depending on the directions issued by state governments.
Even after the lockdown is lifted, employers are advised to consider the provisions of applicable laws before making any decision to terminate or retrench any employees or workman. Ordinarily, termination of employment of an employee (not being a workman) would have to follow the terms of the contract, provided that the notice period should not be less than the period prescribed in the state shops and establishment laws. Retrenchment of workmen (as distinct from employees) will require the employers not only to give notice of retrenchment to the employee and the government[v], but the employers will also be obligated to pay retrenchment compensation. Similarly, subject to the employment contracts, wage reduction for employees (other than workmen) will also require the consent of the employees. For workmen, additional requirements will have to be complied with under the IDA.
Establishments whose sources of revenue have suffered due to Covid-19 may be hard pressed to continue paying the wages of their or keep the entire work force employees, when there is little business. At this point in time, not only is there a health crisis unfolding in this country, but also an economic one. With more and more employers being asked to foot a wage bill despite weakening of demand and revenue flows, the question arises whether small, medium and micro businesses would be able to remain afloat with these costs? The solution lies in perhaps the government stepping in to either foot the wage bills or provide financial assistance to establishments to enable them to remain out of the red.
To help establishments answer their questions regarding the issues covered above, we have compiled an FAQ. Please note that the FAQ is not fact specific and should not be construed as a substitute for considered legal advice.
[ii] While this advisory does not mention that it has been issued under the Epidemics Act, considering that Haryana has invoked Epidemics Act, it can be argued that the advisory constitutes a direction under Epidemics Act too.
[iv] For workers engaged in supervisory capacity, only workers drawing salary in excess of Rs. 15,000 per month have been excluded.
[v] Prior approval of the Government will be required for industrial establishments employing more than 100 workmen.