Outbreak of the ‘Novel Coronavirus’ giving rise to a disease called ‘Covid-19’ (“Covid-19”) has led to a complete disruption of activities globally. It has been declared as a ‘pandemic’ by the World Health Organization (WHO) and countries have been observing a ‘lockdown’ to combat it. While the repercussions of the pandemic and the lockdown are multifold and will be visible in the days to come, on the face of it, this situation has raised multiple concerns for employers, particularly in the private sector. With operations having come to a halt, companies have been forced to take steps to reduce the negative impact of the pandemic. These steps include, inter alia, termination of employment or withholding/deduction of wages/salaries. Almost every sector is grappled with the issue of liquidity and therefore, these steps have become imminent.
On 24th March, 2020 1, the Central Government invoked the Disaster Management Act, 2005 (“DMAct”) and imposed an initial 21-day nation-wide lockdown. Subsequently, the Ministry of Home Affairs (“MHA”) issued guidelines 2 to the Ministries/Departments of Government of India (“GoI”), State and Union Territory Governments and Authorities under Section 10 (2) (l) of the Act inter alia calling for closure of all commercial and private establishments, industrial establishments, transport services, hospitality services, educational institutions, etc. with the exemption of essential services. The lockdown has now been extended until 17th May 2020. Realizing the issues that would surface amidst the lockdown and a complete break on all economic activity (barring essential activities), the Ministry of Labour& Employment, Government of India (“GoI”) to issue an advisory on 20th March, 2020 3 to the All Employers Association- not to terminate the services of their employees, particularly casual or contractual workers from jobs or reduce their wages as it would further deepen the crisis and not only weaken the financial condition of the employees but also hamper their morale to combat the pandemic. It also went on to state that if any workers take leave or the place of employment is made non-operational due to Covid-19, the employees should be deemed to be on duty without any consequential deduction in wages for this period. It is important to quote the relevant extract from the said advisory as under:
The fear of the migrant workers that they would not be able to survive such a lockdown without wages, initially led to a panic exodus of migrant workers to their native place in some parts of the country in violation of the lockdown guidelines. The MHA took note of the situation and with a view to mitigate the economic hardship being faced by the migrant workers issued Orders to take certain additional measures vide Order dated 29th March, 2020 4. Notably, clause iii of the said order stated “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 work places, on the due date, without any deduction, for the period their establishments are under closure during the lockdown;”(“MHA Order”).
The MHA Order implies that all employers are required to pay salaries/wages to their workers/ employees during the period their establishments remains closed during the lockdown. The Maharashtra Government subsequently issued an Order dated 31st March, 2020 5 under Section 24 of the Disaster Management Act, 2005 whereby employers to pay complete salaries and allowances to all contractual, outsourced, temporary and daily wage employees/ workers during the period of lockdown.Similarly, several other State Governments of India- Rajasthan, Punjab, Telangana, etc.issued orders akin to the MHA Order,advising payment of full wages to the employees during the period of lockdown.
The scheme of labor laws in India contains multiple statutes such as the Factories Act, 1948, Payment of Wages Act, 1936, the Contract Labour (Regulation and Abolition) act, 1970 etc. The Industrial Disputes Act, 1947 (“IDA”) was enacted for ‘investigation and settlement of industrial disputes’. Section 2(s) of the IDA defines a ‘workman’ as:
Certain exceptions have been provided to the definition of ‘workman’, including inter alia, a person who is employed mainly in a managerial or administrative capacity and if the wages of such person exceed INR 10,000/- (Rupees Ten Thousand Only).
Services of such persons (covered under the exceptions to the definition of workmen) are governed by the respective service rules (if they are government employees) or by their contracts of employment (if they are private employees). For the purposes of present situation of COVID-19, and the steps contemplated by employers as discussed above, Section 25M of the Section 25M of the IDA is relevant. It reads as under:
The Disaster Management Act, 2005 and Epidemic Diseases Act 1897
In Swaraj Abhiyan (I) v. Union of India 6, the Supreme Court observed that the object of DM Act is not only to draw up, monitor and implement disaster management plans but also prevent and mitigate the effects of a disaster. It defines ‘disaster management’ under Section 2(d) as a continuous and integrated process of planning organizing, coordinating and implementing measures necessary or expedient for prevention of danger or threat of any disaster and mitigation or reduction risk of any disaster or its severity or consequences. Section 2(i) of the DM Act defines ‘mitigation’ as meaning measures aimed at reducing the risk, impact or effect of a disaster or threatening disaster situation. Section 35 of the DM Act provides that ‘Subject to the provisions of this Act, the Central Government shall take all such measures as it deems necessary or expedient for the purpose of disaster management.’ Further, Section 35(i) of the DM Act stipulates such matters as the Central Government deems necessary or expedient for the purpose of securing effective implementation of the provisions of the DM Act. Similarly, a State Government has also been empowered with similar powers under Section 38. The Act does not specifically provide for a mandate under which the Central Government or a State Government can direct employers not to take steps in the nature of laying-off/reduction or deferment of wages. The Government of India has also invoked the Epidemic Diseases Act, 1897 (“ED Act”) wherein, the Central Government or a State Government may take appropriate steps and prescribe regulations as to a dangerous epidemic disease, which also does not contain any provision mandating such steps. Notably, both the DM Act and the ED Act have in-built penal provisions for contravention contained in these acts.
The advisories/notifications in the form of advisories have been issued by the GOI and various State Governments under the DM Act. In view of the scope of the DM Act discussed above, it appears that a mere advisory issued by the Central Government or the State Government would not have a binding effect on employers or mandate them not to terminate their workmen employees.
In Kritika Padode and Anr. v. Union of India &Anr. 7, the Delhi High Court, while deciding the status of an ‘advisory’ issued to private TV channels for not broadcasting a documentary, held that ‘the “advisory” dated 03.03.2015 was a mere advice to private satellite TV channels.” Likewise, in Piyush Ahluwalia v. Union of India 8, the Delhi High Court held that the advisory issued by the Government of India in respect of e-cigarettes would not be binding on State Governments and they would be free to adopt measures to regulate/ban e-cigarettes without relying on such advisory issued by the Government of India.
However, the MHA Order and such orders issued by various state governments are strongly worded, as against the advisories, the legality of which remains to be examined.
In view of Section 25M of the ID Act, employers may take a stand that in case of a ‘natural calamity’, the lay-off 9 of a workman is permissible, since COVID-19 has been declared as a pandemic resulting in a complete lockdown of economic activity, barring a few essential activities.
In Ashok Kumar Jain and Others v. State of Bihar and Others 10, the Supreme Court reversed the Order of the High Court declaring Section 25-M as ultra-vires the constitution and held that the lay-off in question was not motivated or unjustified but was resorted under compulsive circumstances and, therefore, there was no lack of bonafides on part of the company in effecting laying off.
Further, a cohesive reading of the DM Act, the ED Act and the advisories issued by the GOI and various state governments, it may be said that these advisories are not binding, in absence of specific provisions in the DM Act or the ED Act and in view of a specific exception provided in the ID Act. Section 72 of the DM Act provides that 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 (understandably, for better implementation of preventive steps in such situations). However, even if the overriding effect of the DM Act is taken into account, the Act does not mandate employers from taking the steps discussed here, in light of a ‘pandemic’.
As far as ‘skilled’ employees are concerned, as stated above, their employment is governed by the respective service rules (in case of Central/State Government employees) and employment contract (in case of private employees). For government employees, any alteration in their service condition or dismissal from service has to be in conformity with their service rules. In the advisories, it has been stipulated that the period for which the employees remain absent from duty must be counted for the purposes of continuation of services. Government employees, who are terminated de-horse their service rules and without following the proper procedure (such as compliance with the principles of natural justice and conducting a disciplinary enquiry), have the remedy of filing a writ petition.
However, the real challenge lies for the private sector ‘skilled’ employees (other than the ones who fall within the category of a workman as provided in the ID Act), who are engaged through contracts and in a situation like this, find themselves vulnerable. These contracts typically have a clause providing for termination ‘without cause’. In such a situation, they are rendered remediless. While they are entitled to benefits such as maternity leave, payment of gratuity, provident fund etc., termination of services remains and area which requires adequate addressing. Like other contractual remedies, the remedy left with such an employee is to file a suit if such termination has not been in accordance with the contract seeking a declaration that the services have been terminated illegally.
In A.N Shukul vs. Philips India &Ors. 11, the Delhi High Court held that suit seeking damages on account of wrongful termination can be maintained. However, the court went on to state that an onerous clause, entitling an employer to terminate the services of an employee after giving notice in terms of contract or salary in lieu thereof, may not be open for challenge on the ground of being contrary to Section 23 of the Indian Contract Act, 1872 12. This position was subsequently upheld inJuliana Loieu vs. British High Commission, 13 in which the court went on to observe that ‘The last argument that the appellant had a legitimate expectation to know the reason why her services were terminated, is noted and rejected for the reason the Doctrine of Legitimate Expectation is a facet of Article 14 of the Constitution of India and would be available only against the State”.
In Escorts Limited vs. Presiding Officer 14,the workman was appointed on temporary basis for a period of two months. The terms of appointment enabled the employer to terminate the services at any stage without assigning any reason. The Supreme Court held that the termination of service under the said term, even though effected before the expiry of the specified period, did not amount to retrenchment.
An extra-ordinary situation like this is likely to give rise to complex legal issues as well and accordingly, there has been a flow of litigations initiated by employers as well as employees/employee associations in view of the advisories issued by the GoI and various State Governments.
A plea has been filed before the Supreme Court by Nagreeka Exports Limited 15 challenging the constitutional validity of Order dated 29th March, 2020 passed by the MHA and consequent, Order dated 31st March, 2020 passed by the Government of Maharashtra (“GoM”) to the limited extent that it stipulated full payment of salaries during the period of lock-down. The Company submitted that it had to face major losses due to the shutting down of operations and as per the said order, the Company had disbursed full salaries for the entire month of March to all its employees. With the lockdown extended, the losses of the Petitioner would only multiply and if the Company had to observe the impugned Orders in their entirety, the business itself would become unsustainable. It was also pointed out that the State of Maharashtra had itself,in a bid to cut costs and postpone certain expenses during the Covid-19 crisis,decided to pay the salaries of its employees in instalments 16. An Intervention Application has been filed in the said Petition by some of the largest trade unions in Maharashtra contending that the orders passed by the MHA and GoM were appropriate measures meant to safeguard the basic rights and sustenance of the poor workers in the face of severe and apparent social and economic hardships caused by the lockdown.
Another plea has been filed before the Supreme Court by one Ludhiana Hand Tools Association consisting of 41 members assailingOrder dated 29th March, 2020 passed by the MHA to the extent it directed payment of full wages during the entire period of lockdown. A similar petition has been filed, and notice has been issued, in a petition filed by Teknomin Construction Limited from Rajasthan.It has been contented in these petitions that the Central government lacks legislative competence to direct private establishments to make full payment of wages to their workforce and the impugned Order is illegal, arbitrary and violative of Articles 14, 19 (1) (g), 265 and 300A of the Constitution. It was contended that the relationship between an employer and employee is reciprocal whereby the right of an employee to demand salary is reciprocal to the performance of an employee and the employer has a right to not pay if no work is done. Additionally, it is irrational to treat all private establishments alike irrespective of the profit and loss incurred by them or their turnovers. A private establishment suffering loss with huge debts to repay cannot be equated with an establishment earning profits and there is no rationale for treating them alike.
Several other Petitions have since been filed before the Apex Court on the same footing and no interim relief has been granted till date.
Recently, a plea has also beentaken before the Bombay High Court by Align Components Pvt. Ltd. and Anr. 17 against the MHA Order dated 29.03.2020. It was contended that the Petitioners were willing to offer work to the workers and though the workers would be willing to perform, manufacturing activities had been mandated to reduce/shut down in order to restrict the spread of Covid-19. However, no interim relief was granted and the High Court held that it expected the Petitioners to pay the gross monthly wages to the employees, save and except conveyance allowance and food allowance, in the cases of those workers who were not required to report for duties. It was also clarified that in industrial areas where the lockdown was partially lifted by the State of Maharashtra, the employers were at liberty to deduct the wages of employees who voluntarily remained absent for duty. The matter has been posted for further adjudication on 18th May 2020 or on the day the Court holds Court hearing.
On a separate note, on 28th April, 2020 18, the Kerala High Court stayed the operation of a decision of the Government of Kerala to defer the payment of a small portion of the salary of its employees on the ground that there was no legal basis for issuance of such an order under any statue. It was observed that neither the Epidemic Diseases Act as amended by the Ordinance of 2020 nor the Disaster Management Act, 2005 provided any legal justification in support of the decision of the Government of Kerala. On 30th April, 2020, the Government of Kerala promulgated the Kerala Disaster and Public Health Emergency (Special Provisions) Ordinance, 2020 19 to make special provision for the deferment payment of up to 25% of monthly salary of its employees in the event of a disaster and public health emergency.
A Writ Petition was filed before the Kerala High Court challenging the said Ordinance and consequent notifications issued in exercise of the powers vested under the Ordinance as unconstitutional and illegal. It was stated that the ordinance was passed in undue haste to overcome Order dated 28th April, 2020. However, the Kerala High Court vide Order dated 5th May, 2020 20 held that there was legislative competence for the State to promulgate the Ordinance and declined to stay the notifications, deferring the salary to the extent specified therein, issued in exercise of the powers under the Ordinance.
The Supreme Court of India, on 15 May 2020 has granted an interim stay on coercive action against an association of 52 companies in Punjab for failing to comply with the MHA Order, while hearing a batch of Petitions seeking to quash the government notification directing that if workers were not paid, employers could be prosecuted. This interim stay will be in operation till the Central Government files a reply.
While an interim protection has been granted by the Supreme Court, the legality of the MHA Order and consequent Orders passed by the respective State Governments remains to be determined by the Apex Court. While the Orders appear to be a result of compassionate regard towards the plight of the workers during these challenging times, the question which arises for consideration is whether there is any legal/constitutional basis for issuance of these Orders? Further, whether the GoI and state governments respectively, are empowered under the Disaster Management Act, 2005 or any other act or law in force, to mandate employers to make full payment of wages to employees/ workers during the time of lockdown? In view of the above legal position and analysis, this looks difficult, but it would be too early to take a firm stand until the courts decide the issue.
In this context, an interim order of the Aurangabad Bench of the Bombay High Court, passed on 12th May 2020 is relevant. 21 The High Court has directed the District Collector, Osmanabad to ensure that full wages, save and except food allowance and conveyance allowance (only with regard to the employees who are not required to report for duties, shall be disbursed by the contractors to the concerned employees for the months of March April and May 2020 and the principle of ‘no work – no wages’ shall not be invoked until further orders. However, the Supreme Court’s interim order referred above is likely to have a direct bearing on this matter as well since the same issue is involved.
The present situation is unprecedented and complex. In view of COVID-19, the country is witnessing a mass exodus of migrant labourers working in various parts of the country to their respective native places. This has resulted in several deaths on account of lack of travel, food and healthcare facilities. The Central Government has itself decided to defer the payment of dearness allowance and dearness relief to its employees till July 2021 22. Several State Governments have also decided to either defer payment of wages to their employees and/or pay the same in instalments. This raises a pertinent question;when the Central and the State Governments have taken a conscious decision in respect of making partial payment of wages/ salary to their employees, expecting employers of private establishments to do so by stretching themselves amidst serious cash crunch is expecting a bit too much from them and such establishments require support from the governments.
Moreover, the legal position under the ID Act, DM Act and ED Act is likely to make it tough for the workmen/employees since the advisories discussed here may not have a legally binding effect ultimately. Therefore, a balanced approach is required to address the problems of the industry as well as workmen/employees. For instance, since the announcement of lockdown, the sales in the auto industry have become ‘zero’. From an already reeling industry, if it is expected that it abides by the advisories issued by the government, it would be practically asking the industry to shut down.
Even as the labourers continue to suffer, certain states have recently taken steps to ‘reform’ labour laws, in view of the pandemic. In the state of Uttar Pradesh, all labour laws have been ‘suspended’ for the time being. While it may ease compliance issues as far as the employers are concerned, it also takes away compliance to something like the Minimum Wages Act, 1948 and other protections/social security legislations available to workmen and employees. This will lead to a general dip in the wage rate and will render most sectors as practically ‘unorganised’.
Notably, the Central Government, by way of the Salary, Allowances And Pension of Members of Parliament (Amendment) Ordinance, 2020 has taken steps to reduce the salaries, allowances and pensions of the Members of Parliament (MPs) by Thirty (30) per cent for a period of one year in an attempt to combat the present crisis.
Countries all over the world have responded with massive stimulus programs in order to soften the effects of Covid-19 pandemic 23- USA has passed a $ 2.3 trillion Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) to provide fast and direct economic assistance for American workers and families, small businesses and preserve jobs for American industries. Germany has adopted a supplementary budget of €156 billion which includes expanded access to short term work subsidy to preserve jobs and workers incomes and grants to small business owners and self-employed persons severely affected by the Covid-19 outbreak in addition to interest-free tax deferrals until year-end. China has announced RMB 2.6 trillion of fiscal measures which include accelerated disbursement of unemployment insurance and extension to migrant workers, tax relief and waived social security.
On 12th May 2020, the GoI has announced an economic package of 20 lac crores, which is around 10% of the total GDP of the country, which is expected to give relief to local manufacturing amongst other reliefs, details of which are awaited. This package has been announced with a view to give relief to unskilled labourers, cottage industry and MSMEs. The effectiveness of this step remains to be seen. Having regard to the steps taken thus far, what is required at the moment is the government providing a wage subsidy or financial assistance to employers in the form of allocating a certain percentage of the GDP towards the wage burden. The government also needs to do enough to address the issue of migrant labourers and their exodus by taking appropriate steps.