Legal obligations to pay wages during a lockdown

Do the directions issued by the government to employers to pay wages to all workmen come within the framework of the Disaster Management Act and Epidemic Diseases Act or are these backed by a statutory law?

We compile the information for the benefit of readers. Jeetender Gupta, Advocate-On-Record, the Supreme Court of India and Anand Gopalan, Partner, TS Gopalan and Co shed some light on the important issue.

Recently, the Government of India and State governments have called upon employers to pay wages for the lockdown period not only to the permanent workmen of an industrial establishment but also to contractual workmen and inter-State migrant workers. On humanitarian grounds, there can be no two opinions about the need to pay wages to employees.

The Central Government, invoking the provisions of the Disaster Management Act 2005 (DMA, 2005) has declared a lockdown until April 14. The State Governments invoking the provisions of Epidemic Diseases Act, 1897 (EDA) have framed certain regulations and have issued certain directions/guidelines/communications.

Legal provisions

The Disaster Management Act, 2005 was enacted for setting up the National Disaster Management Authority and State Disaster Management Authority respectively and to have a unified command over disaster management. The powers of the National Executive Committee and the State Executive Committee have been listed in the Act. A reading of the provisions of the Act would show that powers have not been vested with either the State or the Central Government to direct private employers to pay wages during a disaster despite the employees not working. The scope of the Act empowers committees to frame plans to meet disasters.  The Epidemic Diseases Act was enacted in 1897 to stop the spread of bubonic plague in then Bombay (now Mumbai) . The objective of the Act is to prevent the spread of epidemic diseases.

Under the Act both the Central and the State governments have the powers to take measures in order to control the epidemic. Section 2 of the Act, confers States with the following special powers: To take “measures and, by public notice, prescribe such temporary regulations to be observed by the public or by any person or class of persons as it shall deem necessary to prevent the outbreak of such disease or the spread thereof, and may determine in what manner and by whom any expenses incurred (including compensation if any) shall be defrayed.”  The substantial part of the Act is Section 2 and it only enables the government to prescribe measures to prevent the outbreak of such disease or the spread thereof. The same certainly does clothe the government with a power to direct a private employer to pay wages.

Lay-offs

In common law, an employer could lay off employees without payment of wages. To remedy such a situation, provisions were introduced in the Industrial Disputes Act, for payment of compensation in the event of a lay-off. The legislature in its wisdom introduced a term called “lay off” under the ID Act and mandated payment of compensation in certain circumstances and prohibited lay off in certain circumstances.

Section 2 (kkk) defines the term “Lay off”. As per the definition, if an employer is unable to provide employment to an employee due to a natural calamity or for any other connected reason, then the same would fall within the definition of “Lay off”. Section 25C of the ID Act mandates employers laying off workmen to pay a compensation equivalent to 50 per cent of the wages. Section 25M of the ID Act requires an industrial establishment with more than 100 workmen to seek prior permission. However, such permission is not mandated if the lay-off is due to a natural calamity.

Lay off compensation

The Industrial Disputes Act 1947 is a Special Law which mandates payment of lay-off compensation in the event of a natural calamity or other connected reasons.

The liability in this Special Law which is specific has restricted the payment of 50 per cent of wages as compensation. Being so the various directions/circulars/communications of the government can at best be advisory and not mandatory. The government would need to appreciate this legal position.

Further, the direction issued by the government to pay full wages is a bonanza to employees, not merely because they earn it without having to work. The directions of the government have in fact resulted in the employees taking home more wages/salary than they normally would earn. The example demonstrates as to how an employee who does not contribute to the country’s economy or to his employer earns more than he would earn normally.

Global examples

Considering the burden of lockdown would have on industries, governments across the globe have taken measures to aid the employers. Denmark has announced that it will cover 75 per cent of wage bills. Canada has implemented a wage subsidy scheme. England has provided for 80 per cent of average earnings to be subsidised. Malaysia is providing a wage subsidy of RM 600/month for three months for employees earning less than RM 4,000. Australia has framed a “Jobkeeper” wage subsidy plan. The Netherlands allocated a package covering compensation of up to 90 per cent of labour costs for companies expecting a reduction in revenues of 20 per cent or more, while New Zealand is to pay a lumpsum 12-week wage subsidy to support employers severely affected by the impact of Covid-19 (NZ$9.3 billion)

Way forward: What Govt should do?

The Indian Government would need to come up with a scheme to subsidise employers towards the wages paid during the lockdown. The scheme can be linked to profits earned by the industrial establishment and the wage bill for a month. In the absence of such a scheme, private employers especially small and medium industries will be put through hardships that could even bankrupt them

The government while drawing a stimulus or revival plan for the economy should certainly consider subsiding the wage cost for the lockdown period, if not in entirety, at least in part. If for any reason the government decides to extend the lockdown it should bear the wage burden and should not give any advisory for payment of full wages given it lacks the authority to do so.

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Frequently asked questions:

Whether an employer is liable to pay wages for the period of lockdown due to COVID-19?

The Home Secretary, Ministry of Home Affairs, Government of India vide Order dated 29.03.2020 (Ref: 40-3/2020-DM-I(A), directed the State / UT Authorities to take necessary action and to issue necessary orders to their District Administration / Police Authorities to ensure that all the employers, be it in the industry or in the shops and commercial establishments, shall make payment of wages to their workers, at their work place on the due date, without any deduction for the period their establishments are under closure during the lock down. In addition, Ministry of Labour & Employment, Government of India vide its letter dated 20.03.2020 has advised all the employers of Public / Private Establishments not to terminate 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 employment is made non-operational due to COVID-19, the employees of such unit will be deemed to be on duty. In some states such as Haryana, the Director, Industries of Commerce, Haryana vide advisory dated 27.03.2020 has advised all the industrial and commercial establishments to transfer salaries to their employees.

Whether the order dated 29.03.2020 by Ministry of Home Affairs is a binding direction or or advisory? If binding, under which legal provision?

Since the Order dated 29.03.2020 has been issued by the Home Secretary, Ministry of Home Affairs, Government of India while exercising the power conferred under Section 10(2)(l) of Disaster Management Act 2015 (“DMA”) acting in the capacity as Chairperson, National Executive Committee, it is binding upon all concerned. Section 10(2)(l) of DMA empowers National Executive Committee to give directions to, the concerned Ministries or Departments of the Government of India, the State Governments and the State Authorities regarding measures to be taken by them in response to any threatening disaster situation or disaster. Section 51 of DMA prescribes Punishment for obstruction, etc. against whoever, without reasonable cause refuses to comply with any such direction. As per Section 71 of DMA No court (except the Supreme Court or a High Court) shall have jurisdiction to entertain any suit or proceeding in respect of any such direction. And in terms of Section 72 of DMA, the Act shall have overriding effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Till such time the above order by Ministry of Home Affairs is not modified or set aside by a competent court i.e. High Court / Supreme Court, the said order is binding and remains in force.

What is the scope of “workers” for the purpose of payment of wages?

Based on various advisories and orders issued by Central Government / State Governments, the scope of payment of wages shall extend to regular, casual & contractual workers. “Workman” as defined under the Industrial Disputes Act 1947 will broadly include 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, but excludes those employed mainly in a managerial or administrative capacity. Also excludes those employed in a supervisory capacity & draws wages exceeding Ten thousand Rupees per mensem or exercises. The Code on Wages Act, 2019 gained presidential assent on August 08, 2019. However, the Government is yet to notify the effective date of the Code coming into force. Under the Code of Wages 2019 sales promotion employees as defined in clause (d) of section 2 of the Sales Promotion Employees (Conditions of Service) Act, 1976 are also included. However, the Code excludes Apprentice as defined under clause (aa) of section 2 of the Apprentices Act, 1961 and also excludes a person employed in a supervisory capacity drawing wage of exceeding fifteen thousand rupees per month or an amount as may be notified by the Central Government from time to time.

What is the scope of “wages” for the purpose of payment to workers?

As per the definition of “wages” under the Industrial Disputes Act 1947, “wages” means all remuneration capable of being expressed in terms of money, which would, if the terms of employment, expressed or implied, were fulfilled, be payable to a workman in respect of his employment or of work done in such employment, and includes dearness allowance; value of any house accommodation, or of supply of light, water, medical attendance or other amenity or of any service or of any concessional supply of food-grains or other articles; any travelling concession; any commission payable on the promotion of sales or business or both; but does not include any bonus; any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the workman under any law for the time being in force; any gratuity payable on the termination of his service; Under the Code of Wages 2019, wages include basic pay, dearness allowance and retaining allowance only and excludes any bonus, the value of any house-accommodation, any contribution paid by the employer to any pension or provident fund, any conveyance allowance or the value of any travelling concession; house rent allowance; any award or settlement by court/tribunal; special expenses, overtime allowance; commission, gratuity, retrenchment compensation etc.

By what date the wages are required to be paid?

As per the MHA order, the wages are to be paid on the due date. The due date shall be as prevalent for specific establishment and in any case by 7th/10th day of subsequent month for
establishment employing less than/ more than 1000 employees respectively as prescribed under The Payment of Wages Act 1936.

Can the salaries be reduced or deducted?

As per the MHA order, the wages are to be paid on the due date without any deduction.

Can the employees be asked to utilize their accrued  annual/privilege leave for absence during lockdown period?

It can only be done with the consent of workers. The employees can be encouraged to utilize their accrued annual/privilege. Availing leave is an employee’s prerogative and the employers cannot compel them to adjust accrued annual leave.

Can the employees of industry exempted from lockdown period such as essential services provider refuse to join work?

As long as the industry is maintaining the required standards of safety and health, the workers of such exempted industry is required to join work.

Can the employees of essential products industry etc. exempted from lockdown period refuse to join work?

As long as the industry is maintaining the required standards of safety and health, the workers of such exempted industry is required to join work.

Can the employees be laid-off, terminated or retrenched?

Presently, the various advisories are against termination or retrenchment of employees. “Lay-off” as per Industrial Disputes Act 1947 includes failure or inability of an employer on account of natural calamity or for any other connected reason to give employment to a workman. However, due process of law needs to be followed and should be considered as last resort.