THE LOCKDOWN WAGES CONUNDRUM

By: Sanjeev Jain and Apoorva Agrawal.

1.             INTRODUCTION

1.1.        The Government of India and various employers’ associations have been at loggerheads with regard to the payment of wages to its employees during the period of lockdown in light of the COVID-19 pandemic. The employers’ associations have taken a stand before the Supreme Court of India that such mandatory imposition of liability of making payment to its employees is arbitrary and unconstitutional. On the other hand, the employees through various trade unions have defended the Government of India’s decision on humanitarian grounds. The matter is pending before the Supreme Court and has been reserved for final adjudication.

1.2.        The Ministry of Home Affairs (“MHA”), Government of India (“GoI”) had issued an Order dated 24th March 2020 under Section 6(2)(i) of the Disaster Management Act, 2005 (“DM Act”) for the strict implementation of 21 days national lockdown in light of the COVID-19 pandemic (“Lockdown Order”). The national lockdown has been extended (with certain relaxations) till 30th June 2020 by the GoI.

1.3.        In light of the Lockdown Order, a Government Order No. 40-3/2020-DM-I(A) dated 29th March 2020 issued by the MHA under Section 10(2)(l) of the DM Act (“Order dated 29/03/2020”) restricted the employers (public and private) from terminating the services/ reducing the wages of their workers in the current crisis. The extracts of the relevant clause (iii) of the Order dated 29/03/2020 is as hereinbelow:

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) 

The Order dated 29/03/2020 came in the light of movement of a large number of migrant workers from one State to the other and the adversities faced by them in the current crisis. The genus of the said Order becomes relevant to understand the intention of the GoI that is to protect the class of ‘workers’ which are facing (and may face) hardships at the hands of their employers in these unprecedented times. Also, Order dated 29/03/2020 being issued under the provisions of the DM Act is binding on the employers and any violation as such will attract penal provisions thereunder.

1.4.        As of 18th May 2020, the Order dated 29/03/2020 ceased to have operation in light of the new MHA Order dated 17th May 2020 which extended the national lockdown till 31st May 2020. However, interestingly, the Order dated 29/03/2020 ceased to have effect only from 18th May 2020 and the new MHA order implied that it would be in full effect during the period from 29th March 2020 till 17th May 2020.

1.5.        As mentioned, the validity of the Order dated 29/03/2020 has been challenged before the Supreme Court of India, one of the foremost reasons being the financial incapacity of the employers to pay its employees due to the national lockdown. On 27th April 2020, the Supreme Court had granted the Center a period to two weeks for filing their response to the petitions. It is important to note that the Court had not stayed the Order dated 29/03/2020 and the same continued in full force till 17th May 2020 and any violation of the same during that period would attract penal actions under the DM Act.

In the response filed by the Center, the Center stated that, “financial incapacity is a legally untenable ground to challenge a direction issued by a competent authority in exercise of its statutory power…”. On 04th June 2020, the Supreme Court noted the averments made by the parties and directed them to further file their written response in support of their respective claims. The question of the constitutionality of the Order dated 29/03/2020 during the period from 29th March 2020 till 17th May 2020 still pending to be decided by the Supreme Court, has been reserved for a final order for 12th June 2020.

1.6.        Furthermore, the Bombay High Court in Align Components Pvt. Ltd. and Anr. v. Union of India and Ors. on 30th May 2020 has refused to interfere with the Order dated 29/03/2020 as it is pending for consideration before the Supreme Court. However, the Bombay High Court clarified that in case workers who were not reporting to work voluntarily (at workplaces which are functional), the employer would be at liberty to deduct their wages for their absence subject to the procedures laid down in Law.

2.             BREAKDOWN OF THE MEANING OF ORDER DATED 29/03/2020

2.1.        On the basis of the language contained in the Order dated 29/03/2020, it is seen that the applicability of the said appears to be only in relation to ‘workers’ earning ‘wages’ in any industry/ shops and commercial establishment that are under closure during the national lockdown. Therefore, in other words, establishments such as those dealing with essential goods which have been exempted from the Lockdown Order are not covered under the Order dated 29/03/2020. In this article, we will only deal with those issues which have arisen in industries/ establishments which are under complete/ partial closure or which are unable to pursue its normal business operations, in line with the Lockdown Order.

2.2.        In regard to the above, since words ‘workers’ and ‘wages’ have not been specifically defined in the Order dated 29/03/2020, reliance will have to be placed on the meaning ascribed to them in other relevant statutes. Also, other important terms such as ‘industry’, ‘shops and commercial establishment’ used in the said Order have not been particularly defined therein.

2.3.        Meaning of words ‘wages’ and ‘worker’ / ‘workman’

Payment of Wages Act, 1936

2.3.1.    Pertinently, the Payment of Wages Act, 1936 (“Wages Act”) particularly regulates the payment of ‘wages’[1] of certain classes of employees employed in any factory, railways, industrial or other establishments. Further, the Wages Act is only applicable to those employees to whom the wages that are payable for a wage period does not exceed INR 24,000/- (Rupees Twenty-Four Thousand only) per month.[2] The Wages Act mandates that every employer, or a person designated by the employer, shall be liable for the payment of wages required to be paid under the Act. Therefore, the Wages Act is applicable to only certain classes of employees whose wages are within the prescribed threshold. However, the term ‘worker’ / ‘workman’ has not been defined in the Wages Act.

Industrial Disputes Act, 1947

2.3.2.    Another important labour legislation which deals with the terms ‘wages’ and ‘workers’ in the Industrial Disputes Act, 1947 (“ID Act”). ID Act is the main machinery that regulates the rights of the employees and the employer for investigation and settlement of industrial disputes by negotiations. The ID Act and the Rules framed thereunder, inter alia, regulate important matters relating to change in service conditions, strikes and lock-outs, retrenchment, lay-off, closure, among others.

2.3.3.    ‘Wages’[3] under the provisions of the ID Act means all remuneration capable of being expressed in terms of money which would be payable to a workman in respect of his employment or work done. Hence, ‘wages’ under the ID Act is to be paid only to a person who qualifies as a ‘workman’ defined under the Act. A ‘workman’[4] under the Act is a 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 the employment are express or implied, and for the purposes of any proceeding under the ID 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. A ‘workman’ does not include a person:

(i)            who is employed mainly in a managerial or administrative capacity

(ii)           who, being employed in a supervisory capacity, draws wages exceeding INR 10,000/- (Rupees Ten Thousand only) per month; or

(iii)          who is subject to the Air Force Act 1950, Army Act 1950, Navy Act 1957 or who is employed in the policer service or as an employee of the prison.

Even though the Order dated 29/03/2020 uses the word ‘worker’, on applying the principles of literal interpretation to the said word, it is seen that the words ‘worker’ and ‘workman’ are synonymous to each other. Furthermore, by no stretch of imagination, a ‘worker’ (like a ‘workman’) would include a person employed in a managerial capacity.

Factories Act, 1948

2.3.4.    The Factories Act, 1948 (“Factories Act”) has been enacted to regulate the labour employed in factories and provide them protection from exploitation. The Factories Act is applicable to all premises where manufacturing process[5] (with or without the aid of power) is carried on or any establishment falling under the umbrella of a ‘factory’[6]. A ‘worker’[7] under the Factories Act has been defined as a person employed, whether directly or through any agency (including a contractor) with or without the knowledge of the principal employer, and with or without remuneration, in any manufacturing process or in cleaning any part in the factory or in any other kind of work incidental to or connected with the manufacturing process.

Code on Wages, 2019

2.3.5.    The Ministry of Law and Justice, Government of India, has notified the Code on Wages, 2019 (“Code”) on 08th August 2019 after the assent of the President was received for it. The Code consolidates the various laws in relation to wages including the Wages Act. Even though the Code has defined the terms ‘wages’ and ‘worker’, the same will not hold any water as of today as the Central Government has not prescribed any date for enforcing the provisions of the Code. For the time being, the provisions of the Wages Act will be required to be referred to.

Shops and Establishments Act

2.3.6.    The Shops and Establishments Act (“S&E Act”) is enacted by every state regulating the service conditions of the employees to every premise where any trade, profession or business or any work which is incidental or ancillary is carried on. The S&E Act is not applicable to workers employed in a factory. Certain State specified S&E Act defines the term ‘wages’. For example, the Karnataka Shops and Commercial Establishments Act, 1961 provides that ‘wages’ shall have the same meaning as ascribed under the Wages Act.

2.4.        Moving further, it is to be noticed that the Order dated 29/03/2020 applies to all employers in any ‘industry’ and ‘shops and commercial establishment’. The term ‘industry’ has been broadly defined in the ID Act to mean any business, trade, undertaking, manufacture or calling of employers and includes any calling, service, employment, handicraft, or industrial occupation or avocation of workmen. The term ‘shops and commercial establishment’ will be as such covered under the State specified S&E Act.

2.5.        Therefore, referring to the discussions under Para 2.3 above, it appears that the Order dated 29/03/2020 is applicable to certain employees only. Per the discussions, the said Order seems to apply to those employees who are employed in any industry/ shops and commercial establishment who qualify as ‘workers’ under the ID Act. In terms of the Order dated 29/03/2020 the employer is obligated to not reduce his/her wages or terminate his/her employment. However, the Order dated 29/03/2020 does not differentiate between workers who report to work (physically or virtually) and the workers who refuse to work. It is required to be deliberated basis the final adjudication by the Supreme Court of India whether an employee who does not qualify as a ‘worker’ under ID Act but draws wages of less than INR 24,000/- per month in terms of the Wages Act would be an eligible employee under the said Order, or not.

3.             TERMINATION OF EMPLOYMENT/ REDUCTION OF WAGES OF WORKERS DURING THE PERIOD FROM 29/03/2020 TILL 17/05/2020

3.1.        As discussed above, we have analysed options that may be available to the employers during the said period, however, which shall be required to be weighed in light of the said Order and the final adjudication of the Supreme Court of India before it can take any HR related decision:

3.1.1.    Termination of employment/ reduction of wages of ‘workers’ eligible under Order dated 29/03/2020

In light of the above, it is appears that the employers who have employed ‘workers’, who fall within the ambit of Order dated 29/03/2020, are bound to adhere to the said Order and, therefore, cannot unilaterally terminate the employment/ reduce the wages of such ‘workers’. However, please note the following:

a.             Reduction of wages. In case of reduction of wages of such workers, if the employers are able to take due approval of the workmen for change in terms of employment (for example, for reduction of wages) under the ID Act, such reduction of wages of workers may be possible. Section 9A of the ID Act states that no employer shall carry out any change in the conditions of service specified in the Fourth Schedule (which includes “wages”):

-               without giving to the workmen likely to be affected by such change a notice in the prescribed manner of the nature of the change proposed to be affected; or

-               within twenty-one days of giving such notice.

Therefore, in order to carry out change in service condition of the workers, it is mandatory under the ID Act to give 21 days’ notice to workmen of such change in the prescribe manner. The notice is to be served as per Rule 34 of the Industrial Disputes (Central) Rules, 1957 read with the applicable State rules in which the workmen are situated. Such a reduction of wages seems plausible only in a situation wherein the affected workers give their consent to the change of service conditions. In case the workers object to the change, the employers may not be in a position to reduce the wages of the workers eligible under the Order dated 29/03/2020.

b.             Leave without pay. In this case, the same appears possible only in a situation wherein the employers are able to obtain due consent of the workers. It is to be noted that the concept of ‘leave without pay’ has not been specifically defined or detailed in any of the labour law legislations. However, in case the employment agreement or the internal policies of the employer has contemplated of such a concept, the same may be resorted to only after the concerned workers have consented to it. It is pertinent that a unilateral decision of the employer to send an eligible worker on leave without pay may not fare well in the current scenario.

c.             Termination of employment. Termination of employment of the eligible ‘workers’ during the period from 29th March 2020 till 17th May 2020 does not appear to be possible in view of the Order dated 29/03/2020.

3.1.2.    Termination of employment/ reduction of wages of employees not covered under Order dated 29/03/2020

The employees who do not qualify as ‘workers’ per the analysis under Para 2.5 above may not be protected under the Order dated 29/03/2020. In this regard, the service conditions of such employees may have to be evaluated by the employers vis-à-vis the relevant employment agreement. For instance, termination of employees who are not covered under Order dated 29/03/2020 should be done in line with the employment agreement and the State specified S&E Act. For example, if the State specified S&E Act provides that a month’s notice or salary in lieu of is required to be given to an employee at the time of termination, the same should be adhered to.

4.             LAY-OFF OF ELIGIBLE ‘WORKERS’ UNDER THE ID ACT

4.1.        Section 25M of the ID Act prohibits lay-off of workers unless the lay-off is due to shortage of power or to natural calamity, and in the case of a mine, such lay-off is due also to fire, flood, excess of inflammable gas or explosion. In this context, it is pertinent to note that Ministry of Finance issued an office memorandum dated 19th February 2020 (“OM”) wherein it has been stated that ‘force majeure’ clause can be invoked in Government contracts in case of “disruption in supply chain due to spread of corona virus in China or any other country”. Also, it has also been stated in the OM that COVID-19 should be considered as a case of “natural calamity”.

4.2.        On a conjoint reading of Section 25M of the ID Act with the OM issued by the Ministry of Finance, it appears that the employers may resort to Section 25M of the ID for laying-off of workers during this pandemic which has been considered as a ‘natural calamity’ by the GoI. However, the Order dated 29/03/2020 is directly contrary to the provisions of the ID Act. The Order dated 29/03/2020 has been issued by invoking the powers provided to the National Executive Committee under Section 10(2)(l) of the DM Act to, “lay down guidelines for, or 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”.

4.3.        As already stated, whether or not the Order dated 29/03/2020 issued by invoking the powers provided under the said Section 10(2)(l) of the DM Act is violative of the Constitution of India is a question which is before the Supreme Court for consideration and shall be finally put to rest on 12th June 2020.

5.             CONCLUSION

5.1.        On the basis of the above discussions, it appears that the Order dated 29/03/2020 is applicable only to certain categories of ‘workers’ drawing ‘wages’ and not to other classes of employees. However, in case of employees not covered under the Order dated 29/03/2020, the employers may have to strategically take decisions in line with the relevant employment agreements and their internal policies to avoid scope of the any future disputes. In any case, to ease the fall of the looming recession on eligible employees, the GoI has permitted the withdrawal of non-refundable advance from the provident fund account of the members (not exceeding the basic wages and dearness allowances) for three months or upto 75% of the amount standing to the member’s credit, whichever is less. However, this relaxation (issued vide G.S.R. 225(E). dated 27th March 2020) is applicable only to areas declared as affected by outbreak of any epidemic or pandemic by the appropriate Government.

5.2.        The validity of the Order dated 29/03/2020 as mentioned above is already before the Supreme Court and the picture would be clear on 12th June 2020. In this time of crisis, it is expected that the Courts may take a view beneficial to the workers and may divide the burden of payment of wages between the employer and State. However, these are only speculations and we may have to wait till a concrete decision of the Supreme Court is passed.

The views of the Authors presented in this Article are personal and is intended to provide a general guide to the subject matter only. Specialist advice should be obtained in relation to your specific facts and circumstances.

 

[1] Section 2(vi) of the Payment of Wages Act, 1936.

[2] Section 1(6), Payment of Wages Act, 1936. Amount of wages increased to INR 24,000/- vide Notification S.O. 2806 (E), dated 28th August 2017.

[3] Section 2(rr), Industrial Disputes Act, 1947.

[4] Section 2(s), Industrial Disputes Act, 1947.

[5] Section 2(k), Factories Act, 1948.

[6] Section 2(m), Factories Act, 1948.

[7] Section 2(l), Factories Act, 1948.