LEGAL OPINION

The Querist has sought opinion with respect to the liability of the employers to remunerate its employees in light of situations like the present spread of pandemic namely COVID-19, owing to which the Central Government has declared a lockdown of 21 days starting from 25.03.2020, which eventually has lead to cessation of work or adversely affected the output of the industry/companies.

SUO1. BACKGROUND:

(i) The outbreak of COVID-19 or novel Coronaviurs started from Wuhan, China on 31.12.2019 and by March has spread across various parts of the world, thus, adversely affecting the international and national economic activities.

(ii) Thereafter on 11.03.2019, the World Health organization declared COVID as pandemic. With sudden spurt of cases in India, various State Governments imposed lock-downs, owing to which the work was ceased at various industries, organizations, enterprises, companies. Subsequently, on 04.2020, the Central Government, declared nation-wide, 21 day period lock-down, thus, only allowing essential services and other ancilliary services to function.

(iii) Furthermore, given the present situation, when most of the countries are worst hit owing to the novel virus and even in India, the cases of outbreak is also increasing exponentially, thus, there is a lot of apprehension and ambiguity as to persistence and impact of COVID 19, in the coming days on the economy and the financial sector.

(iv) On 27.03.2020, the Ministry of Labour and Employment issued a circular, advising various Industries/enterprises/companies/associations to not to retrench any employee and continue paying the wages/salaries.

(v) On 29.03 .2020, the Ministry of Home Affairs issued an order for constituting Empowered Committee under Disaster Management Act, 2005 and requiring payment of full wages to the workmen.

Therefore, the present legal opinion is given in light of this background.

2. QUERY:

Whether the employers will be liable and bound to remunerate its employees in the present-like situation when the work at the industry/enterprises/organizations/companies are affected or ceased owing to the outbreak of an epidemic and the subsequent lockdown by the government?

3. DELIBERATION ON THE QUERY:

In the aforementioned background, where the world is distressed by the daunting situation created due to the catastrophic outbreak of COVID-19, Companies/Industries/Associations and their workforces are also facing frantic challenges during such period of disruption.

As a consequence of lockdown nearly all business activities have come to halt due to the restricted movement and shutting down off all non- essential services which have impacted the business entities and economy at large.

4. TYPES OF EMPLOYMENT TO BE DELIBERATED UPON

At the outset, it is paramount to discuss about the types of employment for the purposes of assessing the legal and financial impact of epidemic like COVID­19 on the same:

A. Public service

B. Private Service

(i) Workmen including contract worker, casual workers, migrant workmen, including sales promotion employees as defined in Section 2(d) of Sales promotion Employees (Condition of Service) Act, 1976

(ii) Employees drawing salary of more than Rs. 10,000 per month.

5. VARIOUS LEGAL PROVISIONS GOVERNING THE ASPECT OF EMPLOYER’S LIABILITY TO PAY TO THE AFOREMENTIONED WORKMEN OR EMPLOYEES AND DELIBERATION IN LIGHT OF THE PRESENT EPIDEMIC:

A. Public Service:

As far as the public service is concerned, the same is governed by the Central Government or State Government or DoPT Guidelines or other codified norms or the service laws. In Employment rules relating to public service, a due process is followed. Although, the payment of the workers in the public service is usually secured as a due process is followed and the employer which is a Public entities is required to act as per the statutory or constitutional obligations, however, yet in the present situation owing to revenue deficit, several State Governments have taken the policy decision to deduct the remuneration of its employees. The Government in the State of Telangana in the wake of the state’s financial situation amid COVID-19 outbreak and dwindling revenues has vehemently decided a huge pay cut for its employees ranging from 10 percent to 75 percent. According to the proportion of cut, there shall be 75 per cent cut in the salaries of the Chief Minister, state cabinet, MLCs, MLAs, state corporation chairpersons, and local bodies representatives and 10 per cent cut in the salary for the Class IV retired employees and for all the Public Sector Undertakings (PSUs), Institutions employees. At this juncture, the government of Maharashtra has also announced a 60 % cut for all ministers and representatives of local bodies whereas a cut by 50 % in the salaries of Class 1 and 2 of the employees.

B. Private Service:

(i) Workmen including contract worker, casual workers, migrant workmen, including sales promotion employees as defined in Section 2(d) of Sales promotion Employees (Condition of Service) Act, 1976

It is significant to mention that the Ministry of Labour and Employment issued a circular dated 20.03.2020 requiring the employers/establishments to not terminate employees and not to cut wages of the workers. To quote Order dated 20.03.2020 “All the Employers of Public/Private Establishments are adviced to extend their co-operation by not terminating their employees’ particularly casual or contractual workers from jobs or reduce their wages”. The said circular is only advisory in nature and not enforceable.

However, thereafter, the Ministry of Home Affairs issued the order dated 29.03.2020, whereunder, the Central Government constituted the National Executive Committee under Section 10(2)(l) of the Disaster Management Act, 2005 and issued an order, which inter-alia, included payment of wages by the employers to  the employees of any industry,  enterprise, commercial enterprise. To quote Order dated 29.03.2020 “Whereas, to    deal with the situation and for effective implementation of the lockdown measures, and to mitigate the economic  hardship  of  the migrant workers………………………………………….. .iv) All the employers, be it in the Industry or in the shops and commercial establishments,   shall make payment of wages of their workers”

Significantly, since the said order dated 29.03.2020, was issued by the National Executive Committee, in view of the powers under Section 1 0(2)(l) of the Disaster Management Act, the effect of the same will be binding on the employers as the said section empowers the National Executive Committee to give directions to the concerned Ministries or Departments of the Government of India, State Governments and the State Authorities regarding measures to be taken by them in response to any threatening disaster situation or disaster. Furthermore, Section 51 of the Disaster Management Act, 2005 penalizes any non-conformity of the orders or directions. Furthermore, the said act has overriding effect embodied under Section 72 of Disaster Management Act which provides “ The provisions of 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.” Furthermore under Section 71 it states that no court (except Supreme Court or High Court) shall have jurisdiction to entertain any suit or proceeding in respect of any such direction.

State Government circulars:

Several State Governments, namely Maharashtra, Haryana, Uttar Pradesh, Telangana, Karnataka, West Bengal have issued advisories/orders have adopted the Ministry of Home Affairs order and required the employers to refrain from terminating their employees/workers and to reduce their wages.

Thus, in view of the aforementioned, it is definitely appears that the employers are liable to pay the wages to the workmen without deduction and on the due date owing to the directions of the Central Government under Disaster Management Act, 2005 as the aforementioned act has an overriding effect and punitive in nature.

LEGAL OPINION:

Now coming to the issue relating to the fact as to whether an industry/enterprise/factory/commercial establishment/organization is bound by the aforementioned orders of the Government. In response to this issue, two situations arise:

a) If some other vertical or verticals of the industry/commercial establishment/enterprise/organization is able function and it is not loss making or if it is possible for the employers to get the work done from home:

In such situations, the employers shall be mandated to comply with the order dated 29.03.2020 issued by the Ministry of Home Affairs and the applicable State Government or UT which requires mandatory payment of wages to the workmen for the period of lockdown.

b) If it is not possible for the employer to get the work done from home, and there is cessation of work owing to which the said employer is financially and economically incapacitated and on the verge of closure, owing to the lock-down pursuant to COVID-19:

Significantly, the statutory legislations like Industrial Disputes Act, 1947, Payment of Wages Act, 1937, Code on Wages, 2019, Contract Labour Act, 1970, Inter-State Migrant Workmen Act, 1979, etc. do not envisage any situation of force-majeure or intervening circumstances like the present wherein the work is ceased owing to any epidemic or its implication relating to payment of wages. Even, vice-versa, there is no legislation in India mandating the payment of wages and salaries by the employer in case of forced shutting of businesses for a period of time due to force majeure conditions such as natural calamities.

But, the Industrial Employment (Standing Order) Rules, 1946, specifies the model standing order for governing the employment conditions of the workmen, based on which different industries after deliberation with its trade unions adopt their own standing orders. One of the model standing order embodies that in case of stoppage of work owing to any intervening circumstances, then the workmen shall not be eligible for any other compensation, apart for the payment for the time they have been detained after the stoppage of work. It also provides that if workers are laid off, then the same could be with or without pay but according to due process. Various industries have their own standing orders, which will govern the payment of wages to workers when work has stopped, which may further aid the employers to take a legally compliant decision relating towards deducting the wages of the industrial workmen in case it is incapacitated to pay the workmen.

It is also pertinent to mention that the Hon’ble Supreme Court in Bharat Electronics Limited Bangalore (supra) after considering its earlier judgments in Bennett Coleman and Co. Pvt. Ltd. v. Punya Prya Das Gupta MANU/SC/0307/1969 : AIR 1970 SC 426; and Dilbagh Rai Jarry v. Union of India MANU/SC/0270/1973 : AIR 1974 SC 130, held that an allowance contemplated under the definition clause of the word “wages” was an allowance which from the term of the employment flows as not contingent on actual working was part of wages. The Supreme Court further held that an allowance which was earnable only by active serving was not an allowance which would form part of wages. Thus, in the light of the aforementioned, it can be said that if the industry or commercial is incurring losses and is incapacitated to fully remunerate its workmen, then in such situation, the employers would be required to pay the subsistence allowance to the workmen, as it is clear that the subsistence allowance is an allowance which from the term of the employment flows as not contingent on actual working. This part of wages is contemplated under Section 2(i)(vi) of the Payment of Wages Act.

Thus, in the present situation, if the employer is incapacitated to pay meet the full expenditure of payment of wages, then it cannot be termed as illegal on the part of employers to deduct the wages and pay the sustenance allowance to the workmen. However, the said measure should be taken only in situations, when the employers can well demonstrate that it is incurring losses.

Furthermore, the Amendment in Employees Provident Fund Scheme 1952, to aid the employees, thus permits withdrawal of up to the amount of basic wages and dearness allowance for three months or up to 75 per cent of the amount standing to member’s credit in the EPF account, whichever is less, in the event of an outbreak of epidemic or pandemic, will also help the workmen to sustain.

(ii) Employees drawing more than Rs. 10,000 per month:

Next in line, comes the issue relating to the payment of salary or remuneration to the employees drawing salary of more than Rs. 10000 per month and thus, they neither comes under the definition of workmen nor governed by any of the legislation relating to labours. Such employees are governed by the employer and employee contract agreement which governs the terms and conditions of their employment.

In the present pandemic situation, the clause relating to force majeure will surface and become the underpinning in most of the contractual cases. Pursuant to such force majeure clauses employers may be released from their contractual obligations to pay workers or continue their employment, if their contract contains a ‘force majeure’ clause (an extrinsic event such as a pandemic “renders the employment agreement impossible to perform). Also, in the absence of clause of force-majeure from the contract agreement, then Section 56 of the Contracts Act, 1872 will be applicable in the present situation of outbreak of Pandemic and cessation of work, which is relating to the doctrine of frustration, which entails the law of discharge of contract by reason of supervening impossibility of the act agreed to be done.

Under force majeure, the performing party is excused from the performance or discharge, as an supervening circumstance has made the performance of the obligation termporarily or permanently or wholly or partially impossible or is entitled to suspend performance or to claim extension of time to performance.

Furthermore, in the present scenario where the world is at standstill axis due to coronavirus pandemic, it is most likely that the performances under the contract will be delayed, interrupted or even terminated. Hence, the invocation of a specific force majeure clause as per a contract entered into between the employer and employee and which includes outbreak of epidemic would absolve the employer from payment and therefore from fulfilling its obligations under that contract. It is pertinent to state that The Ministry of Finance also released an office Memorandum vide No. F. 18/04/2020-PPD dated 19.02.2020 to the effect of clarifying the meaning of “force majeure”clause provided in the Manual for Procurement for goods and services, 2017, wherein it is embodied “It should be considered as a case of natural calamity and force majeure may be invoked, wherever considered appropriate following the due procedure as above.”

LEGAL OPINION:

Having said this, in situation like the present, could be termed as an act of God and thus, a force majeure condition can be said to be made applicable and the employer may invoke the same for deducting a percentage of the salary/remuneration to meet its deficit or shortage of revenue. Here again, two kind of situations will arise:

(a) If some other vertical or verticals of the employer/company/enterprise is able function and its not loss making:

If the employer has other business verticals, by virtue of which it is in the position to breakeven, then it may deduct some part from the remuneration of the employees

(b) If it is possible for the employers to get the work done from home:

Undoubtedly, if the employees are able to work from home and deliver, the force majeure conditions cannot be made applicable and the employer will be required to make payments to the employees subject to the any deductions provided in the contract agreement with the employee.

(c) If it is not possible for the employer to get the work done from home, and there is cessation of work owing to which, the said employer is financially and economically incapacitated:

It is pertinent to mention that in the present pandemic situation, even the public limited Companies are in the path to incur heavy losses as the prices of the shares is reducing, the carrying value of the investments are impaired, in such situations, let alone small companies, which shall be most adversely affected.

Therefore, in case, the work is shut-down and the employer inspite of taking all measures to mitigate the losses, has been incapacitated, and is on the verge of closure or being insolvent, it may very well invoke the clause of force-majeure clause or frustration of contract for either keeping the payments to the employees at abeyance (for the period of lockdown) or termination (if the work is ceased indefinitely and the very foundation of the contract has been impacted), as the case maybe. It is significant to mention that the employer should be mindful to follow the due process as per the contract agreement and the Contracts Act, 1872 before taking any such decision.

With the amendment in the EPF Scheme, 1952, thus permitting withdrawal of up to the amount of basic wages and dearness allowance for three months or up to 75 per cent of the amount standing to member’s credit in the EPF account, whichever is less, in the event of an outbreak of epidemic or pandemic, will aid the employees to sustain, when the employers is incapacitated and is unable to pay.

6. The stumbling block at this crucial hour is the sustenance of the business entities wherein they are struggling to cover the unanticipated losses due to the lockdown and striving hard to get the business going. It is pertinent to state that the governments across the globe have taken considerable measures to aid the employers such as in Denmark which recently announced to cover 75 % of wage bills. Canada has also implemented a wage subsidy scheme. Furthermore in United Kingdom, all employers in all sectors (including both profit and not-for-profit) will be eligible for the Scheme of reimbursement, the employers are also allowed to reduce pay of the employees.

7. Furthermore, with respect to the industry exempted from lockdown period and those which could be categorized under essential services, in those cases, the workmen or employee shall be obligated to present itself for work unless he/she is quarantined owing to contraction to the disease. In such cases, regular laws relating to labour laws or the contractual law will be made applicable

8. It is pertinent to mention that although the Ministry of Hom Affairs have required the industries/commercial establishments/enterprises/organizations to refrain from terminating or retrenching the workmen. However, after following the due process, as laid down under Industrial disputes act, the employers may lay-off employees. It is pertinent to mention that under Industrial Disputes Act, 1947, workmen maybe laid off in case of natural calamity by following the due process as laid down in the Act. The laid-off workmen will receive a compensation equal to 50% of the salaries. It is essential to quote the provision of Industrial Dispute Act pertinent to the current issue:

Section 2(kkk)-“lay-off” means the failure, refusal or inability of an employer on account of shortage of coal, power or raw materials or the accumulation of stocks or the breakdown of machinery or natural calamity or for any other connected reason] to give employment……”

Section 25C-“Whenever a whose name is borne on the muster-rolls of an industrial establishment and who has completed not less than one year of continuous service under an employer is laid-off, whether continuously or intermittently, he shall be paid by the employer for all days during which he is so laid- off, except for such weekly holidays as may intervene, compensation which shall be equal to fifty per cent of the total of the basic wages and dearness allowance that would have been payable to him had he not been so laid-off.

Provided that if during any period of twelve months, a workman is so laid-off for more than forty-five days, no such compensation shall be payable in respect of any period of the lay-off after the expiry of the first forty-five days, if there is an agreement to that effect between the workman and the employer.”

9. Apart from the aforementioned, to sum up, it is submitted that although the financial sustenance of the industries/enterprises/companies/organizations is of paramount consideration, but the employers should take all measures to mitigate the losses and

a) Support the workmen/migrant workmen/casual works/contract workers who are unable to support and sustain during such challenges times as per the requirement of the Central Government, State Governments and on humanitarian grounds as termination or non-payment or reduction of wages would deepen the crisis and further weaken the financial condition.

b) Reduce or deduct the salaries of the employees who are not workmen, if the employer is able to break-even or support the business activities.

c) Keep the salaries/wages in abeyance for the period of lockdown in situations where owing to cessation of work, the company is incurring huge losses and on the verse of closure or become sick or

Therefore, the query is answered accordingly.

Yours truly,

1) Suren Uppal
Advocate
Managing Partner, SUO.

2) Sneha Baul
Advocate,
Joint Partner, SUO.


Article is contributed by  SUO, the Offices of Advocate Suren Uppal.

Suren Uppal Officer, D-45, Sector 10, Nodia, 201301, Ph. No.  91-9868700009 & 91-9868600900 , Email Id: suolaw@gmail.com, surenuppeal@ymail.com

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