Legality of Order For Wage Payments, Whether Govt Can Enforce It With Best Possible Solutions

Current Scenario

In view of this pandemic situation Covid 19, the Government issued an advisory that the wages to be paid by the employers during the lockdown. Ministry of Home Affairs, North Block issued Order No. 40-3/2020-DM-I(A) dated 29th March 2020; wherein it was stated in Clause iii that

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;

It is further directed that in case of violation of the above measures, the respective State/ UT Government, shall take necessary action under the Act. The DM/DC and Senior SP/SP/ DCP will be personally liable for implementation of the above directions and lockdown measures issued under the above-mentioned orders.

Undersigned by the Home Secretary on 29/03/2020 

Further, Order from The Principal Secretary to Govt of Haryana, Labour Department vide No. 7047-7127 dated 25th March 2020 being Necessary advisory to the employers/ owners of Private Establishments in the State of Haryana for not terminating the services of their employees or reduce their wages in view of outbreak of COVID-19 pandemic.

Intention of the Government

The Govt wants to reduce or mitigate the loss which can be suffered by the workers due to stoppage of work in various factories/ establishments, which is very appreciable and demands a standing ovation for the thought and intent.

What the Government Missed

The Govt missed the hardship which can be faced by the employers/ establishments due to enforcing of such decisions. The industry was already plagued by Global Crisis in the last few months and sudden stoppage of the factories/ establishments/ shops would push them deeper into the crisis. Every decision has two sides of the coin. Every debit entry has a corresponding credit entry. But the Govt did not foresee the other side of the employer while issuing the above advisories. The industry has to bear some fixed costs without any incoming revenues which is going to eat its capital. And if the lockdown gets extended, which seems to be an instant possibility, the industry would have to bear the wage expenses for March and April and maybe for May 2020 (or part of these months; if the advisory/ order is implemented as and when)

Legal Issues

1. The directions issued by the government to employers to pay wages to all the workmen neither comes within the framework of the Disaster Management Act, 2005 and Epidemic Diseases Act, 1897 nor is backed by a statutory law

2. 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 contract workmen and inter-State migrant workers. On humanitarian grounds, there can be no two opinions about the need to pay wages to employees. However, whether such an obligation should be that of private employers or that of the State needs to be considered.

Understanding DMA, 2005

The scope of the Act is to have a unified command over disaster management and empowers committees to frame plans to meet disasters. 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.

Understanding EDA, 1897

It prescribes 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 not empower the government with a power to direct a private employer to pay wages.

Understanding IDA, 1947

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.

Analysis of Above Three Acts

As above, neither DMA nor EDA empowers the Govt to issue any direction to pay wages to a private employer. IDA is also advisory and that too with a capping of 50%

Economic Contribution

The direction/ advisory issued by the government to pay full wages is a Diwali bonanza to the 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 PF deduction will not be here and the conveyance would not be spent in to and fro and the PF, if borne by the Govt as part of their relief package, would be subject to fulfilment of some conditions. The worker would have more take-home salary without contributing a single rupee to the employer or to the GDP.

Probable Solutions

The Govt has to see the legalities of the above decision and need to come out with a balanced approach to mitigate the losses for both sides of the stakeholders.

Maybe, if the Govt insists on releasing wages, the govt can think of some weighted deductions as of weighted deduction on scientific expenditures or under Chapter VI-A in the line of Section 80JJAA for the period of the lockdown.

Maybe, the Govt can advise the establishments to bear/ pay only the necessary amount which is required for subsistence of living or payment of some school fee expenses, which are bare minimum for running the household; which is today being run with zero petrol expenditure, and zero entertainment expenses. Only a proportion of wage expense can be borne by the employers.

The Govt has all the data of all the income tax returns of all the running units with break up of wages and salaries expense in proportion to the turnover; the Govt can come up with some range turnover sector wise formula to extend any assistance to the business.

Alternatively, the govt can think of some wage subsidy scheme being a portion of the wages which will the State can bear.

The Govt has think out of the box by assuming some lowered profit margins for business community, professional community and can think of accepting their lower profit margins/ profit ratios so as to reduce their tax burden which will eventually help to ease out some liquidity.

Also, The Govt need to give some highly dosed stimulus financial package (apart from relief package, RBI package, refund packages) to the economy, since the financial health and economic dip is bound to happen and which may take six to eight months to one year to get back to the break even or normal prevailing scenario.

While every care has been taken to ensure the accuracy/ authenticity of the above, the readers are advised to recheck/ reconfirm the same from the original sources/ relevant departments. The company shall in no way be responsible for any loss or damage suffered to any person on account of the same.

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17 Comments

  1. G.Raghavan says:

    We have no progressive laws for employers and industries. Employees salaries to be cut by 4% and no bonuses for next 3 years. Our Govts. and expectations are not in line good days for the last 4 years coupled with Covid 19. If salaries and bonuses are made to pay as usual many industries and businesses will close down in India. Here taxes and labour very expensive. Industries and businesses are not getting that kind of money to give annual increment and annual salaries hike.

  2. Tukaram B. Pujary says:

    But the Hon. Supreme Court and many Hon H.C where the matter is taken up by the employers have not alluded to the enunciation of law propounded by the author. Tbe Bombay H.C. has held that what can be deducted from gross salary is conveyance and Food allowance if it is part and parcel of the wage component. That also subject to the decision of Apex Court where the matter is sub -judice. Hence for any elucidation of legal position the Competent Courts alone have the authority to interpret the law and that law as interpreted by them alone will prevail.

  3. Anil Kumar Goyal says:

    It is well known that Lock down was declared suddenly. If some organisation does not have sufficient funds in bank account, then from where and how it will pay wages.

  4. Jayendra Mahamunkar says:

    Government need to announce some benefits like Tax exemption to industries in this situation. Just declaration of notifications and orders will not serve the problems. Pre Lockdown situations was not very good, many industries were suffering from losses and in such situations, if Government make compulsory to industries to make payment, Industrialists , especially Small scale and Middle scale, will not have any options to closed down their units. Notification/ Orders must be in win win situation. Thank you..

  5. Jayendra Mahamunkar says:

    Government need to do give balance order which will create win – win situation for employers and Government. Why any Business Man will pay his employees without any work. There are many other countries where there Government bearing salary cost of employees. Government need announced some tax benefits or any such announcement by which employer get benifit and will pay salary to his employees. Thank you..

    1. madan prasad says:

      Yes sir, I agree with your suggestion AND DO REQUEST TO THE GOVT. OF INDIA to think about this so that all will fill ease to some extent to pay to their Employees in unorganized sector.

  6. Dwarka Sharma says:

    If a company is receiving goods from a MSME and due to lockdown company had to shut, advice if payment is to pay within 45 day or Lockdown period should deduct

  7. Vipin Sharma says:

    Giving wages or salary to employees during lockdown period where work from home is not possible or people are simply not doing because of their own reasons, in that case the pressure on employer must be on moral and not on compulsion grounds. It also depends upon the capability and capacity of the employer rather giving blanket statutory one side order.
    This lock-down period salary must compensated with other benefits like fixed bonus; ELs; CLs etc. to have some relief for other side of the team!!

  8. Williams says:

    That is the irony that heartless Govts. have been vested with such draconian powers to force employers to pay salaries even for the lock down period. In India everything is cheap behavior with vote politics. As workers are suffering due to lock down owners are suffering with a much bigger problems. EMIs to loan,power bill,Water bill,wages,statutory dues,GST and for family expenses. It irony that we continuing with business even after NDA II came to power. NDA will write obituary to everything in the country totally. Already 50% of obituary is complete. God save the people and businesses Govt.

  9. Ajay Sanghi says:

    Good time for the government to implement universal basic income, and amend the labor laws so that businesses are free to lay off to cut expenses to survive, otherwise, neither the business nor the employees will have any future!

  10. Neha Parab says:

    Many of workers in my organization works only 20 days in a month. They takes leave for family problems or for medical reasons. In the month of March, many workers gone on leave for from 8th March for Holi festival. Till 20th March they have not return. Why should I pay such workers full month salary?
    If government forces employers to pay workers full salary, many businesses will shut down.

  11. Pallavi says:

    Sir, sincerely appreciate your write up. However, I wanted to know how shall the establishment determine what amount is “bare minimum for running the household” ?

  12. chetan sharma says:

    Hi, please see section 64 and Section 11 and 12. The government certainly possess the power.

    1. Anil Kumar Goyal says:

      I could not find any such provision u/s 11,12 and 64 of DM Act 2005. Plz help me specifying those Clauses/Lines/wordings.

  13. basant kumar senapati says:

    Suppose a manpower agency supply manpower to Govt.Institution. If the same Govt. Institution has not paid the salary of the engaged manpower then how & from which source the agency will paid to the salary of manpower.

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