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Legal position on Retrenchment & Wage deductions during the COVID-19

Humanity is witnessing an unfortunate and unprecedented crisis following the outbreak of novel coronavirus late last year. With an extremely fast rate of infection, coronavirus pandemic has quickly engulfed virtually entire globe.

Humanity is witnessing an unfortunate and unprecedented crisis following the outbreak of novel coronavirus late last year. With an extremely fast rate of infection, coronavirus pandemic has   quickly engulfed virtually entire globe. It has, till 23rd April 2020, globally infected around 2.6 million people and claimed lives of more than 1,83,000 people so far. People have gone into panic while governments are desperate to grapple with the crisis. With no treatment yet around to tackle the pandemic, authorities in several countries have resorted to closedown of entire cities and towns and in some cases, like India, the whole country.
Besides endangering the health of entire mankind, the coronavirus pandemic has put world economy under tremendous stress. The entire country is under the lockdown with effect from 24th of March 2020 first for 3 weeks followed by the extension of 2 more weeks and still speculations going on. Its costs could be devastating having potential to cause tremendous sufferings to millions of poor most of whom constitute the country’s vast working class.
Effects on the Indian employment system
India has an estimated 470 million strong working class. Almost 80% of them are in the unorganised sector, majority of them having hardly any social security cover. They constitute small and marginal farmers, contractual labourers, construction workers, daily wagers, employees of petty businesses, along with salaried class both public and private. This has taken a heavy toll and added to the stress of both employers and the employees. During this challenging time, where employees are facing challenges to protect their jobs, employers are left wondering what their obligations are towards their employees and how best to manage these obligations. On one hand where the employers are contemplating downsizing their operations and terminating their employees or reducing the wages, they are not sure about the legal implications of the same. Despite a plethora of labour laws governing employer-worker relationship, Modi government at the centre and various state governments have been issuing advisories to employers to safeguard workers against retrenchment/termination, lay-offs, forced leave/leave without pay, reduction of wages etc. The government advisories urge employers not to terminate employees or reduce their wages
In the light of such laws and the advisories issued from time to time , let us discuss various legal implications and legalities of such retrenchments, layoffs etc. viz a viz; type of employees, sectors they are working in and the laws applicable .
Workmen/ wage earners
Indian employment system is somewhat bureaucratic in nature. The main distinction is whether the employee is a “workman” or otherwise and earning “wages” with the application of most of the legislations to workman category. High degree of protection has been ensured to the workers through various labour laws which came into force from time to time. Some legislations like the Industrial Disputes Act, 1947, Contract labour Act, Payment of wages Act, Workmen’s Compensation Act, the relevant state Shops and Establishments Acts etc make it obligatory for employers to pursue labour friendly policies. For Instance, Government Order No. 40-3/2020-DM-I(A) dated March 29,2020 issued by the Ministry of Home Affairs, Government of India under the Disaster Management Act, 2005 clearly mentions the responsibility of the employer towards its ‘workers’ drawing ‘wages’ during the lockdown caused by COVID-19 crisis. In order to ascertain as to the applicability of such orders/ notifications/ mandates, it becomes necessary to interpret the word ‘Worker’ and ‘Wages’ as defined under Industrial disputes Act 1947 and payment of wages act 1936 respectively along with Factories Act and SCE Act which leaves most corporates and employees engaged in industries, factories and other establishment, but performing managerial, administrative and supervisory functions outside the ambit . Further, the POW Act also clearly states under section 1(6) that it is applicable upon such class of employees whose wage does not exceed INR 24000 (Indian Rupees Twenty-Four Thousand) per month.

Therefore in light of the above, one can say that during such crisis, it becomes mandatory to pay wages to such employees which come under the purview of definition of ‘workman’ and those employee which are non-exempted by the SCE Act of the respective State. Also, the employees who are earning wages, cannot be terminated in light of the said MHA Order and shall continue to be employed and paid until the lockdown continues or until such time as prescribed by the Government of India. An employer cannot and is under no right to reduce the wages or terminate such employees unless there is a specific contract which makes the employer eligible to do so.
Non workmen / employment contract Governed
Broadly speaking , Such employees who are not paid wages As per the POW Act or do not come within the definition of workman under Industrial Disputes Act 1947or under various other statutes are governed by the employer and employee agreement or the standing orders of the particular establishment. In view of that there are no statutory obligation on the part of the employer or the organization to pay salaries to such employees or to retain them.
Termination for such employees will have to be carried out as per the employment contract duly executed between them and/ or as per the SCE Act of the relevant jurisdiction where the employee is located and is engaged by the employer.
Recently Karnataka Shops and Establishments Act, 1962 has passed a similar mandate for the employers to provide a minimum of 1 month of notice prior to dismissal or wages in lieu of such notice3 for an employee who is in continuous employment of the employer for the period of six (6) months or more. Further, the Karnataka Act also prescribes that any such termination shall be made by giving a reasonable cause to the employee. Loss of business, poor performance, etc., are all valid reasons to terminate employees. Therefore, all the terminations in Karnataka shall be governed by this mandate along with the contacts unless there is some mutual agreement arrived at between the employer and the employee otherwise
Employees of private organizations/ MNC’s
A vital question which emerges out is whether the employer of a private organization or a MNC who is not bound specifically by any statutory provisions or advisories is entitled to retrench , lay off etc his employees if he is under a financial hardship. The answer is “ YES” however owing to the onus to prove the valid termination is entirely upon the employer and it would involve payment of various statutory dues including retrenchment compensation, which the companies would ill afford in the present circumstances of financial crunch, most of them have resorted to certain ‘alternatives’ to the termination of employees and the employment contracts, a few of which are listed below:
  • Work from home: The concept in which the employee performs its works at home or out of the office via technological means has been now opted by most of the companies/ employers for their employees. Though the concept is not new to the Indian employer, there are hardly any labour statues or official guidelines governing it. However, statutory provisions governing working conditions as if working in office premises would apply.
  • Unpaid leave: Employers with mutual agreement may request their employees to take the unpaid leaves so that there is some respite for both. Even by mutual consent employees may accept the reduced salaries in case they see the threat of company going into financial losses which might lead to winding up eventually.
  • Annual leaves: Employers may request its employees to Take their accrued annual leaves which otherwise the employees are entitled to take at their discretion. The employees would generally accept that the employer is exercising its management rights with good faith.
Therefore, in a way it becomes a moral obligation for the employees too to not burden their employers beyond a limit.

Contract /daily wagers etc.
Again any such daily wagers , casual or contractual workers or employees / workers under any other category are governed by the advisories and guidelines which prohibit their termination during the crisis. The Ministry of Labour and Employment, Government of India issued an advisory on 20.3.2020 to the Chief Secretary of all the States/ Union Territories and also to the All Employers’ Association appealing to extend their coordination by not terminating their employees or reduce their wages .Various other state governments such as Maharashtra, Haryana, and Delhi have also issued similar advisories especially the Haryana Govt advisory which specifically covers “casual or contractual workers “and extend protection from termination from their jobs or reduction in their wages.
Conclusion: We may conclude by saying that no matter what the crisis and what sector we look into , the employment rules and statutes are in place for all the citizens of India and termination and non-payment of wages is not an option except agreed otherwise mutually or under an employment contract . It is not known how long coronavirus pandemic will last causing tremendous economic damage already. Various countries have announced packages to pep up their economic condition. How far they will help in mitigating the situation is being fiercely debated by the experts as well as common people. In the meantime, the employers and the workers will have to evolve and stand up to the emerging scenarios.


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