Article on “Lockdown And Payment Of Wages – Some Legal Perspectives” by CS. Venkat R Venkitachalam, Chairman, Bizsolindia Services Pvt. Ltd. (May 2020)

THE BACKGROUND: 

In the fitness of things let me state the following caveat upfront: 

This presentation is not intended in any way to search for justifications to deny anyone what is due to him on moral or humanitarian considerations.  This is purely an exercise in reconciling legality with legitimacy.

Having made my position clear on the issue of payment of wages to the employees let me try to do some mind reading of those who read this article.  According to me there were 3 distinct phases in our approach to this issue as follows:

Phase   I: 25th March to 14th April 2020 was when our concern as employers were at the peak primarily because the liability for payment of wages was not that high in monetary terms and the pandemic happened due to no fault of the employees.  Our humanitarian consideration was much higher than commercial considerations.

Phase II: 15th April to 2nd May 2020

This is where we as employers are getting worried as the amount to be paid as remunerations is seen as high with an uncertainty of how long can we afford the cost involved.  To my mind our humanitarian and commercial considerations weigh equally at this stage.

Phase III: From 3rd May

At this stage with the extension of the Lockdown in some parts and the fear of an uncertain future dominates our mind so much so that we realise that we may not be able to pay wages for an indefinite period of time if the pandemic lingers on. Commercial considerations takes precedence over humanitarian considerations as the priority focuses on the survival of the unit itself.

THE LEGAL ISSUES:

The Ministry of Home Affairs of Government of India on 29th March came out with an Order under the Disaster Management Act directing all employers to pay wages to all employees without any deductions thereby opening a Pandora’s Box.  This Order traverses the provisions of many other associate laws and rules that will need to be examined closely for us to arrive at a conclusion as regards our liability to pay wages as employers.  Some of these Acts are as follows:

The Disaster Management Act (DMA)

The Epidemics Diseases Act (EDA)

The Payment of Wages Act (PWA)

The General Clauses Act (GCA)

The Industrial Disputes Act (IDA)

The Shops & Establishments Act (SEA)

The Employees State Insurance Act (ESI)

The purpose of the Order as mentioned in its preface itself is to address the problems of payments to the migrant labour.  Consequently invoking this Order in the context of employees of the units in private sector looks incongruent.  This fact notwithstanding let us analyse the Order further.  The Order was promulgated under the Section 10(2)(l) of the provision of the DMA. This Section stipulates as follows:

“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”.

No amount of legal ingenuity can take the above clause to mean that the MHA can advise the private sector industries and commercial establishments to pay wages during the closure period. The stated objective of the Act is “to provide for the effective management of disasters and for matters connected therewith or incidental thereto”. The only conclusion that one can draw is that this Order has been issued more as a means to project the government as the guardian of the poor who would suffer extreme hardships because of the lockdown. At best it can be considered as an effort on the part of the government to nudge those industries that are unsure about the liability to pay wages to err on the generous side. Considering the nature and extent of the calamity it is possible that there may be more industries willing to pay than not, especially on the first pay-day post lockdown.

It is argued that the DMA supersedes all other Acts and by implication the Payment of Wages Act too.  Section 72 of the Disaster Management Act states that “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”. This Act does not supersede every other Act.  If this Act has provisions similar to the ones found in any other Act the ones contained in this Act would prevail. There is no provision in the Disaster Management Act as to payment of wages during a disaster.  Hence this line of argument should fail.

The State governments on its part have also issued a number of notifications of their own invoking The Epidemic Diseases Act 1897 to deal with Covid-19. Every state has imposed its own restrictions on movement of people and goods as they deemed fit. However, there is no provision to be found even in this Act to force the industry to pay full wages to the workmen during the closure period.  The relevant Section of the Act states as follows:

Section 2: “……. to take, such 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 objective of the Act is to “Prevent the spread of epidemic diseases.”.

The only provisions that could come to the help of the employees are the following Sections found in the IDA that deals with lay-off consequent to a natural calamity.  The relevant Section reads as follows:

Section 2 (kkk): ” lay- off” (with its grammatical variations and cognate expressions) 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 5 or natural calamity or for any other connected reason to give employment to a workman whose name is borne on the muster rolls of his industrial establishment and who has not been retrenched.

Section 25C: “…….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.

Even this provision stands on tenuous grounds as the employer is prevented from offering work to the employees for reasons beyond his control.

Yet another argument that has been advanced is that inability of the employee is on account of an accident is covered by employment injury.  This argument also will not stand legal scrutiny as the accident has to be arising out of and in the course of employment for it to be covered. The relevant Section is quoted below:

Section 2(8): “employment injury ” means a personal injury to an employee caused by accident or an occupational disease arising out of and in the course of his employment

A POSSIBLE APPROACH WITH EMPLOYEE RELATIONS NOW

An employee also understands the current situation.  He knows there is no free lunch. It is time to improving efficiencies by being relentless and ruthless.

Change the employee conversation from confrontation to cooperation.

Take employee engagement initiatives to the next level and address their anxieties on priority.

Do not allow the employee costs to escalate by focusing on improving their performance parameters.

If some verticals do make profits the employers may avoid pay cuts.  This has its own limitations.

Encourage employees to go on leave to save them of a possible pay cut after buying their consent.

Convert the calamity into an opportunity to win employee trust and confidence.

Even if legally employers are not forced to pay wages during the lockdown period try to err on the side of generosity as this situation is as difficult for the employees as it is to you, if not more.  End of the day it is all about your moral compass.

The legality about the issue of payment of wages will be decided by the apex court.  Nagreeka Exports Ltd has already gone to the Supreme Court on this issue.  The grounds taken by them are the following in support of the employer’s case.

The Central and State Governments have no powers to issue directions to a private establishment to pay wages under the DMA

It is impossible for the establishment to pay on account of lockdown and consequent losses

Government directions as far as payment of wages are unreasonable when the unit itself is closed

Government directions violate Article 14 & 19 of the Constitution that deals with arbitrary directions and unjust restrictions.

Lex Non Cogit Ad Impossibila – Impossibility to comply with the provisions of the impugned Order is a valid legal defense against nonpayment of wages.

 

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