Payment of Wages and Retrenchment in Lockdown Times

The ongoing countrywide lockdown since 25 March, which was extended on 17 May, has serious consequences for the socio-economic conditions of labourers, those in the informal sector in particular. Even before the Covid-19 outbreak, India’s economy was in a low growth phase, particularly on employment front. The nationwide shutdown has made matters worse. Millions of jobs are likely to be lost. Informal sector workers, who constitute more than 90% of the workforce, will find it very difficult to even survive in coming months. Wage employment possibilities within the informal sector will definitely shrink in the short run.

A significant proportion of informal sector workers are self-employed (there is no employer-employee relation in such cases) and/or they are casual workers, where the terms of employment do not extend beyond a day. Such workers can draw sustenance only when the economy is up and running. A shutdown takes away any chance they have at sustenance. For them things will remain very bleak in the short and medium run. Overall, almost 400 million informal sector workers face a test of survival during the lockdown.

The central government has released notifications instructing employers of all kinds not to retrench workers during the lockdown and continue paying wages and salaries. Accordingly, the chief secretaries of state governments also issued similar notifications. But in a majority of cases these instructions were not complied with.

Workers were retrenched and some left for home on their own. In other better-off cases, employees were sent on leave without wages. Urban informal sector workers who were migrants found it very difficult to stay back. A section of migrant workers is dependent on wage employment in the urban informal sectors. They lost their jobs once the lockdown was imposed and were not in a position to pay rent, and thus had no options but to leave. As transport was not available, they either existed on the fringe, surviving on charity, or left for their native places on foot. Some of them perished in the process.

Directions to not retrench and pay wages were issued after the Centre invoking the Disaster Management Act, 2005 (DMA) to enforce a nationwide lockdown. State governments reinforced such directions by invoking the Epidemic Diseases Act, 1897 (EDA). However, the directions issued by governments to employers to pay wages to workmen neither comes within the framework of the DMA and the EDA nor is backed by statutory laws like the Payment of Wages Act 1936 and Industrial Dispute Act 1947.

Section 5(1) of the Payment of Wages Act 1936 states that a wage period cannot exceed one month. Deductions can be made on specified grounds given in section 7 of this Act. Section 7(2)(b) permits deduction of wages due to absence from duty. However, absence during lockdown cannot be treated as absence from duty. Because production has been stopped due to the lockdown, the absence from duty cannot be attributed to workers only. In fact, production has stopped because of exigencies backed up by government notifications.

Therefore, the “no work no pay” principle cannot be invoked in the present circumstances: neither are employers offering work nor are workers able, even if willing, to report for work. Therefore, employers should not deduct wages for absences due to the lockdown. But this is not explicitly backed up by any provision of the Payment of Wages Act, 1936. Here lies the problem and subsequent complexity regarding legal enforceability of directions of payment of wages during the lockdown.

Payment of Wages Act, 1936, did not foresee a situation like the present one, where there is a lockdown due to a pandemic. Thus there is no explicit section specifying payment of wages in case of stoppage of work under extraordinary circumstances. It is assumed that wages are payable only when work is being done and there is no provision to pay wages when no work is being done. Thus this Act may not be sufficient to be invoked to ensure payment of wages in today’s circumstances.

Further, the government of Karnataka has allowed employees affected by the pandemic to avail 28 days of paid leave under the ESI Act by securing a certificate from the ESI hospitals; those not covered under the ESI Act can avail paid sick leave, and others under Section 15(3) of Karnataka Shops and Establishments Act, 1961. On 30 March, the Ministry of Skill Development and Entrepreneurship ordered all establishments to pay full stipend to the designated and trade apprentices engaged by them during the lockdown.

On 20 March, the Ministry of Labour and Employment, government of India, issued advisories to the employers’ associations not to terminate their employees (especially precarious workers) and reduce wages for their absences. The said advisory further says that if the workers take leave during the lockdown they should be “deemed to be on duty without any consequential deduction in wages…Further if the place of employment is to be made non-operational due to Covid-19, the employees of such unit will be deemed to be on duty.”

Regarding lay-offs, the relevant section in the Industrial Dispute Act 1947 (IDA) is section 2(kkk), which defines “lay off” as when an employer is unable to provide employment to an employee due to a natural calamity or for any other connected reason.

Section 25C of the 1947 requires employers employing 50 or more workers who lays off workmen to pay a compensation equivalent to 50% of the wages. Section 25M(1) of this Act requires an industrial establishment with more than 100 workmen to seek prior permission from the appropriate government or authority. However, such permission is not necessary if the lay-off is due to a natural calamity.

On 29 March, the government of India issued an order under section 10(2)(1) of the National DMA. It directed state governments and the Union Territories (UT) to issue orders, compulsorily requiring all employers in the industrial sector and shops and commercial establishments to pay wages to their workers at their workplaces on the due date without any deduction during their closure due to lockdown. Further, the state government and UT were directed to take necessary action against those violating these orders. According to Section 51(b) of the NDMA, non-compliance with the directives issued under it will be punishable with fine and/or imprisonment.

The Disaster Management Act, 2005 (DMA) was enacted for setting up the National Disaster Management Authority and State Disaster Management Authority respectively and to have a unified command over disaster management. The powers of the National Executive Committee and the State Executive Committee have been listed in the Act.

The Epidemic Diseases Act was enacted in 1897 to stop the spread of bubonic plague in then Bombay (now Mumbai). The objective of the act is to prevent the spread of epidemic diseases. Under the act, both the central and the state governments have powers to take measures in order to control the epidemic. Section 2 of the Act, which constitutes its substantive part, confers states with the following special powers: to take “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.”

Now the question is whether these two acts, along with two relevant labour laws discussed earlier, based on which governments have been issuing directions, have any statutory provisions to support the directions of the central or state governments with regards to payment of wages and retrenchment. Let us examine these orders and legal implications behind those.

The MHA order dated 29 March was issued by the home secretary, Ministry of Home Affairs and the government of India, in exercise of the power conferred under Section10(2)(1) of the DMA. This order is binding upon all concerned parties. Section 10(2)(1) of this Act empowers the National Executive Committee to lay down directions to the ministries or departments of the government of India and state authorities for preparing disaster management plans. Section 51 of the DMA lists the punishment for any obstruction or non-compliance of any such directions. Section 72 of the DMA has an overriding effect over other prevailing legislations. It can be invoked by respective governments to take penal action against those employers who did not pay wages and salaries or did retrench workers during the lockdown.

The IDA does allow lay-offs in the circumstances in which the employer is unable to pay wages due to a natural calamity. However, this law does come in conflict with the order dated 29 March passed under the DMA. In any case, as per section 72 of the DMA, this order shall prevail over any other existing law.

However, the NDMA, under its order dated 17 May, has extended the lockdown until 31 May but it did not include the imperative to make payment of wages of their workers without any deduction for the period their establishments remain under closure during the lockdown.

The withdrawal of the MHA wage order allows employers to govern the terms of employment including payment, retrenchment, lay-off and termination as per the provisions of the respective employment agreements and the applicable legislations such as the state specific Shops and Establishments Act, the IDA and so on.

Majority of employers did not pay wages. Few paid advances which are supposed to be adjusted against wages when work resumes. That a majority of employers did not pay wages is also evident from the fact that large number of migrant workers are leaving cities on foot. A few employers contacted by this author stated that they had lost earnings because of stoppage of production and were not in a position to pay wages. They also said that they were incurring fixed cost such as rent, property taxes and many other levies payable to states despite no production taking place. Those employers producing goods and services designated as essential did pay their workers since production did not stop in their case.

Employers further argue that the earlier direction issued under the DMA did mention payment of wages to employees but did not explicitly specify the power to take action in case of non-compliance. They also say that the central government should contribute towards payment of wages to a certain extent as has been done in other countries. Countries across the world are taking steps to counter the difficult Covid-19 crisis by rolling out special schemes and stimulus packages to enhance the capacity of employers to pay employees.

The MHA wage order and several advisories and directions issued by states were challenged by industry before the Supreme Court of India on several grounds, including that they impinge upon the fundamental right to freedom of the industrial units and enterprises (citing Article 19 of the Constitution) and that they are being forced to pay salaries without any revenue. The Supreme Court circulated the petition among the states and government of India but no stay order has so far been granted, other than an order in a few of the petitions that no coercive action will be taken against employers.

Subsequently, MHA order dated 17 May did not mention payment of wages or prohibition of retrenchment during the lockdown. Thus, even the possibility of invoking section 72 of DMA does not arise any longer. Actually the 17 May order is a significant climbdown relative to the 31 May order as far as protection of wages and jobs is concerned. It would not out of place to mention that the labour secretary of the government of Karnataka was removed from his post since he was instrumental in issuing notices to defaulting employers in the second week of May. This retreat by the state has left a large number of workers without even a semblance of legal protection that could have been provided to them under the DMA.

The moral of the story is that it will be unrealistic to assume that employers will pay wages and salaries when work has come to a halt. This is the bottomline, with a few respectable exceptions. In other words, wages and salaries are incidental to the production that is happening. This is the hard reality. The states had got the option to invoke section 72 of DMA and take penal action against defaulting employers. But that possibility vanished as the state has withdrawn its earlier directives. Further, there would be large number of defaulting employers scattered across the labour market. Majority of them being in the informal sector, and given the mystification of employer-employee relations, it would difficult to identify employers and their workers and initiate legal remedies.

Another option left to the State is to provide subsidy to the affected employers by paying a part of the wage bill. This depends on the fiscal capacity of the State too. It is now more than 50 days since the lockdown was enforced. Both the Centre and the states have not initiated action under DMA of violations although many employers have not paid wages and many have retrenched employees. Nor has the State announced any subsidy package like those in many other countries. A large number of workers therefore continue to suffer from non-payment of wages and/or retrenchment. Most of them received wages for March and a majority did not get paid for April.

The longer the lockdown continues the deeper the problems would get; while remedies are not clear-cut. Bailout packages are yet to be announced. It seems as if the State is unlikely to initiate legal action against defaulting employers since it is not a straightforward matter and because it has subsequently withdrawn its directives too. The trade-off here is not between life and livelihood. As livelihood is in itself life for this large workforce, the trade-off is between life and life. It is evident that the fallout is very grim. The State initially made appropriate noises but later withdrew and the existing labour legislations seem inadequate to protect the interests of workers.

The author is an independent researcher and works for the government of West Bengal. The views are personal.