COVID-19 lockdown: Statutory requirements to pay wages

Is there any Statutory Requirement to pay wages during the Lockdown?

The Indian Government issued a 21 days lockdown order for the entire country which started on 25th March, 2020. This resulted in closure of all establishments except the ones which provide essential services. Many people are not able to work especially in the manufacturing sector. To protect the interest of the employees, the Ministry of Home Affairs issued an order on 29th March, 2020, an abstract of which is below:

"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 workplaces, on the due date, without any deduction, for the period their establishments are under closure during the lockdown"

It is important to understand whether there is any legal/ statutory requirement to pay wages to the workers, including permanent workers, contractual workers and inter-state migrant workers? The Government of India and almost all the State Governments have issued an advisory and have asked the employers to pay wages for the lockdown period not only to the permanent workers but also to temporary/ contractual workers and inter-state migrant workers.

On humanitarian grounds, there should be no second thought in the mind of an employer to pay wages to employees during the lockdown period. However, whether they can or should incur the expenses as an obligation is a thing to ponder upon!

The Central Government, invoking the provisions of the Disaster Management Act, 2005 has declared a lockdown until 14th April, 2020. The State Governments invoking the provisions of Epidemic Diseases Act, 1897, have framed certain regulations and have issued certain directions/guidelines/communications. Through these communications governments have asked the employers to pay wages to all the workers. It is important to understand that these communications neither comes within the framework of the Epidemic Diseases Act and Disaster management Act nor is backed by any statutory law.

Many employers have undertaken to pay their employees' salaries in full while others are facing the heat amid the poor economic conditions. MSMEs and SMEs are in a really tough spot.

Should the Employers pay the salary/ wages in full?

Looking at the present circumstances, since there is no provision in any law which allows deduction of salary and also, above all, Central and State Governments have issued advisory/communications to pay the wages in full. It is advisable to follow the Governments' advisory until any exemption is released in this regard.

Can the employer resort to Layoff provisions?

As per provisions of Industrial Disputes Act, 1947, Layoffs are permitted due to lack of business requirement and 50% wages to the workers till such time that business recovers with approval from government. But, can the employer resort to this provision to get certain relief?

As per the definition of 'Lay off', if an employer is unable to provide employment to an employee due to a natural calamity or for any other connected reason, then the same would fall within the definition of “Lay off”. Section 25M of the Industrial Disputes Act, 1947, requires an industrial establishment with more than 100 workmen to seek prior permission. However, such permission is not mandated if the lay-off is due to a natural calamity.

It is advisable to follow the advisory, and in case of unavoidable circumstances approach the appropriate authorities to seek permissions.

How to cope with the financial crisis due to COVID 19 lockdown?

Financial crisis during the lockdown period is very much a possibility! This will result in inability to pay the wages and may be to the need of winding up the business. As per the provisions of Industrial Disputes Act, 1947, Retrenchment Compensation should be paid to workers with the approval from Government. However, as per the Government advisory, the employment should not be terminated. In case of the unavoidable circumstances, it is advisable to approach the adequate authorities to seek required permissions.

Road Ahead:

The Government of India would need to come up with a relief plan to incentivize the employers towards the wages paid by them during the lockdown period. The plan can be linked to the wages paid by the employer for a month. Any such plan to incentivize or to provide subsidy to private employers' especially to MSMEs' and SMEs' will help them to overcome the hardships and in some cases to avoid bankruptcy. A small step to allow the wage cost incurred by employers as CSR expenditure can support them in this tough time.

Most crucially, if, for any reason the lockdown gets extended by the Government, private employers should not be further asked to bear the burden of wage cost in an entirety as this will further stricken the conditions for them.

Is there any Statutory Requirement to pay wages during the Lockdown?

The Indian Government issued a 21 days lockdown order for the entire country which started on 25th March, 2020. This resulted in closure of all establishments except the ones which provide essential services. Many people are not able to work especially in the manufacturing sector. To protect the interest of the employees, the Ministry of Home Affairs issued an order on 29th March, 2020, an abstract of which is below:

"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 important to understand whether there is any legal/ statutory requirement to pay wages to the workers, including permanent workers, contractual workers and inter-state migrant workers? The Government of India and almost all the State Governments have issued an advisory and have asked the employers to pay wages for the lockdown period not only to the permanent workers but also to temporary/ contractual workers and inter-state migrant workers.

On humanitarian grounds, there should be no second thought in the mind of an employer to pay wages to employees during the lockdown period. However, whether they can or should incur the expenses as an obligation is a thing to ponder upon!

The Central Government, invoking the provisions of the Disaster Management Act, 2005 has declared a lockdown until 14th April, 2020. The State Governments invoking the provisions of Epidemic Diseases Act, 1897, have framed certain regulations and have issued certain directions/guidelines/communications. Through these communications governments have asked the employers to pay wages to all the workers. It is important to understand that these communications neither comes within the framework of the Epidemic Diseases Act and Disaster management Act nor is backed by any statutory law.

Many employers have undertaken to pay their employees' salaries in full while others are facing the heat amid the poor economic conditions. MSMEs and SMEs are in a really tough spot.

Should the Employers pay the salary/ wages in full?

Looking at the present circumstances, since there is no provision in any law which allows deduction of salary and also, above all, Central and State Governments have issued advisory/communications to pay the wages in full. It is advisable to follow the Governments' advisory until any exemption is released in this regard.

Can the employer resort to Layoff provisions?

As per provisions of Industrial Disputes Act, 1947, Layoffs are permitted due to lack of business requirement and 50% wages to the workers till such time that business recovers with approval from government. But, can the employer resort to this provision to get certain relief?

As per the definition of 'Lay off', if an employer is unable to provide employment to an employee due to a natural calamity or for any other connected reason, then the same would fall within the definition of “Lay off”. Section 25M of the Industrial Disputes Act, 1947, requires an industrial establishment with more than 100 workmen to seek prior permission. However, such permission is not mandated if the lay-off is due to a natural calamity.

It is advisable to follow the advisory, and in case of unavoidable circumstances approach the appropriate authorities to seek permissions.

How to cope with the financial crisis due to COVID 19 lockdown?

Financial crisis during the lockdown period is very much a possibility! This will result in inability to pay the wages and may be to the need of winding up the business. As per the provisions of Industrial Disputes Act, 1947, Retrenchment Compensation should be paid to workers with the approval from Government. However, as per the Government advisory, the employment should not be terminated. In case of the unavoidable circumstances, it is advisable to approach the adequate authorities to seek required permissions.

Road Ahead:

The Government of India would need to come up with a relief plan to incentivize the employers towards the wages paid by them during the lockdown period. The plan can be linked to the wages paid by the employer for a month. Any such plan to incentivize or to provide subsidy to private employers' especially to MSMEs' and SMEs' will help them to overcome the hardships and in some cases to avoid bankruptcy. A small step to allow the wage cost incurred by employers as CSR expenditure can support them in this tough time.

Most crucially, if, for any reason the lockdown gets extended by the Government, private employers should not be further asked to bear the burden of wage cost in an entirety as this will further stricken the conditions for them.