With
almost a complete stand still at the work front on one hand, and different
updates / guidelines / directives from the relevant authorities on the other,
employers in the country have found themselves to be in uncharted territory
with respect to the issues relating to payment of salaries, liabilities for non
– payment etc. and statutory compliances pertaining thereto.
The
uncertainty has only grown in the past few days, with the likelihood of the
lockdown being extended looming large on Corporate India.
Through
this update, we have tried to answer some common queries, which are currently
being faced by the employers.
1.
What are the various legal provisions governing this
field?
Employment Law in the country is very broadly dealt with by the following
enactments:
a) The Payment of Wages Act, 1936
This statute provides for common obligations of the employer towards its
employees such as responsibility of the employer to make timely payment of
wages to the employees. It regulates the payment of wages to certain classes of
employed individuals who draw a monthly wage of up to INR 24,000/- by working
in a factory or with the railway administration or employed in
the industrial sector.
b) The Minimum Wages Act, 1948
The Minimum Wages Act prescribes the minimum rate at which wages are to
be paid to the employees in all establishments as specified in the schedule of
the Act.
The Central Government and the State Governments revise minimum wages specified
in the schedule. The employees have been classified as unskilled, skilled and
semi-skilled for prescribing the rate of wages.
c) The Payment of Bonus Act, 1965
This enactment
lays down the provisions for payment of bonus to employees in certain
establishments on the basis of profits or productivity. The Act provides for
specific wage ceiling / threshold under for its applicability i.e. it is
applicable to establishments employing 20 or more persons and to such employees
whose wage / salary does not exceed INR 21,000/- per mensem.
d) The Factories Act, 1948
This Act empowers the State Government to frame rules for ensuring proper
regulation of the factories (as defined under this Act) with respect to health,
safety, welfare, working hours and leave of workers in factories. Broadly speaking
all industrial establishments employing 10 or more persons and engaged in
manufacturing activities with the aid of power will come within the purview of
this Act.
e) State Shops and Establishment Enactments
The Shops and Establishment Act is a state legislation whereunder each
state has framed their respective rules and regulations. It provides for the
rules relating to the holidays, leaves, termination of services etc.
2.
What are the
recent developments in law (given the pandemic) which affect employer
liabilities?
Due to the outbreak of COVID 19 in the
country, the Ministry of Labour and Employment, Government of India issued
an advisory to Chief Secretaries of all States and Union Territories in
the country on 20.03.2020.
This advisory, inter alia, had stated that even if the work place is
made non-operational because of COVID 19, the employees will be deemed to be on
duty. It further stated that all employers of public/ private establishments in
the States may be advised to extend their co-operation by not terminating their
employees or reducing their wages.
Pursuant to the said advisory, several
States had also issued similar guidelines inter
alia directing the employers (including private companies / establishments)
for closure of their workplace until 31.03.2020 and also directed them to
refrain from terminating the employment of any employee or making deduction to
the wages and / or salaries.
With effect from 25.3.2020, a complete
nationwide lockdown was imposed in the country, which resulted in mandatory
closure of the business and operations (at the workplace) until the end of the
lockdown period. In furtherance of the said lockdown, and upon noticing the
vast migration of workers in the country as a consequence of the same, the
Ministry of Home Affairs issued an
order dated 29.03.2020 [“MHA
Order”] under Section 10(2)(l) of the Disaster Management Act, 2005. Vide
this order, guidelines have been issued to States with specific reference to
the mitigation of economic hardship of migrant workers. Inter alia, States have been directed to take
necessary actions and to issue necessary orders to the relevant authorities
within the State that all employers, be it Industry or in shops or in
commercial establishments, shall pay wages to their workers on the due date,
without any deduction for the period of closure of the workplace because of the
lockdown. Necessary action under the Disaster Management Act is to be taken in
case of violation of these measures.
3.
In such a
situation, are employers required to pay salaries / wages to their employees
during this period?
Information in the public domain is
limited as to which States have issued necessary directions for payment of
salaries/ wages in terms of the MHA Order. For example, the Notification issued
by Maharashtra
directs payment of full wages and salaries to all employees and workers during
the period of the lockdown. It has also been reported
that Gujarat has issued a similar order. It is therefore advisable to ascertain
the exact terms of the order issued by the respective State Governments before
taking a decision.
Having said that, the intent of the MHA
Order, and the consequences for non-compliance thereof are amply clear. Also,
considering the welfare of the majority of its populace, one can rest assured
that each State in the country would take necessary measures for protection of
the livelihood of the working classes in the society.
An employer
would thus be well advised to continue payment of salaries and wages during the
entirety of the lockdown period. Our opinion is based on the following reasons:
While the
advisory / guidelines issued by the Government of India on 20.03.2020 (and
subsequent advisories issued by the various State Government pursuant thereto) are
merely in the nature of advise
and the same shall not be binding, the order dated 29.03.2020 has been issued by
the Ministry of Home Affairs through its Secretary in his capacity as
Chairperson of the National Executive Committee in exercise of powers conferred
under Section 10(2)(l) of the Disaster Management Act, 2005. Therefore, the
directions passed under the said order having statutory backing, shall have the
binding effect and the same are required to be complied with.
Irrespective as
to whether or not the States have issued necessary orders following the MHA
Order, it begs mention that various States, have issued separate (similar)
orders by inter alia invoking the
provisions of the Epidemic Diseases Act, 1897.
Both, the Disaster
Management Act and the Epidemic Diseases Act provide consequences for
non-compliance with the directions issued under those enactments. The
directions may thus be assumed to require mandatory compliance.
Therefore,
keeping in view the socio-economic impact of the present situation and the
intent of the advisories / guidelines / directions issued by the Government of
India / State Government (by invoking the provisions of Disaster Management Act
and / or Epidemic Diseases Act, 1897), the directions for payment of the
salaries / wages to the employees appear to be binding upon the employers.
It is pertinent to note that the
advisories / guidelines / directions would apply to all the employers /
establishments irrespective of type of establishment. The reason behind this is
that neither the advisories / guidelines / directions make any exception in
this regard nor the provisions under which they have been issued provides for
any such distinction.
4.
Whether
directions with respect to payment of salaries / wages would apply evenly to
all the employees?
In India, labour
and employment issues can be broadly categorized into two parts.
Firstly, the
ones which are primarily governed by the Central and/or State enactments
including municipal laws, notifications etc. (which are broadly set out in
answer to the first question, above) and secondly, the issues pertaining to
collective and / or individual agreements between the employees and employer.
Re: Employees
Protected under Enactments
Subject to the
applicability of the notification / guidelines / directions (as discussed in
detail in the previous answer), it may
be noted that in absence of any specific distinction made (in the directions
and advisories issued by the Centre or State Governent) with respect to any
provision for payment of wages / salaries under any specific statute (which are
broadly set out in answer to the first question, above), it appears that the employers
are required to make full payment in the mode and manner as was applicable
prior to the issuance of the directions.
Re: Employees
governed through the terms of the Agreement
With respect to
such employees who are not governed by the aforesaid statutes, it is noteworthy
that they shall be required to be paid in full and on due date as per their
respective employment agreements. However, it would be open for the employer to
negotiate the terms for deduction, deferment or non – payment of salaries of
such employees.
To elaborate, we
have set out below a broad categorization of employees typically found in an
organization, along with our opinion as to whether payment of remuneration to
those employees is mandatory in the current situation:
a) Unskilled and Semi – Skilled Employees drawing a wage of upto INR
24,000/- per month:
Broadly speaking, these are the employees who are
engaged in the primary work in an organization and are either directly employed
or works as a contract labour. As per aforesaid discussions, it is advisable
that the employers make timely payment of the remuneration to these employees.
It is also noteworthy that the order dated 29.03.2020 by Ministry of Home
Affairs uses the word ‘wages’ and not ‘remuneration’, ‘salary’ etc.,
on the basis of which it may be argued that the intention of the authorities
while issuing the aforesaid directions was to safeguard the economic interest
of such workers who are either working in unorganized sectors or are drawing
hourly / daily remuneration.
b) Managerial Level Employees:
The payment of salaries to such employees who are
engaged in the lower and middle level management will be primarily governed by
the employment policy of the organization and agreement executed with such
employees. As stated above, the employers can negotiate the terms with these
employees with respect to deduction in payment, deferment and / or non –
payment of their salaries. Depending upon the employment policies and
applicable state law, the employers can also opt to exhaust the different types
of leaves against the payment being made during the lockdown period.
c) Top Level Management:
These are the employees who also hold a top level
managerial position in an organization like CEO, COO, Managing Directors,
Partners etc. Their employment terms are generally governed by the key
managerial personnel agreements executed with them and / or by incorporation
documents. The payment of salaries to such employees depends upon the mutual
understanding with them and the agreements executed by them. Being in the
driving seat of organization, the agreements with key managerial personnel
generally includes the provision for waiving off of either whole or certain
percentage of the salary if the occasion so necessitates. It is advisable to
check the respective agreements before deciding to pay and / or negotiate with
such employees.
5.
What happens if
employers don’t comply?
The non-payment
of remuneration, at these times, to the employees mentioned under point (a)
above, and the resultant non compliance of various directions issued by Central
and State Government may constitute an offence under several laws including
Disaster Management Act, 2005, Epidemic Diseases Act, 1897 and applicable
labour laws. These enactments provide for penal consequences for
non-compliance, including imprisonment and fine depending on the gravity of the
offence.
On the other
hand, unilateral non payment of salaries to employees mentioned under point (b)
and (c) above may result in filing of civil actions (for recovery of dues and
damages) against the employer.
STATUTORY COMPLIANCES IN EMPLOYMENT AND LABOUR LAWS
An additional question as to the timelines for
statutory compliances in the context of employment and labour laws has also
arisen. We have tried to answer this question on the basis of the recent
developments:
6.
Whether during
these times the employers are required to continue with the statutory
compliances under various enactments?
In view of the present situation, the
Central Government has passed various orders and notifications relaxing the
time lines for compliances under several statutes including ROC compliances,
tax compliances, insurance related compliances, employment law compliances etc.
It is important to note that no complete exemption has been provided from
complying with any statutory requirement and only certain relaxations have been
provided by the Government. The statutory compliances which are required to be
complied with by the employers and the corresponding relaxation have been set
out below:
a)Filing of
unified annual returns: The Ministry of Labour and Employment, Government of
India has extended the time lines for filing of the unified annual return under
the 8 central enactments namely, (i) the Payment of Wages Act, 1936, (ii)
the Minimum Wages Act, 1948, (iii) the Maternity Benefit Act, 1961, (iv) the
Payment of Bonus Act, 1965, (v) the Industrial Disputes Act, 1947, (vi) the
Contract Labour (Regulation and Abolition) Act, 1970, (vii) the Inter-State
Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979,
and (viii) the Building and Other
Construction Workers(Regulation of Employment and Condition of Service) (BOCW)
Act, 1996. The said unified annual returns for the year 2019 were required to
be filed in between 01.01.2020 to 01.02.2020. However, the timelines for the
same have been extended till 30.04.2020.
b)
Employees
State Insurance Contribution: The Director General of Employees State Insurance
Corporation had extended the time lines for payment and filing of ESI
contribution for the month of February, 2020 and March, 2020. The time duration
for monthly filing under the regulations have been increased from 15 days to 45
days for the said months thereby extending the last date of filing (and
payment) to 15.04.2020 and 15.05.2020 for the months of February, 2020 and
March, 2020 respectively.
In addition to
the above, various States have extended the due dates for compliances under the
Factories Act
and respective state rules and regulations. Moreover, some State Governments
(for example Gujarat) have also suspended / relaxed the regulations for renewal
of various licenses including license under Contract Labour (Regulation and
Abolition) Act, 1970.
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Section 2(g) read
with Section 27 and the Schedule of the Minimum Wages Act, 1948 defines
‘Schedule Employment’ and provides for a list of employments under the given
industries which are included under the said definition. Further, in Section
2(i) of the Minimum Wages Act, 1948, the definition of ‘Employee’ specifically
refers to such persons who are employed in Scheduled Employment, thereby
restricting the scope of the Minimum Wages Act, 1948.
D.O.No. M-
11011/08/2020- Media dated 20.03.2020
Order No.
40-3/2020-DM-I(A) dated 29.03.2020
Such guidelines /
notifications issued by Government which are advisory is nature do not fall
into the category of legislation (direct, subordinate or ancillary). They have an advisory role to play and
non-adherence to them may be condonable if the circumstances of any particular
fact or law situation warrants the same, unless it is seen that the deviation
(from such guidelines) either involves arbitrariness or discrimination or is so
fundamental as to undermine a basic public purpose which the guidelines and the
statute under which they are issued are intended to achieve.[See Narendra
Kumar Maheshwari v. Union of India & Ors. AIR1989SC 2138; Poonam Verma
& Ors. v. DDA, (2007)13SC C 154]
Reference may be
made to lockdown order bearing no. G.O.Ms.No.45 dated 22.03.2020 issued by the
Government of Telangana.
As per the
general accounting practices, wages are calculated hourly and paid to the
workers at the lower level of employment engaged mainly in manufacturing
activities and ‘salary’ is used to denote the remuneration of managerial level
employees which is also related with the leaves and allowances under various
enactments.
Letter dated
20.03.2020 bearing no. F.No.14(112)/2013/Coord-IT Cel issued by Ministry of
Labour and Employment.
Reference may be
made to Notification No. GHR/2020/53/FAC/142020/343/M# dated 04.04.2020 issued
by Government of Gujarat.
