he uncertain economic situation brought on by the Covid-19 pandemic and consequent lockdown has led to hard decisions, with companies cutting expenditure by downsizing their workforce and reducing/deferring payment of salaries. An understanding of applicable employment laws is key in such times.
The Industrial Disputes Act, 1947 defines “lay-off” and “retrenchment” in Sections 2(kkk) and 2(oo) respectively. The term “workman” is also widely defined and includes those performing any “manual, unskilled, skilled, technical, operational, clerical or supervisory work, but excludes those employed mainly in a managerial/administrative capacity and those employed in a supervisory capacity drawing wages greater than ₹10,000 pm.”
Legal provisions
The Madras High Court, in an order (2015-2-LW127), held that “whether one is a workman or an employee other than a workman, is to be decided not on the basis of designation, but, on the basis of the work performed by the employee”.“Lay-off” refers to inability of the employer to provide employment to its workmen on account of shortage of power, raw materials, accumulation of stocks, break-down of machinery, natural calamity, or any connected reason. The Act provides for lay-off compensation equal to 50 per cent of the total basic wages and DA.
Manufacturing industries, crippled into halting operation or otherwise falling within the parameters of Section 2 (kkk) of the Act, may lay-off parts of their workforce as a temporary measure until the situation improves. That said, courts have held that while it is the employer’s prerogative to lay-off its employees, the same cannot be done in a mala fide manner [Tatanagar Foundry Co v. Their Workman, 1962 I LLJ 382 (SC)].
“Retrenchment” refers to termination of service for any reason except as a punishment for any disciplinary action [Section 2(oo)], with an obligation to pay compensation calculated as 15 days’ average pay for every year of continuous service.
With “workman” being exclusive of managerial or administrative employees, their termination falls outside of the Act and is instead is governed by employment agreement and applicable shops and establishments legislation. As per Section 41 of the TN S&E Act, 1947, dismissal requires reasonable cause and a month’s notice or wages, provided that the employee has been continuously working for six months. Other States provide a similar mechanism.
The Labour Ministry issued an advisory on March 20, requesting that companies continue to pay their employees wages during the lockdown period. The advisory requests private/public enterprises to not terminate employees or reduce their wages, and states that employees on leave shall be deemed on duty without wage deduction. The advisory, however, is just that.
Further to this, on March 29, the Ministry of Home Affairs issued an order under the Disaster Management Act, 2005 directing that during the lockdown period, employers shall make wage payments on the due date without any deductions. On April 27, in response to a batch of writ petitions challenging validity of the order, a three-judge Bench of the Supreme Court directed the Centre to ‘place its policy’ on record.
Even with the legal framework in place, many companies, notably prominent airlines, have put their senior employees on “leave without pay” until May 4. The legality of this move is questionable, however, since an employee can be denied wages only when he was absent when required to work (Section 9 of the Payment of Wages Act, 1936).
Some organisations are even encouraging employees to use their earned leave.
Recently, some companies have introduced voluntary resignation schemes for managerial level staff. A well-known budget hospitality chain has, for example, introduced a scheme under which employees will be paid one month’s salary and their insurance cover will be continued even after termination.
Some companies facing liquidity issues are providing its employees ESOPs in lieu of their salary. In one such instance, a well-known mobility service company has announced that employees and promoters will be taking voluntary pay cuts of varying degrees. The company has further indicated that it is looking to issue employee stock option plans during this interim period in lieu of salary cuts. While employees retain their jobs, this pushes the financial burden down to a future date.
Changes in a post-Covid world
It is likely that we will see a permanent shift in employment arrangements after the Covid-19 crisis passes. First, we may encounter more employers adopting fixed-term contracts with employees. Second, the economic situation in the common man’s home may lead to a rise in moonlighting.
There is also a strong possibility that working from home becomes a norm in certain sectors. In a post-Covid world, sprawling office spaces may become a thing of the past.