Several business enterprises are being forced to take the step of reducing the wages of their workforces. In certain extreme cases, companies are also sending employees on furloughs (non-paid long leaves) and terminating their services.
ETCFO | May 25, 2020
The outbreak of the covid-19 pandemic which has already been declared as a ‘notified disaster’ has created a severe stress situation practically for most sectors of the Indian economy. The scale of the crisis can be described as unprecedented in modern times. The 21-day extended coronavirus-induced lockdown has led to massive disruptions in supply chains and the suspension of operations by a large number of companies. Faced with shrinking bottom lines and restricted cash flows, several business enterprises are being forced to take the step of reducing the wages of their workforces. In certain extreme cases, companies are also sending employees on furloughs (non-paid long leaves) and terminating their services.
The livelihoods of several employees are at stake with a gloomy economic outlook and adverse business sentiment threatening their economic stability indefinitely. Realizing the need to provide economic sustenance to workforces and ensure their financial security in the face of macroeconomic turbulence, the central and state governments have issued advisories for employers so as to safeguard the interest of employees. To cite an instance, a directive has been issued by the Union Ministry of Labor and Employment to the Chief Secretaries of concerned state governments to bring out advisories directing public and private companies to refrain from terminating services of employees and declaring layoffs. The government has urged all undertakings to take a humanitarian overview of the situation and not resort to tough economic actions against employees, especially those who are casual or contractual workmen.
The government (Ministry of Home affairs) has exercised power under the Disaster Management Act by issuing order dated 29.03.2020 directing various establishment not to cut salary or terminate employment of workmen/ Migrating workers. The State government also exercised powers under Epidemic Act giving directions to the employers for the welfare of employees. Some of the orders are Mandatory while most circulars are advisory. Various advisories have laid down the tentative guidelines on how companies should treat employees in the wake of the covid-19 crisis.
The Order dated 29.03.2020 issued by MHA along with some directives issued by state government were challenged before the Supreme Court. However, Supreme Court passed orders on 30th April, declining to stay the operation of these orders passed by Central government and State Government. The Supreme Court will take final view later while deciding the challenge but the fact remains that presently, the orders and directives passed and issued under Disaster Management Act and Epidemic Act are binding and any order/circular/directives issued by government which are not backed by power vested by law then all such directions are not carrying the power of a legal mandate and employers cannot be coerced to comply with their instructions in a verbatim manner.
Employees rights if employer terminates
In this back ground, what needs to be understood is that in the wake of the covid-19 outbreak, a private sector employee cannot claim eligibility for any special status while seeking legal relief against termination and wage cuts by his company. We further need to analyze here under what circumstances and laws an employee can challenge the termination and pay cuts. Under normal conditions, the relationship of an Employer and Employee is governed by the contract of employment which is drawn up when the employee joins the organization. In the wake of the covid-19 crisis when companies are facing grave financial adversities, employers may resort to the deduction of salaries in mutual agreement with their employees. However, in case an employee is refusing to work at a reduced salary, employers may choose to terminate employment by complying with the terms of the contract like paying notice salary. Employees always have the option of approaching a court of law for seeking damages but they do not have the right to seek reinstatement in their organization.
We also need to assess here whether rules or regulations regarding pay cuts differ for employees on payroll of companies and those who are casual and employed on contractual terms. In the case of workmen who are employed in compliance with the terms of industrial laws, the employer-employee relation will be as per the statute. Moreover, as discussed above all these employees are protected by orders and directives issued under Disaster Management Act and epidemic Act.
Thus, the difference is of workmen under Industrial law and migrant worker is protected from Salary cut and termination but no such protection is available to other employee in private sector who is governed by the contract of employment.
Court to take a call on employee termination
Having said that no protection is available to employee who is not a workman, it is noticeable that a petition has also been filed by National Information Technology Employees seeking implementation of aforesaid advisories and directions issued by Central Government in its order dated 29.03.2020 and similar orders issued by several other State Governments on employees who are governed by contract of employment. Supreme Court has agreed to examine this issue pertaining to mass termination of employees and withholding/deduction of salaries of IT/ITES/BPO/KPO employees by the employers during Covid-19 lock down. Thus now the Hon’ble Supreme Court will rule not only on validity of various orders but will also rule if the employees of IT sector are covered. It will be interesting as to how Supreme Court will rule on this. In my opinion, Hon’ble Supreme Court is unlikely to interfere and at best can direct that the employers would be bound by the contract of employment and would be bound to pay salary for the Notice period where ever provided in the contract of Employment at the time of termination. In my opinion Supreme Court is unlikely to alter the existing terms of the contract employment in respect of such employees. The fundamental principle of law is that Courts are not to write a contract between the parties. However, in this era of crisis, Supreme Court is called upon to balance the equities between employer and employee. It would be interesting to see as to how the Apex court will deal with the situation in the light of position of law.
How to maintain is a difficult question to answer. The employers got to adopt a humanitarian approach and employee got to realise the fact of no cash flows are happening and the employer is in a difficult situation. A consensual approach where the employee agrees for deduction and employer is taking a humanitarian approach while deciding minimum salary cut will help build strong relations between employer and employee. Further, where an establishment has surplus and sufficient cash balances, in all fairness they should not be resorting to Salary cut. Even the employers announcing salary cut, should ensure each of the employee that in the event of business doing well in future months’ post lifting of lock down all deductions shall be restored is necessary in this time of global crisis.
Sanjay Gupta, Senior Partner, SNG & Partners
About the Author: Sanjay Gupta is Senior Partner of SNG & Partners, a relationship based Firm.
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