Facing No Revenue Due to COVID-19: Is Temporary Employee Termination Justifiable?

Dear All,

We are an event management company based in Goa. During the current COVID-19 scenario, we have no events happening, and therefore there is no revenue, and the company is unable to pay salaries to employees.

In this scenario, is it okay to terminate a few employees until the situation becomes normal? Are there any directions from the government regarding this? Kindly advise.

Thank you.

The Government Directives dated 29th March 2020 are under challenge before the Supreme Court, and the verdict is expected this week. So you may await the same.

But let me tell you, things are going to be different post-Corona, and you need to think out of the box to leverage your core strengths to remain competitive in the market.

The Central Government's advisories under the DMA, 2005 have not been stayed by the Supreme Court except for taking any penal action against non-payment of wages only. In my opinion, it would not be reasonable to compel any employer to pay wages to the employees when business operations are shut down indefinitely under statutory directions by the State. Some European countries have offered up to 80% reimbursement from the Exchequer towards salaries of employees affected by the lockdown. Therefore, I would also recommend awaiting the verdict of the Court. However, you may try for a negotiated settlement with your employees to avoid any legal issues later.

Regards

Dear Sandra, Restrictions imposed earlier due to lockdown have been relaxed or lifted in the majority of cases. However, to return to the previous status quo (i.e., pre-lockdown or pre-COVID), it will take a long time. Hence, normalcy is not seen nearby, but it will certainly improve gradually.

Regarding the termination of your employees

In view of the non-flow of funds, it will depend on the manpower requirement, considering the present scenario in relation to their terms of employment and any statutory provisions, if applicable.

Regards

Government Directions on Employee Wages During COVID-19

Now, the Central Government is not stringent (w.e.f. 18/5/20) in enforcing their earlier directive to keep all company employees by paying full wages. The Supreme Court has issued an interim order not to take any coercive action if an employer/company fails to comply with the Government's direction. Hence, the matter is left to the company/employer.

Considering the fast-spreading pandemic COVID-19, if your financial capacity permits, you may keep your employees. Otherwise, you may temporarily suspend their services by giving an assurance that once the situation improves, they will be absorbed back into the rolls of the company, so that they may be at ease.

Dear Sandra,

Take your own decision if carry forward is not sustainable further. There is a way out to follow the route of the ID Act for retrenchment and lay off. The government would not issue any such guidelines in support of the termination of an employee by the employer. However, you need to discuss with the employees and determine your terms. If required, negotiate for an end result. I do not see that the apex court would come up with any possible solution, but recommendations would keep everyone safe from action.

Rethinking Employee Costs During a Crisis

Are you really viewing employees as the major cost during this crisis to survive? No! Employees are hard to find, and their skill set is difficult to retain too. Many are making this mistake, trust me. To get them back, you need to spend double the time and money, and the brand image is lost with these kinds of activities.

Alternatively, you can:

- Implement a pay cut
- Look for other areas to cut costs
- Consider offering them a sabbatical leave — with a little help from PF and other compensations. This will give them a sense of family and help you get them back when things are back on track.

Supreme Court's Interim Direction to Employers

Yesterday, the Supreme Court issued an order, which is also an interim direction, asking employers to engage in discussions with their employees. The Court has deftly shifted the responsibility onto the employers. We can no longer rely on the Court's assistance; instead, we must find our own solutions, such as reaching a settlement with our employees.

For employers, paying two or three months' salaries without any revenue will be challenging. However, it is even more daunting for an employee who may be the sole breadwinner for a family of five or six, struggling to make ends meet without a salary. In this specific scenario, if you believe that "no work, no pay" is a widely accepted principle, then those on the other side will not be available to generate income for you once the situation improves. They cannot turn to anyone else for help except you. It is your responsibility to ensure they receive at least enough to survive.

Avoiding Collective Bargaining Issues

Envision a situation where if they do not receive justice when requesting individually, they may unite and collectively bargain. This could lead to significant issues for you. In my experience, it is often the employers who inadvertently encourage the formation of trade unions among employees, rather than the employees themselves initiating it. Avoid creating conditions that prompt collective demands. Regard your employees as part of your capital and provide them with at least a subsistence wage to maintain a harmonious relationship.

Please let me know if you need further assistance or information.

Terminating employees with a good skill set that is very difficult to find after the pandemic or in the future involves more time and cost. To retain existing employees, consider implementing pay cuts and exploring other options to reduce unnecessary costs. This approach can be beneficial for your company in the long term.

Sir,

I am working in the same office, but the management has informed me that I am being shifted from Tumkur to Bangalore, or else it will lead to termination. I have already requested the management to consider any other options as there are no job openings due to the Covid-19 situation.

Please kindly advise me.

Supreme Court Order on Employer-Employee Discussions

The Supreme Court has issued an order, which is also an interim direction, instructing employers to engage in discussions with their employees.

An event management company requires skillful employees. Terminating these skillful employees will be a problem for the company in the future. It's better to retain them. Once the situation normalizes, it would be a major problem to hire new employees. Retaining the employees during this crisis and helping them financially and mentally (i.e., counseling) would increase the goodwill of the company. This, in turn, would help in the future expansion of the company after the pandemic.

Ask them for suggestions for the existing situation and encourage appropriate and suitable suggestions.

Employer Rights and Employee Termination

The employer has every right to terminate or remove any employee as per norms binding with labor laws and the law of the land, ensuring it fits within natural justice. Consider the situation in relation to your financial position, ensuring it is comfortable for both existence and the right to live and have employment. Think for a while about an amicable solution. All the best.

In my opinion, do not terminate the employee in this tough situation. I have also worked in the hospitality business where we initiated many small-scale new businesses to survive in the market.

It's your decision whether to implement a pay cut or place them on leave for a few days.

Regards, Prathmesh
HR & IR

According to me, terminating the employees would not be the best solution for the company. We should always remember that employees are assets of the company. Terminating them may worsen the company's situation even further. You may have to spend a lot to find people who can work as effectively as the employees you had previously. The costs of recruiting, training, etc., will be even higher and a burden to the company.

Instead, you can grant them leaves without pay. The company need not pay the employees when they have not worked for the organization. They won't have strong reasons to ask for salaries. Furthermore, the company can consider providing benefits like bonuses or team activities to the employees if revenue is generated and the company can afford to do something for the employees. The employees should be understanding of the current situation.

Thank you.

I wouldn't advocate for termination at this period in time but instead have a dialogue and quite honest discussions with the team—just for the purposes of reaching an amicable agreement where each party understands every decision taken at any given point. Communicate, communicate, communicate.

Aid commemorating to employees' survival, otherwise known as subsistence, could work out during this period.

You can resort to layoff if the permanent strength of employees is below 100. However, you need to pay layoff wages. Another option is to retrench them as they are rendered surplus by following the provisions of Section 25F, wherein retrenchment compensation at the rate of 15 days per completed year of service plus one month's notice pay is required to be paid. You need to display a category-wise seniority list and retrench the workmen on the basis of last come, first go. When the situation improves and you want to rehire workmen, you have to give preference of employment to them.

Individual notice is required to be displayed 8 days prior to retrenchment, and the dues are to be paid on the day of retrenchment; otherwise, it will be illegal and void.