Can We Legally Implement 'No Work, No Pay' for Outsourced Workers During Downtime?

My company manufactures automotive components. For this, we use outsourced manpower as helpers in our production process.

Now, we anticipate that we will not have production for almost ten days in the last week of July 2024. So, we want to go with the 'No Work, No Pay' option for these outsourced manpower.

My questions are: Can we do this, and what will be the required legal compliance or relevant section I can use?

Regards

First of all, please check the terms and conditions between the outsourced agent and PE. Normally, it is "No work, no pay."

However, there is a humanitarian aspect. If your permanent employees will receive their full salary, my suggestion is to pay contractual employees a portion of their salary (between 30% to 50%). If these contractual employees continue in the future, it will help maintain better human relations.

S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions

If the contract with the Contractor, a manpower supply agency, is genuine, then you can ask the contractor to withdraw them for 10 days. It is then up to the contractor whether to pay the salary to them or not. If the contractor is able to redeploy them to other plants where engaged workers are present, then there is no need to pay any layoff compensation. However, if they are kept idle, the contractor will have to pay layoff compensation at a rate of 50% of wages.

Contractual Authenticity and Layoff Compensation

Now, if the contract with the Contractor is not genuine and is a sham, the workers should directly report to the officers of the Principal employer for leave, wages advance, etc. The supervisors of the Principal employer should only guide, direct, and control the work of the contractor's workers. In this scenario, it would be considered that the contract is a sham, and the Principal employer will have to bear the layoff compensation.

Applicability of Industrial Disputes Act

If the total number of workers, including contract workers, is less than 50, the provisions relating to layoff under the Industrial Disputes Act will not be applicable to you. Consequently, you cannot lay off any workers, and if you declare a layoff, you will have to pay full salary. There is a misconception that an establishment not falling under the scope of section 25A(a) (i.e., an establishment where less than 50 workers are employed) need not pay any layoff compensation. However, in Workmen Vs Firestone Tyre & Rubber Co [1976(1)LLJ493 SC], the Supreme Court of India clarified that companies employing fewer than fifty workers cannot lay off the workers. If the workers are laid off, they should be paid 100 percent wages during the layoff period in the absence of service conditions.

Thank you so much, Mr. Bandyopadhyay and Mr. Madhu, for sharing your insight. Just to elaborate on my concern a little more...

Our company size, including the contract manpower, is only 50. When we considered the option of No Work No Pay, we even required our employees to take 2 days of leave.

I had discussed with our contractor, and he mentioned that as per Section 25E of the ID Act, he would offer alternate employment for those 8 days. However, these resources refused to accept that and instead began agitating. They brought in political pressure and involved the Factories Inspector to push us to pay wages for those 8 days, while the Labor Inspector did not intervene as we had kept him informed about this situation.

So, I would like to understand if, in the future, we encounter a similar situation, would it be possible and the correct move from our side to give notice to the agency, LI, and FI informing them about the said shutdown? This way, these resources would not agitate again. Currently, we only had a verbal discussion with the LI and the agency.

Thanks a ton in advance for your support.

This is not a question of legal compliance, but of Industrial Relations. Your contractor agreed to provide them work elsewhere, so legally they were required to go there. However, once political parties are involved, you rarely have a choice. Believe me, this is only the beginning of your problems.

If the contractor is ready to offer alternative employment to the employees, there should not be any legal objection from the workers. However, in practical scenarios where politicians are involved, it becomes a matter of rights and power for them. As Swastha has rightly said, it may even escalate to the next level of an industrial dispute. Therefore, it is advisable to find a suitable way to eliminate the current contract and initiate new contracts with conditions that are favorable to you.

Much appreciated, Saswata and Madhu. I will look forward to eliminating this contract itself. However, regardless of the contractor, I believe the political pressure will persist because most of the resources come from in and around our factory.

You missed the point, Mr. Pats.

Madhu's recommendation
Madhu's recommendation is to eliminate the contracting system, I think. See if you can have this work done by permanent employees. If it is perennial work, what benefit do you really get by having them on someone else's payroll?

Political dispute or IR issue
My point is: This is a political dispute or an IR issue, not legal. If you are unfair and distinguish between two sets of employees and discriminate against one of them, you should be ready for a fallout of this nature. You can soon expect unions to make inroads into your company.

Impact of sudden shutdown
You have workers who are basically employed all year round in your factory. Now suddenly you have a shutdown for 10 days (which is probably due to some maintenance activity, you have not clarified that). You, as a business, can survive it. How exactly do you expect your workers to live the month with one-third of their salary gone?

Do you expect cooperation from workers to whom you are saying, "I will eliminate your one-third pay this month for my benefit?" Once you did something like that...

Concerns about alternate employment
You have not explained where and what the alternate employment is, and whether they are being paid the same rate. Of course, the workers will always be worried that this is a trick to get them out of there so you can replace them with cheaper workers/helpers. Your communication ability also makes a massive difference, especially in a small company.

Yes, Saswata is right. With a workforce of just 50 workers, is it really necessary to have a contractor in between? Certainly, for a workforce of 50, how many workers would be needed to take care of non-perennial work like housekeeping or security? If you are involving them in core production activities, it could lead to a legal issue because a principal employer is not supposed to engage contract labor in work of a perennial nature. Authorities can then require you to consider them as regular employees or to factor them in when future vacancies arise.