Legal Opinion
Querist: Federation of Indian Chambers of Commerce and Industry
Address: 1 Federation House, Tansen Marg, Todermal Road Area, Mandi House, New Delhi, Delhi 110001
The Querist has sought an opinion regarding the liability of employers to remunerate their employees in light of situations like the current spread of the pandemic, namely COVID-19, which has led to a lockdown declared by the Central Government starting from 25.03.2020, resulting in work cessation or adverse impact on industry/company output.
Background
(i) The COVID-19 outbreak started from Wuhan, China on 31.12.2019 and by March had spread worldwide, affecting international and national economic activities.
(ii) On 11.03.2019, the World Health Organization declared COVID as a pandemic. With a sudden increase in cases in India, various State Governments imposed lockdowns, leading to work cessation in various industries/organizations/companies. Subsequently, on 24.04.2020, the Central Government declared a nationwide 21-day lockdown, allowing only essential services to function.
(iii) Given the current situation where many countries are severely impacted by the virus and cases are increasing in India, there is apprehension about the persistence and impact of COVID-19 on the economy and financial sector.
(iv) On 27.03.2020, the Ministry of Labour and Employment issued a circular advising industries/enterprises/companies/associations not to retrench employees and to continue paying wages/salaries.
(v) On 29.03.2020, the Ministry of Home Affairs issued an order constituting an Empowered Committee under the Disaster Management Act, 2005, requiring full wages to be paid to workers.
Therefore, this legal opinion is provided in light of this background.
Query
Whether employers will be liable and obligated to remunerate their employees in situations where work at industries/enterprises/organizations/companies is affected or ceased due to an epidemic outbreak and subsequent government lockdown?
Deliberation on the Query
In the background of the distress caused by the COVID-19 outbreak, companies/industries/associations and their workforces are facing significant challenges during this disruptive period. Due to the lockdown, almost all business activities have come to a halt, impacting business entities and the economy at large.
Types of Employment to Be Deliberated Upon
A. Public Service
B. Private Service
(i) Workmen, including contract workers, casual workers, migrant workers, and sales promotion employees as defined in the Sales Promotion Employees (Condition of Service) Act, 1976
(ii) Employees earning a salary of more than Rs. 10,000 per month.
Various Legal Provisions Governing Employer Liability and Deliberation in Light of the Current Epidemic
A. Public Service:
Public service is governed by the Central Government, State Government, DoPT Guidelines, or other codified norms or service laws. Although workers in public service are usually paid as per due process and statutory obligations, some State Governments have decided to deduct employee remuneration due to revenue deficits.
B. Private Service:
The Ministry of Labour and Employment issued a circular on 20.03.2020 advising employers not to terminate employees or cut wages, which was followed by an order on 29.03.2020 requiring employers to pay wages to all employees. This order is enforceable under the Disaster Management Act, 2005, with penalties for non-compliance.
Since the issuance of the order on 29.03.2020, employers are obligated to pay wages without deductions due to the overriding effect of the Disaster Management Act, 2005. State Governments like Maharashtra, Haryana, Uttar Pradesh, Telangana, Karnataka, and West Bengal have adopted this order, making it mandatory for employers to refrain from terminating employees or reducing wages.
Legal Opinion
Regarding the applicability of government orders to industries/commercial establishments/enterprises/organizations, two situations arise:
a) If some verticals can function or work can be done from home: Employers must comply with the order dated 29.03.2020, mandating payment of wages during the lockdown.
b) If work cessation leads to financial incapacity: Statutory legislations do not address situations like the current epidemic. However, the Industrial Employment (Standing Order) Rules, 1946, provide guidelines for payment of wages when work stops.
If employers are unable to fully remunerate employees due to losses, they may pay a subsistence allowance. Employers should only deduct wages if they can demonstrate incurring losses. The Employees Provident Fund Scheme, 1952, allows employees to withdraw funds during epidemics to sustain themselves.
Employees Earning More than Rs. 10,000 per Month
For employees not covered under labor laws, force majeure clauses in contracts may apply, allowing employers to suspend payments. The Contracts Act, 1872, addresses situations like pandemics, invoking the doctrine of frustration for contract discharge.
Legal Opinion
In situations like the present pandemic, force majeure clauses can be invoked to deduct employee salaries due to financial deficits. Employers with functioning verticals or work-from-home options must pay employees. If financial incapacity leads to work cessation, employers can invoke force majeure or frustration clauses, following due process.
The challenge for businesses is sustaining losses during the lockdown. Governments globally are implementing measures to support employers, such as wage subsidies and reimbursement schemes.
Essential service industries must require employees to work unless quarantined. Regular labor laws or contractual law apply in such cases.
Although the Ministry of Home Affairs advises against terminating employees, employers may lay off workers following due process under the Industrial Disputes Act, 1947, in cases of natural calamities.
In conclusion, while financial sustainability is crucial, employers should support employees, reduce salaries where possible, and consider payment abeyance in situations of severe losses.
From India, Coimbatore
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3Querist: Federation of Indian Chambers of Commerce and Industry
Address: 1 Federation House, Tansen Marg, Todermal Road Area, Mandi House, New Delhi, Delhi 110001
The Querist has sought an opinion regarding the liability of employers to remunerate their employees in light of situations like the current spread of the pandemic, namely COVID-19, which has led to a lockdown declared by the Central Government starting from 25.03.2020, resulting in work cessation or adverse impact on industry/company output.
Background
(i) The COVID-19 outbreak started from Wuhan, China on 31.12.2019 and by March had spread worldwide, affecting international and national economic activities.
(ii) On 11.03.2019, the World Health Organization declared COVID as a pandemic. With a sudden increase in cases in India, various State Governments imposed lockdowns, leading to work cessation in various industries/organizations/companies. Subsequently, on 24.04.2020, the Central Government declared a nationwide 21-day lockdown, allowing only essential services to function.
(iii) Given the current situation where many countries are severely impacted by the virus and cases are increasing in India, there is apprehension about the persistence and impact of COVID-19 on the economy and financial sector.
(iv) On 27.03.2020, the Ministry of Labour and Employment issued a circular advising industries/enterprises/companies/associations not to retrench employees and to continue paying wages/salaries.
(v) On 29.03.2020, the Ministry of Home Affairs issued an order constituting an Empowered Committee under the Disaster Management Act, 2005, requiring full wages to be paid to workers.
Therefore, this legal opinion is provided in light of this background.
Query
Whether employers will be liable and obligated to remunerate their employees in situations where work at industries/enterprises/organizations/companies is affected or ceased due to an epidemic outbreak and subsequent government lockdown?
Deliberation on the Query
In the background of the distress caused by the COVID-19 outbreak, companies/industries/associations and their workforces are facing significant challenges during this disruptive period. Due to the lockdown, almost all business activities have come to a halt, impacting business entities and the economy at large.
Types of Employment to Be Deliberated Upon
A. Public Service
B. Private Service
(i) Workmen, including contract workers, casual workers, migrant workers, and sales promotion employees as defined in the Sales Promotion Employees (Condition of Service) Act, 1976
(ii) Employees earning a salary of more than Rs. 10,000 per month.
Various Legal Provisions Governing Employer Liability and Deliberation in Light of the Current Epidemic
A. Public Service:
Public service is governed by the Central Government, State Government, DoPT Guidelines, or other codified norms or service laws. Although workers in public service are usually paid as per due process and statutory obligations, some State Governments have decided to deduct employee remuneration due to revenue deficits.
B. Private Service:
The Ministry of Labour and Employment issued a circular on 20.03.2020 advising employers not to terminate employees or cut wages, which was followed by an order on 29.03.2020 requiring employers to pay wages to all employees. This order is enforceable under the Disaster Management Act, 2005, with penalties for non-compliance.
Since the issuance of the order on 29.03.2020, employers are obligated to pay wages without deductions due to the overriding effect of the Disaster Management Act, 2005. State Governments like Maharashtra, Haryana, Uttar Pradesh, Telangana, Karnataka, and West Bengal have adopted this order, making it mandatory for employers to refrain from terminating employees or reducing wages.
Legal Opinion
Regarding the applicability of government orders to industries/commercial establishments/enterprises/organizations, two situations arise:
a) If some verticals can function or work can be done from home: Employers must comply with the order dated 29.03.2020, mandating payment of wages during the lockdown.
b) If work cessation leads to financial incapacity: Statutory legislations do not address situations like the current epidemic. However, the Industrial Employment (Standing Order) Rules, 1946, provide guidelines for payment of wages when work stops.
If employers are unable to fully remunerate employees due to losses, they may pay a subsistence allowance. Employers should only deduct wages if they can demonstrate incurring losses. The Employees Provident Fund Scheme, 1952, allows employees to withdraw funds during epidemics to sustain themselves.
Employees Earning More than Rs. 10,000 per Month
For employees not covered under labor laws, force majeure clauses in contracts may apply, allowing employers to suspend payments. The Contracts Act, 1872, addresses situations like pandemics, invoking the doctrine of frustration for contract discharge.
Legal Opinion
In situations like the present pandemic, force majeure clauses can be invoked to deduct employee salaries due to financial deficits. Employers with functioning verticals or work-from-home options must pay employees. If financial incapacity leads to work cessation, employers can invoke force majeure or frustration clauses, following due process.
The challenge for businesses is sustaining losses during the lockdown. Governments globally are implementing measures to support employers, such as wage subsidies and reimbursement schemes.
Essential service industries must require employees to work unless quarantined. Regular labor laws or contractual law apply in such cases.
Although the Ministry of Home Affairs advises against terminating employees, employers may lay off workers following due process under the Industrial Disputes Act, 1947, in cases of natural calamities.
In conclusion, while financial sustainability is crucial, employers should support employees, reduce salaries where possible, and consider payment abeyance in situations of severe losses.
From India, Coimbatore
Acknowledge(3)Amend(0)
The legal opinion on employer liability to remunerate employees during the COVID-19 pandemic lockdown is based on government orders, statutory laws, and contractual agreements. Employers are generally obligated to pay wages to employees as per the directives issued under the Disaster Management Act, 2005. However, in cases of severe financial incapacity due to work cessation, employers may consider subsistence allowances or invoking force majeure clauses to manage salary payments. It is essential to follow due process and contractual obligations while making decisions regarding remuneration during these challenging times.
From India, Gurugram
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From India, Gurugram
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