The 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. A keen understanding of applicable employment laws becomes key in such times.
The Industrial Disputes Act, 1947 (“Act”) defines the terms “lay-off” and “retrenchment” in Sections 2(kkk) and 2(oo) respectively. The term “workman” is also widely defined under the Act 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.” The Madras High Court, in an order against TCS Ltd [(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 coal, 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 operations due to limited supply of raw materials, power, 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 retrenchment compensation calculated as 15 days’ average pay for every year of continuous service.
Employees in managerial roles
The term “workman” being exclusive of managerial or administrative employees, their termination falls outside of the Act. Instead, their termination is governed by their 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 in lieu thereof, provided that the employee has been continuously working there for six months. Other States provide for a similar mechanism.
Government advisory
The Labour Ministry issued an advisory on March 20, 2020, requesting that companies continue to pay their employees wages during the lockdown period. The advisory requests all private/public enterprises to not terminate employees from their employment and also not to reduce their wages, and states that employees on leave during this period shall be deemed to be on duty without any wage deduction.
The advisory, however, is just that and lacked teeth. Further to this however, 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 to their employees on the due date without any deductions. On April 27, in response to a batch of writ petitions challenging validity of the aforementioned order, a three-judge bench of the Supreme Court directed the Centre to ‘place its policy’ on record with regard to the implementation of the said order, and granted two weeks’ time to the Central Government to file its response.
Even with the said 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 from work when he is required to work (Section 9 of the Payment of Wages Act, 1936).
Some organisations are even encouraging employees to use their earned leave at this time. This being a voluntary decision on the part of the employee, it does not fall afoul of the law.
Measures to avoid termination
Recently, some companies have introduced voluntary resignation schemes managerial level staff. A well-known budget hospitality chain has, for example, announced that it has introduced a scheme under which employees will be paid one month’s salary and their insurance cover will be continued even after termination of employment.
Some companies facing liquidity issues are providing its employees ESOPs in lieu of their salary as an alternative to downsizing and retrenchment. 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 to its employees during this interim period in lieu of salary cuts. While employees retain their jobs, this pushes the financial burden down to a future date.
Employment: 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. Firstly, we may encounter more employers adopting fixed-term contracts with employees. Secondly, the economic situation in the common man’s home may lead to a rise in moonlighting, so that families can either make ends meet, or even to sustain a more desirable income. That is one end of the spectrum.
At the other, there is a strong possibility that working from home becomes a norm in sectors where it is possible and coming into office becomes reserved for special meetings on a one-off basis. Another question that that needs asking: With technology making working from home a reality, are we looking at a scenario where the need for more commercial real estate is negated?
In a post-Covid world, sprawling office spaces with conference rooms, spread out workspaces, and recreational activities to keep employees there longer may become a thing of the past.
The writers are a partner and an attorney, respectively, with VB Legal, Advocates. Views are personal.