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Mainstream, VOL LVIII No 22, New Delhi, May 16, 2020

Payment of wages and retrenchment in times of Covid19: Will State directives protect workers? | Kingshuk Sarkar

Sunday 17 May 2020

by Kingshuk Sarkar*

State has issued direction to employers to pay wages and salaries and not to retrench workers during the period of lockdown in the present covid-19 pandemic. Still, there are many instances where wages and salaries are not paid. Few workers got retrenched too. Employers have said that they did not have money to pay wages and salaries. They are demanding fiscal bailout. The legal options are there but those are complex. Whether workers benefit from government’s direction is not very clear yet. This article analyses the legal options in this regard.  

Prevailing country-wide lockdown has some serious consequences on the socio-economic conditions of labourers in general and informal labour in particular. Since March 25, the entire country is under lockdown and it has entered the third phase in the first week of May. Even before the Corona outbreak, Indian economy was going through low growth phase particularly on employment front. Nationwide shutdown will make the matter further worse. Informal sector workers who constitute more than 90 per cent of the workforce will find it very difficult to even survive in coming months. Millions of jobs are likely to be lost. Wage employment possibilities within informal sector will definitely shrink in the short run. A significant proportion of informal sector workers are self-employed (no employer-employee relation in such cases) and also casual workers where terms of employment did not go beyond a day. Such self-employed and casual workers within the informal sector has lost every opportunity of earning livelihood since their sustenance is drawn when normal life and economy are running. In case of shutdown, they don’t stand a chance to earn even basic sustenance. For such workers’ things will remain very bleak in the short and medium run in the aftermath of present shutdown. Overall almost 400 million informal sector workers face a test of survival in coming days.

Central govt. has released notifications instructing employers of all kinds not to retrench workers during the period of lockdown and continue payment of wages and salaries. Accordingly, Chief Secretaries of State governments also issued similar notifications instructing employers to act accordingly. But in majority of cases these instructions were not complied with. Workers got retrenched and some of them left for home on their own. In other better-off cases, employees were sent on leave without wages. Urban informal sector workers who were migrants found it very difficult to stay back. A part of those migrant workers were dependent on wage employments at urban informal sectors. They lost their jobs once the lockdown came into force. They even were not in a position to pay rents and thus left with no other options but to leave. Transport was not available and they either existed on the fringe surviving on charity or left for native places on foot. A few perished in the process too.

Directions to not to retrench and pay wages were issued following the Central Government invoking the provisions of the Disaster Management Act 2005 to enforce nationwide lockdown. The State Governments reinforced such directions following invocation of the provisions of Epidemic Diseases Act, 1897. However, such directions issued by the governments to employers to pay wages to all the workmen neither comes within the framework of the DMA and EDA nor is backed by statutory laws like the Payment of Wages Act 1936 and Industrial Dispute Act 1947. As per section 5(1) of the Payment of Wages Act 1936, wage period can’t exceed one month. Deductions can be made on specified grounds given in section 7 of the said Act. Section 7(2)(b) permits deduction of wages because of absence from duty. However, absence during lockdown can’t be treated as absence from duty as production is stopped because of lockdown. Absence from duty in such cases can’t be attributed to workers only. Production is stopped because of exigencies backed up by government notifications. ‘No work no pay’ principle can’t be invoked in the present circumstances as neither the employers offer work nor the workers are able even if willing to report for work. So the employers should not deduct wages for absences due to national lockdown. But this is not explicitly backed up by any provision of the Payment of Wages Act 1936. Here lies the problem and subsequent complexity regarding legal enforceability of directions of payment of wages during the period of lockdown.

Payment of Wages Act 1936 did not foresee a situation like lockdown in case of a pandemic like the present one. Thus there is no explicit section specifying payment of wages in case of stoppage of work under extra-ordinary circumstances. It is assumed that wages are payable only when work is being done. There is no provision for payment of wages where no work is done. Thus payment of wages under this Act might not be sufficient enough to be invoked to ensure payment of wages during lockdown like the present one.

Further, the government of Karnataka has allowed the employees affected by the coronavirus to avail 28 days of paid leave under the ESI Act by securing a certificate from the ESI-hospitals and those not covered under the ESI Act can avail paid sick leave and others under Section 15(3) of Karnataka Shops and Establishments Act, 1961. On March 30, the Ministry of Skill Development and Entrepreneurship ordered all the establishments to pay full stipend to the designated and trade apprentices engaged by them during the lockdown period.

On March 20, the Ministry of Labour and Employment, Govt. of India issued advisories to the employers’ associations not to terminate their employees (especially precarious workers) and reduce wages for their absences, among others. The said advisory further says: if the workers take leave during the lockdown period they should be “deemed to be on duty without any consequential deduction in wages...Further if the place of employment is to be made non-operational due to COVID-19, the employees of such unit (sic) will be deemed to be on duty.”

Regarding lay-off the relevant section in the Industrial Dispute Act 1947 is section 2 (kkk) which defines ‘lay off’ as an employer is unable to provide employment to an employee due to a natural calamity or for any other connected reason.

Section 25C of the IDA 1947 requires employers employing 50 or more workers who lays off workmen to pay a compensation equivalent to 50 per cent of the wages. Section 25M (1) of the IDA 1947 requires an industrial establishment with more than 100 workmen to seek prior permission from the appropriate government or such authority. However, such permission is not necessary if the lay-off is due to a natural calamity.

On March 29, the Government of India further issued an order under Section 10(2)(1) of the NDMA. It directed the State governments and the Union Territories (SGs/UTs) to issue orders, compulsorily requiring all the employers in the industrial sector and shops and commercial establishments to pay wages to their workers at their workplaces on the due date without any deduction during their closure due to lockdown. Further, the SGs/UTs were directed to take necessary action against those violating these orders. According to Section 51(b) of the NDMA, non-compliance with the directives issued under it will be punishable with fine and/or imprisonment.

The Disaster Management Act, 2005 was enacted for setting up the National Disaster Management Authority and State Disaster Management Authority respectively and to have a unified command over disaster management. The powers of the National Executive Committee and the State Executive Committee have been listed in the Act.

The Epidemic Diseases Act was enacted in 1897 to stop the spread of bubonic plague in then Bombay (now Mumbai). The objective of the Act is to prevent the spread of epidemic diseases. Under the Act both the Central and the State governments have the powers to take measures in order to control the epidemic. Section 2 of the Act, confers States with the following special powers: To take ‘measures and, by public notice, prescribe such temporary regulations to be observed by the public or by any person or class of persons as it shall deem necessary to prevent the outbreak of such disease or the spread thereof, and may determine in what manner and by whom any expenses incurred (including compensation if any) shall be defrayed.’ The substantial part of the Act is Section 2 and it enables the government to prescribe measures to prevent the outbreak of such disease or the spread thereof.

These are the two enactments based on which the governments have been issuing directions. Now the question is whether this two Acts, along with two relevant labour laws as discussed here, have any statutory provisions to support the directions of the Central or State governments with regards to payment of wages and retrenchment. Let examine these orders and legal implications behind those.

The MHA order dated 29/03/2020 was issued by the Home Secretary, the Ministry of Home Affairs and the Government of India, in exercise of the power conferred under Section10(2)(1) of the Disaster Management Act, 2015. This Order is binding upon all the concerned parties. The Section 10(2) (1) of the Disaster Management Act, 2015, empowers the National Executive Committee to lay down direction to the Ministries or departments of the government of India and State authorities, for preparing disaster management plans. Section 51 off the Disaster Management Act lists the punishment for any obstruction or non-compliance of any such directions passed under the Disaster Management Act, 2005. Section 72 of the Disaster Management Act has an overriding effect over other prevailing legislations. This section can be invoked by the respective governments to take penal action against those employers who did not pay wages and salaries or did retrench workers during the period of lockdown.

Presently all the advisories of the government discourage termination or retrenchment of workers. The Industrial Disputes Act, 1947, does allow “Lay-off” in the circumstances in which the employer is unable to pay the wages due to a natural calamity. However, this law does come in conflict with the Order dated 29/03/2020, that was passed under the Disaster Management Act, 2005. In any case, as per section 72 of the Disaster Management Act, the Order passed under the DMA shall prevail over any other existing law.

Majority of employers did not pay wages. Few of them paid advances which are supposed to be adjusted with wages when work resumes. That majority of employers did not pay wages is also evident from the fact that large number of migrant workers are leaving cities on foot. Few employers who were contacted by the author stated that they had lost earnings because of stoppage of production and were not in a position to pay wages. Those employers also stated that they were incurring fixed cost like rent, property tax and many other taxes that were payable to the State even if no production happened. Those employers who were into production of essential goods and services they did pay their workers since there was no stoppage in production.

Employers further argue that the direction issued under DMA 2005 did contain the subject of payment of wages to employees but did not explicitly specify the power to take action in case of non-compliance. They also argue that they are unable to pay since there is no income being generated during lockdown due to the fact that manufacture is non-operational. They have also demanded that the Central Government should make good the payment of wages to the employers at least to some extent as has been done in other countries. Countries across the world are taking steps to counter the difficult Covid-19 crisis by rolling out special and stimulus packages schemes to enhance the capacities of employers to pay their employees.

The moral of the story is that it will be unrealistic to assume that employers pay wages and salaries for period of cessation of work. This is the bottom-line with few respectable exceptions. In other words, wages and salaries are incidental to the production happening. This is the hard reality. State has got options of invoking section 72 of DMA and take penal actions against the defaulting employers. Aggrieved employers may approach courts too. There would be large number of such cases. Further, there would be large number of such employers scattered cross the labour market. Majority of them being in the informal sector and given the mystification of employer-employee relation it would difficult to identify employers and their workers and initiate legal remedies. The administrative cost would also be very high. Given the existing informalization and large number self-employed workers around, large number of workers would also not benefit from such actions. Even if legal steps are initiated that would take a long time to bear fruit. Workers as a whole can’t afford that since they do not have means to survive that long.

Another option left to the State is to provide subsidy to the affected employers by paying a part of wage bill. This depends on the fiscal capacity of the State too. So far it is more than 45 days since the lockdown is in force. There are numerous instances where wages were not paid and workers getting retrenched. State, both Centre and State, has not initiated action under DMA 2005 in cases of violation. Nor State has announced any subsidy packages like that happened in many other countries. Large number of workers continue to suffer both in terms of non-payment of wages and in some cases retrenchment too. Most of them received wages for the month of March and majority of them did not receive the same for the month of April. The longer the lockdown continues the deeper would be problems in this regard. Remedies are not clear cut. Bailout packages are yet to be announced. It seems State is unlikely to initiate legal actions against defaulting employers since it is not straightforward one. There are complexities involved. Workers continue to suffer. The trade-off is not between life and livelihood. As livelihood is itself is life for these large number of workers, the trade-off is between life and life. And it seems that fall-out is very grim in spite of the fact that State has made appropriate noises.


(All the above-mentioned websites were accessed on 09-10 May 2020)

*Dr. Kingshuk Sarkar is an independent researcher and works at Govt. of West Bengal as Joint Labour Commissioner. He can be contacted at kingshuk71[

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