Sunday 5 April 2020

Payment of Wages to Workers for Lock down Period due to COVID-19

FREQUENTLY ASKED QUESTIONS (FAQ)

Payment of Wages to Workers 
for Period of Lockdown due to COVID-19

First Published on 04.04.2020 (Updated as on 13.05.2020)*

Q1: Whether an employer is liable to pay wages for the period of lockdown due to COVID-19? 
Ans: Initially, Ministry of Labour & Employment, Government of India vide its advisory dated 20.03.2020 has asked all the employers of Public / Private Establishments not to terminate their employees, particularly casual or contractual workers from job or reduce their wages.
Subsequently, the Home Secretary, Ministry of Home Affairs, Government of India vide Order dated 29.03.2020 directed the State / UT Authorities to take necessary action and to issue necessary orders to their District Administration / Police Authorities to ensure that all the employers, be it in the industry or in the shops and commercial establishments, shall make payment of wages to their workers, at their work place on the due date, without any deduction for the period their establishments are under closure during the lock down. Subsequent to MHA orders, many states governments, for instance, Haryana Govt. Vide letter dated 29.03.2020 have asked all officers across state to ensure compliance of MHA Order dated 29.03.2020. 
The constitutionality of both the above Advisory dated 20.03.2020 and MHA Order dated 29.03.2020 have been challenged before the Hon’ble Supreme Court. The Hon’ble Supreme Court vide its order dated 27.04.2020 in lead Case titled “Ficus Pax Pvt. Ltd. vs. Union of India” (Diary No.- 10983 - 2020) has directed the Central Government to file the reply. The batch of cases are scheduled to be listed on 15.05.2020. 

Q2: Whether the order dated 29.03.2020 by Ministry of Home Affairs is a binding direction or or advisory? 
Ans: Since the Order dated 29.03.2020 has been issued by Ministry of Home Affairs while exercising the power conferred under Section 10(2)(l) of Disaster Management Act 2015 (“DMA”) acting in the capacity as Chairperson, National Executive Committee, it is binding upon all concerned. Section 10(2)(l) of DMA empowers National Executive Committee to give directions to the concerned Ministries or Departments of the Government of India, the State Governments and the State Authorities regarding measures to be taken by them in response to any threatening disaster situation or disaster.  Any person disobeying any regulation or order can be deemed to have committed an offence punishable under Section 188 of Indian Penal Code. Also, Section 51 of DMA prescribes Punishment for obstruction & non compliance with imprisonment of 1-2 years.  

Q3: What is the scope of “workers” for the purpose of payment of wages?
Ans: Based on various advisories and orders issued by Central Government / State Governments, the scope of payment of wages shall extend to regular, casual & contractual workers.
“Workman” as defined under the Industrial Disputes Act 1947 will broadly include any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied, but excludes those employed mainly in a managerial or administrative capacity. Also excludes those employed in a supervisory capacity drawing wages exceeding (Ten thousand Rupees) per mensem or exercises. (PS: The limit of Rs.10000 pertains only to those employed in supervisory capacity and should not be confused with wages of any other category of workman  employee).
The Payment of Wages Act, 1936 regulates the payment of wages to persons employed in factories, industrial & other establishments. It contains provisions with respect to the responsibility for payment of wages, fixing of wage-periods, time of payment of wages, and penal consequences for non-compliance of the provisions stipulated under the Wages Act. After the Government of India notification dated 28.08.2017 became applicable to employees earning wages up to Rs. 24,000/- (Rupees Twenty Four Thousand Only) per month. 
The term "Worker"or "Workman" does not find any mention in Payment of Wages Act 1936.  Therefore, any person who has been employed mainly in administrative, managerial or supervisory capacity and earning more than Rs.24,000/- per month would neither be regarded as a worker under Industrial Disputes Act 1947 nor will qualify for wages under Payment of Wages Act, 1936. (Kindly check for State amendments, notifications etc. and seek clarification from official authorities).
The Code on Wages Act, 2019 gained presidential assent on August 08, 2019 and was accordingly published in the gazette of India. However, the Government is yet to notify the effective date of the Code coming into force so that has not been considered. Technically, with the enactment of Code of Wages Act 2019 and in terms of Section 69 of the Code, the Payment of Wages Act, 1936 (‘PW Act’), the Minimum Wages Act, 1948 (‘MW Act’), the Payment of Bonus Act, 1965 (‘PB Act’) and the Equal Remuneration Act, 1976 shall also stand repealed. 

Q4: What is the scope of “wages” for the purpose of payment to workers?
Ans: As per the definition of “wages” under the Industrial Disputes Act 1947, "wages" means all remuneration capable of being expressed in terms of money, which would, if the terms
of employment, expressed or implied, were fulfilled, be payable to a workman in respect of his employment or of work done in such employment, and includes dearness allowance; value of any house accommodation, or of supply of light, water, medical attendance or other amenity or of any service or of any concessional supply of food-grains or other articles; any travelling concession; any commission payable on the promotion of sales or business or both; but does not include any bonus; any contribution paid or payable by the employer to any pension fund or provident fund or for the benefit of the workman under any law for the time being in force; any gratuity payable on the termination of his service; 

Q5: By what date the wages are required to be paid?
Ans: As per the MHA order, the wages are to be paid on the due date. You must pay the wages by such monthly date as applicable for earlier months and in any case as prescribed under Section 5 of the Payment of Wages act 1936.

Q6: Can the salaries be reduced or deducted?
Ans: As per the MHA order, the wages to workers are to be paid on the due date without any deduction whatsoever for the lockdown period.

Q7: Can the employees be asked to utilize their accrued annual/privilege leave for absence during lockdown period? 
Ans: It can only be done with the consent of workers. The employees can be encouraged to utilize their accrued annual / privilege. Availing leave is an employee’s prerogative and the employers cannot compel them to adjust accrued annual leave. 

Q8: Can the employees of industry exempted from lockdown period refuse to join work? 
Ans: As long as the industry is maintaining the required standards of safety and health, the workers of such exempted industry who have been asked to join work by their employers should report to work. Hon’ble Supreme Court of India in J.N. Shrivastava Vs. Union of India and Another (1998) 9 SCC 559 has held that “No Work No Pay” Principle will not apply when employee was ready and willing to work but employer did not allow him to work. In the present situation if the employer is allowing employee to work but employee is not ready and willing, then principle of “No Work No Pay” should also come into play.
The Hon’ble High Court of Bombay vide its order dated 30.04.2020 in the case of Align Components Pvt. Ltd. Vs. Union of India (W.P. Stamp No.10569 of 2020) held that in the areas where there is no lockdown or lockdown has been lifted, if the workers voluntarily remain absent, the Management would be at liberty to deduct their wages for their absence. The Hon’ble Supreme Court vide its order dated 08.05.2020 in Case titled “Teknomin Construction Ltd. vs. Union of India” (Diary No.- 11094 - 2020) has issued notice to the Central Government wherein the Petitioner has sought permission to deduct wages of workers who voluntarily remaining absent inspite of its operations being resumed. Case is now scheduled to be listed on 15.05.2020. 

Q9: Can the employees be laid-off or terminated? 
Ans: Presently the government orders / advisories are against termination or retrenchment of employees. “Lay-off” as per Industrial Disputes Act 1947 (“ID Act”) includes failure or inability of an employer on account of natural calamity or for any other connected reason to give employment to a workman (Section 2(kkk) of ID Act). However, even as a last resort, due process of law needs to be followed and that too only after the lock-down period is over after. The laid off workmen shall be entitled for a compensation equal to 50% of salaries. (Section 25(C) and Section 25M of ID Act)

Q10: Which establishments are entitled for EPF Contribution benefit as announced by Government of India? 
Ans: The Govt. of India on 26.03.2020 announced Rs.1.70 Lakh Crore relief package under Pradhan Mantri Garib Kalyan Yojana (PMGKY) for the poor to help them fight the battle against Corona Virus Pandemic. As part of the said package, the Central Govt. proposes to pay 24 percent of the monthly wages into EPF accounts for next three months of Wage earners below Rupees fifteen thousand per month, who are employed in establishments having up to one hundred employees, with 90% or more of such employees earning monthly wages less than Rs.15000/-. Based on the Scheme changes have been made in the Unified Portal so that the eligible employers may avail the benefit of the Scheme. There is no change in the process of ECR filing or in the format. The eligible employers will only have to submit a declaration before filing the ECR. The eligible establishments have been identified based on the ECRs filed by them taking into consideration:
The contributory member count from September 2019 to February 2020.
If the total number of such UANs has been found to be up to 100 and against these UANs the wages of 90% or more is less than 15000/. Eligible employers are advised to read the document uploaded by EPFO to avail benefit under PMGKY.

Q11: Can an employee initiate proceedings under Insolvency and Bankruptcy Code 2016 before NCLT against a Company / LLP for unpaid salaries?
Ans: Under the Insolvency and Bankruptcy Code 2016 (IBC), “operational debt” means a claim in respect of the provision of goods or services including employment. So by definition of Operational Debt, an employee can trigger the Corporate Insolvency and Resolution Process (“CIRP”) under Section 9 of the IBC. Earlier the threshold limit was a debt of Rs.1,00,000 and above. 
As a measure to safeguard the interest of industry especially MSME, the Ministry of Corporate Affairs vide notification dated 24.03.2020 has revised the minimum amount of default from Rs.1,00,000 to Rs.1,00,00,000. As long as the threshold remains Rs.1,00,00,000 the possibility chances of employees triggering IBC remains  less likely. However, this notification could well be an interim arrangement and may not remain a permanent revision. An expression of inability to pay wages to workers or acknowledged debt to creditors such as vendors etc. could become a ground for insolvency against such a company / LLP. 

Q12: Can Indian Government be expected to subsidise the wages or provide financial grants for payment of wages during the lock down period?
Ans:   Cananda announced the new Canada Emergency Wage Subsidy on 27.03.2020 which would provide a 75% wage subsidy to eligible employers for up to 12 weeks, retroactive to March 15, 2020.  In United Kingdom, if you cannot maintain your current workforce because your operations have been severely affected by coronavirus (COVID-19), you can furlough employees and apply for a grant that covers 80% of their usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. In Australia, Government has announced assistance for employers in the form of JobKeeper Payment, if your turnover has been reduced because of the coronavirus. Following registration by the eligible business, the Government will provide $1,500 per fortnight per eligible employee for a maximum of 6 months. 
In a country like India where a large number of industry fall in the MSME Sector, it is important that the government comes up with a similar scheme to give some form of subsidy / grant to industry for payment of wages under lock down period.

Q13: Whether the payment of wages to workers for lockdown period is “statutory” or “moral” obligation?
Ans:  The MHA order dated 29.03.2020 has used the term “wages”, however, under the the Industrial Dispute Act 1947, the term wages refers to any amount payable to a workman in respect of his employment, or of work done in such employment. The employer is being asked to pay “Wages” which is more like a “Compensation” for this unprecedented situation.  
Generally speaking “No Work No Pay” is a principle that has been considered by High Courts / Supreme Court courts time to time.  Hon’ble Supreme Court of India in J.N. Shrivastava Vs. Union of India and Another (1998) 9 SCC 559 has held that “No Work No Pay” Principle will not apply when employee was ready and willing to work but employer did not allow him to work. As such no other law / statute obligates an employer to pay wages to workers when the industry has been compelled to shut down in accordance with government directions.  
Recently, the Ministry of Corporate Affairs vide its Circular dated 10.04.2020 titled “COVID-19 related Frequently Asked Questions (FAQs) on Corporate Social Responsibility (CSR)” clarified that Payment of salary/ wages in normal circumstances is a contractual and statutory obligation of the company. Similarly, payment of salary/ wages to employees and workers even during the lockdown period is a moral obligation of the employers, as they have no alternative source of employment or livelihood during this period. Thus, payment of salary/ wages to employees and workers during the lockdown period (including imposition of other social distancing requirements) shall not qualify as admissible CSR expenditure. 
It could be well interpreted that even as per the Ministry of Corporate Affairs, Union of India itself, the payment of salary / wages to employees and workers during lockdown period is a moral obligation of the employers, and not a statutory / contractual obligation. But even then this circular cannot supersede the Order dated 29.03.2020 issued by Ministry of Home Affairs, Government of India while exercising the power conferred under Section 10(2)(l) of Disaster Management Act 2015 acting in the capacity as Chairperson, National Executive Committee. 
The MHA order is binding upon all concerned including other Central Ministries / State Governments, unless clarified by the MHA itself or so modified / interpreted / stayed / set aside by a competent court such as appropriate High Court or Supreme Court of India.

Q14: What representation can be made by the Industry to the Central / State governments over the issue of wages ?
Ans. The Indian Industry either individually or collectively as a trade / industry association should represent to appropriate authorities in Central / State Governments, specifically, over the issue of Wages to Workmen for the lock down period, without linking it with any other benefits and concessions, that they expect from the government. Some of the suggestions are as follows :
1.Wage subsidy (especially for MSME Sector) of 75% of wages for all workers by Government of India by way of utilization of fund reserves of Labour Welfare Board Funds or the ESIC Funds under the Employees’ State Insurance Act, 1948 or any other such fund / scheme.
2.Extension of EPF Contribution benefit be extended to all establishments irrespective of the number of employees or alternatively, the deposit of ESI / EPF contribution for both employer / employee  should be deferred for 180 days.
3.Liberty be granted to employer to reduce salary for those employees which are not covered under definition of workman or worker under the Industrial Dispute Act or whose salary exceeds minimum wages. 
4.The govt. may fix a minimum allowance for all category of employees not exceeding the applicable minimum wages in the state for the lockdown period
5.The industry may be permitted to initiate layoff proceedings in accordance with the provisions of Industrial Dispute Act 1947.  

References / Sources: 
1.Ministry of Labour & Employment Advisory dated 20.03.2020 

2.Ministry of Home Affairs Order Dated 29.03.2020 

3.Chief Secretary Haryana Govt letter dated 29.03.2020

4.Disaster Management Act 2005 

5.Industrial Dispute act 1947

6.Payment of Wages Act 1936

7.Ministry of Labour & Employment Notification dated 28.08.2017

8.Code of Wages Act 2019

9.Pradhan Mantri Garib Kalyan Yojana

10.How to avail benefit under PMGKY

11.Insolvency and Bankruptcy Code 2016

12.Ministry of Corporate Affairs Notification dated 24.03.2020

13.Cananda Emergency Wage Subsidy

14. United Kingdom Job Retention Scheme

15.Australia assistance for employers in the form of JobKeeper Payment

16.Ministry of Corporate Affairs Circular dated 10.04.2020

17.The Employees’ State Insurance Act 1948

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