Employment Issues during COVID-19 Crisis: An Analysis of the MHA’s Order

The Authors, Vinithra Srinivasan is a Partner & Varun Srinivasan is a Principal Associate at the Law Firm, NVS & Associates.

Introduction

The COVID-19 crisis, declared as a pandemic by the Director General of WHO on 11.03.2020, in addition to having a significant and highly disastrous impact on the lives of people world over, has had and will continue to have an apparent and heavy influence on all industries, globally. Even in the most automated industries, people are at the fulcrum and so when contemplating cost-cutting, to stay afloat on such troubled waters, companies find it an inevitable step to cut down on their manpower, either in the form of job cuts or more prevalently, salary / wage reductions. However, at the same time, there is also a necessity to ensure protection for these personnel during these tough times while also equally safeguarding and balancing the interests of both the company and the employees.

In this context, the Indian Government has taken the initiative through the recent Ministry of Home Affairs (“MHA”) Order dated 29.03.2020,[1] among other notifications/guidelines issued by other departments, stating that employers are required to pay full wages to all workers, the non-compliance of which would attract penal consequences. The said order has been recently challenged before the Supreme Court,[2] in which matter the Trade Unions have also sought to be impleaded,[3] and which Order has also been challenged by another petition as well;[4] however, the Supreme Court for the interim has not provided any stay and has sought for the Government’s response on the said Order.[5] In the meanwhile, the Central Government has extended the lockdown till the 17^th of May, 2020, continuing the effect of the Order dated 29.03.2020. Further, penal consequences are also being enforced against employers for non-compliance of the said Order.[6] Therefore, considering the fact that the Supreme Court has not granted stay over the said Order, this article seeks to analyse the Order’s impact in the context of the prevailing labour laws in India, while also considering whether the Order can be said to be all encompassing in its application, without delving into the grounds such as arbitrariness, unreasonableness, amongst others, which have been raised in the Petitions.

MHA Order – Interpretation

Prior to the Order of the MHA dated 29.03.2020, the Ministry of Labour and Employment had issued a series of letters dated 20.03.2020 & 23.03.2020 in the form of advisories that employers throughout various industries and sectors should not cause reductions of wages or termination of any worker and/or employees during the present COVID crisis. However, probably, realizing that the said advisory was at best only an advisory, without having much legal force, the MHA issued the order, No. 40-3/2020-DM-I(A), dated 29.03.2020 under the aegis of the National Disaster Management Act, 2005, the non-compliance of which by the stakeholders would attract penal consequences. The National Disaster Management Act, 2005 (“NDM Act”) defines a “disaster” under Section 2(d) to mean “a catastrophe, mishap, calamity or grave occurrence in any area, arising from natural or man-made causes, or by accident or negligence which results in substantial loss of life or human suffering or damage to, and destruction of, property, or damage to, or degradation of, environment, and is of such a nature or magnitude as to be beyond the coping capacity of the community of the affected area”. Therefore, the issues to be dealt with during the pandemic by the concerned authorities are squarely governed by this enactment and it thereby empowers the authorities to take appropriate action due to any non-compliance of measures prescribed by the Act and all the Directions, Regulations, Rules formulated thereunder. The MHA Order is one such direction that has been given life under this NDM Act. The relevant portion pertaining to the issue of employment as per the Order is extracted here below:

“iii. All the employers, be it in the Industry or in the shops and commercial establishments, shall make payment of wages of their workers, at their work places on the due date, without any deduction, for the period their establishments are under closure during the lockdown”

From a prima facie reading of this segment of the Order, it has been stated that the said direction would apply to “…all the employers, be it in the industry or in the shops and commercial establishments…” and emphasizes that the said industry or shops or commercial establishment “…shall make payment of wages of their workers at their workplaces, on the due date without any deduction…..” Although the said Order specifies the term “Migrant Workers,” the intent of the Order can be interpreted to include all categories of workers/workman/persons employed across all legislations, as dealt with below. Hence, the significant terms used in the MHA Order, which are of relevance to this article are that of “wages” and “workers.” Therefore, in this context, the prominent enactments that would need to be considered while interpreting this MHA Order are as follows:

1. The Factories’ Act, 1948
2. The Industrial Disputes Act,1947
3. The relevant State Shops and Commercial Establishments Acts
4. The Payment of Wages Act, 1936
5. Contract Labour (Abolition and Regulation) Act, 1970
6. The Maternity Benefits Act, 1961
7. Inter-State Migrant Workmen (Regulation of Employment & Condition of Service) Act, 1979

“Worker”

The term ‘Worker’ finds its place in the Factories Act, 1948. Under the Factories Act, a “Worker” is defined in Section 2(l) to mean “a person employed, directly or by or through any agency (including a contractor) with or without the knowledge of the principal employer, whether for remuneration or not, in any manufacturing process, or in cleaning any part of the machinery or premises used for a manufacturing process, or in any other kind of work incidental to, or connected with, the manufacturing process, or the subject of the manufacturing process but does not include any member of the armed forces of the Union.” Therefore, the definition of “worker,” as per the Act, draws a distinction between who is a worker and also goes on to state who is not. However, by applying the principle of noscitur a sociis, while interpreting the term “Worker” in the context of the MHA Order, it would tantamount to providing a narrow interpretation if the term “worker” were to be only restricted to its reference under the Factories Act, without considering the surrounding phrases in the said Order.

As per the Order, the term “workers,” being preceded by the terms “industry or shops and commercial establishments” should thereby be interpreted to be applicable to “all the employers, be it in the industry or in the shops and commercial establishments”. Additionally, the term “workplace” referred to in the MHA Order would necessarily assume the meaning under the Industrial Disputes Act, 1947 (“ID Act”), if such industry falls under the definition of industry/undertaking in that Act, otherwise, it shall be either a shop or commercial establishment under the respective State Shops and Establishment Acts (“S&CE Act”).

Hence, interpreting the term “worker” otherwise would not be correct, in the perspective and intent of the Order. Therefore, considering the above, the term “worker” must necessarily be construed to apply and extend to legislations such as, the ID Act, the respective S&CE Act, amongst others, even if the nomenclatures may differ in those enactments. Therefore, “workman” under the ID Act and the Contract Labour (Abolition and Regulation) Act, 1970 (“CL Act”), which also defines “workman” in a similar manner as available in the ID Act, and “persons employed” under the respective S&CE Acts, could be interpreted to fall under the purview of “worker” as per the MHA Order. Additionally, Section 2(j)[7] of the Inter-State Migrant Workman (Regulation of Employment & Condition of Service) Act, 1979 (“ISMW Act”) defines who a “workman” is and Section 2(e)[8] as to who an “Inter-State Migrant Workman” is. However, if such is the case, then by necessary implication, the MHA Order excludes all those classes of “workers” who are not covered under the respective legislations. For instance, as per the Industrial Disputes Act, under the definition of “workman” as per Section 2(s),[9] the said definition does not apply to those who are employed mainly in a managerial or administrative capacity or who being employed in a supervisory capacity, draw wages of more than ten thousand rupees per mensem, amongst other factors. Similarly, under the respective State S&CE Acts, for instance in the States of Tamil Nadu, Kerala, Maharashtra and Karnataka, the Acts exclude application to those persons who are employed in any establishment occupying a position of management, thereby creating a distinct classification of employees covered under the said enactments. Therefore, considering the above position, it can be safely stated that the interpretation of the term “workmen” could only apply to those class of employees/workers/workmen who fall under the purview of the respective labour legislations, intended to be applicable, and not to the entire workforce in an establishment, industry or workplace; thereby impliedly excluding such personnel from its purview. Hence, all those employees/workers/workmen not covered under the MHA Order would necessarily be governed by their respective employment contracts or as per the provisions of the appropriate S&CE Acts. Incidentally, in view of the respective closure of business / shops/ establishments orders issued by various States under The Epidemic Diseases Act 1897, the said MHA will apply only to the businesses that have been closed and not those that have been operating as essential services / commodities.

Further, considering that the interpretation pertains to issues arising out of a beneficial legislation, namely, labour laws, the term “worker” would need to be understood in its broad connotation and liberal construction. As held in several cases of the Supreme Court, including in the case of Workmen v. Binny Ltd.,[10] “...it is a trite law that in matters of welfare legislation, especially involving labour, the terms of contracts and the provisions of law should be liberally construed in favour of the weak.” In this context, if a still wider interpretation of the term “worker” is to be used to include the entire workforce of companies, such interpretation will be restricted by the usage of the term “wages”. Although the MHA Order has the force of law under the NDM Act, the term “wages” must be construed only as per the labour laws as this definition finds no place in the NDM Act. Therefore, the various definitions of worker/workman/person employed finds relevance in the context of the term “wages” used in the MHA Order.

Additionally, it is to be seen whether the said Order can be stated not to have retrospective effect, namely, applicable prior to 29.03.2020. This is taking into consideration the constitution bench case of the Supreme Court in Shyam Sunder v. Ram Kumar,[11] amongst others, wherein it has been held that “Even a beneficial legislation cannot be given retrospective operation, unless specific retrospective effect has been given ….” Due to the fact that there is no specific mention of retrospective applicability, this situation may not arise.

As far as the applicability of the Maternity Benefit Act, 1961 is concerned, although the term “worker” “workman” or “person employed” has not been defined under the said Act, the MHA Order would still be applicable. As per the Act, a “woman” has been defined under Section 3(o) to mean “a woman employed, whether directly or through any agency, for wages in any establishment.” Further, as per Section 2(1)(b)[12] of the Act, it clearly provides that the said Act shall apply to every shop and establishment within the meaning of any law for the time being in force, in relation to any shop or establishment within a State. The term “wages” has also been defined under Section 3(n)[13] of the Act. Hence, considering that the MHA Order is to apply to all shops and establishments and further that the Maternity Act is applicable to all such establishments, albeit the term “worker” is not found therein, still for the above stated reasons, the MHA Order would apply to every eligible “woman” having a right under the Maternity Act.

 “Wages”

In the above context, the term “wages” as per the MHA Order, in view of it concerning the employees/workers/workmen under the different enactments, by necessary implication narrows down its reference to certain enactments. The term “wages” under the ID Act, as per Section 2(rr),[14] has been given a very broad application and there are several decisions to state as to how and to whom it is to apply. Wages is also similarly defined under the CL Act. Considering that, as stated above, a “workman” would be covered under the definition of “worker” as per the MHA Order, “wages” mentioned therein would need to be paid to all those concerned, without any deductions. However, in contrast, when a reference is made to the respective S&CE Acts of a State, namely, for instance, the States of Karnataka, Kerala and Maharashtra, the term “wages” under the said Acts, defines the term “wages” to mean the definition under the Payment of Wages Act, 1936 (“POW Act”). As per Section 1(6)[15] of the POW Act, all those employees who are earning more than INR 24,000 per month are not governed as per the Act. Therefore, all those “persons employed” as per these State S&CE Acts, and who earn monthly wages above INR 24,000, would not fall under the purview of the MHA Order. Further, as stated above, under the various labour legislations, irrespective of the salary level, if a person falls under the managerial cadre, then the respective S&CE Acts will not be applicable. Hence, all those employees who are either of managerial capacity or who are drawing a salary higher than INR 24,000 will not fall under the purview of the respective S&CE Acts of Karnataka and Kerala and Maharashtra. Interestingly, as far as the State of Tamil Nadu is concerned, the definition of wages would require wages to be paid as per the specific definition under the Tamil Nadu S&CE Act, considering that the said Act does not refer to the POW Act. Similarly, in the case of ISMW Act, the term “wages” as per Section 2(i)[16] has been assigned the meaning under Section 2(vi)[17] of the POW Act.

Penal Consequences for Non-Compliance

Due to the mandatory provisions of the MHA Order having the force of law, in view of it being passed under Section 10[18] of the NDM Act, non-compliance of the Order, would attract penal consequences as per the Act[19] and the authorities are also empowered to take action under Section 188[20] of the Indian Penal Code, among other Sections of the Code. Further, as per Section 72,[21] the said Act will also have an overriding effect over any other enactment for the time being in force.

In fact, in this context, the Supreme Court in the case of Alakh Alok Srivastava v UOI,[22] had while dealing with the said Order, though in a different context, observed as follows:

“...disobedience to an order promulgated by a public servant would result in punishment under Section 188 of the IPC. An advisory which is in the nature of an Order made by the public authority attracts Section 188 of the IPC.

We trust and expect that all concerned viz., State Government, Public Authorities and citizens of this country will faithfully comply with the directions, advisories and orders issued by the Union of India in letter and spirit in the interest of Public Safety…”

Now, it will be interesting to observe the manner in which the grounds raised in the Petitions challenging the MHA Order filed before the Supreme Court would be considered, especially, amongst other cases, in light of the decision of Supdt. of Taxes v. Onkarmal Nathmal Trust,[23] wherein it has been held as follows:

“Under certain circumstances compliance with the provisions of statutes which prescribe how something is to be done will be excused. Thus, in accordance with the maxim of law, lex non cogit ad impossibilia, if it appears that the performance of the formalities prescribed by a statute has been rendered impossible by circumstances over which the persons interested had no control, like the act of God or the King's enemies, these circumstances will be taken as a valid excuse.”

Conclusion

The government’s active interference in the dynamics between employers and employees has been to prevent inequality in bargaining power and to add further value to the beneficial nature of the labour legislations. However, in this attempt, there is a possibility that the companies, in their ardent attempts to adhere to the MHA Order in not reducing the salaries of their employees, may be jeopardizing their sustainability. This most likely will result in the financial crippling of the companies, which not long after the lockdown period, may lead to situations of heavy layoffs, even though that may not have been the original plan and also cause greater harm to the employees; the companies may, also need a longer time to rebound from the COVID attack. However, if the Government were to provide clarifications and permit reasonable reductions in employee salaries, while continuing the restrictions on termination and non-payment of wages, the companies may not have a need to layoff or terminate any personnel and will most likely be more resilient. Further, the Government may also consider providing financial relief for those small and micro companies/entities that are not financially capable of sustaining themselves during these testing times. This will achieve Pareto Optimal, the greatest good for the greatest number, which will lead to sustainability for the companies and also safeguard the long-term interests of the employees. Further, although the MHA has relaxed the restrictions on movement of people from the 4^th of May, 2020 and that workers/employees are expected to turn up to work, non-appearance would tantamount to a valid reason for wages reduction; nonetheless, considering that the lockdown measures have been extended till the 17^th of May, 2020, the effect of the MHA Order 29.02.2020 would still continue to have its impact, until revoked or altered. Till such time and in view of the powers being exercised by the MHA under the NDM Act, the Government may also consider creating a fund for payment of workers/employees to allocate funds to meet situations that may arise in the event of a crisis, such as the present one and thereby relieve companies/employers of their financial burdens, considering the power and authority available under the NDM Act.[24]

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