Frequently Asked Questions

 Q.1 Do the same laws apply to all employees in an organization, irrespective of their role, salary and designation in the organization?

No. Employment laws in India make a distinction between “workmen” and others. Workmen typically include employees who are not engaged in managerial, administrative or supervisory capacity. Thus, employees engaged in managerial or supervisory roles are usually not considered workmen. While laws such as Industrial Disputes Act apply only to workmen, there are other labour legislations like the Maternity Benefits Act, and state specific shops and establishmeny legislations that apply to all categories of employees.

An indicative list of factors that need to be considered for classifying employees between workmen and non-workmen are given below:

Workmen

Non-Workmen

  • Does manual, skilled, unskilled, technical, operational work; or
  • Works in a supervisory role but has wages less than Rs. 10,000 (the said minimum monthly wages may vary from state to state)
  • Has managerial or administrative role; or
  • Works in a supervisory role but has wages exceeding Rs. 10,000 (the said minimum monthly wages may vary from state to state)

Q.2 I have an employee who is tested positive for corona virus. What should I do? Can I send him on leave without wages?

Any employee who is tested to have coronavirus should immediately get himself/ herself admitted in the nearest authorised isolation ward and follow the instructions issued by the Government. As an employer, it is your responsibility to ensure that such an employee does not rejoin until he/ she has fully recovered from COVID-19 and all relevant guidelines issued by the Government/Health Authorities are followed in this regard. Until the date on which lockdown ends or such employee successfully recovers, whichever is later, employers are bound to pay his/her wages in full on the due date.

Q.3 Is termination of employment after advisory from the Ministry of Labour & Employment dated March 20, 2020 valid?

It is advisable not to terminate the employment of any employee after the advisory from the Ministry of Labour & Employment, dated March 20, 2020, considering that such advisory may be construed as a direction of a public authority and may attract criminal action under Section 188  of the Indian Penal Code. In states where specific directions have been issued making the advisories of the Central Government as directions under the Epidemic Diseases Act, 1897, the effect of the March 20, 2020 is also binding under the said law. As of April 17, 2020, such directions have been issued in the states of Delhi, Uttarakhand, Meghalaya, Madhya Pradesh, and Lakshadweep, to the best of our knowledge.

Q.4 To what extent is the Ministry of Home Affairs order dated March 29, 2020 binding on employers?

The Ministry of Home Affairs order dated March 29, 2020 (“MHA Order”) was issued in light of the migration of workmen from one state to another state. It only directs employers to pay wages to all the workmen category of employees on the due date. Since the MHA Order was issued under Disaster Management Act, 2005, it has a binding character. While a view may be possible that the MHA Order applies to only workmen, it will be prudent to comply with the MHA Order for all category of employees, particularly in view of the earlier advisory of Ministry of Labour and Employment.

Q.5 Can we terminate or reduce the salary of the employees during the lockdown period?

It is advisable that the employers do not terminate the employment of the employees until the lockdown ends. Even reduction in wages should be avoided, in view of the advisory issued by the Ministry of Labour & Employment on March 20, 2020, particularly in states where specific notifications or directions have been issued by the state governments against reduction of wages, or advisories of the Central Government have been given the status of directions under Epidemic Diseases Act, 1897. However, if an employer does proceed with reduction in wages for non-workmen category employees, the consent of the employee must be obtained (in writing) before such reduction.

 

Q.6 Is it mandatory to pay full wages to employees during the lockdown period?

Pursuant to the MHA Order, it is compulsory for all employers to pay wages, without any deduction whatsoever, to all the workmen category of employees without any delay. Also, due dates of payment are specified under state specific shops and establishment laws. In view of the advisory of Ministry of Labour & Employment on March 20, 2020 read with the state specific shops and establishment laws, it is advisable to adhere to the due date of payment of wages for other category of employees too to avoid consequences under the shops and establishment laws, and Section 188 of the IPC.

 

Q.7 What are the legal consequences if we do not follow MHA order or any other directions or advisories issued by the government authorities?

Generally, the state governments have issued directions under the Epidemic Diseases Act, 1897 or the Disaster Management Act, 2005. Any violation of such directions is treated as a violation of an order of a public authority under Section 188 of the Indian Penal Code, 1860, and Section 51 of the Disaster Management Act, 2005, as the case may be. There may be additional repercussions under other legislations (such as Industrial Disputes Act, 1947 (“IDA”)) depending on the nature of the violation.

 

Q.8 What is due process that needs to be followed for laying-off employees?

Lay-off is the procedure prescribed under the IDA for temporary removal of the employees on reduced wages due to certain exigencies.  Non-Workmen category of employees may be laid-off through mutual agreement executed between the employer and such non-workmen. For laying off the workmen category of the employees, a stringent process needs to be followed under IDA, which is as follows:

If the industrial establishment has more than 50 employees but less than 100 employees, then all the workmen have to provided compensation in lieu of lay-off. Under Section 25C of the IDA, any workmen:

  • who is not a badli workman or a casual workman;
  • whose name is in the muster roll of the establishment;
  • who has completed not less than one year of continuous service under an employee,

is entitled to be paid by the employer for all days during which he/she is so laid off, except for such weekly holidays, compensation equal to 50 per cent of total basic wage and dearness allowance that would have been payable to him/her had he/she not been so laid off. It is to be noted that if the lay off is for more than 45 days then the employer is not liable to pay any compensation beyond the period of 45 days, provided there is an agreement between the workman and employer to that effect.

If the lay off period is more than 45 days, then employer is free to retrench the workmen subject to retrenchment procedure. If an employer retrenches a workman after the period of 45 days, any compensation paid to the workman for having been laid off during the preceding twelve months can be set-off against the compensation payable for retrenchment. [1]

If the industrial establishment has more than 100 workmen, a three-month notice indicating the reason for lay-off has to be given to all workers. Additionally, in such case prior permission of the government or designated authority has to be obtained except in cases where such lay-off is due to,

  1. shortage of power;
  2. natural calamity; and
  3. in cases of a mine, due to fire, flood, excess of inflammable gas or explosion.

In the current scenario, permission to lay-off may not be taken if the laying-off is the direct result of COVID-19. However, it is advisable that the employers serve proper notices on all the concerned workmen and follow the procedure to avoid protracted litigation. Needless to say, even if the employer is not obligated to take permission from the government, there is no waiver of notice period and, government may initiate an inquiry under IDA to verify the genuineness of the reason for lay off.

For establishments which employ less than 50 employees, the procedure as prescribed by IDA is not applicable. Workmen in such establishments have no right to any compensation under the statute. However, in that scenario any prior agreement with the employee will govern the procedure of laying off and compensation in lieu of the same. Employers also need to check Standing Orders in the states where the operations are carried out or any other settlement award in this regard before laying off its workers. The lay-off procedure may be diagrammatically summarised as below:

 

Q.9 What is the process of retrenchment of employees under applicable laws?

Retrenchment is the process of permanent termination of employment of the employee. The process of retrenchment depends on the size of the organization and the category of employees being retrenched. The process for retrenchment of workmen differs from employees who are not workmen. For understanding the legal regime better for retrenchment of workmen, following three categories may be considered:

  1. Establishments with more than 100 workmen,
  2. Establishments with less than 100 but more than 50 workmen,
  3. Establishments with less than 50 workmen;

Retrenchment of Workmen

For terminating the employment of workmen, who have completed one (01) year of continuous employment with the employer, the employer is expected to comply with the following requirements[2]:

  • In case there are less than 100 workers in an establishment, give the workman one (01) month notice in writing or for more duration if contractually agreed, or wages in lieu of the notice period;
  • In addition to the above, a notice for retrenchment has to be given to all the workmen who are being retrenched with clear reasons for the retrenchment. Further, please note that the worker also has to be paid wages for the said notice period;
  • In case there are more than 100 workmen in an establishment, three months’ notice in writing indicating the reason for retrenchment has to be given to all workmen who are being retrenched. Further, prior permission of the appropriate government or designated authority has to be obtained as per the procedure prescribed under IDA and rules issued thereunder.
  • Workman is to be given ‘retrenchment compensation’ at the rate of fifteen (15) days’ average pay for every completed year of continuous service or any part thereof in excess of six (06) months;
  • A notice to the appropriate government by way of registered post in Form ‘P’ within three (03) days from the date of notice or payment of wages in lieu thereof to the workman; and
  • the workman being retrenched has to be paid any other payment due under his/ her employment agreement with employer or applicable social security benefits, such as gratuity.

Failure to comply with the abovementioned requirements gives the right to the Workman to file an application for recovery of the amount due before a labour court or the central government. The concerned workman is also entitled to pursue other remedies available to him/her contractually. Employers are also liable for fines if the procedure is not complied with[3].

Retrenchment of Non-Workmen or a Workmen who has not Completed One Year of Service

For terminating the employment of employees who are not workmen, notice requirement under the contract, or wages in lieu thereof will need to be paid, subject to the minimum notice required under the state shops and establishment laws. Such state shops and establishment laws will need to be complied with for termination of employment of workmen as well. For example under the Delhi Shops and Establishment Act, 1954, for terminating the employment of a workman, who has completed three (03) months of service but not one (01) year, or a non-workman having completed three (03) months of his/her employment, the employer is expected to comply with the following requirements[4]:

  • the employee needs to be given a notice in writing of at least one (01) month, or for more duration if employment agreement so provides, or wages in lieu of the notice period; and
  • the employee needs to be paid any sum due under the employment agreement or any other benefit that the employee is entitled for under applicable social security benefits, such as gratuity.

Failure to comply with the abovementioned requirements gives the right to the employee to file a complaint before a magistrate for recovery of the amount due, besides any other remedy available that the employee is entitled to contractually. In addition to this, the employer may also be charged with a monetary fine.

 

Q.10 If these advisories and orders are binding, how are companies laying off or terminating the employment and reducing wages of so many employees as reported in the media?

The present situation is still evolving. In the absence of any judicial determination of the binding nature (or otherwise) of these advisories, we believe that companies are taking a call on the basis of their specific risk-appetite. There are various news reports regarding the reduction in salaries and/ or termination of employment by several large companies, and in some cases reduction in wages announced by several state governments. We cannot comment on any specific fact situation, however, there are reports of notices having been issued against some establishments for terminating employment of their employees.

 

[1] Second Proviso to Section 25-C of the IDA.

[2] Section 25F of IDA.

[3] Section 31(2) of IDA.

[4] Section 30 of Delhi Shops and Establishment Act, 1954, the requirements may change for other states.