What are the legal obligations to pay wages during a lockdown?

The Government of India and State governments have called upon employers to pay wages for the lockdown period not only to the permanent workmen of an industrial establishment but also to contract workmen and inter-State migrant workers. On humanitarian grounds, there can be no two opinions about the need to pay wages to employees. However, whether such an obligation should be that of private employers or that of the State needs to be considered.

The Central Government, invoking the provisions of the Disaster Management Act 2005 (DMA, 2005) has declared a lockdown until April 14. The State Governments invoking the provisions of Epidemic Diseases Act, 1897 (EDA) have framed certain regulations and have issued certain directions/guidelines/communications. The 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 a statutory law.

Legal provisions

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. A reading of the provisions of the Act would show that powers have not been vested with either the State or the Central Government to direct private employers to pay wages during a disaster despite the employees not working. The scope of the Act empowers committees to frame plans to meet disasters.

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 only enables the government to prescribe measures to prevent the outbreak of such disease or the spread thereof. The same certainly does not clothe the government with a power to direct a private employer to pay wages.

These are the two enactments based on which the governments have been issuing directions. Given the provisions of both the Acts and the language of the sections as analysed above, there is no statutory provision to support the directions of the Central or State government with regard to payment of wages.

Lay-offs

In common law, an employer could lay off employees without payment of wages. To remedy such a situation, provisions were introduced in the Industrial Disputes Act, for payment of compensation in the event of a lay-off. The legislature in its wisdom introduced a term called “lay off” under the ID Act and mandated payment of compensation in certain circumstances and prohibited lay off in certain circumstances.

Section 2 (kkk) defines the term “Lay off”. As per the definition, if an employer is unable to provide employment to an employee due to a natural calamity or for any other connected reason, then the same would fall within the definition of “Lay off”. Section 25C of the ID Act mandates employers laying off workmen to pay a compensation equivalent to 50 per cent of the wages. Section 25M of the ID Act requires an industrial establishment with more than 100 workmen to seek prior permission. However, such permission is not mandated if the lay-off is due to a natural calamity.

The Industrial Disputes Act 1947 is a Special Law which mandates payment of lay-off compensation in the event of a natural calamity or other connected reasons. The liability in this Special Law which is specific has restricted the payment of 50 per cent of wages as compensation. Being so the various directions/circulars/communications of the government can at best be advisory and not mandatory. The government would need to appreciate this legal position.

Irrational approach

Further, the direction issued by the government to pay full wages is a bonanza to employees, not merely because they earn it without having to work. The directions of the government have in fact resulted in the employees taking home more wages/salary than they normally would earn. The example shown in the Table demonstrates as to how an employee who does not contribute to the country’s economy or to his employer earns more than he would earn normally.

The Table demonstrates as to how an employee who would have normally taken home a salary of ₹12,7000 after having toiled for it, is taking home a salary of ₹15,000 without contributing to the country’s economy or without any sweat.

Global examples

Considering the burden of lockdown would have on industries, governments across the globe have taken measures to aid the employers. Denmark has announced that it will cover 75 per cent of wage bills. Canada has implemented a wage subsidy scheme. England has provided for 80 per cent of average earnings to be subsidised. Malaysia is providing a wage subsidy of RM 600/month for three months for employees earning less than RM 4,000.

Australia has framed a “Jobkeeper” wage subsidy plan. An employer will be able to claim a fortnightly payment of $1,500 (before tax) per eligible employee from March 30, 2020, for a maxim. Ireland has announced a Wage Subsidy scheme, which refunds employers up to 70 per cent of an employee’s wages — up to a level of €410 to allow employers to pay their employees during the current pandemic.

The Netherlands allocated a package covering compensation of up to 90 per cent of labour costs for companies expecting a reduction in revenues of 20 per cent or more, while New Zealand is to pay a lumpsum 12-week wage subsidy to support employers severely affected by the impact of Covid-19 (NZ$9.3 billion)

Way forward

The Indian Government would need to come up with a scheme to subsidise employers towards the wages paid during the lockdown. The scheme can be linked to profits earned by the industrial establishment and the wage bill for a month. In the absence of such a scheme, private employers especially small and medium industries will be put through hardships that could even bankrupt them.

The government while drawing a stimulus or revival plan for the economy should certainly consider subsiding the wage cost for the lockdown period, if not in entirety, at least in part. If for any reason the government decides to extend the lockdown it should bear the wage burden and should not give any advisory for payment of full wages given it lacks the authority to do so.

The writer is Partner, TS Gopalan and Co. The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this article is for general informational purposes only