The world today is trembling with fear and citizens are scared for their lives as Corona Virus (COVID-19) continues to grow and affect our daily lives. The Virus that originated in the markets of Wuhan, China has created an unprecedented human crisis, affecting the social as well as economic strata of the world. Nations across the world are being forced to adopt stringent measures so as to prevent the spread of virus, such as maintaining social distance norms or going into lockdowns etc. These measures have created a situation of economic turmoil, thereby leaving corporate bodies in a fight for survival.
As necessary the lockdown seemed, its impact on Companies and organizations cannot be overlooked. Top experts and financial bodies consider this situation worse than 2008 Economic crisis, which will leave businesses in tatters. To tackle this situation the organizations are taking unprecedented measures such as laying off employees, or reducing their area of operation, salary cuts etc. Many new businesses or start-ups have been shut down due to the pandemic since they were not able to survive the losses incurred.
Major companies like Ola, Zomato, Uber, We Work etc. have already laid off a huge chunk of employees to prevent the company from going into further losses. This has left the employees in a state of utter shock, as they turn jobless in state of pandemic which in turn creates a situation where they cannot even look after their own wellbeing. The author in this article will discuss the provisions of Indian Jurisprudence relating to Retrenchment and Layoff of employees and how they have been effectuated in times of COVID-19.
Retrenchment as defined under Section 2 of Industrial Disputes Act, 1947 states that it is the termination by the employer of the service of workman for any reason whatsoever, other than punishment as inflicted by as a result of disciplinary action. It also does not include termination as a result of superannuation of contract or termination as result of ill health. Simply put into words, it is the severing of relation between employer and employee except for the situations as mentioned above.
Section 25F of the Act lays down certain conditions before retrenchment can be brought into effect. The conditions precedent to a retrenchment include a notice to the worker 30 day in advance stating reasons for retrenchment, the employee should also be provided adequate compensation for a period of 15 days, and the government authorities should also be informed regarding the same.
Compensation is a pre-requisite to retrenching an employee and if compensation is not paid then the procedure cannot be held to valid under Section 25F. The third condition which states about intimating the government authority cannot be considered as a pre-condition to retrenchment as the purpose of that particular clause is just to inform the government authorities, so that the government can keep a record of the conditions of the employees in different regions and different industries. Hence it can be stated that the two mandatory conditions for retrenchment are serving a notice and providing compensation to the retrenched employees. Nonetheless, the courts have clearly stated that 25F(c) though not a condition precedent it is mandatory that the notice is served upon the government by the employee. The court also has the power to hold a retrenchment decision as invalid if the decision not reported to the government authorities.
In order for any employee to utilize the benefit provided by Section 25F, it is necessary that he established that he was in continuous service of period for more than a year immediately before a retrenchment. Only after this is proved will the employer be liable to serve a notice and provide compensation to the employee. On conjoin reading of Section 25F and 25B, a year is equivalent to 240 days of services in a year, so before arriving at any conclusion, it has to be checked whether the employee has worked 240 days or not. Retrenchment of a person fails to hold value when the person is not provided with retrenchment compensation and one month’s pay at the time of retrenchment and the person can be reinstated in the organization with 50% of the salary that was due to him.
Further, when the termination of workmen without complying with the provision of Section 25F of the Act by the employees, the workmen would be entitled to reinstatement but that does not mean that he has a right to claim back wages on the mere fact that courts has reinstated them. The employee will have to prove before the court while he was in disservice of the organisation he did not have any other employment and salary of any sort. Once he proves this before the court of Law, the burden shifts to employer. The employer will try to prove otherwise, that the employee was in gainful employment of another during the period he was retrenched, but the initial burden rests with the employee.
Factors that ascertain the amount of back- wages to be received by the employee are non-gainful employment of workman, time spent in litigation, last drawn wages, paying capacity of the management at that relevant time, financial condition of the workman, nature of job, etc. Further it is also stated under section 25G that the ordinarily the last person to join the firm should be retrenched first. The rule identifies the ‘last come first go’ reasoning but the rule is not inflexible and can be subject to variations depending upon the facts and circumstances.
This section provides for the employer to remove the economic weight that an employee carries if the employee doesn’t perform up to certain expectations. The section indicates that the right to retrench is inherent to the right of management of business of the employer provided that the condition precedent to the retrenchment is fulfilled.
Layoff as defined under Section 2 of the Industrial Disputes Act, 1947 means the failure, refusal or inability of an employer on account of shortage of coal, power or raw materials or the accumulation of stocks or the breakdown of machinery, to give employment to a workman whose name is borne on the muster rolls of his industrial establishment and who has not been retrenched.
There are 4 basic conditions which are to be satisfied before laying off any employee. Firstly, the employers must be unable to continue the services of the employee. Secondly, the employees must be registered on the muster role on the date of laying off. Thirdly, the reason for deprivation of employment must be shortage of coal, power or raw materials or the accumulation of stocks or the breakdown of machinery, to give employment to a workman. Fourthly, the removal of employee should not be retrenchment.
While laying-off employees, it is always works at the discretion of lawyer. There are often cases where the employers adopt malafide methods and lay off even when there is no need for it. The court has decided that it was outside its scope to determine whether there was a chance to the employer to avoid the lay off and if he could have been more diligent and careful in its operation. Unless the malafide intention is alleged or proved, the court would be exceeding its jurisdiction in deciding a dispute whether layoff was just or no.
Section 25C of the Act provides for compensation to be received by the workman if he has been laid off by the company or organization. It provides for 50% of the total of daily wages and dearness allowance as compensation to the worker for all the days during which he is laid off. There are three pre-conditions before a worker is eligible for receiving compensation. Firstly the worker should be a badly or casual workman. Secondly, his name must be on the muster roll of industrial establishments. Thirdly, he should have completed one year of continuous service at the establishment whether continuously or intermittently.
Further the section also does not allow Badli Workers to claim compensation under this section. A Badli workman is generally a worker hired to replace some other worker who has been added to muster role of the organization.
The lay-off compensation which is to be given to the worker is to be paid for all the days of lay-off beyond the first 45 days, whether this period is continuous for or not, unless there is any agreement to the contrary. In absence of any such agreement the employer cannot run off from its liability of paying compensation to the employee for the period after 45 days. The second proviso of the section provides that at the end of expiry of the first 45 days of the lay off period the employer can either continue paying the layoff compensation as per provision of 25C or retrench the worker as mentioned under 25F. In case of such retrenchment, the lay-off compensation paid under this section during the last 12 months shall be set-off against the compensation payable for retrenchment.
IMPACT OF COVID-19
The COVID-19 era has made the employee sector of our country feel insecure about their job position, as they fear that they can be laid off or retrenched at any point of time. The companies have been trying their best to not remove any employee unless it’s absolutely necessary. The government also has been trying to actively protect the interests of the employees, but the situation still remains out of hands. The employers and organisations are allowed to follow the general laws in place relating to retrenchment and laying off without any specific restriction, but they are advised to not take any stringent measure unless its unavoidable.
The Government on 29th March, 2020 issued an order stating that under section 10(2) of the Disaster Management Act directing the state governments to take necessary steps to take necessary so that the employees receive their wages without any pay cuts. The chief labour commissioner’s office has also issued advisories after consulting the Home Ministry to prevent any employee from being removed, as it seen in the case of Spice Jet CMD. The central as well as the state government have issued various directives and advisories encouraging/ requiring employers not to terminate their employees and pay full wages to them but the government has not issued any mandatory guidelines to prevent layoff or retrenching.
The letter dated 20th March, 2020 has advised the employers to not take any action that can render the employees as jobless during the pandemic unless it becomes absolutely necessary. Though this advisory is not binding, it still holds value as it is a directive issued by a government agency which points towards the attitude of government in tackling the situation.
In India there are certain states which have brought about a change in their labour laws, to make the transition from normal to COVID-19 era easier. Uttar Pradesh has suspended most of its labour laws, so that employees can easily carry out the process of hiring and firing. Madhya Pradesh has acted on similar lines by encouraging the setting up new industrial establishment and doing away with laws that require permission of government to suspend the services of employees.
India while adopting strategies should also look at the methods adopted by different countries. Government of England for example has decided to cover 80% of the wage bills of the employees and the workmen. Other countries like Denmark, Canada, Australia, Malaysia etc. There are also countries like Norway who are giving partial to full wage compensation for those who have been laid off. Spain has put an outright ban to termination of employees due to the COVID-19 pandemic.
The approach adopted by the Indian government is commendable and will be successful in securing jobs of the employees but it might have adverse impacts in the long run. The government fails to take into the account the situation of the employers and the directions and advisories issued will hinder the cost cutting measures taken up by the companies to tackle the pandemic. This will exhaust the reserves of the organizations, which will result in drastic steps being taken by the organization such as winding up or major restructuring of the organization. This will prove to be detrimental to the economy as well.
There is an urgent need for the central as well state government to provide clarity regarding these laws and also attain uniformity in their actions while giving out directions and advisories to the organisations and its employers. This will allow employers to regulate things in an orderly fashion and will help them how to deal with the situation of employees, consequently will be able to decide short term as well as long term measures.
The post COVID-19 era might just see a permanent shift in the employee arrangement. The employers will try to enter into a fixed-term contract with the employees. There is also a possibility that working from home becomes a norm and some organizations stick to it even after the pandemic is over.