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Analysing the Impact of COVID-19 on Wages and Salaries

INTRODUCTION

The worldwideCOVID-19 pandemic has largely affected India in various aspects. The first COVID-19 case was reported on 30th January 2020, which eventually increased to an approximate 250,000 existing cases nationwide. The official lockdown announcement for the entire nation was issued on 25th March 2020, from which the economy has seen a steep decline. This has caused huge destruction and may lead to the permanent damage of a large section of the Indian industry. The economy might to fail to recuperate if the government does not take reparatory measures.

EMPLOYEE’S POINT OF VIEW

During this pandemic, companies are ensuring the maintenance of their sustenance in the industry by cutting down manufacturing costs, by reduction of employee salaries and by laying their staff off. Others have sent employees on an indefinite leave without pay, or have abstained from employing the newly hired. Companies are looking at an alteration of the pay scale to combat the effects of this pandemic.

  • OYO announced a 25 percent pay cut in the monthly fixed salaries and granted a leave of 4 months to its employees. [1]
  • Zomato announced a 13% layoff of its workforce and cut down their salary to 50%. The salaries of those at a higher cadre were cut down at a greater percentage. [2]
  • Hotels and spas also remain closed due to the lockdown. Migrant workers, who are employed in the hospitality sector, are forced to return to their native regions. A large portion of these workers is from the North-east while the rest belong to other parts of the country.[3]
  • The possibility of a person to get fired stands at 21% for employees with an experience of more than 15 years and 18% for employees with experience between 1-5 years. The economic repercussions of this pandemic are translating into layoffs at every level of every industry.[4]

THE LEGALITY BEHIND

Certain states in India have suspended labour laws for a particular period during this pandemic. As a result of this suspension under the Industrial Disputes Act, 1947(IDA) and Factories Act, 1948 the workers in the factories may be stripped away from the basic conducive environment like sanitation, good ventilation, food areas, drinking water, restrooms etc.

Madhya Pradesh (MP) has passed an ordinance that the workers in that state will be exempted from all the provisions of the IDA with certain exceptions like lay-off, retrenchment, closure, penalty for closure and retrenchment etc. for a period of 1000 days.[5] However, this ordinance, being issued under section 36-B by the MP government, implies that this exemption would be applicable only in cases of government undertakings and not private firms as established in the case K.Loganandhan vs. State of Karnataka and another[6]. So, the intent of the MP government to increase the investment and employment of private sector would be defeated.

This suspension of labour laws also negatively affects the various rights available to labourers at workplace. For example, this could reduce the negotiating authority of a labourer and may hence make them turn into forced labour. According to Article 23[7] of the constitution, forced labour is prohibited. The Supreme Court also declared in the case PUDR vs. Union of India[8] (1982) that “any condition arising from the compulsion of economic circumstances which leaves no choice of alternatives to a worker would be termed as force[9]

THIS ISSUE UNDER THE PURVIEW OF DMA (2005)

The Central Government issued advisories and directions based on matters dealing with this pandemic on 29thMarch 2020. Under the order issued, section 10(2) of the document therein, talks about the issues regarding the payment of wages and salaries.

Section 2 of the Epidemic Diseases Act, 1897 gives the power to take special measures and prescribe regulations regarding any matter that relates to the current pandemic. Paying employee salaries and wages is definitely an important aspect during this pandemic. Thus, the question of deciding the payment of wages and salaries comes under the ambit of the Disaster Management Act.[10]

Based on the above order, The Home Secretary, Government of India and The Ministry of Home Affairs have directed both the State and Union Territories to make sure that the workers are paid their wages on time and without any deductions, during the period of the nationwide lockdown, during which the businesses and commercial industries are under closure. Non-Compliance to the above will invite legal action under the Disaster Management Act, 2005(DMA).

An IT company in Pune has filed a PIL on 27th April 2020, before the Hon’ble Supreme Court against other IT companies that have ordered a reduction in pay, and the delay in paying employee salaries, in addition to firing them, which comes in direct violation of the government’s advisory. This PIL further requests that the Supreme Court issue directions to both private and public sector companies to protect employees’ rights. The petition also seeks action against the companies who act in contrary to the DMA advisory.[11]

Speaking from humanitarian grounds, employers inevitably have a huge responsibility to financially support their workers during such a pandemic. This is particularly important when the entire sustenance of the family depends upon the income of a single breadwinner of the family. This shortage of income will take a huge toll on all aspects like the debt settlements, educational commitments and most importantly sanitation, at this stage of the pandemic. And moreover, the Supreme Court’s abstinence to grant interim-relief to the employers is making the situation worse.

EMPLOYER’S POINT OF VIEW

During this pandemic, a neglected factor is that, as much as the employees are suffering to make ends meet at their homes, there is also a significant amount of hardship that the employers go through behind the scenes to fulfil the obligation they have towards their employees. It is almost impossible to expect the owner of an industry to pay all his workers the full salary that they deserve without the industry even running. This places an increasing burden onto the employers.

  1. From the total number of firms in the market, 57% of them currently feel that they may face a negative impact in the next 6 months. This was recorded in the recent Wilson Towers Watson Survey.[12]
  2. 57%, 46% and 19% of the firms will face a moderate to large level negative impact in their business in the next 6 months, 12 months and 12-24 months respectively. Only 5% of organisations expect a positive growth impact within the next 2 years. Close to 22% of firms in the market are unsure as to whether there will be any huge impact within the next 6 months.[13]
  3. Industries like FMCG, automobile, manufacturing, travel, aviation, hospitality and aviation will suffer at a higher level than the others and will take a longer duration to recover due to the halt in spending. Notably, the highest lay off percentage is in the retail and FMCG sector at 49%.
  4. The Order will force employers into insolvency, adding to their excessive financial burden, and violates the constitutional Right to Trade under Article 19(1)(g). [14]

LEGALITY OF THIS MATTER

The advisory issued on 29th March by the DMA is in direct violation of Article 14[15] of the constitution that talks about the right to equality. This order is only in favour of the employees and attempts to uphold their rights, while it totally ignores the rights of the employers as well as their and financial situation, while in reality, both groups have equally been affected during this pandemic. It also violates the “equal work, equal pay” principle, by making the employers pay the same amount to both people who risk themselves by going to work during this crucial period and the people who stay at home. [16]

THIS ISSUE UNDER THE PURVIEW OF DMA (2005)

As mentioned above, the Central Government has issued advisories and directions concerning the payment of wages and salaries during this pandemic. However, in the Industrial Disputes Act (IDA), 1947, there is a provision that talks about these issues during a National Emergency.

  • In the IDA under section 2(kkk), if an employer is not able to pay salaries or wages to his employees due to a natural calamity or anything else that is connected to it, then it is termed as “lay off”.
  • Section 25C of this Act also states that, when a firm has 50employees or more, the employer is to pay his employees a minimum of 50% of their salaries, which most of the firms in the market are already in compliance thereof.
  • Section 25M (1) of the same Act states that, generally, if an industry wants to lay off its workforce, it has to seek prior permission from the concerned State or Union Government, but in case of a ‘layoff’ due to a natural calamity, such permission is not necessary.

So, the technical issue here is that lay off due to a natural calamity is allowed under the IDA 1947, but the advisory issued under the DMA 2005, comes in conflict with it. It contravenes the Industrial Disputes Act, 1947, which specifically contemplates the right to layoff workmen due to natural calamities.[17]Additionally, it is unfortunate that the DMA 2005 overrides the provisions of IDA 1947 which allows an employer to lay-off and pay only 50% of wages including the grounds of 25C and 25M of the IDA.

Also, Section 54 of the DMA has been invoked by the states in order to curtail people from spreading fake news and anyone who does perform such an act will be punished with imprisonment extending up to a year or with fine.

Employers feel that this order is unfair and that it is totally ultra-vires. They claim that the DMA is not entitled to make decisions about the wages and salaries of the employees. Another argument that is being placed by the employers is their inability to provide the employees with a ‘full pay’ due to their financial crunch during this lockdown. Manufacturing industries are on hold and only essential services are working continuously. Demands have also been placed with the Central Government by the employers to cover their costs as adequately as possible and to meet the requirements of their employee.

HOW OTHER COUNTRIES HAVE DEALT WITH THIS SITUATION

In the UK, all employers have been provided with 80% financial backup from the government for the next three months of the lockdown towards the salaries of workers. Ireland has provided its employers with a temporary wage subsidy of 85%. France government has decided to give an 84% allowance of the salaries of the employees and decided that the minimum wage workers will be paid a full 100% salary. Denmark has promised to provide 75% of wages to employees who have not been laid off for the next 3 months. Spain pays the full salary for its workers during the lockdown. The Quarantined employees in the Czech Republic are paid 60% of their salaries while the employees whose company’s operations are at hold will be compensated fully. Canada pays all its citizens who have lost their monthly income owing to this pandemic 2000 Canadian Dollars per month.[18]

CASE STUDY

Comparison of Covid-19 to Lehman Crisis:

The sharp downfall in the economic activity because of the Covid-19 lockdown is an unprecedented event in the history of the Indian economy. Its repercussions are far worse than what was observed in the 2008 Lehman crisis, which had reached its peak in September 2008.

The way the economy has flaked out may appear similar in both cases, but the reality is different. For example, electricity generation declined considerably in the first half of March and towards the end of the month. In contrast, electricity generation curve was flat, even at the peak of the Lehman crisis as there was no interruption in economic activity.[19] The Lehman crisis of 2008 led to a sharp decrease in automobile sales, but it recovered fairly quickly. The drop in the automobile sales in the Covid-19 pandemic was down 51% year-on-year in March 2020 – one of the sharpest declines ever.[20]

So, not just the Lehman crisis, any other economic crisis that India has ever undergone is very different from what the COVID-19 pandemic has caused, and the country is getting over-blown in all the aspects.

CONCLUSION

The government is equally responsible as much as the employers and employees in this pandemic and they have to strategically discharge their financial obligations through various schemes and policies than placing the burden squarely and solely on employers. This pandemic will have a remarkable cultural and ethical change in India that will drive both the employers and employees to work harder towards their job. The brutal reality of this stage is that we do not have much of a solution in our hands as it depends upon so many unknown variables.


[1]OYO cuts 25% salary of all employees in India for April-July; some sent on leave, INDIA TV NEWS, (Apr. 22, 2020), https://www.indiatvnews.com/business/news-oyo-india-25-per-cent-salary-cut-employees-softbank-group-ritesh-agarwal-610135.

[2]Zomato lays off 13% workforce, up to 50% salary cut for rest, THE  TIMES OF INDIA, (May 15, 2020), https://timesofindia.indiatimes.com/business/india-business/zomato-lays-off-13-workforce-up-to-50-salary-cut-for-rest/articleshow/75756905.cms.

[3]COVID-19 impact: With spas, hotels shut in Chennai, Mizo and those from other states keen to return home, THE INDIAN EXPRESS, (May 2, 2020), https://www.newindianexpress.com/cities/chennai/2020/may/02/covid-19-impact-with-spas-hotels-shut-in-chennai-mizo-and-those-from-other-states-keen-to-return-home-2138336.html.

[4]Organised private sector planning layoffs, salary cut, THE NEW INDIAN EXPRESS, (May 14, 2020), https://www.newindianexpress.com/business/2020/may/14/covid-19-effect-organised-private-sector-planning-layoffs-salary-cut-2143317.html.

[5]AshimaObhan & Bambi Bhalla, Suspension of Labour Laws amidst Covid-19, Mondaq, (May 18, 2020), https://www.mondaq.com/india/employment-and-workforce-wellbeing/935398/suspension-of-labour-laws-amidst-covid-19.

[6]K. Loganandhan vs. State of Karnataka and Anr (2015) 6 SCC 86.

[7] INDIA CONST. art 23.                                                            

[8]People’s Union for Democratic Rights and Ors vs. Union of India AIR (1982) SC 1473.

[9] Drishti mains Editorial, Labour Laws and Covid-19, Drishti, (May 12, 2020), https://www.drishtiias.com/daily-updates/daily-news-editorials/labour-laws-and-covid-19.

[10]Ujjani Chatterji, Explainer: Right to wage during lockdown due to COVID-19 (May 6, 2020) https://theleaflet.in/right-to-wage-during-lockdown-due-to-covid-19/.

[11]BTG legal, COVID-19: Judicial pronouncements payment of wages and termination during lockdown, MONDAQ, (June 9, 2020), https://www.mondaq.com/india/operational-impacts-and-strategy/949710/covid-19-judicial-pronouncements-payment-of-wages-and-termination-during-lockdown-.

[12]Wills Towers Watson, Wills Towers Watson Webinar on Covid-19 India Readiness – Survey results and key insights, Willis Towers Watson-Talents & Rewards, WILLS TOWERS WATSON (Apr.9, 2020), https://www.willistowerswatson.com/en-IN.

[13]Willis Towers ibid note 11.

[14]FicusPaxPvt. Ltd. vs. Union of India W.P (C) Diary No. 10983 of 2020.

[15]INDIA CONST., art 14.

[16]Hand Tools Manufacturers Association v. Union of India, W.P (C) Diary No. 11193 of 2020.

[17] Twin City Industrial Employers Association vs. Union of India W.P (C) Diary No. 11018 of 2020.

[18] Right to Wage ibid.  note 9.

[19] Krishna Kant, How economic crisis due to Covid-19 is different from 2008 meltdown, BUSINESS STANDARD (Apr. 12, 2020)https://www.business-standard.com/article/markets/how-economic-crisis-due-to-covid-19-is-different-from-2008-meltdown-120041200015_1.html.

[20]Krishna Kant, ibid. note 18.


Cite this article (The Bluebook 20th ed.)-

Harshitha Jayakumar, Analysing the Impact of COVID-19 on Wages and Salaries, Ex Gratia Law Journal, (October 1, 2020), https://exgratialawjournal.in/journal/volume-1-issue-2/analysing-the-impact-of-covid-19-on-wages-and-salaries-by-harshitha-jayakumar/.

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Author

Harshitha Jayakumar
Student - SASTRA Deemed to be University