The COVID-19 pandemic, apart from disrupting the global economic balance, has severely dented and affected employer-employee relationships. Businesses have dwindling revenues resulting in severe depletion of cash flows which are now insufficient to service employee payments. In some cases, employers have engaged in mass lay-offs.
In light of such circumstances, with an intent to protect employees, it is worth noting that the Ministry of Labour and Employment issued an advisory dated 20th March, “advising all public and private establishments to extend their cooperation by not terminating employees or reducing their wages, particularly casual workers” even before the lockdown was announced by the Department of Health & Family Welfare on 24th March.
The Ministry of Home Affairs issued an order dated 29th March, which stated amongst other measures that “all employers shall pay their workers at their workplace on the due date without any deduction for the period under lockdown.” The order dated 29th March has been withdrawn with effect from 18th May by a subsequent order of the Ministry of Home Affairs dated 17th May.
The Ficus Order and the grounds of challenge
While things stood thus, a batch of writ petitions have been filed before the Supreme Court of India by various employers, challenging the constitutional validity of the orders dated 20th March and 29th March, referred to above, in the case of Ficus Pax Private Limited & Others v. Union of India & Others (‘Ficus Order’). The Supreme Court has heard arguments and passed an order dated 12th June, by way of an interim arrangement till the matter is heard further and the case has been adjourned to the last week of July.
The grounds on which the two orders were challenged are: (a) The orders are beyond the scope of the powers of the Disaster Management Act, 2005 (b) The orders were meant for the limited purpose of emergent issues regarding migrant labourers and they cannot be applied to the entire country (c) The orders are violative of the “right to practise any profession, trade or business as guaranteed under Article 19(1) (g) of the Constitution” (d) Right to equality is violated because the two orders do not draw a distinction between “working and non-working employees during the said period” and (e) The orders are contrary to basic principles of labour law, namely “equal pay for equal work” and “no work- no wages”. It is pertinent to point out that the Bombay High Court, in its recent decision in Rashtriya Shramik Aghadi v. Maharashtra, vide its order dated 12th May, has held that “the principle of 'no work no wages' cannot be made applicable in such extraordinary circumstances.”
It is interesting to note that apart from challenging the orders, some aggrieved parties have sought directions for balancing rights of employers and employees with respect to Micro Small Medium Enterprises (MSMEs) and subsidizing 70-80% per wages and utilisation of Employees State Insurance Corporation Funds (ESI), PM Cares Fund or similar government schemes.
Counter by the government and the order of the SC
The Union government defended the orders issued by firstly submitting that the issuance of the order dated 29th March was within the scope of the Disaster Management Act. Secondly, it said that the order has been issued in larger public interest keeping in the mind the interest of employees, labours and workers. Thirdly, it said the argument of financial hardship or incapacity to pay is an untenable argument and finally that the order dated 29th March has been subsequently withdrawn and was live only for 54 days.
The Supreme Court, while observing that “industry and labourers need each other”, has passed an order stating that:
(i) “Private establishments may initiate negotiations with their employees organization/union regarding payment of wages for either the 50 days in question or for any other period”. On successful negotiations, parties may settle;
(ii) In the event that they are unable to settle the dispute amongst themselves, they may “submit a request to the labour authorities constituted as per law, to conciliate the inter se disputes, by calling upon the concerned employees trade union/workers association/workers to appear on a date for negotiation, conciliation and settlement”. In the event a settlement is arrived amongst parties, that may be acted upon by the employers and workers irrespective of the order dated 29th March;
(iii) The inter se negotiation can also be adopted by institutions which were working during period of lockdown.
(iv) Establishments may permit willing employees to work without prejudice to their rights with respect to the unpaid 50-day period.
Implications of the Ficus Order: Arriving at a settlement to avoid unnecessary litigation
The primary object of the order is to avoid multiple litigations and strike a balance between parties who are in a predicament due to factors beyond their control. The Supreme Court has encouraged “a negotiation by which the interest of both stakeholders, namely the employers and employees, are protected by entering into a settlement.”
In the event of the negotiation failing, the employees are at liberty to move before the labour authorities. An employee continuing to work with the establishment has been provided adequate protection under this order, as his/her consent to continue employment would not be considered as a “waiver of claims for the 50-day period”.
Employers would argue that they are incapacitated in such extreme and dire economic circumstances which are beyond their control whereas employees would argue that the obligation to pay would subsist irrespective of the financial capability of the employer as they are contractually bound and their life/livelihood is dependent on such income.
Keeping the interests of both parties at an equilibrium, the observation of the Supreme Court appears to be ideal to achieve a level playing field and progress towards recovery.
The necessity to re-negotiate employment agreements
The balance between public interest and economics of business has to be achieved in such desperate times. The employment agreement is the foundation for such employer-employee relationships. The lockdown would now greatly impact such agreements, under which the employer and the employee have agreed on various terms and conditions which were executed as a matter of a ritual in the usual course.
The employer without doubt would be under a contractual obligation to make payments to the employee and very seldom would a contract contemplate this predicament which exists in the country today. It would be best that the concerned parties negotiate or restructure the payment structure which may either be disbursed by the employer through a phased manner or can be linked to an incentive threshold which would be beneficial to all concerned.
Laying off by employers or termination of contracts by employees would not help each other’s cause, even more in the case of employees as job security would be of grave primacy and job opportunities would be scarce. It would be ideal that parties negotiate and arrive at a mutual consensus/settlement considering all the above factors and avoiding time in litigation, incurring litigation expenses and thereby protecting their livelihood.
It is also worth noting that apart from this, the government of India as part of its economic package has reiterated sweeping changes of consolidating 44 labour legislations in four codes which was initially proposed in July 2019. We now wait for the next day of hearing before the Supreme Court and these wholesome legislative measures proposed in the interest of employees.
(The authors are advocates practising in the Madras High Court.
The views expressed are personal.)