Wages and Workers: Employment in a Disaster (Ficus Pax v. Union of India & others)

Economies rely on the basic principle of payment of consideration for performance of work. From an exchange for more cows to coding intelligence in machines, the performance of work is the bargaining chip for earning a livelihood. Companies purchase raw materials and pay workers to produce goods and services, in order to earn income, which is then spent on purchasing raw materials and paying workers. This cycle of income and expense relies heavily on factors like demand and market restrictions. While a business may succeed or fail based on various other factors like the skill of its employees or the quality of governance, these important undercurrents decide its very existence.  

The special circumstances caused by the pandemic and lockdown have brought these undercurrents to a halt. While this poses a greater threat of extinction as demand stagnates and market restrictions result in effective closure, other issues have caused further damage to businesses, including the apparent liability to pay workers who are not actually performing work (through no fault of their own). While some argue that employers are not liable to pay wages in the absence of work (i.e. no work, no pay), others argue that employees cannot be deprived of their right to wages when they are in fact ready and willing to work.  

This debate was given shape and brought into the forefront by a circular dated March 29, 2020 issued by the Ministry of Home Affairs (“MHA Circular”), directing employers to pay wages on time and in full, despite a lack of work and income for most. An earlier circular dated March 20, 2020 (“Labour Circular”) issued by the Ministry of Labour and Employment also “advised” employers not to terminate employees or reduce wages, even in the case of employees taking leave. It further stated that, “… if the place of employment is made non-operational due to COVID-19, the employees of such unit will be deemed to be on duty.”  

MHA Circular 

The MHA Circular seeks to conjure powers under Section 10(2)(l) of the Disaster Management Act, 2005 (“Act”), and states as follows: 

“… iii. All the employers, be in the Industry or in the shops and commercial establishments, shall make payment of wages of their workers, at their work places, on the due date, without any deduction, for the period their establishments are under closure during the lockdown; …” 

Contrarians to the MHA Circular posed important questions:  

First, which provision of the Act confers power to impose financial obligations (such as payment of wages without deduction)? Would such a provision be contrary to Articles 14 and 19(1)(g) of the Constitution of India? 

Second, should “workers” refer only to migrant workers, considering that the other measures were for migrant workers? While this was initially unclear, Attorney General for India Mr. KK Venugopal stated on June 4 before the Hon’ble Supreme Court that, “It was not restricted [to migrant workers]. The main objective was that if they get paid then they need not migrate.”1 Such an oral submission would be of limited value, and would not necessarily reflect the official position of UoI on the matter.  

This was necessary due to the fact that India has over 150 million migrant workers. If they were unable to fulfill their essential needs such as food and shelter during the lockdown, they would return to their homes in faraway villages and other States, potentially spreading disease while traversing hundreds of kilometres by road or by foot.  

Another concerning factor is the prevalence of informal employment, which would allow employers to deny any responsibility for workers despite the measures directed in the MHA Circular. Combined with the migration of workers, informal employment would result in loss of wages for labourers and workers occupying the lower strata, and a further rise in unemployment. 

Wages 

Various labour laws and precedent describe “wages” as remuneration for performance of an employment contract. Under the Payment of Wages Act, 1936, the term “wages” means all emoluments earned while on duty or on leave in accordance with the terms of employment. The Payment of Wages Act, 1936, also refers to wages earned on leave. Section 80 (“Wages during leave periods”) of the Factories Act, 1948, provides that a worker on leave shall be paid at a rate equal to the daily average of earnings on the days on which he worked.  

The Code on Wages, 2019 (“Code”), which is the first part of the codification of various labour laws, defines wages as, “all remuneration whether by way of salaries, allowances or otherwise, expressed in terms of money or capable of being so expressed which would, if the terms of employment, express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment …”  

Sections 18 and 20 of the Code also describe the permissible deductions that can be made. Section 20, in relevant part, states that deductions can only be made “on account of the absence of an employee from the place or places where by the terms of his employment, he is required to work, such absence being for the whole or any part of the period during which he is so required to work”. During the period of lockdown, where most businesses are closed and there are restrictions on movement, the requirement to work itself may not be applicable. Though the Code has not yet been implemented, it could have brought clarity to the term wages, which is currently defined unevenly across various labour laws. 

The Disaster Management Act, 2005 

Section 10(2)(l) (read, “l” for “Lockdown”) of the Act, under which the MHA Circular was issued, gives the National Executive Committee (“NEC”) the power to “lay down guidelines for, or give directions to, the concerned Ministries or Departments of the Government of India, the State Governments and the State Authorities regarding measures to be taken by them in response to any threatening disaster situation or disaster;”. Though the remaining measures directed under the MHA Circular pertain to providing relief or suspending payment of rent, the NEC does not have any apparent powers under this provision (or elsewhere in the Act) to direct employers to pay wages, either in part or in full.  

In fact, a perusal of the various powers explicitly granted under the Act would show that the NEC is entitled to direct government departments and authorities to take actions towards measures for prevention, mitigation, implementation and capacity building, financing of such measures, and formulating guidelines for minimum standards of relief and ex gratia assistance for restoring means of livelihood. The State Executive Committees (“SEC”) is also granted powers under section 24 and 38 of the Act to provide shelter, food, water, healthcare, rehabilitation, and the power to take charge of resources or amenities and allocate funds.  

Considering AG Mr. Venugopal’s statement that the main objective was to prevent migration of workers which would cause spread of disease, it was within the power of the NEC and SEC to direct state governments to finance and allocate funds for making available essential provisions including food and shelter for migrant workers, in order to prevent their efflux.  

Pertinently, Section 72 of the Act provides for an overriding effect, by which “provisions of this Act, shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act”. This will be a primary consideration for deciding the legality of the MHA Circular. However, it is worth discussing whether an overriding effect granted by a provision of an enactment can be extended beyond the subject matter of the overriding enactment itself.  

In other words, though a specific provision in the Act contrary to any labour laws would have overridden such labour laws, what would be the overriding effect on such labour laws (if any) if there were no such specific contrary provision in the Act?  

The Petitions 

Various petitions were filed in the Hon’ble Supreme Court of India challenging the vires of the MHA Circular and Labour Circular, claiming that the same were in violation of employers’ rights under Articles 14 and 19(1)(g) of the Constitution of India.  

Other prayers by the petitioners included directions that 70-80% of the wages during the lockdown period be subsidised out of the ESIC, PM-CARES, or other government funds/schemes, permission to pay 50% of basic pay plus dearness allowance, waiving of Provident Fund and ESI, quashing of the orders issued by various State governments pursuant to the MHA Circular, balancing the interests of MSMEs and workers/employees, and the formulation of a policy to mitigate issues and intervention by the government where employers were unable to pay wages.  

Various intervention applications filed by employees’ unions in support of the MHA Circular were allowed, and the petitions were clubbed with the lead case, Ficus Pax Private Limited vs. Union of India & others [Diary No. 10983/2020]. 

Interim relief and Response 

On May 15, 2020, the Apex Court granted interim relief to the petitioners/ employers, stating that no coercive action shall be taken by the authorities, and this was extended at each interval. Notably, the lockdown guidelines dated May 17, 2020, by which the lockdown measures were extended till May 31, 2020 (“Lockdown 4.0 Guidelines”), stated that, “… save as otherwise provided … all Orders issued by NEC under Section 10(2)(l) of the [Act] shall cease to have effect from 18.05.2020”.  

On June 4, 2020, a common counter affidavit was filed by the Union of India (“UoI”) in reply to the many petitions. While stating at the outset that the notifications (including the MHA Circular) have already been withdrawn as per the Lockdown 4.0 Guidelines, the UoI filed the counter affidavit to “bring on record (i) legal authority, competence under which the [MHA Circular] was passed; and (ii) the facts and circumstances behind withdrawal of said [MHA Circular]”. 

Some grounds raised by the petitioners: 

• The Act does not confer power to impose financial obligations on the private sector; 

• Even if the Act does confer power to impose financial obligations, this would be contrary to Articles 14 and 19(1)(g) of the Constitution of India 

• Stable businesses would be forced into insolvency; 

• National and State Disaster Response Funds constituted under the Act as well as the funds collected by the ESIC can be used to pay workers, rather than shifting liability to employers while their businesses are closed; 

Some grounds raised by the UoI and intervenors/ employees’ unions: 

• The right to wages is a pre-existing right flowing from labour laws and Articles 14 and 21 of the Constitution; 

• The power to issue the MHA Circular could be traced to Section 10(1) of the Act; 

• MHA Circular was issued in the public interest and is neither arbitrary nor capricious, and the ground of incapacity to pay wages is untenable to challenge the exercise of statutory power; 

• MHA Circular was a temporary measure to mitigate the financial hardship of labourers and employees; 

• As the MHA Circular was only in force from 29 March till 18 May, adjudication would be an academic exercise; 

• The Act is self-contained and does not depend on other statutes, and in fact overrides other enactments (as per Section 72 of the Act); 

One aspect which makes the adjudication of this matter very difficult is that, if the MHA Circular is held to be ultra vires or unenforceable, what will be the legal effect on all such orders issued under the Act, or purportedly issued by various authorities exercising delegated authority under the Act?  This would make it difficult for the Hon’ble Supreme Court to adjudicate these matters. It may well continue to adopt a ‘conciliatory approach’ in resolving this issue, rather than answer the larger (and very awkward) question over the legality and enforceability of the MHA Circular and other directions issued by the States and authorities. 

The June 12th Order 

Having considered the submissions, the Apex Court clarified that the dispute relates only to the intervening period between the MHA Circular and Lockdown 4.0 Guidelines – a period of 50 days (“Lis Period”). Along with the need to decide whether any obligation was created during the Lis Period, the petitioners’ contention that any alleged power to impose financial obligations should be declared ultra vires to Articles 14 and 19(1)(g) made it necessary to adjudicate on the legality of the MHA Circular and the underlying provisions.  

Acknowledging that UoI had not replied to the grounds assailing the MHA Circular, the Court granted four weeks’ time to UoI to file a detailed counter affidavit, to reply to the various grounds assailing the MHA Circular. While the legality of the MHA Circular and underlying provisions will be next heard in the last week of July, the interim relief (preventing coercive action against the employers) was continued in all matters. 

The Court also acknowledged that the lockdown measures had equally adverse effects and serious consequences on employers and employees, and that all industries are of different nature and capacity (including financial capacity) and that not all employers would be able to bear the burden of wages without going bankrupt. On the other hand, employees were ready and willing to work, but unable to do so due to the lockdown measures, and should not be unduly punished. It was therefore deemed necessary to strike a balance between these competing claims, and find a medium for settling the disputes in respect of the Lis Period.  

The Apex Court directed interim measures for private establishments and employees’ unions, to the effect that the employers and employees may negotiate and settle the wages accrued during Lis Period of 50 days, either in the case of businesses that were closed or operating at limited capacity during lockdown. It was further directed that any such settlements shall be without prejudice to the rights of employers and employees pending adjudication in the writ petitions before the Apex Court. The Court also directed that workers should be allowed to continue work without prejudice to the dispute over wages accrued during the Lis Period. 

Consequences 

The jury is still out on the legality of the MHA Circular and its underlying provisions, and is expected to be heard next in the last week of July. More urgently, it remains to be seen how many of these negotiations result in fair and balanced settlements. The nature and facets of each industry (such as ability to pay, capacity during Lis Period, negotiating power of employees in different sectors, etc.) will have their own micro and macro consequences.  

Settlements between employers and employees are governed by Section 2(p) and Section 18 of the Industrial Disputes Act, 1947, which provides for written agreements for settlements arrived at outside of conciliation proceedings. Such agreements for settlement would be binding and would allow employees to get back to work without placing a wedge in maintaining amicable relations with employers.  

Conversely, if negotiations fail, will labour authorities be equipped to adjudicate on a flood of conciliation proceedings in a timely manner? The potential for delay in such proceedings will be further aggravated by the fact that courts across the country may not resume in their full capacity for a few more months, and the fact that employers and employees’ unions may find it difficult to separate the dispute over wages from the reopening of businesses that is expected in the coming weeks, if settlements are not reached sooner rather than later.  

At a time when unemployment is on a rise globally, India must do all it can to ensure that employer-employee relations are amicable and flexible enough to gradually reverse the worrying trend. 

Considering that the objective of the MHA Circular was to prevent migration of workers, and that many of the workers have already returned to their faraway homes, the obligation to pay wages “at their work places, on the due date, without any deduction, for the period their establishments are under closure during the lockdown” may already have become out of reach. 

Stay Tuned 

We will continue tracking these developments in our remaining episodes in this series about employer-employee relations titled “Wages and Workers”, which will explore topics such as the liabilities arising during and beyond the 50 day Lis Period, other labour laws and their impacts on the “new normal”, discussions on concepts like furlough, how settlements can be reached and enforced, and more. 

Authors: Mr. Suhas Tuljapurkar (Managing Partner) & Mr. Koustubh Athavale (Associate) – Legasis Partners