COVID-19 crisis : Companies cutting salaries during lockdown will need employees’ consent

The nationwide lockdown has been extended and so have been the powers of the government under the Epidemic Disease Act, 1897 & Disaster Management Act 2005. Already, the government has issued advisories and notifications against companies terminating the services of their employees or cutting their wages during the lockdown.

The Home Ministry’s directive to factories, shops and establishments to pay workers their wages without any deduction has been actioned by the Chief Labour Commissioner, which has asked the regional heads to take strict action for violation.

In his speech on April 14 announcing extension of the lockdown, Prime Minister Modi urged companies to be kind to employees. Yet, many corporates have already announced salary cuts, some have asked employees to leave, and others have asked their employees to go on furlough, the term for leave without pay. Aviation, media, hospitality, banking and financial services have been among the worst-hit sectors.

Some attempts to lay off staff in the hospitality sector have been opposed by the employees by invoking their current rights. The Ministry of Labour and Employment has set up 20 control rooms to address wage related grievances of the workers.

Legal experts point out that any change in the terms of employment during such times can be construed as an offence.

“MHA order of 29th March 2020 requires that during the lockdown period, employers should pay wages to all workers without any deductions and in my view, any violation of this order will have legal ramifications,” said Rupinder Malik, Partner, J. Sagar Associates.

Labour laws in India protect the rights of the workmen, who are blue collar workers operating plant and machinery. But the latest directives by the government do not make any distinction between workmen and white collar employees, and those hired on contract by companies.

These directives do not make a distinction between workmen and non-workmen. They interchangeably use the terms, worker, employee, outsourced worker, employer, principle employer thus trying to cover every category of workforce.”

So how are layoffs still happening? Rashmi Pradeep says, “It must be noted that it must have a consent from the employees, but we are seeing that companies are able to cut cost through many creative ways.”

HR consultants say companies can stay within the rule by asking employees to go on furloughs, capping salaries, withholding performance linked pay or re-configuring job roles such that employees think they are better off quitting.

Also, while the lay-off, companies ask employees to hand in their resignation letters. Most employees agree, rather than taking their employer to court as it could hurt future job prospects. This ensures that companies cannot be accused of firing people.

“I don’t think there is a blanket prohibition on changes to any and all terms of employment. As far as terminations and lay-off’s go, where a state has passed an order restricting any termination, under duly delegated authority under the National Disaster Management Act, then there could be prosecution for violating the same. But not all states appear to have done that,” said Atul Gupta, Partner, Trilegal.

At a time when companies are incurring losses because of zero revenues during the lockdown, many employers may genuinely not be in a position to pay full wages on time. So employees would agree to take a lower salary than be out of a job.

“Government’s expectations from the employers look reasonable from a social point of view, the provisions look quite draconian if extended beyond the lockdown period,“ says Vivek Paranjpe, a HR consultant.

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