In view of the outbreak of COVID 19 pandemic, both the federal Government of India and the State Governments have issued notifications/ advisory with regard to workmen/ employees. Both state and federal governments have advised all owners of factories, industries and private establishments not to terminate their employees/ workers from their jobs and not to deduct their wages/ salary. While the communique is in the nature of advice and do not carry the force of law, however, given the present socio-political situation due to the COVID 19 pandemic, it remains to be seen how the labour courts will interpret these advisories in case any employer decides to go ahead with lay-off plans ignoring the government advisories.
The fear of lay-offs will not be allayed immediately after the lock-down is withdrawn since the impact of the pandemic on the economy is going to be long term with no hope of the economy looking up any time soon.
The principal law applicable to lay-off of workmen in India is the Industrial Disputes Act, 1947 (“ID Act”). In terms of the ID Act, the employer/ management of an industrial establishment may lay-off workmen on account of shortage of coal, power or raw materials or the accumulation of stocks or the break-down of machinery or natural calamity or for any other connected reason. The actual manner and modality of any lay-off will depend on the total number of workmen employed.
Compensation: An employer may lay-off a workman whose name is borne on the muster rolls of an industrial establishment [Section 25C of Chapter VA of the ID Act]. Workmen who have completed not less than one year of service under the employer, shall be paid by the employer for all days during which he is so laid-off (except for weekly holidays) compensation equal to fifty per cent (50%), of the total of the basic wages and dearness allowance. The period of compensation may also be limited to first forty-five days in the event a workman is laid-off for more than forty-five days in any twelve-month period.
In case of lay-off on account of natural calamity, the employer need not seek prior permission from the concerned state authorities unlike lay-offs for any other reason (Section 25 M of the ID Act).
Limitation of Applicability of ID Act: The provisions of the Act apply to workmen employed in an industrial establishment (who are engaged in manual, unskilled, skilled, technical, operational, clerical or supervisory work).
Employees who are not covered under the ID Act and who are in managerial roles will need to be dealt with by the employer on the basis of their respective contract of service (applicable law- Indian Contracts Act, 1872).
Impact of ‘Force Majeure’: A force majeure situation would render the performance of the Agreement/ contract impossible only during the limited time in which the event is in operation, thereby providing a window for resuming normal contractual obligations after the event ceases to operate. A force majeure clause cannot be implied under Indian law. It must be expressly provided for under the contract and the protection afforded thereunder will depend on the language of the clause . As such, for the employer to lawfully ‘lay-off’ an employee under a ‘force majeure’ situation, the contract/ agreement of service must provide for and identify such force majeure event and also provide for the rights and remedy available to each party under such eventuality.
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