How practical is it for the state to mediate between employers and employees amid COVID-19?

Written by: Pritha Jha

The MHA order dated March 29, 2020 (“MHA Order”) asking employers not to reduce wages may have been withdrawn with effect from May 18, 2020, but the battle still rages on regarding the 54 days for which the order was in effect. Are employers compelled to pay for that period? What about employers who terminated employees during that period?

Employers and employees alike were looking to the Supreme Court to provide clarity on the issue, but the waters have just been made murkier. On June 12, 2020, the Supreme Court heard the matter of Ficus Pax vs. Union of India, with which several other matters of a similar nature had been clubbed for hearing.

Several issues were raised before the Supreme Court. The right of the government to issue the MHA Order under the Disaster Management Act, 2005, the MHA Order being violative of Article 14 and Article 19(1)(g) of the Constitution, directions seeking subsidisation of 70 to 80 percent of the wages by utilising funds collected by the ESIC or the PM Cares fund, the fact that the notification does not distinguish between establishments that are permitted to operate and those that are completely locked down, were all brought forth.

Arguments included the fact that one petitioner company’s business had dropped to 5 percent of its original size, the COVID-19 situation was not affecting employees alone but employers as well who were financially not in a position to maintain employees. One of the companies was willing to pay 50 percent of basic pay plus DA to its employees. One prayer asked for directions to strike a balance between the interest of MSMEs and interest of workers and employees in a way that prejudiced neither. It was also submitted that the notifications could result in an otherwise stable and solvent industrial establishment being forced into insolvency and loss of control of the business.

Some counsels also argued that the MHA Order was only for migrant labour and the scope should not be extended to cover the entire workforce. The reading contended by the respondent meant that employers were compelled not only to retain migrant workers but also regular workers, and also pay full wages at a time when the business was effectively closed and there was no income.

After listening to arguments on both sides, the Supreme Court stated that the consequence of the MHA order of May 17, 2020, was that the obligation cast on the employer was no longer in operation, but that the issue regarding obligation when it remained in force still needed to be answered. The court was of the view that all issues raised had to be decided together and not piecemeal.

The Supreme Court further stated that lockdown had an equally adverse effect on employers as well as on employees. While some could bear the financial burden of payment of wages or substantial wages, some of them may not be able to bear the entire burden and therefore a balance had to be struck between the two competitive claims.

It went on to state that a via media must be found for smooth running of industries with participation of the workforce and that in most of the industries, factories and establishments, workers are represented by trade unions or other employers associations. The court was thus of the opinion that efforts should be made to sort out the differences and disputes between the workers and employers regarding payment of wages above 50 days and if settlement or negotiation can be entered into without regard to the MHA Order, the said steps may restore congenial work atmosphere.

The Supreme Court in conclusion directed the following interim measures for all private establishments, industries, factories and workers trade unions to be facilitated by state authorities:

Those who are willing to enter into negotiation may negotiate with their employees’ organisation and enter into a settlement, and those who are unable to settle should submit a request to the concerned labour authorities. In case a settlement is arrived at, it may be acted upon irrespective of the MHA Order;

Those establishments who were functioning under lockdown albeit not to their full capacity may do the same;

Industries and establishments should permit workers to work where they are willing without prejudice to rights regarding unpaid wages of above 50 days;

The settlement would be without prejudice to the right of employers and employees which is pending adjudication in these writ petitions.

The order pertaining to no-coercive action against businesses would continue.

Thousands of companies around the country have already been adopting various methods to ease their burden. Some have asked employees to resign voluntarily based on severance packages, others have reduced wages based on earning capacity, in most cases, these have been based on attempts to make employees see reason. It would be incorrect to say therefore that negotiations have not been attempted. Then there are others who have decided to terminate the workforce or reduce wages arbitrarily in complete disregard of the MHA Order, government advisories and notifications. What about them?

Labour departments around the country have already been serving notices to employers based on employee complaints and have been attempting to hear both employers and employees in attempts to settle matters. However, that has not benefitted anyone given employees have been taking the hard stand that employers must obey government orders.

The Supreme Court has therefore only reiterated that which has already been attempted and in most instances, failed. Interference of the labour department has not borne fruit either.

The problem is one of scale. We are not speaking of one industry, one sector, one type of manufacturing facility, or just the services industry. We are speaking of a country where almost each entity is being plagued by these issues. How is the state machinery ever practically going to mediate or keep track?

The substantive issues therefore still stand. The Supreme Court has not backed the stand of the government, but by suggesting mediation with employees has perhaps hinted at the fact that payment of 100 percent of wages to each individual may not possible or reasonable in these times. It is unlikely that the matter will be concluded before the end of the pandemic.