1. KING OF MASALA Co.

IS NOT LIABLE TO PAY FULL WAGES TO ALL ITS

EMPLOYEES DURING PERIOD OF LOCKDOWN.

The outbreak of COVID-19 is a global pandemic and on March 14, 2020 the government of
India declared COVID-19 as a "notified disaster".1 Following this declaration by the central
government, several state governments proceeded to impose a complete lockdown in their
states invoking the Epidemic Diseases Act, 1897. In view of the prevailing lockdown imposed
by various states, the Ministry of Labour and Employment issued several advisories. This has
led to the popular misconception that the Govt. of India has passed the orders and advisories
mandating full wages to be paid by the employers. However, the same is not the case and it
cannot be made compulsive given the clarifications issued to the advisories has made it
ineffective.

In the instant case, KING OF MASALA Co. despite of the under financial strain due to the
lockdown imposed, has made a superlative effort to honour the salaries of all its employees for
the ongoing month. However, taking a similar stance with regard to the salary ahead will
inevitably impair its financial health, forcing the closure of half of the restaurants the chain
currently has. In the light of the same, the company cannot be held liable to pay full wages to
all its employees during period of lockdown.

1.1. The order dated 20th March 2020 passed by the Government of India is arbitrary and
unreasonable.

The Ministry of Labour and Employment issued an advisory on 20th March 2020 appealing to
all employer's association not to terminate their employees or cut wages of its workers in view
of the lockdown.2 The advisory also stated that all employers of public/private establishments
are advised to extend their cooperation by not terminating their employees, particularly casual
or contractual workers or reduce their wages. It further stated that if any place of employment
were to be made non-operational due to COVID-19, the employees of such unit would be
deemed to be on duty.

The DM Act does not envisage any role of Industries or shops and commercial establishments
in effective management of disaster.3 A bare reading of the provisions of the DM Act does not

1
Avialable at: https://www.who.int/docs/default-source/wrindia/situation-report/india-situation-report-
7.pdf?sfvrsn=cf4a7312_2 (last accessed on 15-07-2020)
2
Advisory to Secretary, Department of Public Enterprises to the employers on Covid-19 outbreak, D.O. No. M -
11011/08/2020 – Media, March 20, 2020.
3
Disaster Management Act, 2005.
indicate that the Central Government can fasten the Industries or shops and commercial
establishments with any financial liability or burden or that the application of the relevant laws
that govern the employer employee relationship or labour laws can be suspended/overwritten
for the effective management of disaster.

While it appears that the DM Act gives wide powers to the government to impose such
measures as they deem necessary, given that these powers are not explicitly mentioned in the
DM Act and the obligation cast on the private employers to ensure payment of wages during
the period of lockdown appears to suffer from the vice of wrongful exercise of power. It seems
far-fetched to imply that the powers under the DM Act empower the government to financially
burden private employers as a measure to mitigate disaster. This imposition cast on private
employers could certainly be termed as arbitrary and unreasonable since it appears to have no
rational nexus for the purposes of achieving the objectives of the DM Act and is clearly
overreach of powers.4

1.2.The order dated 29th March 2020 is in violation of fundamental rights guaranteed
under the Constitution of India.

The DMA does not provide the government with the statutory scope to direct private employers
to pay wages during a disaster, and the legality of the Order is questionable from a
constitutional perspective. Further, the Order also contravenes the special labour law - the IDA,
which permits termination of employees upon following the established procedure (specifically
including during a natural calamity). To that extent, this administrative issuance is on tenuous
ground. The government, when placing its policy on record before the Supreme Court, should
consider realistic avenues of discharging this financial obligation (such as via existing or new
government schemes, wage subsidies and furlough, payroll loans etc.), rather than placing the
burden squarely and solely on employers.

Moreover, to cast the financial obligation on private employers to ensure timely payment of
wages without any monetary aid from the government at a time when operations are down and
no revenue is generated, cannot be said to be an objective under the DM Act and appears to
ring hollow in light of the fact that many state governments have itself taken a decision to cut
or defer salaries of government employees in light of the Covid-19 pandemic.

4
Available at: https://www.bloombergquint.com/law-and-policy/covid-19-can-the-government-force-private-
sector-to-foot-the-wage-bill (last accessed on 15-07-2020)
Both employer and employee have a fundamental right to carry on any occupation, trade or
business, as enshrined under Article 19(l)(g) of the Constitution of India, which fundamental
right stands effectively suspended during lockdown. However, it appears that the order of 29th
March 2020 only seeks to take measures to mitigate the economic hardship of the
employees/workers to the detriment of the same rights of an employer.5 The measures adopted
by the government have ignored the rights/entitlement of the employer to measures to mitigate
their economic hardship and have failed to consider that COVID-19 is adversely impacting
both employer and employee and it was incumbent on the government to take a balanced view
so that both these classes could overcome this unprecedented situation.

Thus, the order of 29th March 2020, to the extent it directed the states and union territories to
take measures to ensure that all employers, be it in the Industry or shops and commercial
establishments, to pay wages to their workers without any deductions for the period their
establishments are under closure during the lockdown, besides being ultra vires the powers
under the DM Act, appears to be in derogation to Article 14 of the Constitution of India which
protects a person's right to equal protection of laws.

1.3.The existing law empowers KING OF MASALA Co. to either reduce the wage or
terminate the employees.

The labour law statutes such as the Industrial Disputes Act, 1947, Payment of Wages Act, 1937,
Contract Labour Act, 1970 and Inter-State Migrant Workmen Act, 1979 govern payment of
wages to workers/employees. And in particular, the provisions of the Industrial Disputes Act,
1947 explicitly recognizes the right of an employer to lay off an employee and reduce wages
to 50% up to a period of 45 days in certain eventualities including a natural calamity (Section
25C and Section 25M), and after 45 days if the layoff continues, no wages is payable.

It is relevant to note that the existing labour law statutes govern not only payment of wages to
workers/employees but also regulate the manner in which workers can be terminated. These
include deductions for absence from duty, deductions for damages for loss of goods expressly,
deductions for house-accommodation supplied by the employer, deductions for such amenities
and services supplied by the employer etc. Similarly, the respective Shops and Establishment
Act enacted by every state also delineates the manner in which payment of wages is to be made
to employees and in which circumstances deductions can be made by an employer

5
Order No. 40-3/2020-DM-I(A), Ministry of Home Affairs, Government of India, March 29, 2020.
It would also be relevant to note the clarifications issued by the Ministry of Corporate Affairs
on 10th April 2020 where it said: "Payment of salary/ wages in normal circumstances is a
contractual and statutory obligation of the company. Similarly, payment of salaries/wages to
employees and workers even during the lockdown period is a moral obligation of the
employers, as they have no alternative source of employment or livelihood during this period."6
While these clarifications were issued in relation to questions raised whether payment of
salaries/wages during lockdown period would qualify as Corporate Social Responsibility, it
appears that there is no unison amongst the various ministries on the issue of whether payment
of wages without any deductions during lockdown is a moral or a statutory obligation under
the provisions of the DM Act.

In such a situation of pandemic, it would be neither prudent nor fair to further direct an
employer to continue payment of wages to its workers without any corresponding business
being transacted by the Industries or shops and commercial establishments.

1.3.1. KING OF MASALA Co. can also opt for lay off under relevant provisions.

Lay off is defined in the Industrial Disputes Act of India which means the failure, refusal or
inability of an employer on account of shortage of coal, power or raw materials or the
accumulation of stocks or the breakdown of machinery or natural calamity or for any other
connected reason to give employment to a workman. During lay-off, the worker continues to
be in the employment of the employer but at a reduced pay. Eligible worker category
employees can claim compensation at up to 50% of basic salary and dearness allowances for
lay-off. If the lay-off continues for a duration of 45 days or more the employer can proceed
for retrenchment. The compensation paid for lay-off is adjustable with the compensation
payable for retrenchment. The processes for lay-off shall differ from one establishment to other
depending on number of workmen employed and nature of activity undertaken. For a non-
workman category employees the conditions of lay-offs will need to be mutually agreed.

1.4.In absence of a clear and convincing law, the employer and employee can settle the
dispute amicably.

In the Indian labour laws, there is no specific provision that deals with reduction of pay. This
has to be agreed mutually between the employer and employees. Further, keeping in mind the
current situation and welfare of the employees, Ministry of Home Affairs (“MHA”) vide its

6
COVID-19 related Frequently Asked Questions (FAQs) on Corporate Social Responsibility (CSR), F. No. CSR-
01/4/2020-CSR-MCA, April 10, 2020.
order dated March 29, 2020 mandated every employer to pay full salaries to its employees and
any pay cut would amount to an offence under the Disaster Management Act, 2005. However,
vide the recent order dated May 17, 20197, MHA has made its previous orders ineffective,
including the order of March 29, 2020, this would mean that the employers can now make
alterations in the payment of wages of their workers without any government restriction. As
far as the violation of the previous order is concerned for the period of 29.03.2020 to
17.05.2020, a petition is pending in the Supreme Court, challenging the previous order on
constitutional grounds. Pursuant to the petition, the court issued an interim order on May 15,
2020 directing the state government not to take any coercive action against the employers who
fail to pay full wages for the aforementioned period. However, the ultimate fate of the
employers over such violations will depend upon the final order from the court.

In light of the same, KING OF MASALA Co. can settle for a reduced wage ensuring its
business is not affected and there is a mutual benefit to both the sides.

7
Order No. 40-3/2020-DM-I(A), May 17, 2020.