27 March, 2020
In a very significant move, the Prime Minister of India on March 24, 2020 announced a 21 day nation-wide lockdown with effect from 00:00 hours on March 25, 2020. This lockdown of nearly one-fifth of the world’s population is to ensure effective social distancing to prevent the spread of COVID-19. While the lockdown is undoubtedly essential to contain the pandemic, the impact on businesses and the economy cannot be ignored. There have been several measures that the Central Government and the State Governments are putting in place, keeping in mind the interests of the people and the limitations and the restrictions on Indian establishments and employers are rapidly evolving.
For the benefit of Indian establishments, we have set out below a list of questions that we have been asked over the last few weeks by employers on managing business and coping with COVID-19.
1. What is a lockdown? Do all establishments need to close down, irrespective of the nature of industry?
In the current context the terms curfew, lockdown, and emergency, are being used by representatives of the government and their agencies as per common parlance. Therefore, it is important for us to understand the context in which these terms are being used in order to interpret them meaningfully.
The 21 day lockdown has been announced pursuant to the directions of the National Disaster Management Authority, under the Disaster Management Act, 2005[1].
All establishments, except those engaged in the manufacture of essential commodities or provision of essential services, as listed in the guidelines[2] issued by Ministry of Home Affairs on March 24, 2020 and the addendum[3] to the same are to be closed down[4]. Several State Governments have also issued notifications detailing and elaborating on the scope of ‘essential services’.
2. What do employers need to do to if they need to stay operational during the lockdown?
To stay operational during the lockdown, the employer's establishment must be specifically exempted or excluded from the lockdown either by the Central or the State Government. Currently, only establishments providing essential services have been excluded from the lockdown. Further, in most cases, employees who are working in such establishments must be provided with passes or letters that permit them to travel to work during the lockdown in the manner prescribed by the State Governments. Also, all health and safety directions prescribed by the Government to contain the pandemic will need to be adhered to.
3. Can employees be asked to work from home during this lockdown? Do they need to be paid in full for such work?
Yes, employees can be asked to work from home during the lockdown to the extent that the nature of their work allows for the same. Employees would have to be paid their full salaries during such time; especially, if employees perform the same work for the same number of hours that they otherwise would have, had they been working from office.
4. In industries where employees cannot work from home, do they need to be paid during the period of the lockdown?
Yes, employees would need to be paid during the period of the lockdown. The Central Government has issued a circular stating 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[5]. Similar directives have been issued by State Governments in Karnataka, Haryana, and Maharashtra[6]. In the States of Telangana[7] and Uttar Pradesh, the government has directed all shops and establishment other than those exempted from the lockdown shall be closed during notified lock down period and that such days shall be declared as paid holiday for all categories of employees.
5. Can employees be asked to utilize their accrued annual leave for this lockdown? Once such leave has been exhausted, can they be placed on unpaid leave? What are the other alternatives available?
No. Employees are entitled to use their accrued annual leave at their discretion, subject to approvals from their managers. While employees may be encouraged to use their accrued annual leave, they cannot be mandated by the employer to do so. Further, employees are eligible to encash their accrued but un-availed annual/privileged leave at the time of cessation from employment.
As a general rule under the Indian law, employers cannot mandate employees to proceed on unpaid leave. Therefore, in the context of the lockdown, if an employer requires its employees to not come to work as a preventive measure or for the duration of the lockdown, employees will need to be paid for such days and therefore, they cannot be forced to utilise their annual leave at this time.
Certain measures that employers may take to reduce employee costs are as follows:
Reduce Working Hours
Employees in India are largely divided into two categories, viz., workmen[8] and non-workmen, and the manner of implementing changes to conditions of service vary based on the category of employee. In this regard, please note the following in relation to changes to conditions of service for both categories:
Workmen: The Industrial Disputes Act, 1947 (ID Act) mandates that employees categorised as ‘workmen’ be given at least 21 days prior notice (in the prescribed format) of any detrimental change in the terms of employment listed in the Fourth Schedule of the ID Act. The conditions listed in the Forth Schedule include (i) wages; (ii) social security contributions; (iii) compensatory and other allowances; (iv) hours of work, rest and shift working; (v) leave and holidays; (vi) withdrawal of customary concession or privilege; and (vii) introduction of new rules of discipline or altering existing rules. Such notice does not have to be given if the change being made to the condition of service is more beneficial to the workmen. State-specific rules require that this notice also be forwarded to labour authorities.
For Non-Workmen (and conditions of service not contained in the Fourth Schedule): The consent (express or implied) of the impacted employees to the change would need to be obtained, unless the employer has retained the right in the existing employment documentation to unilaterally change the terms of employment. In such case it would be sufficient to notify the employees of the change.
Additionally, to implement a change to the working hours, an employer would have to consider the terms of any collective bargaining agreement(s) or settlement agreement(s) that may be in place with its employees. Therefore, while you may reduce working hours, if there is a consequential reduction in wages/ benefits, the process detailed above would need to be followed.
Lay-off
Under Indian law, lay-off does not mean termination/cessation of employment. A 'lay‑off' under the ID Act is defined as the failure, refusal or inability of an employer to give employment to a workman 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. During the lay-off, the workman will continue to be employed with the employer; but will not be required to come into work. An employer is required to pay every workman who has completed one year of continuous service (calculated as 240 days) a compensation equal to 50% of the total basic wages and dearness allowance for every day that he is laid-off, excluding weekly holidays.
For non-workmen, the employer would be guided by the terms of the employment agreement and human resource policies. If these documents are silent on these aspects, then an employer would have to contractually agree with the employee for the lay-off.
Ordinarily, there is no requirement to provide notice to 'lay-off' workmen category employees. However, if the establishment is a factory in which not less than 100 workmen (300 in some states) were employed on average per working day in the preceding 12 months, then an application would have to be made to the relevant labour authority seeking permission for the lay-off, unless the lay-off is due to shortage of power or a natural calamity. Please note that notification requirements could also vary based on the State in which the establishment is located.
6. In industries that are exempt from the lockdown, can employees be forced to take sick/ annual leave if they have had recent travel history, or are exhibiting symptoms of COVID-19 or have been in close contact with persons who have been infected?
Most States have issued notifications/orders requiring that persons who have come in contact with persons who have been infected or have had recent travel history self-quarantine for 14 to 28 days. In this regard, in the case where the employer is allowed to work during the lockdown under law, but the employee is unable to attend work due to the requirement to self-quarantine because of his personal travel or coming into contact with an infected person, the employer could possibly require the employee to take his/her annual leave or sick leave, subject to any specific Government notification in this respect.
However, if the employee had to travel because of work or came in contact with a sick person due to this work, the employer may not be able to force the employee to utilize his/her sick or annual leave.
In this context, the Government of Karnataka has issued a notification mandating the grant of 28 days paid leave for employees who are infected with COVID-19. Also, the Government of Uttar Pradesh has required that employees who are infected by COVID -19 or who are suspected to be infected and are kept in isolation be provided 28 days paid leave by their employer.
7. Can employees be asked to share their medical test reports with the employer? Are there any concerns here from a data privacy perspective?
While medical data in the electronic form is considered personal and sensitive data, employers can require employees to submit a fitness certificate/medical certificate from a registered medical practitioner stating that the employee is healthy and can work. Employers, in most cases, reserve the right to require employees to provide a medical certificate if they are on prolonged sick leave or if they are to return to work after sickness.
If the medical certificate or fitness certificate is being provided in the electronic form, : the employer would be required to adhere to the requirements prescribed under the Information Technology Act, 2000 (IT Act) and the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 (Security Practices Rules). The Security Practices Rules require that consent of the information provider be obtained regarding the purpose of usage of the information that is collected, the intended recipients of the information, and the name and address of the entity storing the information.
8. Do employers have any obligation to report employees who have had recent travel history, or are exhibiting symptoms of COVID-19 or have been in close contact with persons who have been infected?
Currently, there are no obligations that have been placed on an employer to report employees. However, as a best practice, it is recommended that employers advise such employees to seek medical help and/or inform the local authorities of their condition. Employers would also need to co-operate with the local authorities for contact mapping and such other measures for containing the spread of the virus.
9. In industries that are exempt from the lockdown, can employees refuse to report to work fearing possible contraction of COVID-19?
No, an employee cannot refuse to report to work where the employer is permitted to carry on operations, unless the minimum standards of health, safety, and hygiene to contain the pandemic are not being followed by the employer. In the event that an employee who is healthy refuses to adhere to a legally valid employment requirement, such as coming to work when the employer is permitted to function because he/she feels unsafe, the employer can initiate disciplinary action against the employee as per the terms of the employer's policies. That said, in light of the current circumstances, in the event that:
(i) the disciplinary action results in termination of employment, it is possible that employees may challenge the termination in labour courts as wrongful termination, and given that the termination was during the COVID – 19 outbreak, it is possible that courts may take an approach that is sympathetic to employees; or
(ii) the employee gets infected due to coming to work, it may be possible for the employee to file a tortious claim against the employer for damages and also initiate criminal action against the employer.
10. Can hours of work and wages be reduced to absorb the impact on the business, during the lockdown and thereafter? Is it possible for employers to pause benefits and incentives till the business situation is normalized?
Yes, it is possible for an employer to reduce work hours and wages subject to following the process prescribed under law. Please refer to question 5 for the process.
An employer may also pause non-statutory benefits and postpose incentives till the business situation normalizes. In this regard, the terms mentioned in employer policy or employment agreement would have to be adhered to when postponing such merit increases.
11. Can an employer implement a reduction in force because of the business impact of COVID-19? If yes, what is the process?
As stated above, the Central Government has issued a circular stating 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[9]. Similar circulars advising employers to not reduce or stop salary payments or to terminate employment have been issued by State Governments including Karnataka, Haryana, Maharashtra[10], and Telangana[11]. These are, however, mostly in the nature of advisories or appeals on a humanitarian basis.
Having said the above, to carry out large scale terminations of employment (i.e., reductions in force or lay-offs as per common parlance) an employer would need to adhere to the specific requirements in relation to termination of employment under the ID Act; state specific legislations applicable to commercial establishments (S&E Acts); and the terms of employment contained in the employment documentation and company policies. We have elaborated on the specific requirements in this regard below:
a. Requirements under ID Act – The ID Act is only applicable to employees categorised as 'workmen', i.e., a person employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward. This definition excludes persons employed mainly in a managerial or administrative capacity and those persons who are employed in a supervisory capacity drawing monthly wages in excess of INR 10,000. The ID Act treats termination of workmen for reasons other than misconduct, voluntary retirement, superannuation, ill-health, and expiry of contract as ‘retrenchment’. In case of retrenchment, every ‘workman’ who has been in continuous service for at least one year (i.e., 240 days) is entitled to:
(I) one month's notice in writing (indicating the reasons for retrenchment) or wages in lieu of the notice; and
(II) retrenchment compensation at the rate of 15 days average pay for every completed year of continuous service or any part thereof in excess of 6 months.
The ID Act also requires the employer to:
(I) notify the local labour department in the manner prescribed under the statute as a condition subsequent to retrenchment;
(II) follow the "last in first out" rule or record reasons for deviating from this rule (for this purpose the employer is required to put up a seniority list of workmen at least 7 days prior to the retrenchment/ termination); and
(III) give an opportunity to the retrenched workman, in the manner prescribed under the statute, to offer himself for re-employment.
Additionally, if the establishment is a factory in which not less than 100 workmen (300 in some states) were employed on average per working day in the preceding 12 months, the employer would need to make an application to the relevant authority seeking permission to retrench workmen and the workmen who are so retrenched would have to be provided with 3 months' notice or pay in lieu thereof.
With respect to employees who are not ‘workmen’, termination of their employment will need to be as per the S&E Act (if applicable) and contractual terms of employment.
b. Requirements under S&E Acts – S&E Acts, subject to the state in which the establishment is located, apply to both managerial and sub-managerial employees. Typically, S&E Acts entitle employees to at least one months’ notice or pay in lieu thereof prior to termination of employment. This may not be applicable to manufacturing establishments.
c. Requirements per the terms of employment – The employer would also be required to adhere to the terms of employment as contained in employment contracts and the organisation’s policies. In the event that the terms of employment are more beneficial to employees (such as a longer notice periods, higher severance, etc.) than those offered under statute, the more beneficial terms would need to be provided.
12. Is there any duty for the employer to compensate employees who have contracted the virus?
Currently, there is no requirement for an employer to compensate employees who have contracted the virus. However, certain State Governments have issued notifications/orders requiring employers to grant 28 days of paid leave to employees who have been infected with COVID – 19. If an employee gets infected due to coming to work, it may be possible for the employee to file a tortious claim for damages against the employer.
13. Are there any employment law issues that should be kept in mind while implementing work from home models?
Key employment law considerations that employers should keep in mind when implementing work from home are:
Hours of Work
The concept of work from home is not specifically regulated or governed by statute. Therefore, in the absence of a specific statute, the employment laws that would otherwise be applicable to employee when they are working from the employer's establishment would continue to apply. In this regard, work hour and overtime laws would continue to apply to employees. Hence, an employer would have to be mindful that employees do not work beyond their regular working hours and adhere to relevant overtime requirements.
Confidentiality and Data Security
One of the primary considerations when it comes to allowing employees to work from home is confidentiality and data security. Therefore, it is recommended that employers take additional data security measures to ensure that their IT infrastructure and resources are protected. Certain employers have resorted to geo-tagging of their devices to ensure that their data security and confidentiality is not breached.
Productivity and Performance Tracking
Given that in most instances the standard processes for productivity and performance tracking have been developed for employees working out of the employer's establishment, employers would have to now adapt these methods to employees working from home. In this regard, there are a number of applications that are available for employers to monitor their employees work remotely. In certain circumstances, employers also require their employees to periodically provide summaries to their managers of the work that they are doing.
OSP Licences
To facilitate employers to allow employees to work from home, the Department of Telecommunications has through circular dated March 13, 2020[12], issued certain relaxations in the terms and conditions prescribed for Other Service Providers (OSPs), with respect to the ability of their employees to work from home. The exemptions/relaxations are available till April 30, 2020. This circular inter alia exempts OSPs from the requirement to pay a security deposit and have an agreement to enable work-from-home options or seek prior permission to allow work from home. Further, OSPs have been exempted from the requirement of having a secured VPN from an authorized service provider. OSPs may now use secured VPNs configured using ‘static IP’ addresses by themselves to enable interconnection between the home agent position and the OSP center with pre-defined locations.
The Central Government and various State Governments are issuing orders for implementing the lockdown. We have been tracking the developments on this closely and you can access our detailed updates here.
For further information, please contact:
Zia Mody, Partner, AZB & Partners
zia.mody@azbpartners.com
[1] https://mha.gov.in/sites/default/files/ndma%20order%20copy.pdf
[2] https://mha.gov.in/sites/default/files/Guidelines.pdf
[3]https://mha.gov.in/sites/default/files/MHA%20order%20with%20addendum%
20to%20Guidelines%20Dated%2024.3.2020.pdf
[4] Please see our update on the nationwide lockdown – https://www.azbpartners.com/covid-19-update-nationwide-lockdown-in-india/
[5] https://labour.gov.in/sites/default/files/Central_Government_Update.pdf
Please see our update on the Central Government’s order – https://www.azbpartners.com/covid-19-updates-march-23-2020/
[6] Please see our update on the Maharashtra Government’s order – https://www.azbpartners.com/covid-19-updates-2/
[7] https://covid19.telangana.gov.in/wp-content/uploads/2020/03/GO-45.pdf
Please see our update on the Telangana Government’s order – https://www.azbpartners.com/covid-19-updates-march-23-2020/
[8] The ID Act defines 'workman' to mean any person employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward. This definition excludes persons employed mainly in a managerial or administrative capacity and those persons who are employed in a supervisory capacity drawing monthly wages in excess of INR 10,000.
[9] https://labour.gov.in/sites/default/files/Central_Government_Update.pdf
Please see our update on the Central Government’s order – https://www.azbpartners.com/covid-19-updates-march-23-2020/
[10] Please see our update on the Maharashtra Government’s order – https://www.azbpartners.com/covid-19-updates-2/
[11] https://covid19.telangana.gov.in/wp-content/uploads/2020/03/GO-45.pdf
Please see our update on the Telangana Government’s order – https://www.azbpartners.com/covid-19-updates-march-23-2020/
[12] https://dot.gov.in/sites/default/files/Relaxation%20inT%26C%20of
