Bootstrapped start-ups and VC funded ventures alike, have been forced to cut jobs. In schools, teachers have been asked to resign or take indefinite leave. But is this legal? Initially, the Ministry of Labour & Employment & Ministry of Home Affairs had issued advisories appealing to all employers not to terminate their employees or cut wages of its workers in view of the lockdown. This was however not feasible. Several writ petitions were filed before the Supreme Court challenging these advisories. In this issue, we will examine the interim order issued by the Supreme Court and its impact on the employers in terms of termination, severance, notice period and unpaid leave.
In view of the several disruptions faced by businesses, the Supreme Court issued interim orders on the batch of writ petitions stating that no coercive action can be taken against employers until further orders are passed. The Supreme Court ordered the following:
- Private establishments, industries, employers who are willing to enter into negotiation and settlement with their employees regarding payment of wages for 50 days or for any other period as applicable in any particular state during which their establishment was closed down due to lockdown, may initiate a process of negotiation with their employees’ organisation to enter into a settlement. If they are unable to settle between themselves, the affected parties can submit a request to the appropriate labour authorities who can call the affected parties to appear on a date for negotiation, conciliation, and settlement.
- Establishments proceeding to take such steps shall publicize and communicate these steps to employees for their response/participation.
- The interim order applies to establishments which worked, and which remained closed during the lockdown.
The Supreme Court has called for a detailed response on the legality of MHA’s order and the matter is listed for hearing in the last week of July. In the light of the interim order by the Supreme Court, we will examine the following concerns of employers:
1.Can employers terminate employees whose roles are redundant?
The Industrial Disputes Act, 1947 (ID Act), is the governing legislation for "retrenchment". Section 2(oo) of the Act states Retrenchment means the termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action. The interim order by the Supreme Court is silent on termination of employees for redundancy. So until the Supreme Court delivers a final judgment in the impugned case, it is advisable for the employers to tread cautiously before terminating any employees and retrenchment must be considered as a last resort.
2. Whether notice must be given?
Yes. In case of 'workmen' (as defined in the ID Act), employers must provide 30 days' prior notice for termination for convenience or make a payment in lieu of the notice period. In case of other employees, such as administrative and managerial personnel, the shops and establishments act of most states require employers to provide for 30 days' notice for termination for convenience or payment in lieu of the notice period.
3. Whether there is a severance pay that must be paid?
Yes. The workman (as defined in the ID Act) has to be paid compensation which shall be equivalent to fifteen days' average pay for every completed year of continuous service or any part thereof in excess of six months.
4. Can employees be asked to go on unpaid leave?
Employers can request employees to go on unpaid leave with the consent of the employees. However, if the employees do not consent to it, the employers cannot force such employees to go on such unpaid leave. However, employers must check any applicable Central and State laws, before taking any measures and take into account the impact of any new and developing COVID-19-related directives and regulations issued by the Central or State Governments.
Before taking any decisions on termination of employment, it is suggested that you consult with legal counsel so as to structure legally compliant solutions.