Changing World – Commercial Contracts and the COVID-19 – Part II

Zubin Behramkamdin, Counsel, Bombay High Court

Vyom Shah, Counsel, Bombay High Court

 

‘No work no pay’ principle:

Our Courts have given consideration to the principle of ‘no work no pay’ when deemed appropriate. The Supreme Court in Bank of India v T.S. Kelawala and Ors[1] has held that “Where the contract, Standing Orders or the service rules/regulations are silent on the subject, the management has the power to deduct wages for absence from duty when the absence is a concerted action on the part of the employees and the absence is not disputed…”

It is prevailing policy i.e. lockdown that has prevented employees/workers from working or being available for work and not a concerted action and therefore, the principle cannot be applied to the facts and circumstances of this case. The Bombay High Court has held similarly in Rashtriya Shramik Aghadi’s[2] recent case that the ‘no work no pay’ principle cannot be applied because persons willing and desirous to work are unable to work having regard to offices being closed for containing the pandemic. It was also noted that the Courts cannot be insensitive to the plight of the workers.

The Payment of Wages Act, 1936 and Minimum Wages Act, 1948[3] both mandate payment of wages to the workmen covered under the statute and provide that wages are payable as per the terms of employment in respect of employment or of work done. While certain deductions are permissible, the legislations do not contemplate natural calamity or stoppage of work owing therefrom. It is arguable that while the wages mandated to be paid as per the Orders may not be in respect of work done, they may still be ‘in respect of employment’. This would obviously have to be seen on a case to case basis and would be subject to the provisions relating to lay-off under the IDA.

The Factories Act, 1948 also govern terms relating to employment and services in a factory which includes inter alia provisions related to wages. The Factories Act does not contemplate non payment due to force majeure or natural calamity.

The Interstate Migrant Workmen (Regulations of Employment and Conditions of Service) Act 1979 provides that inter-State migrant workmen shall be paid the same amount as applicable to other workmen performing the same or similar kind of work in the establishment and in any event, not lower that the wages fixed under the Minimum Wages Act, 1948.[4]

Section 16 of the Migrant Workmen Act provides that contractors employing inter-State migrant workers are to ensure inter alia regular payment of wages and suitable residential accommodation for the period of their employment. Sections 17 and 18 of the Act affix responsibility on the contractor and principal employer for payment of wages etc. as detailed more particularly in the sections.

Interestingly, the Act also mandates that migrant workmen are entitled to be paid journey allowance of a sum for outward and return journeys from the worker’s place of work to place of residence.[5] This is of relevance because when the Government finally permitted migrant workers to go back to their home towns, some migrant workers in certain States were themselves made to pay for their train tickets for the journey back home.[6]

Suspension of labour legislations in some States:

Some States such as Uttar Pradesh, Madhya Pradesh Rajasthan, Gujarat, Punjab and Odisha pushed through changes to their labour laws by way of ordinances or executive orders seeking to exempt businesses from the purview of most labour legislations for a period of time[7]. The legitimacy of some amendments in a few States has also been challenged in the Supreme Court as well as in Allahabad High Court (in the case of Uttar Pradesh).[8]Uttar Pradesh then withdrew its Ordinance.[9] As on date, Maharashtra has not passed any amendments to its labour laws in the wake of the pandemic.

A number of issues arise in this scenario. It is arguable that the Orders violate Article 14 of the Constitution because the employers and business owners have to comply with these Orders which are arbitrary. Further, the forced payments would bankrupt many businesses thus affecting fundamental rights to carry on business in India under Article 19 (1) (g). Further, while the right to property is not a fundamental right, it is enshrined in Art 300A of the Constitution. It is thus arguable that the Orders violate the Constitution as well.

The Orders assume the position of legislation which prevail over contract between parties and therefore, employers are mandated to follow the law. Having regard to the Orders, even if the terms of independent contract between employers and employees have a force majeure clause which permits the employer to suspend payment of wages on account of an event of force majeure (presuming the lockdown is an event of force majeure as per the terms of the clause), the employer will still be constrained to continue to make payment of wages to the employees.

The provisions of the DMA and various labour laws may also overlap in some respects in the present situation. The subject of welfare of labour falls within the Concurrent List in the Seventh Schedule to the Constitution of India. Therefore, at first blush, the Orders made pursuant to the DMA would take precedence. However, it remains to be seen whether the Orders, being delegated legislation, can supersede laws that have been lawfully enacted by the State Legislatures. As set out hereinabove, the mandate in the Orders are contrary to the labour legislations. Further, the labour welfare legislations are beneficial legislations and hence, must be construed accordingly.  

While some provisions of the various laws may overlap, the disaster and epidemic management legislations and the labour welfare legislations operate in different spheres. The 20th March 2020 advisory was issued by the Ministry of Labour and Employment, arguably in the context of employer’s obligations under labour legislations. The 29-3-20 Order to pay wages and the 17th May 2020 Order were issued by the Ministry of Home Affairs, and the 31st March 2020 Order was however issued by the Government of Maharashtra, under the DMA. The interplay and overlap between the DMA and the labour legislations thus become very relevant.

One argument of the petitioners before the Supreme Court seems to be that the provisions of the DMA do not, and cannot, be interpreted to mean authority to provide for wages (or ex gratia payment if wages are held to be not payable). It is also argued that the labour laws are special statutes dealing with the aspects related to payment of wages and the benefits and/or rights given to employers under those labour statutes cannot be taken away by the Orders.

Two interesting points arise in this regard. Firstly, while the labour legislations are special law for welfare of the labour, the DMA is a special Act to deal with disaster management. The DMA is directly applicable in the context of this on-going disaster i.e. the COVID-19 pandemic and the Orders have been issued thereunder. Secondly section 72 of the DMA provides that the provisions of the DMA Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than the DMA. While the settled legal proposition is that the general law yields to special law, when there are two special laws the law enacted later would prevail over the law enacted earlier. The DMA has come into operation after the labour legislations currently in force and therefore, the DMA would prevail over the labour legislations even if those labour legislations may have non-obstante provisions.

Due regard must also be had to the broad powers of the National and State authorities in the DMA, especially under Sections 35 and 38.  The DMA inter-alia provides that the Governments should be in a position to take ‘all measures necessary for disaster management’ as they may deem fit and necessary to further their plans and policies for disaster management. An interpretation that such powers are curtailed by existing labour legislation would go contrary not only to the spirit and intent of the DMA but also to its bare language.

The Orders effectively direct the employers, who are also citizens of India, or Indian businesses, suffering from the pandemic to absorb the costs of the unemployed workmen and employees. Does the DMA permit this and in other words, can obligations be imposed on citizens to make payments under the Disaster Management Act? In this respect, the provisions for financing of disaster management as contemplated under the DMA are relevant. The Report of the Task Force constituted by the Ministry of Home Affairs, Government of India while reviewing the DMA in March 2013[10] states that “The Act contains several sections relating to the financing of disaster management. The structure of financing is designed with the objective of addressing disaster risk reduction through effective response and sustained measures for prevention, mitigation and preparedness in a holistic framework…”.

Various funds have been set up at the national, state and district levels under the DMA and even otherwise for emergency response, relief and rehabilitation [11]. The DMA suggests that the source of funding of the national funds would be provided by Parliament through appropriation and grants made by persons or institutions for the purpose of disaster management. There is no specification of the sources of funding for response and mitigation funds at the state and district levels and the implicit assumption is that the State government will make a provision for these funds[12]. There is however no provision in the DMA for any sort of financing of disaster management by the people/citizens of India. If the DMA does not contemplate the financing of disaster management by the citizens, it follows that employers cannot be saddled with the responsibility of looking after workmen, which is an obligation of the State and Centre authorities under the DMA. Going by this understanding, the Orders could be ultra vires the DMA itself.

However, desperate times call for desperate measures and this is not the first time that the Government has looked to its citizens to help out when necessary. Twice, after the wars in 1962 and 1971, the government passed the Compulsory Deposit Scheme, which mandated all taxpayers, including government employees to deposit up to 18% of their salaries in a fund for 3-5 years.[13] That being said, the contrary statutory provisions set out hereinabove do throw up multiple uncertainties. Since the MHA has withdrawn the 29-3-20 Order to pay wages companies have been laying off workers. It is arguable that the revocation of the 29-3-20 Order to pay wages does not ipso facto result in revocation of the Maharashtra Government’s 31st March 2020 Order.

Having regard to all of this, two things can be said with certainty. Firstly, the Courts are faced with the prospect of balancing all of the stakeholders’ interests along with various legislative provisions when looking at the legitimacy of the Orders in the facts of these unprecedented times. Secondly, the present pandemic brings to the forefront the necessity of having a disaster management legislation and response system that is effective, efficient and capable of delivering when needed the most.


The Authors are Practicing Advocates / Counsels at the Bombay High Court and can be reached at zubin.behramkamdin@gmail.com and vyomdshah@gmail.com respectively.


Photo Credits: Keystone/Hulton Archive

Notes:

[1] Bank of India v T.S. Kelawala and Ors 1990 4 SCC 744

[2] Rashtriya Shramik Aghadi v State of Maharashtra & Ors, Judgment dated 12th May 2020 WP No. 4013 of 2020 Bombay High Court (Aurangabad Bench)

[3] The Payment of Wages Act, 1936 and Minimum Wages Act, 1948 have been codified into one new statute recently passed by the Parliament as the Code on Wages, 2019 but this Code has not been made effective yet

[4] Section 13 of the Interstate Migrant Workmen (Regulations of Employment and Conditions of Service) Act 1979

[5] Section 15 of the Interstate Migrant Workmen (Regulations of Employment and Conditions of Service) Act 1979

[6] See https://www.livemint.com/news/india/rail-fare-row-karnataka-maharashtra-kerala-not-paying-for-migrant-labourers-travel-11588606990918.html

[7] See https://indianexpress.com/article/business/COVID-19-effect-relaxation-in-labour-laws-exemptions-to-firms-in-various-states-draw-trade-union-ire-6399183/ and https://indianexpress.com/article/explained/what-labour-law-changes-mean-coronavirus-6403611/

[8] See https://www.barandbench.com/news/litigation/supreme-court-moved-challenging-relaxation-in-labour-laws-in-gujarat-madhya-pradesh-and-uttar-pradesh-amid-COVID-19-lockdown and https://www.barandbench.com/news/litigation/allahabad-hc-issues-notice-in-pil-challenging-up-govt-notification-relaxing-labour-laws-on-working-hours-rest-time-overtime-etc

 

[9] See https://www.newsclick.in/Uttar-Pradesh-Govt-Revokes-Order-Extending-Daily-Shift-Longer-Working-Hours-Fear-Looms-Expert

[10] Available at https://www.ndmindia.nic.in/images/TaskForce_report_DMact.pdf

[11] Reference may be made to Sections 46-50 of the DMA.

[12] The Report of the Task Force constituted by the Ministry of Home Affairs, Government of India while reviewing the DMA in March 2013.

[13] See https://economictimes.indiatimes.com/news/economy/policy/COVID-19-impact-government-responds-to-criticism-on-da-hike-freeze/articleshow/75380574.cms?from=mdr

 

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