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Covid-19 And Its Domino Effect On Employment Contracts

On 11th March 2020, Covid -19, commonly known as Corona, was declared as ‘Pandemic’ by The World Health Organization (“WHO”).With no cure, treatment or vaccine available for the virus, Governments and people world over are grappling to contain it and have been forced to take drastic measures like closure of borders, restriction of human movement and finally a near lock down of countries, like the one being experienced in India. Given the peculiar nature of the virus, there is no other alternative available to contain and mitigate its impact.

While Corona has infected and claimed lives and has left the world in a sort of animated suspension, its ugly yet inevitable by- productscan be seen everywhere. Economies world over are struggling and are on a downward roll and its impact can be seen directly on the job and human resources sector.Further, in this modern day and time when economies of different countries are so intertwined with each other, it is nearly impossible for businesses to extricate themselves from the intricate commercial arrangements operating on international levels, thereby exposing them to far greater risks. For instance, many industriesin India cater extensively and directly to businesses and companies based in other countries which are far worse hit by Corona. Since many businesses in thosecountries have shut shop temporarily till the situation improves, it has led to a consequent decline and in some cases a complete standstill of business for many Indian Companies which now face a cash crunch and are unable to maintain the work force. Now, while there are nationwide restrictions imposed on public as well as private sector, even if the same were lifted, it would make little or no difference for such companies as their recovery would come about only when businesses in other countries are revived.

Since many companies are now not able to maintain the work force, they are faced with the task of reviewing their human resource policies, employment contracts and legal implications that could arise out of laying off or terminating employments. Many employers have devised certain workable solutions of retaining employees by paying a certain percentage of their monthly salaries with commitments of making up for the shortfall once the business resumes. However, it is extremely important for these companies to not lose sight of contractual terms, procedures and most importantly, the provisions of the employment related laws applicable to them in the rush of taking an economic decision.

For instance, Rule 12 of the The Industrial Employment (Standing Orders) Central Rules, 1946 (“Standing Orders”) envisages a situation of stoppage of work under various scenarios including “epidemics” and provides for procedure to be followed by the employer in such a situation. Similarly the Industrial Disputes Act, 1947 (though may not be applicable to all industries) under its chapters VA and VB provides for procedures to be followed and compliances to be made by employers in the cases of lay-offs and retrenchments of employees.

While most business to business agreements have a “Force Majeure” clause, which can protect parties in the event they are unable to perform their obligations owing to reasons beyond their control, employment contracts on the other hand generally have no such or similar provisions. Accordingly, businesses and employers in times like these may have to revisit the clauses as contained in their employment contracts and may be required to enter into fresh negotiations with their employees and carry out amendments, addendums etc. to the existing contracts with express consent of the employees and keeping them in confidence. It is safe to conclude that while the worst hit are individuals who are engaged in manual work on daily wages, the times are no less testing even for those who work in more sophisticated sectors and service Industry.

The Government of India has taken note of the employment related challenges and had initially released a communication dated 20th March 2020 to the Chief Secretaries of all the States and Union Territories andbased on it, the Office of the Commissioner of Labour, Government of Maharashtra issued a circular dated 20th March 2020 to the employers of the public and private sector to not to terminate their employees (particularly casual or contractual workers) or reduce their wages.

The above circular, however, was only an advisory andlacked the force of law. Thereafter, the Ministry of Home Affairshas issued an Order dated 29th March 2020 under the provisions Disaster Management Act, 2005 (“DM Act”) directing the States and Union Territories to ensure that all the employers make payment of wages of their workers at their workplaces, on the due date, without any deduction, for the period their establishments are under closure during lock down.

In the event of contravention of the Order, States and Union Territories are entitled to take steps under the DM Act, which includes application of penal provisions of the DM Act. Based on the said Order, Government of Maharashtra has issued a Government Resolution dated 31st March 2020, directing the public and private employers in the State to not to deduct wages of the workers. While the Order and the Government Resolution are a step in the right direction, it remains to be seen if they are sufficient and how effectively the same are implemented.

The Order and the Government Resolution are essentially for the protection of the weaker and more vulnerable section of the society. There are no protective measures for the people employed in professional services and managerial, administrative roles, who although lead more comfortable lives are also at risk of losing their pay or employment.

It is also pertinent to mention that this discussion would be incomplete without considering the other side of the coin. While we have considered in the foregoing paragraphs a situation wherein Indian businesses are facing a set-back owing to downfall in economies of other countries, it is also important to note that,many Indiancompanies, particularly IT companies provide critical customer care support to the health and emergency services of other countries, for instance, USA. In fact even police and Fire services of USA have IT support from India.

With “Janta Curfew” that was observed in India on 22nd March 2020 and the subsequent address of the Prime Minister Mr. Narendra Modi on 24thMarch 2020, putting the country in the situation of a near lock down for the next 21 days, such Indian companiesmay not be able to provide services to theirfull potential as most of their employees are working from home. The same is in all likelihood going to impact the level and quality of support that these companies can provide to their clients based in other countries.

While the challenges we face today were unimaginable until a few months ago and for many of us a few weeks ago, it is all the more essential in times like these that economies, countries and businesses support each other while keeping in mind the human aspect involved. Although it is easier said than done, the symbiotic nature of existence of any kind of commercial undertaking cannot be overlooked and decisions have to be taken with utmost caution and foresight.

Vis Legis Law Practice, Advocates