Wage Payment During Lockdown: Supreme Court Addresses Employer Obligations in Ficus Pax Private Ltd. vs. Union of India (2020)

Date of the Judgment: 12 June 2020

Citation: 2020 INSC 424

Judges: Ashok Bhushan, J., Sanjay Kishan Kaul, J., M.R. Shah, J.

Can private employers be legally compelled to pay full wages to their employees during a nationwide lockdown? The Supreme Court of India grappled with this critical question in a batch of petitions filed by various employers and employer associations. These petitions challenged government orders issued under the Disaster Management Act, 2005, which mandated full wage payments during the COVID-19 lockdown. The core issue was whether the government could impose such a financial obligation on private entities during a national crisis.

The Supreme Court bench, comprising Justices Ashok Bhushan, Sanjay Kishan Kaul, and M.R. Shah, heard the arguments and issued an interim order. The court sought to balance the interests of employers and employees, acknowledging the severe economic impact of the lockdown on both sides. The judgment aimed to provide a framework for negotiation and settlement between employers and employees regarding wage payments during the lockdown period.

Case Background

The case arose from a series of government orders issued in response to the COVID-19 pandemic. The Ministry of Home Affairs, Government of India, issued an order on March 29, 2020, under Section 10(2)(l) of the Disaster Management Act, 2005, directing all employers to pay full wages to their workers without any deduction during the lockdown period. This order was challenged by several employers and employer associations, including Ficus Pax Private Ltd., the lead petitioner in this case. Ficus Pax, a packaging company with multiple factories, argued that the order was an unreasonable and arbitrary imposition of financial obligations, especially given the drastic reduction in business during the lockdown.

The petitioners contended that the government’s order violated their fundamental rights under Article 14 and Article 19(1)(g) of the Constitution of India. They argued that the order did not differentiate between workers who were working during the lockdown and those who were not, thus violating the principle of “equal work, equal pay” and “no work, no pay.” They further argued that the government should utilize funds from the Employee State Insurance Corporation (ESIC) or the PM Cares Fund to subsidize wages, rather than placing the entire burden on employers.

The petitioners sought a declaration that the government orders were unconstitutional and a direction to the government to subsidize wages. Some petitioners also requested permission to pay only 50% of the basic pay plus Dearness Allowance (DA) to their employees during the lockdown period.

Timeline:

Course of Proceedings

The judgment does not specify any lower court proceedings. The case was directly filed as a writ petition in the Supreme Court of India.

Legal Framework

The case primarily revolves around the interpretation and application of the Disaster Management Act, 2005, and its intersection with fundamental rights guaranteed under the Constitution of India. Key provisions include:

• Section 10(1) of the Disaster Management Act, 2005: This section provides the National Executive Committee with the power to lay down guidelines for disaster management.
• Section 10(2)(l) of the Disaster Management Act, 2005: This section empowers the National Executive Committee to issue directions for “the provision of resources for emergency response.” The petitioners challenged whether this provision could be interpreted to impose financial obligations on private employers.
• Article 14 of the Constitution of India: This article guarantees equality before the law and prohibits arbitrary state action. The petitioners argued that the government’s order was arbitrary and discriminatory.
• Article 19(1)(g) of the Constitution of India: This article guarantees the right to practice any profession, or to carry on any occupation, trade, or business. The petitioners argued that the government’s order unreasonably interfered with their right to conduct business.
• Article 21 of the Constitution of India: This article guarantees the right to life and personal liberty. The intervenors argued that the right to wages is a pre-existing right which flows from Article 21.
• Article 300A of the Constitution of India: This article states that no person shall be deprived of his property save by authority of law. The petitioners argued that the government’s order was a violation of this article.

The court also considered the Industrial Disputes Act, 1947, the Payment of Wages Act, 1936, and the Minimum Wages Act, which govern employer-employee relations and wage payments. The intervenors argued that the right to wages is a pre-existing right flowing from these statutes.

Arguments

The petitioners, primarily employers and employer associations, raised several arguments against the government’s order:

• Arbitrary and Unreasonable: The petitioners argued that the order to pay full wages during the lockdown was arbitrary, irrational, and violated Article 14 and Article 19(1)(g) of the Constitution. They contended that it did not differentiate between establishments that were allowed to operate and those that were completely shut down.
• Financial Imposition: The petitioners submitted that the government cannot impose financial obligations on private sector employers under the Disaster Management Act, 2005. They argued that the government should use funds from the National Disaster Response Fund or other government sources to compensate workers.
• Violation of “No Work, No Pay”: The petitioners argued that the order violated the principle of “no work, no pay,” as it mandated payment of wages even when no work was performed.
• Differential Treatment: The petitioners contended that the order did not differentiate between workers who were working during the lockdown and those who were not, thus violating the principle of “equal work, equal pay.”
• Financial Hardship: The petitioners argued that many businesses were facing severe financial hardship due to the lockdown and could not afford to pay full wages. They submitted that forcing them to do so could lead to insolvency and loss of control of business.
• Scope of the Order: Some petitioners argued that the order was intended only for migrant workers and should not be extended to the entire workforce.

The Union of India, represented by the Attorney General, argued that:

• Statutory Power: The government had the power to issue the order under Section 10(1) and Section 10(2)(l) of the Disaster Management Act, 2005, to mitigate the financial hardship of workers during the lockdown.
• Public Interest: The order was issued in the public interest as a temporary measure to prevent a financial crisis among the lower strata of society.
• Temporary Measure: The order was a temporary measure that was in effect for only 54 days and has been revoked.
• Economic and Welfare Measure: The order was an economic and welfare measure intended to achieve benevolence.

The intervenors, representing employees and trade unions, supported the government’s order, arguing that:

• Pre-existing Right to Wages: The right to wages is a pre-existing right that flows from the contract of employment, as well as from constitutional and statutory schemes, including Article 14 and 21 of the Constitution, the Payment of Wages Act, the Minimum Wages Act, the Contract Labour Act, and the Industrial Disputes Act.
• Government’s Obligation: When the government declares a lockdown, it is also liable to provide for the consequences of the lockdown.
• Self-Contained Code: The Disaster Management Act, 2005, is a self-contained code that overrides other enactments by virtue of Section 72.

Submissions of Parties

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame specific issues in this interim order. However, the key issues that the court was implicitly addressing were:

1. Whether the order dated 29.03.2020 was within the powers conferred by the Disaster Management Act, 2005.
2. Whether the order dated 29.03.2020 violated Article 14 and Article 19(1)(g) of the Constitution of India.
3. What should be the appropriate mechanism to address the issue of payment of wages during the lockdown period, balancing the interests of employers and employees.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The judgment does not explicitly mention any cases or books relied upon by the court. However, the judgment refers to the following legal provisions:

• Section 10(1) of the Disaster Management Act, 2005: This section empowers the National Executive Committee to lay down guidelines for disaster management.
• Section 10(2)(l) of the Disaster Management Act, 2005: This section empowers the National Executive Committee to issue directions for the provision of resources for emergency response.
• Section 72 of the Disaster Management Act, 2005: This section states that the Act has an overriding effect on other enactments.
• Article 14 of the Constitution of India: Guarantees equality before the law and prohibits arbitrary state action.
• Article 19(1)(g) of the Constitution of India: Guarantees the right to practice any profession, or to carry on any occupation, trade, or business.
• Article 21 of the Constitution of India: Guarantees the right to life and personal liberty.
• Article 300A of the Constitution of India: States that no person shall be deprived of his property save by authority of law.
• Industrial Disputes Act, 1947: Governs employer-employee relations and dispute resolution.
• Payment of Wages Act, 1936: Regulates the payment of wages to employees.
• Minimum Wages Act: Sets minimum wage standards.
• The Contract Labour (Regulation and Abolition) Act: Regulates the employment of contract labor.

Authorities Considered by the Court

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Court acknowledged the government’s argument that the order was issued under Section 10(1) and Section 10(2)(l) of the Disaster Management Act, 2005, but did not make a final determination.
• The Court noted the intervenors’ argument that Section 72 of the Disaster Management Act, 2005 gives the Act an overriding effect, but did not make a final determination.
• The Court acknowledged the petitioners’ argument that the order violated Article 14, 19(1)(g) and 300A of the Constitution of India, but did not make a final determination.
• The Court noted the intervenors’ argument that the right to wages flows from Article 21 of the Constitution of India, but did not make a final determination.
• The Court noted the intervenors’ argument that the right to wages flows from the Industrial Disputes Act, 1947, Payment of Wages Act, 1936, Minimum Wages Act and the Contract Labour (Regulation and Abolition) Act, but did not make a final determination.

The Supreme Court, in its interim order, did not definitively rule on the validity of the government’s order. Instead, it focused on facilitating a resolution between employers and employees. The court acknowledged the adverse effects of the lockdown on both employers and employees, noting that “the lockdown measures enforced by the Government of India under the Disaster Management Act, 2005, had equally adverse effect on the employers as well as on employees.”

The court emphasized the need for a balanced approach, stating, “A balance has to be struck between these two competitive claims.” It directed that private establishments and workers should attempt to negotiate and settle wage payments for the 50-day lockdown period. The court also noted that “both Industry and Labourers need each other,” highlighting the importance of a harmonious working relationship.

The court directed the State Authorities to facilitate negotiations between employers and employees. It also stated that the private establishments should permit the workers to work who are willing to work without prejudice to rights of the workers regarding unpaid wages.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to find an interim solution that balanced the competing interests of employers and employees during the unprecedented COVID-19 lockdown. The court recognized the severe economic impact on both sides and sought to facilitate a resolution through negotiation and settlement.

The court was also mindful of the fact that the government order mandating full wage payments had already been withdrawn, making a final determination on its validity less urgent. However, it did acknowledge that the issue of the employer’s obligation during the 50-day period when the order was in effect needed to be addressed. The court’s focus was on ensuring that the industrial establishments could resume operations smoothly with the cooperation of the workforce. This is evident in the court’s observation that, “For smooth running of industries with the participation of the workforce, it is essential that a via media be found out.”

The court’s approach was pragmatic, aiming to restore a conducive work atmosphere by encouraging dialogue and mutual understanding between employers and employees. The court also recognized the different financial capacities of various industries and establishments and the need for a flexible approach to wage payments.

Fact:Law Ratio

The court’s emphasis on the factual aspects of the case, such as the economic impact of the lockdown and the need for a practical solution, weighed more heavily than the purely legal arguments. This is reflected in the higher percentage allocated to “Fact” in the ratio table.

Logical Reasoning

Key Takeaways

• Negotiation and Settlement: Employers and employees are encouraged to negotiate and settle wage payments for the lockdown period.
• State Facilitation: State authorities are directed to facilitate these negotiations.
• Interim Measure: The court’s order is an interim measure aimed at restoring a conducive work atmosphere.
• No Coercive Action: The court’s earlier order of no coercive action against employers remains in effect.
• Balancing Interests: The court emphasizes the need to balance the interests of both employers and employees.

The judgment’s potential future impact includes:

• Precedent for Future Disasters: The case may set a precedent for how wage disputes are handled during future national disasters or lockdowns.
• Emphasis on Negotiation: The court’s emphasis on negotiation and settlement may encourage a more collaborative approach to industrial disputes.
• Need for Government Support: The case highlights the need for government support to both employers and employees during crises.

Directions

The Supreme Court gave the following directions:

1. Private establishments, industries, and employers willing to negotiate and settle with workers regarding wage payments for the lockdown period may initiate negotiations with their employee organizations.
2. If a settlement cannot be reached, a request may be submitted to the concerned labor authorities to conciliate the dispute.
3. Those establishments that were working during the lockdown period, even if not at full capacity, can also take steps to negotiate with their employees.
4. Private establishments shall permit workers who are willing to work to resume their duties, without prejudice to their rights regarding unpaid wages.
5. Private establishments taking steps to negotiate shall publicize and communicate such steps to workers for their response/participation.
6. The Central Government and all States/UTs through their Ministry of Labour shall circulate and publicize this order for the benefit of all private establishments, employers, and workers.

Specific Amendments Analysis

There is no discussion of specific amendments in this judgment.

Development of Law

The ratio decidendi of this case is that during a national crisis like a lockdown, it is essential to balance the interests of both employers and employees. The Supreme Court emphasized the need for negotiation and settlement between the parties, facilitated by the State Authorities, to resolve wage disputes. This interim order did not lay down a new legal principle but provided a practical approach to address the immediate issue of wage payments during the lockdown.

There was no change in the previous position of law, but the court did emphasize the need for a practical and balanced approach during a national crisis.

Conclusion

In the case of Ficus Pax Private Ltd. vs. Union of India, the Supreme Court addressed the contentious issue of wage payments during the COVID-19 lockdown. Instead of ruling on the validity of the government’s order mandating full wages, the court issued an interim order directing employers and employees to negotiate and settle wage disputes, with state authorities facilitating the process. The court’s approach emphasized the need for a balanced and practical solution that considers the economic impact of the lockdown on both employers and employees. The judgment underscores the importance of dialogue and mutual understanding in resolving industrial disputes during national crises.