COVID-19 and employment issues: what are employer’s prospects?


COVID-19 and employment issues: what are employer’s prospects?


The unprecedented disruption across all areas and sectors due to COVID-19 has resulted in several employment law issues relating to health and wellbeing of employees, travel, sickness and absence from work and other workplace questions coming into the fore.

Employers should focus on strategies which maintain a balance between the interest of the organisation and employees’ individual interests. Failure to do so may invite legal disputes and also impact employee morale and the reputation of the organisation.

Under Indian employment laws, employers have an obligation to safeguard wellbeing of their employees and provide a safe working environment.

This note discusses possible options that an employer will have to be mindful of in determining the organisation’s strategy to deal with the impact of COVID-19.

White collar workers

A white collar employee is a person who is usually involved in managerial or supervisory work. Under the Indian legal regime, there are no specific laws which govern employment of white collar employees. Usually, the employment is governed by the employment contract, which sets out the terms and conditions regulating the service. Here are few options that an employer may consider while contemplating reorganization of their white collar employees owing to COVID-19 pandemic. The implementation of these, however, will largely depend on the employment terms and policies of the organization:

  • Employers may choose between pay-cut and lay-off. In case of white collar employees, lay-off may or may not involve compensation, depending primarily on the terms of the employment contract and the employment policies adopted by the organization. The recent trends however suggest that lay-off may lead to reputational damage and hence, employers may consider softer options like a graded pay reduction from the fixed compensation or withhold variable pay.
  • Employers may mutually agree with employees to go on an unpaid leave for a certain period till the situation settles down.
  • Employer may decide to terminate the employment contract. The process of termination and contractual safeguards however must be in line with the employment contract and applicable laws thereby reducing the risk of legal claims.

Blue collar workers/workman

Under the Indian laws, blue collar workers, termed as ‘workman’ within the meaning of Industrial Disputes Act, 1947 (ID Act) include persons employed to undertake manual, skilled, semi-skilled work, but does not include people employed in a managerial capacity. Unlike white collar employees, the reorganisation of blue collar workers is rather delicate since the procedures prescribed in law are required to be followed by the employer in the strictest sense. A quick look at the options that the employer may consider, in the backdrop of COVID-19 pandemic:

Lay-off: Lay-off is a temporary inability of the employer to provide work to the employees. Employers may be permitted to lay-off employees under the ID Act on account of COVID-19 – which can be covered within the ambit of ‘natural calamity or other connected reason’ as mentioned under the ID Act. In such a case, the employer will have to comply with the requirements of lay off as mentioned under the ID Act including payment of basic compensation to the employees. It must be noted that asking the employee to exercise ‘leave without pay’ may not be an option for the blue collar workers, given that the ID Act contains elaborate procedures for lay-off.

Retrenchment: While both lay-off and retrenchment occur out of employer’s adversities, retrenchment means full and final termination of employees for any reason. Like in the case of lay-offs, retrenchment also involves employer’s obligation to comply with the statutory requirements laid down under the ID Act. Depending upon the impact of COVID-19 on an organisation, the retrenchment of employees may be a result of closure (or part closure) of the organisation or general headcount reduction. The employer must adopt fair and objective multi-rating selection criteria to identify the employees who must be retrenched in case of headcount reduction or partial closure.

Contract workers

Contract laborers are workers employed through contractors on contract basis and they are not on the rolls of the organization. While contract workers work on the premises of the employer, they are not deemed to be the employees of the ‘principal employer’, and there is no direct nexus between them. Typically, an agreement is executed between an agency (contractor) and the organization (principal employer) to govern the terms and conditions of such workers.

  • In view of the COVID-19 pandemic and decrease in demand for onsite workers, the employer may decide to terminate the existing contract with the contractor, through which the contract labours were hired.
  • The employer however must be mindful that contract labourers in India are protected by the Contract Labour (Regulation and Abolition) Act, 1970. Therefore, a quick review of the provisions of the said Act is recommended to understand the employer’s obligations vis-à-vis termination of the contract workers. One will also have to be mindful of the terms of the contract executed between the employer and the contractor in this regard.