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Sustaining operations while effectively managing the employees



Abhay Vohra, Partner – Burgeon Law


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Employers must know the intricacies of sustaining a business in a crisis

To say that 2020 has shattered all business forecasts and growth projections would now be an understatement. For organizations the world over, the overnight shift to remote working and the immediate slump in revenues are just the tip of the iceberg that is the overall impact of the outbreak. In addition to these problems, companies are also battling with a dwindling runway to sustain the business leading to eventualities such as downsizing and the consequent uncertainty and demotivation among employees during a situation that is already as grim as can be.  

To ensure minimal damage from any decisions taken by the management during this time, organizations will be required to ramp up communication with their workforce. This can be done through group or one-on-one audio/video calls. These calls should focus on bolstering employee motivation and offering them enough information about the company’s present and projected future circumstances and their effects on the employees and the organization at large.

While different companies, with different approaches to leadership can tackle employee morale and company culture in a variety of ways, from a legal perspective, there are certain regulations that brands must follow regardless of the circumstances.

Rising uncertainties

Recently, the WHO stated that the COVID-19 contagion in India will reach its peak by the end of July, post which the curve will begin to flatten. The end, however, is still not in sight. There’s no saying what levels of disruption the pandemic will reach and how the economy will fare in the wake of it. The nationwide lockdown, for instance, recently extended into its 4th phase, marking more than 60 days of several businesses being shut or operating at a much-reduced scale. As this continues, the real impact of COVID-19 and its resultant lockdown is yet to be seen clearly.

The pandemic has already taken a heavy toll on not just businesses, but millions of livelihoods as well. Across all industries, large companies such as Zomato, Oyo Rooms, Paytm, and Cure.Fit have laid off several employees, dealing a severe blow to employees’ lives and career progression. Other organizations, both big and small, have introduced pay cuts to make up for the revenue lost in this period. Such drastic steps, however, beg the question: Do employee policies restrict companies from such largescale downsizing and salary reductions?

The short answer: yes, they can. Global employers have an inherent right to make tough decisions in a bid to be prepared for an uncertain future. Since there has never been a state of affairs more uncertain than this, employers do have the authority to downsize or reduce salaries to reorganize the business and ensure smooth running while the pandemic passes.

Legalities of all eventualities

Cementing this right, the Supreme Court of India recently stated the operation of a circular by the Ministry of Home Affairs (MHA) directing private organizations, including MSME’s to pay full salaries amid the lockdown. Citing the financial implications on employers across the country, several organizations including the Ludhiana Hand Tools Association and Ficus Pax, sought to quash the petition. In doing so, the organizations hit on an intrinsic truth: with revenues taking a hit, where will organizations, especially small scale ones, find the money to pay full wages?

Thus, with the furtherance of their business plan in mind, organizations can take such decisions without facing persecution. However, carrying out such decisions requires employers to go into the nitty-gritty of the employment policies and employee contracts created in a pre-pandemic world. While they can definitely let people go or reduce their salaries, it is important to bear in mind that the legalities of such decisions remain the same – pandemic or not.

In India, the labor and employment matters are governed under the aegis of various Central and State labor legislation and the Indian Contract Act, in accordance with which the employment agreements are interpreted and enforced. The principal piece of legislation governing employee-employer matters is the Industrial Disputes Act, which is applicable to a wide category of “workmen” or employees except for government employees, people employed in managerial/administrative and supervisor roles.   

As per the labor laws in our country, the primary legislation governing it is the Industrial Disputes Act which encompasses almost all employees working with any organization. The fundamental premise of modification of the terms of employment of a person is governed by Section 9A of the Industrial Disputes Act.

This states that there cannot be any unilateral modifications to the terms of the contract which are arbitrary and adversely affect the other party. Companies are required to give the employee a 21-day notice before taking any action regarding salary reduction or layoffs. To avoid any legal snags in the future, abiding by the legal prerequisites and honoring the notice period and agreement is a must. This, coupled with the ethical aspect of the matter, leads to the following fact: companies are authorized to downsize or introduce reductions only with due process. Decisions that are unilaterally violative of the employment agreement or labor laws can have dire repercussions for businesses.

To avoid such a situation in an already tense backdrop, organizations need to be familiar with the labor laws and the contracts of employment that are extended to the workforce. Additionally, they must create an implementation plan that follows all the rules and guidelines, while offering enough time for employees to deal with the consequences of such decisions as best they can.

Post-lockdown requirements for organizations

After the sequential relaxation of the lockdown by the government, several private organizations have been given the green light to operate with 33% of staff. While work-from-home is being encouraged, businesses can legally open up their offices and resume working. Again, the caveat here is also the same – the rules must be followed diligently. 24-sanitization of the premises, temperature checks of employees twice a day, provision of face shields, masks, and PPE kits, and social distancing barriers in common areas like cafeterias – these are just some of the rules that organizations need to follow stringently post resumption of operations.

Standard operating procedures are being created for private offices, factories, industrial units, etc. Compliance with these guidelines will ensure a smooth transition for organizations getting back to business. Although this is an unreliable and ambiguous time, prioritizing things will help businesses stay organized and evade any chaos. A holistic approach to managing employees and business longevity will display a business owner’s entrepreneurial skills and help their organization weather the storm.