While the safety of mankind is a major concern during the ongoing pandemic, another anxiety that is slowly taking gigantic proportions is the financial health of the economy and individual companies. Various reports have suggested that the Coronavirus pandemic will cost the global economy at least US $ 1 trillion. Businesses have taken a toss and jobs of millions are at stake. Though companies have come forward to support their employees, a question in the mind of most is how and for how long can companies, especially the smaller ones, keep paying salaries, when their own revenue sources have dried up!
In India, the fashion supply chain is in dire state; a recent survey by the Clothing Manufacturers Association of India (CMAI) suggests that 20 per cent of companies in the supply chain will be forced to shut doors, while 80 per cent believe they will not be able to sustain current workforce without Government support leading to loss of over 1 crore jobs in the apparel industry. The domestic apparel industry alone could take a hit of almost Rs.1 lakh crore due to the lockdown and the expected significant slowdown in economic growth once the lockdown is lifted.
Under these circumstances, owners are fighting a battle on how to pay workers their salaries. Money is not in circulation; the entire money chain has broken down in which no buyer is ready to pay up and there has never been enough surplus with any company especially in the MSME sector. Though across the industry, wages and salaries for the month of March have been taken care of, the uncertainty looms over the capacity to pay, as is, in the next few months, until the situations come back to normal which none of the companies presume will be before the end of June, while complete revival will happen only in the next year or so.
Government notifications have been very explicitly telling the business owners to pay wages and not to retrench staff but fall short of defining HOW? It is left to the companies to figure out ways to handle the situation they deem fit. Even to the extent that the notification is quite unclear as to whether it is referring to wages or salaries. While salaries come under industrial dispute act and wages come under payment of wages act, so obviously they are two different terms.
While Indian Government has remained ambiguous on whether the notifications include salaries, reports are coming in that other nations are more forthcoming. A report suggests that in Europe most Governments have waived of 90 per cent of rents of commercial properties in malls and elsewhere to ease the financial pressure on retailers, so they can pay their employees. Governments have also indicated that it would share part of the payable wages for this period. The UK Government is helping employers by paying 80 per cent of the salaries to their employees.
Similar news is coming from Switzerland, where the Government has announced a special package for employees & employers. They have asked companies to pay 20 per cent salary to their employees, while the rest 80 per cent would be paid by the Swiss Government. In addition, they have told business owners that they will get 10 per cent of their turnover (not profit) for 5 years without interest so they can continue their business. Sadly, no support has yet been announced in India, despite many requests and appeals by various associations.
Legal opinion on Government Notification for payment of wages
Recently, the Apex body of apparel exporters – AEPC – took legal advice on what the implication of Government notifications meant for them and if there were any respite for them in paying salaries, which in many companies runs into crores. The clear legal opinion is – ‘although there is no business being conducted or manufacturing/production taking place, the employers are required to continue to pay wages to their employees. As a result, the well-established principle of Employment Laws of ‘No Work No Pay’ is apparently not applicable in face of the pandemic that we face at present.’
The only seeming respite, as per legal opinion, is the fact that business owners can adjust leave entitlements of the employees against the period of the lockdown. If need be, the leave entitlement for the next year can also be adjusted in advance, this year during the lockdown period. Further, employers may proceed to impose pay cuts for top and mid- level management. In special cases, though the employers cannot terminate services, they have the option to talk to people for resignation on explanation of the situation and payment of full and final settlement. It is advised that the employer needs to package a decent severance package buttressed with a promise to consider re-hiring the said employees once the situation improves.
The reality is that ‘We Have been Left to Fend for Ourselves’.
In the case of Bangladesh, the Government has announced a bailout/stimulus package of Tk 5,000 crore for export-oriented industries to fight the impact of Coronavirus on the country’s economy with specific instructions that the said package could only be disbursed in the form of salaries and wages for employees and workers of the industries. However, the industry feels that though the support is much needed the requirement of funds to pay all workers and executives in exports houses is much higher, and hence the burden is still quite daunting.
The apparel industry is worried, and rightly so. The harsh reality is that exporters are not being paid by the buyers for their last job because the international banks are not operating at that level. Further, money is also blocked at the retailer/importer level because of lockdowns, since ready orders have been cancelled and so no bank loans; available money has been used in buying fabric, etc. for orders in progress.
Exporters are also sceptical that if they do not pay salaries or even announce salary cuts to ride over the period, buyers who preach sustainability will take it as a reason to drop them when orders start coming in. This fear pertains when a lot of big companies from other sectors are publicly announcing that they have cut salaries across board, ranging from anything between 20 and 60 per cent depending on salary slab. However, now there is really no option and forced by circumstances, hard decisions are being taken: From talking to staff personally to support pay cut to declaring delays in payment.
The Governments need to find ways to reduce the burden on businesses so they can take stock of their reserves without worrying of regular business liabilities and also extend some direct support, so that companies can pay salaries. The fact is that business owners do not want to lose their staff, but have no funds to keep them!