The recent outbreak of the Coronavirus disease also known as COVID-19 has seriously impacted global economic activity. Pakistan, with an already struggling economy, has been hit especially hard. Pakistan’s Ministry of Planning, Development & Special Initiatives has estimated that 12.3 – 18.5 million people in the country are likely to face unemployment over the next three months if a moderate or complete lockdown persists.
Following the Eighteenth Amendment to the Constitution of Pakistan, labour and workforce effectively became provincial matters. Existing legislation on labour is not consolidated in a single statute or code, instead, different aspects of labour law are covered under various statutory instruments. This article focuses on the labour law regime as applicable in the province of Punjab (collectively known as the Punjab Labour Code) for private sector employees and excluding domestic and part-time workers. Substantially, a similar labour law framework exists at the federal level for Islamabad and other provinces.
The current labour law regime in Punjab can be classified into two broad categories. First, those employees whose employment is governed under the principle of master-servant, and second, those employees whose employment terms and conditions are governed by statutory provisions or otherwise the Punjab Labour Code. The principle of master-and-servant is a common law principle and mainly covers those employees whose employment originates under a contract of employment. The terms and conditions of employment of such employees are not subject to the provisions of the Punjab Labour Code and are governed exclusively by the provisions of their employment contract. In a recent decision of the Supreme Court of Pakistan reported as 2019 SCMR 278, the Supreme Court held that, “…where conditions of service of employees are not regulated by a statutory provision then such employees are to be governed by the principle of “master and servant”.”
Whether an employee is subject to the principle of master-and-servant will be determined on a case-by-case basis. Ordinarily, white-collar workers, managerial employees and professional workers are considered employed under the concept of master-and-servant. Under the master-and-servant principle, the individual contract of employment sets out the terms and conditions of employment and the relevant termination provision. If these provisions are not adhered to, the employer or employee can be sued for breach of contract. Such contracts are also subject to other legal principles affecting contracts such as frustration and force majeure.
The second category of employees is regulated by the Punjab Labour Code. For the purposes of this article, the focus is on a worker or ‘workman’ working at a ‘commercial’ or ‘industrial’ establishment as defined in the Industrial and Commercial Employment (Standing Orders) Ordinance, 1968 applicable in Punjab. It is also assumed that no ‘collective agreement’ is in place as it can confer rights above and beyond those given by the Standing Orders. It should also be noted that the Standing Orders apply to establishments which employ twenty or more workers. Following the Eighteenth Constitutional Amendment, Punjab adopted the Standing Orders pursuant to the Punjab Industrial and Commercial Employment (Standing Orders) (Amendment) Act, 2012.
Section 2 (i) of the Standing Orders defines a ‘workman’ as “any person employed in any industrial or commercial establishment to do any skilled or unskilled, manual or electrical work for hire or reward.” This means that most employees doing clerical, manual or electrical work for a private establishment will be regulated under the Standing Orders.
Workers are further classified into 6 types under Standing Order 1. The most protected classification is that of a “permanent workman” engaged in work of a permanent nature which usually lasts more than nine months, and having completed a probationary period of 3 months in the establishment. Probationers, badlis, contract workers, apprentices and temporary workers are the other classifications.
The existence of Standing Orders ensures protection of workers as certain minimum employment terms are implied into all contracts of employment. These include terms for working hours, remuneration, holidays, benefits, termination and retrenchment. These are inviolable rights which the employer must provide to the employee.
Due to COVID-19, many establishments have been forced to close operations owing to government mandated lockdowns that have restricted the movement of people and conduction of business, save for essential services. Standing Order 11 (1) expressly accounts for such a situation, which provides that an employer may, in the event of an ‘epidemic’ or ‘other cause beyond his control’, stop the establishment wholly or partially for any period without notice. Standing Order 11 (3) contains the law regarding employees who are laid off on account of Standing Order 11 (1). It states that they shall be paid an amount equal to one-half of their daily wages during the first 14 days of layoff as compensation by the employer. However, if the workers are laid off for an indefinite period beyond the previously mentioned 14 days, their services may be terminated either by providing them due notice or paying them in lieu of a notice. The due notice requirement is addressed by Standing Order 12. In this situation, a permanent worker must be given one month’s notice before termination. Alternatively, one month’s wages, calculated on the basis of the average earning of the worker during the last three months, can be paid in lieu of a notice. On the other hand, temporary workers, probationers or badlis are not entitled to any notice period and can be terminated immediately. All workers will be entitled to their end of service benefits due to them at the time of termination, such as gratuity or provident fund. In case residential accommodation has been provided by the employer, under Standing Order 16 the employee will have 60 days before vacating such accommodation.
Furthermore, an order in writing must be provided at the time of termination setting out the reasons for termination. Any aggrieved worker may file a grievance in the Labour Court under Section 33 of the Punjab Industrial Relations Act, 2010.
The principle of ‘first in being the last out’ or commonly known as last-in/first-out (LIFO) is to be followed while retrenching workers pursuant to Standing Order 13. Preferential treatment shall also be available to the retrenched employees if the employer proposes to employ any person within one year of the employees’ retrenchment. The retrenched employees shall be given an opportunity to offer themselves for re-employment and preference shall be given on the basis of length of service with the employer. A special provision for retrenched construction sector workers under Standing Orders 14-A also gives them preference for employment in any other similar work which their employer undertakes within one year of such retrenchment.
If an establishment had been marked as an essential service and stayed open despite the presence of COVID-19, or had been allowed to open later by the relevant authority within a time-frame which did not attract Standing Order 11, the procedure under Standing Order 12 for termination would be followed regarding due notice and payment in lieu of notice.
A public interest petition was recently filed in the Lahore High Court challenging the dismissal of workers and employees in the industrial sector during the lockdown and for the protection of workers. Interestingly, the Islamabad Capital Territory and Sindh governments respectively issued notifications restricting the termination and laying off of workers and protecting their wages and salaries. The Islamabad Capital Territory issued its notification titled Order No. ADLW/ICT/2020 and the Government of Sindh issued Order No. SO(Jud-I)HD/8-I(04)/2020-Corona directing that no worker was to be laid off and all kinds of workers were to be paid their salary in full. It also directed that the period of closure be considered by the employers as paid leave. Interestingly, both notifications had been issued under Section 2(1) of Epidemic Diseases Act, 1958 and Section 3(1) of Sindh Epidemic Diseases Act, 2014 respectively, which provide substantially similar texts:
“Epidemic Diseases Act, 1958
Section 2: Power to take special measures and prescribe regulations as to dangerous epidemic disease.
When at any time the Provincial Government is satisfied that the Province or any part thereof is visited by, or threatened with an outbreak of any dangerous epidemic disease, the Provincial Government, if it thinks that the ordinary provisions of the law for the time being in force are insufficient for the purpose, may take, or require or empower any person to take, such measures and, by public notice, prescribe such temporary regulations to be observed by the public or by any person or class of persons as it shall deem necessary to prevent the outbreak of such disease or the spread thereof, and may determine in what manner and by whom any expenses incurred (including compensation, if any) shall be defrayed.”
“Sindh Epidemic Diseases Act, 2014
Section 3: Power to take special measures and prescribe regulations as to dangerous epidemic disease.
When at any time Government is satisfied that the Province or any part thereof is visited by, or threatened with an outbreak of any disease, Government, if it thinks that the ordinary provisions of the law for the time being in force are insufficient for the purpose, may take or require or empower any person to take, such measures and, by public notice, prescribe such temporary regulations to be observed by the public or by any person or class of persons as it shall deem necessary to prevent the outbreak of such disease or the spread thereof, and may determine in what manner and by whom any expenses incurred (including compensation, if any) shall be defrayed.”
While the provisions under both laws provide general powers to the government to adopt special measures and prescribe regulations in that regard, ostensibly with a view to address unforeseen circumstances (all of which could not have possibly been envisaged at the time of legislation), neither provision provides for the regulation of labour in such circumstances. Whether or not the legality of such notifications will be called into question is yet to be seen, as existing labour laws exist on point. The provisions of the Standing Orders expressly deal with a force majeure event such as an epidemic. The Supreme Court in the decision reported as 2017 SCMR 999 held that, “...the provisions of special law always override the provisions of the general law to the extent of any conflict or inconsistency between the two.” Also, the courts have consistently held that a mere notification cannot override statutory law (2002 CLC 304). In such a situation, the most appropriate method of providing relief to workers should be through legislation taking shape as an Act or Ordinance.
As stated above, while it is legally possible to terminate the employment of a worker, it is important for businesses to consider the alternatives. The termination route should only be considered by businesses as a last resort. While there may be a moral obligation to protect the livelihood of the local community, it also makes business sense to retain human capital which is productive, loyal or specialized. Businesses should avoid announcing hasty redundancies or retrenchment plans and consider balancing commercial and reputational risks in the age of social media. Alternatives to termination include renegotiation of existing terms of employment, negotiation of business-wide cuts in salary or benefits, reduced working hours or weeks, offering paid leave to workers or furloughing them. The government has announced, among other things, economic packages expected to ease cash flow constraints of employers and thereby avoid layoffs. In this regard, employers may consider easing liquidity concerns by taking advantage of a special refinance scheme introduced by the State Bank of Pakistan pursuant to IH&SMEFD Circular No. 06 of 2020 and IH&SMEFD Circular Letter No. 07 of 2020 according to which employers may borrow, on a conventional or Islamic finance basis, to finance wages and salaries for three months at a mark-up rate of five percent with an additional discount of one percent for businesses on the active taxpayers list.
Sadly, employers and employees find themselves at critical crossroads, making it difficult to strike a balance between a business being able to operate as a going concern and its cost of human capital. According to the Small and Medium Enterprises Development Authority, small and medium businesses or enterprises (SMEs) account for nearly 90% of all the enterprises in Pakistan and employ 80% of the non-agricultural workforce, contributing a share of approximately 40% to the annual gross domestic product (GDP). However, unlike large enterprises in the formal sector, SMEs are constrained by financial and other resources. While the government has announced various economic relief measures, including a relief package of PKR 100 billion for SMEs, and has increased the regulatory limit on the extension of credit to SMEs from PKR 125 million to PKR 180 million, a system of checks and balances in the relief package is yet to be seen. It is also to be seen how businesses would react to the financing facilities announced by the State Bank and to what extent businesses would be willing to increase their indebtedness, albeit on fairly incentivized rates.
[Note from the authors: This does not constitute legal advice and is intended for general information purposes only.]
The views expressed in this article are those of the author and do not necessarily represent the views of CourtingTheLaw.com or any organization with which he might be associated.