Corporate and Employment law measures during critical Pandemic situation of Covid-19
In response to the global outbreak of coronavirus disease 2019 (COVID-19), governments in many Countries have issued emergency legislation to mitigate the impact of the pandemic on companies’ day-to-day operations. Since March 24, 2020, the Indian government has been announcing various measures aimed to ease corporate and tax compliance for companies doing business in India, as well as other measures pertaining to employment and bankruptcy matters. Labour and employees play a significant role in the corporate sector. Indian laws exist so that workers and employees are treated well in work environments and help protect their rights. Such laws also ensure that employers value their employees for their expertise and are compensated accordingly. With the outbreak of the COVID – 19, many employers are struggling to prepare for the worst, including work from home, leaves, compensation, insurance and numerous other factors. This situation not only brings about a worry with reporting heads, managers and the like but also with senior management including the board of directors and stakeholders of a company. Below is a high-level overview of some of the most relevant aspects of these measures as they pertain to India subsidiaries of US companies.
Corporate law measures; The India Ministry of Corporate Affairs (MCA) announced that COVID-19 spending would now be covered under the Corporate Social Responsibility (CSR) activities of Schedule VII pertaining to the promotion of health, preventative healthcare and sanitation and disaster relief. This means that, in case Indian subsidiaries have donated or otherwise provided, on a voluntary basis, any medical help or supplies for the COVID-19 disaster, such contributions will now be regarded as CSR contributions under any of the respective Schedule VII activities.
The MCA further advised that all companies and limited liability partnerships (LLPs) in India are to implement “Work from Home” as a temporary measure until the situation is normalised. To be able to prove that work-from-home measures were, in fact, implemented, Indian subsidiaries are asked to voluntarily report the same online on the MCA web portal.
The MCA has relaxed the rules for holding Indian subsidiaries’ board meetings. Among other things, the MCA has dispensed the requirement of holding physical (in-person) board meetings on matters such as the approval of financial statements, board reports and restructuring, through June 30, 2020.
From April 1 through September 30, 2020, there will be no additional fees for late filings on Register of Companies (ROC) forms. Starting April 1, 2020, and valid for the next two quarters (i.e., through September 30, 2020), the time period to hold mandatory board meetings is extended by another 60 days. This means that board meetings can now be held with a gap of 180 days. Under normal circumstances, every company (other than specified small companies) is required to hold its board meetings at regular intervals so that the time gap between the two board meetings should not exceed 120 days. With this additional 60-day extension, the time gap for the next two quarters (i.e., from April 1, 2020 through September 30, 2020) can be 180 days. Example: If the last board meeting was held in early March 2020, the next meeting can now be held in late August 2020 (within 180 days) instead of late June (within 120 days under normal circumstances). If the resident director of the Indian subsidiary does not comply with the minimum mandatory requirement of a stay of 182 days in India under the Companies Act, 2013, such non-compliance will not be treated as a violation through September 30, 2020.
The applicability of the Companies (Auditor’s Report) Order, 2020 (CARO 2020) will be made applicable starting as of financial year 2020-2021 (instead of 2019-2020). This will significantly ease the burden on companies and their auditors for the financial year 2019-2020 because the enforcement of CARO 2020 at this stage would have resulted in additional compliance measures for companies and necessitated enhanced due diligence and disclosures on the part of auditors.
Newly incorporated companies have an additional six months to file their “commencement of business” forms. Extension of timelines for various compliance and other procedures may be granted on a case-by-case basis.
Employment law measures
• The Ministry of Labour & Employment, Government of India advised on March 20, 2020, that all public and private organizations are to refrain from terminating the services of their employees or reducing their wages.
• The Ministry of Labour & Employment has extended the deadline for filing the Unified Annual Return for 2019 under eight laws that were filed on the Shram Suvidha Portal to April 30, 2020 (the previous deadline was February 1, 2020). The notification further states that authorities are not to take action against any entity that did not meet the earlier deadline.
• The Employees’ State Insurance Corporation (ESIC), through its communication dated March 16, 2020, has extended the dates for filing of ESI contribution and payment. Accordingly, all contributions for the months of February 2020 and March 2020 can be filed and paid up to April 15, 2020 and May 15, 2020, instead of March 15, 2020 and April 15, 2020, respectively.
• The Government of India will contribute the employer contribution (on behalf of companies) and employee contribution (on behalf of employees of those companies) towards the Employee Provident Fund Organization (EPFO) for the next three months for establishments with up to 100 employees meeting certain base salary thresholds.
• All EPFO members (employees) will now be able to withdraw up to 75 percent of their total EPFO fund or an amount equivalent to three months of their salary, whichever is lower. The amount withdrawn from EPFO shall be non-refundable, and the employees do not need to return the same to their EPFO account.
Below are some FAQs to help understand the COVID – 19 along with relationships between management, i.e. employers and employees.
1. Is it essential for companies to close down workplaces due to the COVID – 19?
It is a well-known fact that many employers today are shutting their offices in order to provide a work from home option to their employees in light of the COVID – 19. However, is it mandated by law?
No, it is not mandated by law in most states to shut down operations just as yet due to the outbreak of the disease, but many employers are taking necessary precautionary steps for various reasons, such as employee’s past history of travel [whether personal or official], number of employees in a workplace, infrastructure, bandwidth to complete tasks, etc. Unless there is no official communication from any municipal corporation of any state to shut down businesses, employers can expect their employees to come to the workplace and work in the office. However, depending on the sector in which the company operates, it is generally advisable to sensitize towards the outbreak of the COVID – 19 and prepare for such scenarios to avoid large crowds in workplaces, canteens, etc.
2. Should employers pay full salaries to employees who work from home?
Yes, firstly, since the outbreak is not caused due to liability of either party, but is beyond the control of both. It becomes quite tricky if employers have to pay salaries of employees who cannot work from home yet are required to be on standby. From a risk management, practical and even humanitarian perspective, employers who can afford to do so should continue to pay full salary, or benefits to their employees during this period. However, employers who are severely affected and cannot afford to pay their employees in full may put up an argument that the situation is beyond the control of the parties and the employment cannot be performed temporarily, and hence, they may not be required to pay the employees. Since there are no precedents with the views expressed above, employers should be cautious while implementing the same.
3. Should employees use their paid leaves in such a case or can employers require employees to use their paid leave?
No, employees are not bound to use their paid leaves. An employer cannot require that the employee utilise their paid leave, that is worker’s choice.
Conclusion: With the rapid increase of cases in India and the whole world, the criticality of COVID -19 seems to be increasing by the hour. It is of utmost importance that management of the company be proactive to curb the virus and ensure the safety of their employees. This will also help reduce risk and liability from legal claims to which, during these hard times, organisations have higher exposure to than can be imagined. All the companies must pay regular salary to their employees, so that the employees can use this for their family requirement. It will benefit the company only because this will create a sense of loyalty among the employees for the company and they will work more efficiently which will increase the productivity of the company. By- Saurav Sharma, Associate at Vidhiśāstras-Advocates & Solicitors