Covid 19 pandemic now seems to be under control in Bangladesh. While we cannot be certain that another wave of covid infection is not coming, we are certain that companies/businesses will face trouble in different occasions, if not for covid, certainly for other force majeure causes. It is understandable that Employers, in those situations of crisis, often consider downsizing/retrenching their existing workforce because their work orders are cancelled, and they feel job cut is the only way forward. Some try to protect jobs by sending their employees to indefinite unpaid leave, while some trying to reduce salary by 25-50%. However, these are not the most efficient and, at times, legally permissible solution. So, let's try to explore why an Employer should think of alternatives, what he should not do and what can be done to work this out. Fair warning, the solutions are not going to be served in silver platers and would require further work between employers and employees, supported by the policy makers, regulators, and judiciary. Nonetheless, the challenge is unprecedented, so out of the box thinking is the only way forward and all stakeholders need to prescribe to a different mindset if we are to survive this together.
First of all, why should businesses even consider an alternative when they have the legal provisions for lay-off and retrenchment as contained in Sections 16 and 20 of the Bangladesh Labor Act 2006 further detailed in the Rules of 2015? As per Section 12 of the Act, if due to situation beyond control of the employer, business establishment is closed for more than 3 days, lay-off can be initiated. As per Section 16, the first 45 days of lay-off, 50% of basic and dearness allowance along with 100% housing allowance to be paid to the employees and if situation continues, during next 15 days of lay-off, 25% of basic and dearness allowance along with 100% housing allowance to be paid to the employees. Beyond that, Employers are entitled to initiate retrenchment under Section 20 of the Act and if lay-off period has been observed, no further notice will be applicable. If, on the other hand, lay-off process was not initiated, and Employers are opting for retrenchment on the ground of redundancy due to lack of work order, 30 days' notice or salary in lieu must be paid to initiate the retrenchment process.
So, why not opting for these legally available easy solutions, either lay-off leading to retrenchment or directly initiating retrenchment? While the temptation is understandable there are some reasons why businesses should not opt for either of these as first option:
People, Product and Profit, the 3 Ps of business! Employers should not ignore their people, the workforce, and move on at the cost of their jobs. When, not if, commercial activities of the company reboot and come back to its old tune, Employers will need their loyal-trusted workforce. If they are not protected, all the years of accumulated experience will be gone, and Employers may struggle to find the right fit. Also, training of new workforce will also be going to cost money for the businesses and will delay restoring operational efficiency.
If issues of future are not employers' current top priority, then they should think of the current challenges. If Employers opt for lay-off leading towards retrenchment, what are the cost implications? During the first 45 days, when Employers are paying 50% of basic and dearness allowance along with 100% housing allowance, which is usually 50% of basic for tax efficiency, the total expense is going to be nearly 2/3rd of the actual employee cost, followed by half of the total employee cost for another 15 days. That is a lot of money for eventually not retaining the trusted, well-trained workforce that businesses now have. Moreover, the cost doesn't stop there because while initiating lay-off process would exempt Employers from giving the 30 days' salary in lieu, Employers have to pay compensation for retrenchment as detailed below.
Whether Employers go to retrenchment after lay-off or directly, in addition to the notice period in applicable cases, they are legally required to pay 30 days' wages for each completed year of service, or gratuity, if available, whichever is higher. So, for example, if Employer Z is retrenching Mr. X, who has been in payroll for last 3 years, either Employer Z pays him 60 days' lay-off payment as described above and 3 months' salary as compensation for 3 years of service [approximately more than 4 months' salary in total], or Employer Z pays him 1 months' notice pay, salary of running month and 3 months' salary as compensation for the 3 years of service [total 5 months' salary]. Now Employer Z has to think of how many employees are going to be retrenched and multiply the number per above formula, making the cost to the company significantly high and rather impossible to arrange at one go, specially when business is not operating and facing challenge with cash flow.
Last but not least, even if Employers decide to go by the book for the retrenchment, they have to factor in the employees' reaction, trade union retaliation, negative publicity and possible group or multiple litigations that might be initiated and the legal cost of defending those claims. Considering the unprecedented situation, how judiciary would address the issue in future from a public policy perspective, is unknown. Even if Employer(s) win the cases, eventually, costs will be incurred, reputation will be hampered, and operation will be interrupted.
So, on many levels, from humanitarian ground to retaining trained workforce, from financial prudency to legal safety, exploring retrenchment should not be on the priority list of Employers. Let's explore what then Employers should and should not do.
First, things the Employer should not do:
The Employer should not send the workforce to forced indefinite unpaid leave as that would be illegal. Unfortunately, in Bangladesh, we do not have legal equivalent of ‘Furlough' whereby the Employer can initiate temporary ‘no work, no pay' system. Chapter IX of the 2006 Act, as further detailed in 2015 Rules, clearly defines the legal parameters of various categories of leave and there is no scope for forced unpaid leave. If Employer cannot ensure work and payment, the choice is to initiate retrenchment process, for which the enormous financial implication has already been discussed.
The Employer should not arbitrarily impose 25-50% salary cut as law prohibits salary reduction without proven case of misconduct and generally speaking, benefit once given, cannot be taken away. So, forcing the employees to accept pay-cut to save their job is likely to be unlawful, exposing the Employer to legal risks.
The Employer also should not get too technical relying on Section 2(65) of the Act and try to distinguish workers from non-workers in administrative, managerial and supervisory posts to bypass the 2006 Act and restrict oneself to the employment contract simply because the definition has been interpreted very widely by judges, at least in the court of first instance, making it difficult to avoid liability for most of the posts, except those in senior management positions.
Then, what can the Employer do?
The Employer can also initiate lay-off, make the payments as prescribed by law from the Employer's savings and hope, within 60 days, life and commercial activities will resume like before. If businesses take care of their employees now, they can in return ask their employees to help them with these alternative solutions and policy makers are likely to support in return of not taking unemployment rate off the roof. Here are some pointers:
As per Sections 103, 117 and 118, depending on company's internal policy, Employees have 52-104 days of General weekly holidays; at the rate of 18 working days to 1 annual leave ratio, they have 15+ days as annual leave; and 11-17 days as festival leaves. That is 78-120+ additional days of productivity that can be used for recovering lost days and production. Even if half of that is used, businesses can match the days lost during COVID-19 shutdown. Employees can be divided into different groups to enjoy minimum leave/holidays while production is ongoing by the other group without interruption. Employees are likely to waive their claim for Overtime under Section 108 if they are now being paid to support their family at a time when no work is being done. Policy makers/legislators can issue temporary waiver from the Overtime rules and lift the restriction on maximum weekly workhour under Section 102 of the 2006 Act to support the employees now and the Employers later.
Under Chapter XV and XVII of the Act, Employers have 5% of profit over certain limit going to WPPF and depending on internal business policy, 10-16% (5-8% from employees and equal contribution from employer) of total salary going to Provident Fund Scheme (Section 264(9), managed under an independent trust. If for a limited period of 6-12 months regulators allow exemption from the statutory requirements/Trust Deed and Rules compliance and employees give consent, Employers can minimize its Operational Expense (OPEX) by 5-8% [or more in some exceptional cases] of its total salary cost by not contributing to the PF and by not provisioning 5% of the profit for WPPF. This will also help the Employers with positive cash flow during the post-crisis rebuilding process and recover the financial impact to some extent. Employees can benefit with the extra payment from non-deduction of PF. This is likely to be a win-win situation and policy makers are likely to also backup the exemption to address the challenges of this Pandemic. Of course, the employees will not receive the benefit of PF and its profit for those 6-12 months, but looking at the bigger picture, to save employment, that is a minor sacrifice that all should be willing to make.
With proper assistance from the regulators and consent from the employees, the businesses can advocate for legal amendments to allow them to take loan from the PF Trust for 0-2% interest. Currently, as per Section 264(12) of the 2006 Act and Rules 284 of 2015 Rules, investment of PF is restricted to Govt. bonds and saving instruments, with 6-9% interest rate. However, following the same spirit of saving jobs and helping businesses to recover, for a specific duration, the businesses can be given permission to take interest free or 2% interest rate loan from the PF for having access to urgent capital required to save the businesses and to pay employees. The money belongs to the employees, so if they consent, regulators should have no logical objection against the concept. The need to stabilize the economy without putting too much pressure on institutional loans, the alternative should incentivize policy makers to make necessary legal amendments effective for a period of 6-12 months. In fact, if necessary, depending on duration and extent of the damage suffered, the businesses can be allowed to take a percentage of the profit of the PF to recoup loss. Isn't it likely that employees who are grateful for support of their Employer during crisis would have easier time in waiving right to additional profit for few months when situation is back to normal? This is of course in addition to the otherwise flexible and available WPPF for borrowing by businesses under Chapter XV of the 2006 Act.
The law, under Rule 111(5) of the 2015 Rules, requires Employers to pay 2 festival bonuses in a given year, equally distributed during two festivals. While there is a cap on maximum amount, i.e. not exceeding 100% of salary, there is no prescribed minimum amount. The prevailing market practice is 50-100% of basic being given as festival bonus on each occasion. So, that is 13th to 14th months' salary given as festival bonus. While it is fully appreciated that the bonus is essential for employees to celebrate the festival with family, at the time of crisis, celebratory expenses can be set aside. If businesses do not retrench and continue to make general payment, it is more than likely that employees will give consent to receiving no to bare minimum festival bonuses for this year, allowing Employers to reduce cost to the company to recover the loss suffered during the pandemic.
Last but not least, as per Section 116 of the 2006 Act, employees are entitled to accumulate unspent annual leave up to 60 days as annual leave can be carried forward. Also, the annual leave with payment can be encashed during separation. It is usually customary that employees save the annual leave to have a better severance pay. In exchange of not initiating lay-off or retrenchment, Employers can consider negotiating with employees to avail their accumulated annual leave during this locked down period and to reduce the balance of annual leave. The benefit may not be immediate as employees will still be entitled to pay during annual leave, however, in the long run the total cost to the company will be reduced if employees agree to use their annual leave now to mitigate the present crisis, allowing the businesses to work with the numbers to formulate a long term survival plan by minimizing ultimate cost to the company and financial burden. It is reasonably presumed that with proper communication and mutual understanding, this might suit both Employers and employees alike. As for the Employers, even with decision in favor of immediate retrenchment, because Employer remains under obligation to pay for the unused annual leaves, increasing the burden of processing severance payment, adjusting the annual leave during shutdown helps with reducing future financial burden; while on the other hand, for employees, sacrificing uncertain future comfort/safety net will ensure continuation of job with full salary now. Also, if the Employer's business survives, their job will be saved and the accumulation of annual leave can restart. Surely it appears to be another win-win situation.
The businesses can consider applying all or few or any of the alternative solutions proposed here and reprioritize their goal from retrenchment/downsizing to higher productivity with loyal workforce. No one is saying it will be easy! There will be challenges, both practical and legal, there will be need for cooperation from employees and regulators, but where there is a will, there is a way! Effective communication, extensive cooperation and positive commitment from all concerned will be critical for overcoming this unprecedented situation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.