Legal Analysis:
HAN’s decision to close business for 6 months and pay only 12.5% of the basic salary to employees
Hotel Association Nepal (“HAN”) on 21 Baisakh 2077 (3rd May 2020) at the presence of its office bearers, former presidents and representatives of its member hotels including all major hotels like Aloft, Radisson, Marriott, Annapurna, Malla, Shangrila, Himalaya among others resolved to shut down their businesses for the next 6 (six) months starting from the 1st of Baisakh 2077. This decision, made in the meeting conducted under the chairmanship of Shreejana Rana, President of the HAN, was taken as a response to the long term impacts of the pandemic and government imposed lockdown on the tourism sector; and given the impression that tourism industry will need at least a year from now to return back to normalcy.
When businesses decide to close down temporarily like this and still wish to retain their employees, Labor Act, 2074 in its Section 39 requires such businesses to pay 50% of their salary amidst other requirements like providing them with the notice and taking prior consent of the employees. However, with a blatant disregard to this legal provision, the meeting agreed to cause all its member hotels to pay their employees with only 12.5% of their monthly basic salary during the closure; while deciding to ask the government for arrangement of a Job Retention Fund to contribute to add to the 12.5% of the monthly basic salary.
As blatant disregard to law as it is, this will further result in injustice towards the employees that are already crushed by the burden of meeting the daily family needs. It must be noted that many employers and hoteliers are mostly found in violation of rule 77 of Labor Regulations, 2075. Rule 77 requires employers to maintain a 60:40 ratio for basic salary to dearness allowance, the combination of which constitute the total salary. However, many do not follow this rule as companies mark the basic salary at NPR 8,455 (the government declared minimum basic salary) irrespective of their total salary to reduce employer’s contributions toward employee’s benefits such as provident fund, gratuity, insurances as such. In this case, they will only be provided with 12.5% of NPR 8,455 irrespective of the 50% of their total salary as required by law. Even if the 60:40 ratio was followed, employees will then be paid with only 12.5% of their basic salary which will come down to a mere 7.5% of their total salary as per the decision of HAN; as against the 50% payment required by the law.
The only thing that stands against the implementation of this illegal and coerced decision is its acceptance by the trade unions or the concerned employees. While it will not be illegal per se to implement the decision if the trade union or employees agree to such an arrangement; it will not be wrong to term such agreement between hotels and trade unions (if reached in future) as unduly influenced agreement; given that HAN has threatened to cause the member hotels to retrench their employees as per Section 145 of the Labor Act if such agreement could not be reached within 7 days that is 28 Baisakh 2077 (10 May 2020).
While the compensation provided to retrenched employees under Section 145 of the Labour Act at the rate of one month’s basic salary for every year of employment (on prorata basis for employment with less than a year) might seem a better option to go for than agreeing on the payout of 12.5% of the basic salary as proposed, employees at large will be provoked to retain their job even at this unfair bargain given the likeness of creation of mass unemployment after this pandemic is over. But it must be noted that if the employer is to hire again after retrenchment, the retrenched employees enjoy the preference of being hired back against other newbies.
The decision also falls out for its audacity to reject the decision of the government whereby the hotels are required to pay their employees in full for the month of Baisakh. The decision that came in late in Baisakh cannot decide for the already exhausted period of the month as laying off or retrenchment would still require 15 days or 1 month prior notice given respectively. Because of the requirement of notice period, the decisions of laying off or retrenchment cannot be made in retrospect.
Now it all comes down to the trade unions that are supposed to look after the rights and welfare of the employees and workers. Will they fight for the establishment of the rights of the employees provided by the laws after their own agelong struggle with the employers; or will they seek out a settlement better than the one at hand? Let’s hope that a mockery of law is not made out as an excuse of pandemic.
