Bangladesh in the time of Covid-19: What exactly are the Labour Laws and can workers lose their jobs?
June 5, 2020 | Dhaka, Bangladesh
The term Lay-off has been used extensively over the past month, but what does it mean? The term ‘Lay-off’ within the Bangladesh Labour Law does not have the same semantic application as that elsewhere. A Lay-off can be beneficial to both an employer and an employee, as the employer gets to pay less in wages and other benefits. In addition, the employee still has job security and some wages and benefits to see off a crisis period when jobs may not be available elsewhere.
As of May 31 2020, the government of Bangladesh announced that national lockdown measures would be eased, allowing for multiple businesses to resume operations and public transport to resume in a limited manner. Bangladesh has been in lockdown for over two months impacting industries and livelihoods across the nation. According to media reports many garment employers have begun downsizing their workforce. In addition the Department of Inspections for Factories and Establishments has recently said initially 1,904 export-oriented garment factories closed and an estimated 2.1 million jobs were lost from March 19 to March 31.
Bangladesh is not alone. According to the International Labour Organsiation 12 million jobs in the European labour market will be lost in 2020 with those in the manufacturing sector considered among the most at risk. Across the Atlantic more than 40 million Americans have filed for unemployment in the last 10 weeks. Closer to home, six million people in Pakistan, many of whom are garment workers, are facing employment insecurity due to the coronavirus crisis and 1.76 million in Cambodia now face serious job insecurity.
Media reports have shared accounts of workers across Bangladesh protesting over the number of job cuts and reduction in salary following the Ministry of Labour and Employment’s announcement to pay those who were unable to attend work 65% of their full salary over the month of April. In the readymade garment sector, factories have faced unprecedented order cancellations and subsequent liabilities associated with those cancellations. For many employers facing cash flow restraints, retrenchment may be an inevitability.
But what exactly are the labour rights in Bangladesh and how can employers ensure that their decision are within the remit of the law? In this unprecedented situation, it is important to look at what the Bangladesh Labour Act (BLA), 2006 has in store for employers.
Stoppage of work
According to the provisions of BLA, an employer is entitled to stop the work of any particular section or the whole establishment due to any “epidemic”.
Since the World Health Organization (WHO) has already declared COVID-19 as “pandemic”, it can easily be termed as an epidemic to satisfy the provisions of BLA, 2006.
The caveat being that such stoppage cannot extend beyond three working days.
During the period of stoppage of work, if it lasts for more than a day, the workers will be entitled to their respective wages. However, casual workers’ will not be entitled to such wages. For the affected piece-rated workers, their average daily earnings in the previous month shall be taken to be the daily wages.
However, this provision of “stoppage of work” may not be applicable in this situation as the COVID-19 crisis has continued for long and is expected to linger much longer. As such, the mechanism of “stoppage of work” is not a suitable one for employers for this current crisis.
A mechanism now being used around the world is to force employees to use earned annual leave days. The benefit from an employer perspective is that workers going on leave during a lockdown or low-demand period will mean saving costs to repay other financial liabilities now, until business rebounds. However, the BLA does not provide any mechanism to force workers to go on leave, whether paid or unpaid. So if an employer in Bangladesh has to resort to this mechanism, it must be upon mutual and informal negotiation with workers and an agreement must be made.
A method being used globally to manage costs during the current economic shutdown is temporarily laying off workers. While in many countries the term “lay off” denotes permanent termination of employment, in Bangladeshi law, lay-off is a more temporary arrangement.
As per the BLA, lay-off means failure, refusal or inability of an employer to employ workers due to shortage of coal, power or raw materials or accumulation of stock or the breakdown or malfunction of machinery. Simply put, it refers to the employer’s inability to employ staff based on certain constraints that impede the employer’s ability to operate.
During lockdown, employers faced multiple production delays. For example, for manufacturers a transport suspension meant that raw materials could not be brought to a factory for production. As a factory was forced to shut for an unknown period of time, an employer may have opted to lay-off its employees to reduce its business loss whilst also assuring the workers that they would receive a part of the salary despite not working. Details of this are below.
The first period of lay-off can extend up to 45 days. The lay-off period may then be extended for periods of 15 days.
During the first 45 day lay-off period, workers laid off are entitled to half of their basic wages and dearness allowance and ad-hoc or interim wages.
They shall also be entitled to the full amount of housing allowance, if any that would have been payable to them.
Laid off workers however, will not be entitled to the compensation for the weekly holidays in between the laid off period.
During subsequent periods of lay-off after expiry of the first 45 days, laid-off workers will be entitled to a quarter of their basic wages and dearness allowance and ad-hoc or interim wages, along with full housing allowance.
Lay-off is beneficial to both an employer and an employee, as the employer gets to pay less in wages and other benefits. In addition, the employee still has job security and some wages and benefits to see off a crisis period when jobs may not be available elsewhere.
In order to qualify for lay-off, a worker must be one other than a casual worker and must have completed at least one year of continuous service.
The employer is responsible for keeping a muster-roll of laid-off workers during the period.
In case the crisis of COVID-19 and the resulting economic downturn and global fall in demand persists, the employers may think of retrenchment of workers if business prospects seem particularly dire.
Retrenchment means terminating workers on the ground of redundancy.
In case of retrenchment, if a worker is employed for at least a year, the following steps are required to be followed:
- One month’s notice in writing indicating the reason of retrenchment or wages in lieu of such notice.
- One copy of the notice is to be sent to the chief inspector and another copy to the CBA representative, if any.
If the retrenchment is on the expiry of a lay-off period, no notice is necessary but the employer must pay additional 15 days wages or gratuity, whichever is higher.
According to the BLA, workers whose jobs are retrenched are entitled to compensation of thirty days wages for their every completed year of service or gratuity, whichever is higher. This helps ensure that a worker is not faced with immediate financial strain in the event of retrenchment, and may have some money to tie them over till they are able to find another job.
In addition, the BLA requires that after a worker is retrenched, if the employer is prepared to appoint new workers within a year of the retrenchment, they must send written notices to the last known addresses of the retrenched worker, asking them to apply for re-employment. If the retrenched workers reapply, they are to be given priority in the appointment process.
The BLA 2006 provides a fair procedure for employers to weather the storm and give workers as much security as possible in the event that jobs are suspended or lost.
The global crisis brought by the Covid-19 is here to stay for some time, if not as a public health issue, but as a trigger for recession, which will affect economies around the world.
Bangladeshi employers, who are reliant upon global demand for their export products, will see an inevitable fall in production and may require significant reductions in their workforce to survive. As such it is possible that retrenchment may be the only choice for many who see no other way of business survival.
Data published by Bangladesh Garment Manufacturers Association shows that 1150 factories have reported $3.18 billion in order cancellations since the virus outbreak. The stark lack of orders coupled with a sudden glut of cancelled finished goods has forced many factories to shut down altogether.
Cancellations leave supplying factories in a precarious position as most have to take out a loan to finance raw material purchase and production then receive payment at a later date. A cancellation therefore leaves a supplier with production liabilities and no revenue to pay worker wages. In response to this, the Government of Bangladesh announced a TK 5000 cr stimulus package, available to all export orientated industries at a nominal interest rate to support them in paying worker wages whilst business has stopped.
The government’s Tk 5000 cr has certainly encouraged some export-oriented employers to keep workers on the payroll, for the time being but the extent to which it will help in the long run is yet to be ascertained. In order to discourage lay-offs, the government barred those employers who had laid off their workers from accessing the loan fund.
However, the stimulus package did not oblige any employer to apply for it and it was also a loan (and not a grant) to be repaid in 2 years, As of the end of May, Tk. 2728.5 had been disbursed to about 1800 factories.
It is notable that the BLA does not compel an employer to continue to employ a worker. The government circulars published during the Covid-19 crisis have not contradicted this and have gone only as far as to request employers to keep their workers on the pay-roll regardless of whether their business was operational. However, for terminations or lay-offs, the provisions detailed above are to be followed.
Lockdown has now come to an end however, the long period of closure has without a doubt taken a heavy toll on the economy. Businesses are now beginning to slowly resume in what can be described as a recessionary market. The full impact of the closure and now possible recession will no doubt continue to impact jobs, the extent of which, still remains to be seen.
Saqeb Mahbub | Partner, Mahbub & Company