In the Name of Allah, Most Gracious, Most Merciful.
All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.
In this fatwa:
1- If workers and employees are prevented from doing their jobs because of the COVID-19 (Coronavirus), and that continues for a long time, the business owner may annul the contracts, which will result in a cessation of salary, because there is no salary after the contract is annulled.
2- If the business owner or worker stipulated that the contract would be cancelled in the event of an emergency and circumstances beyond anyone’s control, then this makes it more appropriate to say that it is permissible to annul it.
3- The state may decide to compensate the worker or the business owner, by way of relieving harm and taking care of the needy.
In responding to your question, the Fatwa Center at Islam Q and A, states:
Honoring job contracts
Jobs are a kind of hiring which comes under the rulings on ijarah (hiring people or renting items). And job contracts are binding contracts which cannot be declared null and void except with the consent of both parties. The job contracts must be honored for the stipulated duration.
But if some emergency arises that prevents making use of the rented item or benefitting from the services of the person hired, such as if the company is prevented from working, or they have employees whom the company no longer needs, or they can no longer pay their salaries, or in the case of one who is hired to transport students to school, then the schools are closed because of the pandemic, or a teacher was hired to teach a subject and that subject was then cancelled, and other scenarios in which it is not possible to make use of a rented item or benefit from the services of a person hired.
The scholars differed as to whether the work contract becomes null and void in the case of emergency, or is it still binding?
The basic principle according to the majority of scholars is that it remains binding. According to the Hanafis and the apparent view of the Malikis, the contract becomes null and void. This view is also favoured by Imam Ibn Taymiyyah and Sheikh Ibn `Uthaymeen. It is also the view adopted by the Shariah Standards Committee.
Ending job contracts due to COVID-19
Based on the above, if workers and employees are prevented from doing their jobs because of the COVID-19 (Coronavirus), and that continues for a long time, the business owner may annul the contracts, which will result in a cessation of salary, because there is no salary after the contract is annulled.
Dr. Khalid al-Mushayqih (may Allah preserve him) said:
“We should make an analogy with blights for the one who is affected by this new situation with regard to business contracts and transactions, such as hiring, manufacturing and the like, because the case of blight is not limited to crops.” (From a lecture entitled al-Ahkaam al-Fiqhiyyah al-Muta‘alliqah bi Virus Corona)
What is better than annulling the contracts is not to dismiss the worker; rather his salary may be lowered until the calamity is over.
The believers should show compassion to one another, help one another and be selfless; they should pay attention to the rights of the weak and the poor, and not think only of their own interests.
At-Tirmidhi narrated that Abdullah ibn Amr said: The Messenger of Allah (peace be upon him) said: “Those who show mercy will be shown mercy by the Most Merciful. Show mercy to those who are on earth, and the One Who is above the heaven will show mercy to you.”
Stipulating cancellation of the contract in the event of an emergency
If the business owner or worker stipulated that the contract would be cancelled in the event of an emergency and circumstances beyond anyone’s control, then this makes it more appropriate to say that it is permissible to annul it, because of this condition.
Prophet Muhammad (PBUH) said: “The Muslims are bound by their conditions.” (Abu Dawud)
What we have noted above about annulling contracts or reducing wages and fees is just to show what the scholars have said about this matter. In real life, that usually leads to a dispute which cannot be resolved except in court, especially when the state usually sets up rules and regulations to do with workers and their rights. If the business owner decides to annul the contract, then the employee may take his complaint to the official body responsible for workers’ rights, to examine the case. They may decide that the contract is still binding and it is not allowed to nullify it. Or they may decide to cancel the contract or lower the wages. It is known that the ruling of a judge leaves no room for scholarly differences.
Role of the State
The state may decide to compensate the worker or the business owner, by way of relieving harm and taking care of the needy, as it does for children, widows, the unemployed and others. That depends on what each country is able to do and how it weighs up the pros and cons.
Almighty Allah knows best.