Shop owner has 2 employees in total and has never had 10 or more employees. It pays ESI/PF. Hence, the shop assumed it is not covered under any acts like gratuity, bonus, or service compensation.
The Labour department received a complaint from an employee stating that termination and final settlement were not given. During the conciliation proceedings stage, it was proven that the employee was not terminated but actually absconded and subsequently produced a resignation letter. The complained employee had worked for 9 years and joined on a verbal appointment; no appointment letter was ever requested. Now, in the conciliation proceedings, the ACL says the shop has to pay "service compensation" for his 9 years of work and settle his FnF. Additionally, the ACL is not deducting the advance amount of 25k from the employee. The employee's salary is 11k.
Is the shop liable to pay it?
Can the employee claim other types of dues later, such as gratuity, EL, bonus, or retrenchment compensation after these conciliation proceedings if any payments are made to the employee? (EL has been given by the firm)
What kind of documents should the firm obtain from the employee since no exit documents have been provided, and the employee is requesting payment with just a letter stating they received service compensation? How can the firm protect itself from any future suits by the employee?
I hope this helps clarify the situation. Let me know if you need further assistance.
From India, Bengaluru
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1The Labour department received a complaint from an employee stating that termination and final settlement were not given. During the conciliation proceedings stage, it was proven that the employee was not terminated but actually absconded and subsequently produced a resignation letter. The complained employee had worked for 9 years and joined on a verbal appointment; no appointment letter was ever requested. Now, in the conciliation proceedings, the ACL says the shop has to pay "service compensation" for his 9 years of work and settle his FnF. Additionally, the ACL is not deducting the advance amount of 25k from the employee. The employee's salary is 11k.
Is the shop liable to pay it?
Can the employee claim other types of dues later, such as gratuity, EL, bonus, or retrenchment compensation after these conciliation proceedings if any payments are made to the employee? (EL has been given by the firm)
What kind of documents should the firm obtain from the employee since no exit documents have been provided, and the employee is requesting payment with just a letter stating they received service compensation? How can the firm protect itself from any future suits by the employee?
I hope this helps clarify the situation. Let me know if you need further assistance.
From India, Bengaluru
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The ACL is not a judicial authority; it can only persuade the parties to come to a settlement. Since the shop had only 2 employees, there is no coverage of gratuity, bonus, etc. You will have to pay leave compensation as provided under the Shop & Establishment Act applicable to you. There is no service compensation payable under any labor law.
From India, Mumbai
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From India, Mumbai
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Sir, What is leave compensation? Also, the ACL mentioned in his docket copy that management has to give service compensation = (11000*9*15)/30
From India, Bengaluru
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From India, Bengaluru
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Dear Vignesh,
In the first place, if what you have mentioned about the suggestion of the Conciliation Officer is true, I think it was due to excessive enthusiasm that the Officer might have made such a suggestion, but it is not correct.
Secondly, the voluntary enrollment of the shop into the ESI and EPF Schemes might have encouraged the employee to claim statutory gratuity as part of his Full and Final settlement, even though the Act is not applicable due to the number of employees, both currently and in the past.
Thirdly, when the employee abandoned his job first and submitted his resignation later, he is not entitled to any "service compensation." If anything, he can only claim wages for the number of days of Earned Leave at his credit, which cannot exceed 45 days as per the Minimum Wages Act, 2017.
If the employer is willing, they can pay a humanitarian amount in addition to the surrender leave salary mentioned and write off the loan amount; that is all. Under these circumstances, the employer is not obligated to pay anything more.
If the employee does not accept this, you can request the Officer to document that the conciliation process failed and issue a certificate to that effect. Then, it is up to the employee to proceed to the Labor Court under Section 2-A (2) of the Industrial Disputes Act, 1947.
From India, Salem
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In the first place, if what you have mentioned about the suggestion of the Conciliation Officer is true, I think it was due to excessive enthusiasm that the Officer might have made such a suggestion, but it is not correct.
Secondly, the voluntary enrollment of the shop into the ESI and EPF Schemes might have encouraged the employee to claim statutory gratuity as part of his Full and Final settlement, even though the Act is not applicable due to the number of employees, both currently and in the past.
Thirdly, when the employee abandoned his job first and submitted his resignation later, he is not entitled to any "service compensation." If anything, he can only claim wages for the number of days of Earned Leave at his credit, which cannot exceed 45 days as per the Minimum Wages Act, 2017.
If the employer is willing, they can pay a humanitarian amount in addition to the surrender leave salary mentioned and write off the loan amount; that is all. Under these circumstances, the employer is not obligated to pay anything more.
If the employee does not accept this, you can request the Officer to document that the conciliation process failed and issue a certificate to that effect. Then, it is up to the employee to proceed to the Labor Court under Section 2-A (2) of the Industrial Disputes Act, 1947.
From India, Salem
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How a shop with 2 employees is paying ESI? There is no provision for voluntary coverage of ESI.
From India, Thiruvananthapuram
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From India, Thiruvananthapuram
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Dear colleague,
Mr. Umakanthan has given sound views on this matter, and I share them but not entirely.
With just 2 employees, no labor laws are applicable except for State Shops and Establishment Act/Rules. It is unclear why you voluntarily covered them under ESI and PF.
Since the law is on your side, do not yield to pressure from ACL. He has no authority to compel you to accept without your willingness. He can persuade parties for an amicable settlement.
You are not obligated to pay any service compensation. All you need to pay is for earned leave to his credit, if any, and salary for days worked, if at all.
I suggest you use adjusting the loan amount against dues as a bargaining point. But if you are inclined to settle this issue somehow and avoid litigation, forego the loan amount as a last resort and also pay some flat amount as ex-gratia in return for an F&N receipt and no monetary claim in the future whatsoever.
Remember that you are bargaining from a position of strength, and nobody can bend you to his wishes, let alone ACL.
Wishing you good luck.
Vinayak Nagarkar HR and Employee Relations Consultant
From India, Mumbai
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Mr. Umakanthan has given sound views on this matter, and I share them but not entirely.
With just 2 employees, no labor laws are applicable except for State Shops and Establishment Act/Rules. It is unclear why you voluntarily covered them under ESI and PF.
Since the law is on your side, do not yield to pressure from ACL. He has no authority to compel you to accept without your willingness. He can persuade parties for an amicable settlement.
You are not obligated to pay any service compensation. All you need to pay is for earned leave to his credit, if any, and salary for days worked, if at all.
I suggest you use adjusting the loan amount against dues as a bargaining point. But if you are inclined to settle this issue somehow and avoid litigation, forego the loan amount as a last resort and also pay some flat amount as ex-gratia in return for an F&N receipt and no monetary claim in the future whatsoever.
Remember that you are bargaining from a position of strength, and nobody can bend you to his wishes, let alone ACL.
Wishing you good luck.
Vinayak Nagarkar HR and Employee Relations Consultant
From India, Mumbai
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It is not correct to say that no labor laws are applicable with only two employees. The ID Act is applicable. If the employee falls under the definition of 'employee' under the EC Act, that Act will be applicable for employment injury. Check the State S&CE workers' welfare fund Act also.
From India, Thiruvananthapuram
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From India, Thiruvananthapuram
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Dear colleague, You are right these two and Shop Act apply. I stand to correct to that extent. Regards, Vinayak Nagarkar HR and Employee Relations Consultant
From India, Mumbai
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From India, Mumbai
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Since my knowledge about the ESI and EPF Laws is just rudimentary, I feel that the question raised by Mr. Varghese is contextually valid and needs to be answered by the poster. The poster should clarify whether his mention about ESI deduction is just an inadvertence in the flow of his narrative or actual. If it is factually correct, then there must have been 10 or more employees in the shop at that time, and hence the employee becomes entitled to statutory gratuity, which certainly would form part of the terminal benefits on his resignation. Vignesh, your response please.
From India, Salem
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From India, Salem
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Respected Learned Professionals,
I have clarified that the firm is willing to pay the amounts applicable to it under the law. The firm assumed it was not covered under any acts like gratuity, bonus, etc. I have yet to get details regarding its PF/ESI status. I have already informed the firm that it was wrong not to provide an appointment letter instead of a verbal agreement. The firm wants to understand its mistakes, make amendments, and determine the amount it is liable to pay. Therefore, I have provided the salary details of the said employee.
From India, Bengaluru
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I have clarified that the firm is willing to pay the amounts applicable to it under the law. The firm assumed it was not covered under any acts like gratuity, bonus, etc. I have yet to get details regarding its PF/ESI status. I have already informed the firm that it was wrong not to provide an appointment letter instead of a verbal agreement. The firm wants to understand its mistakes, make amendments, and determine the amount it is liable to pay. Therefore, I have provided the salary details of the said employee.
From India, Bengaluru
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