Company Not Giving Your Full & Final Settlement After Resignation? Know Your Rights Under the New Labour Laws
You resigned from your job.
You served your notice period.
You completed the handover.
You returned the company laptop, ID card and other assets.
Yet weeks or even months have passed, and your Full & Final Settlement (F&F) is still pending. Sometimes, the employer also refuses to issue an experience certificate, service certificate or relieving letter, making it difficult for you to join another organisation.
This is one of the most common complaints raised by employees in the corporate sector. Fortunately, the new labour laws have strengthened the rights of employees, particularly in relation to timely payment of wages.
What Was the Position Under the Earlier Law?
Earlier, the legal position was not uniform.
The Payment of Wages Act, 1936 required employers to pay wages within the prescribed time, but its protection was available only to employees covered by the Act. Over the years, its applicability depended upon the wage ceiling prescribed by the Government. Last prescribed ceiling was wages of Rs. 24,000/- per month. As a result, many managerial and highly-paid corporate employees were outside its protection.
Similarly, there was no general statutory requirement requiring every employer to issue an experience certificate after resignation. In most cases, the employee’s rights depended upon the employment contract, company policy or service rules.
Consequently, employees often had to initiate costly and time consuming civil proceedings merely to recover their dues.
The Code on Wages, 2019 has brought about a significant change.
The Code on Wages Covers Almost Every Employee
Section 2(k) of the Code on Wages defines “employee” in very broad terms. It provides that an employee means any person employed on wages to perform:
- skilled work;
- semi-skilled work;
- unskilled work;
- manual work;
- operational work;
- supervisory work;
- managerial work;
- administrative work;
- technical work; or
- clerical work.
This means that the Code is not confined only to factory workers or junior staff. Even employees performing managerial, supervisory or administrative functions are covered for the purposes of the Code. For the sake of clarity, coders/programmers being technical workers are covered under the Code on Wages.
Wages Must Be Paid Within Two Working Days After Resignation
One of the most important changes introduced by the Code on Wages is contained in Section 17(2), which states:
“Where an employee has been removed, dismissed, retrenched or has resigned from the service, or has become unemployed due to closure of the establishment, the wages payable to him shall be paid within two working days of his removal, dismissal, retrenchment or, as the case may be, his resignation or unemployment.”
This provision recognises that an employee who has left employment should not be kept waiting indefinitely for wages that have already become due.
Does this mean the entire Full & Final Settlement must be paid within two days?
Not always.
A Full & Final Settlement usually contains several components, such as:
- unpaid salary;
- leave encashment;
- bonus;
- gratuity;
- incentives;
- reimbursements; and
- other contractual payments.
Section 17 specifically refers to “wages”. Therefore, the statutory time limit of two working days applies to amounts that qualify as wages under the Code. Other payments may be governed by separate laws or by the terms of the employment contract. For example, gratuity is governed by the Payment of Gratuity Act, 1972.
Can an Employer Withhold Wages Until Exit Formalities Are Completed?
Employers sometimes refuse to release wages because:
- company assets have not been returned;
- exit clearance is pending;
- departmental approvals have not been obtained; or
- internal HR formalities have not been completed.
While an employer may recover any lawful dues in accordance with law, internal administrative procedures cannot ordinarily justify indefinite withholding of wages that have already become payable under the law.
Similarly, if the employer claims that the employee has caused loss or damage to the company, such a claim must be established in accordance with law. It does not automatically entitle the employer to withhold earned wages.
What About Experience Certificates?
Many employees believe that every employer is legally bound to issue an experience certificate after resignation. The legal position is more nuanced.
The Code on Wages, 2019 does not require employers to issue an experience certificate or a relieving letter.
However, the Model Standing Orders framed under the Industrial Relations Code contain an important safeguard for workers.
Rule 14 of the Model Standing Orders for Service Sector provides that a worker whose employment comes to an end by resignation, retirement, discharge or termination is entitled to receive a Service Certificate, specifying the nature of work, designation and period of employment. The employer is required to issue the certificate within ten days of such resignation, retirement, discharge or termination.
It is important to note that this protection applies only to workers covered by the Industrial Relations Code and the applicable Standing Orders. It does not automatically extend to employees performing managerial or administrative functions, who generally fall outside the definition of a “worker” under the Industrial Relations Code.
For managerial and administrative employees, the right to receive an experience certificate or relieving letter usually depends upon the employment contract, service rules or the employer’s HR policy. If such documents are unreasonably withheld in breach of the contract or established policy, the employee may pursue appropriate contractual or other legal remedies.
What Legal Remedy Is Available?
The appropriate remedy depends upon the nature of the claim.
1. Authority Under the Code on Wages
Section 45 of the Code on Wages empowers the appropriate Government to appoint an Authority to hear claims relating to payment of wages and other claims arising under the Code.
An employee whose wages have been unlawfully withheld may file an application before the Authority seeking payment of the dues. The Authority also has the power to award compensation in appropriate cases.
2. Labour Court or Industrial Tribunal
If the dispute relates to illegal termination or another industrial dispute involving a worker, relief may also be available before the Labour Court or Industrial Tribunal under the Industrial Relations Code or other applicable labour laws.
3. Civil Court
Where the dispute concerns contractual dues that do not fall within the definition of wages, or where no special statutory remedy is available, a civil suit for recovery may be maintainable.
What Should an Employee Do?
If your employer has not released your lawful dues, keep copies of your resignation, acceptance, salary slips and emails relating to the Full & Final Settlement. It is advisable to first send a written demand requesting release of the pending amount and, where applicable, the service or experience certificate. If the employer still fails to act, appropriate legal proceedings may be initiated before the competent authority or court.
Key Takeaways
- The Code on Wages, 2019 protects a much wider category of employees than the old Payment of Wages Act.
- Employees performing managerial, supervisory and administrative functions are also covered by the Code on Wages.
- Section 17(2) requires wages payable upon resignation to be paid within two working days.
- The two-day rule applies to wages under the Code. Other components of a Full & Final Settlement may be governed by separate laws or contractual terms.
- The Code on Wages does not require employers to issue an experience certificate.
- The Model Standing Orders require employers to issue a Service Certificate, but this protection is available only to workers covered by the Industrial Relations Code and not to managerial or administrative employees.
- Depending upon the nature of the dispute, employees may seek remedies before the Authority under the Code on Wages, the Labour Court, the Industrial Tribunal, the Civil Court or, in appropriate cases, the High Court.
About the Author: Nawlendu Bhushan is an Advocate practising Labour & Employment law in Delhi. LabourVoice is his initiative to explain labour and employment laws in practical language for employees and employers.