Employees' Compensation For Losses Caused To Company - CiteHR
Dinesh Divekar
Business Mentor, Consultant And Trainer
Octavious
Hr Manager
Skhadir
Strategic Business Management Includes Revenue
+1 Other

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Dear All
Our company has suffered huge losses due to negligence of an employee. Our first and only client faced lot of problems due to bad programming logics of this developer. Not only did the project get delayed but also had numerous errors in it.
Now the client wants our company to pay the amount back.
How should our company get the employee to compensate fr the losses incurred.
Thanks in advance
Caroline

Dear Caroline
In any company, employees work as a group. Somewhere this programmer must be reporting to someone senior to him, there should be a quality team/testing team to run the program
For delays in the project, it is the onus of the company as an entity to take responsibility for the project
If the company did not execute the checks & controls needed to run the project effectively,it cannot blame the employee for the same.
If you still feel that the employee did not perform well you can issue a show cause notice, warning letter or if needed a termination letter
Keep in mind that without due review of performance a company cannot terminate an employee
As for recovering damages, unless there is a contract signed stating clearly that the person is liable to pay damages in case of quality parameters not being met, the company cannot do anything.
In this case, the only thing that is possible is termination on grounds of non-performance without scope of recovering any damages

Dear Caroline,
Annika has given a good reply. I would like to add just a small thing.
Supreme Court has given a verdict that employer cannot recover the entire amount from the employee for the damages caused by him/her. So take first advice of the legal expert and then go ahead. However, you can conduct the domestic enquiry, give the employee a chance to defend himself/herself and take appropriate action as required if found guilty.
From the process point of view, it appears that rather than process you depended on person. Why this process failure happened or there was no process at all? Why there were no checks and balances in the system? These are important questions you cannot ignore.
Thanks,
Dinesh V Divekar

Thanks a lot Annika and Dinesh

Our intention is not at all to blame this person just to get him to compensate for the losses. Ours is a very small company with few employees and therefore we tend to build kind of personal relations with employees.

Let me explain in detail: this employee of ours was working on a project all alone it being a very small project could be handled easily by one person. Before the project was deployed to the client thorough testing was done by concerned people. Numerous errors were resolved. However, when the client used it, knowing it was our first project did not get irritated rather informed about the problems faced.

When this employee was asked to resolve these issues he ended up creating few more problems in the project which did not persist at the time of deployment. When these problems were resolved many more cropped up. We treating him like family did not issue any warning letter as such but kept pushing him to learn from his mistakes and not to repeat them.

However, this never happened same problems kept occuring. Now the client and ourselves both are quite frustrated with the errors on the project. We do not see the fault of our client at all.

Our fault probably could be about the extent of trust we had shown in the person. Though it is very clearly written in his appointment letter that the company can recover losses incurred by employees if it desires so.

We have held the last two months salary of this person due to non rather poor performance. Can this salary be confiscated as means of compensation for losses?

Please advice

Caroline

Dear Caroline,

My paragraph-wise comments are as below:

Our intention is not at all to blame this person just to get him to compensate for the losses.
I have made clear about verdict of supreme court on recovery of losses from an employee.

Ours is a very small company with few employees and therefore we tend to build kind of personal relations with employees.
Small or big company, it is important to develop professional relationship and not personal one.

Let me explain in detail: this employee of ours was working on a project all alone it being a very small project could be handled easily by one person. Before the project was deployed to the client thorough testing was done by concerned people. Numerous errors were resolved. However, when the client used it, knowing it was our first project did not get irritated rather informed about the problems faced.
Why those problems were not detected before passing your product to your client? Was it failure of testers also?

When this employee was asked to resolve these issues he ended up creating few more problems in the project which did not persist at the time of deployment. When these problems were resolved many more cropped up. We treating him like family did not issue any warning letter as such but kept pushing him to learn from his mistakes and not to repeat them.
Employer-employer relationship is one thing and family relationship is another, why did you mix these two together?

However, this never happened same problems kept occuring. Now the client and ourselves both are quite frustrated with the errors on the project. We do not see the fault of our client at all.
If the same problems kept on recurring then this shows that the employee in question was incapable to take up the work assigned to him.

Our fault probably could be about the extent of trust we had shown in the person. Though it is very clearly written in his appointment letter that the company can recover losses incurred by employees if it desires so.
It appears that you have trusted the employee without verifying or assessing his capabilities. Secondly, what you have mentioned in the appointment letter is illegal.

We have held the last two months salary of this person due to non rather poor performance. Can this salary be confiscated as means of compensation for losses?
Withholding salary is illegal under the provisions of various labour laws in general and under the provisions of Shops and Establishment Act in particular. I mention this act because software companies fall under the purview of this act. If employee commits workplace errors and causes losses to the company then you should conduct the domestic enquiry and if his culpability is established in the enquiry then award him appropriate punishment. Forfeiture of wages is one of the punishments that you can award him. The recovered amount should be deposited in Labour Welfare Fund and you cannot keep it with yourself. That is illegal.

But please remember that supreme court has ruled that if you forfeit wages of worker even then also recovery has to be split in multiple instalments so that worker gets half of his/her take home salary. Recovery of amount should not exceed 50% of the take home salary
of any month.

Final comments: - Assessing the case from legal point of view apart let us examine this case from the management theory. This fiasco has happened because of the poor recruitment. The whole episode goes on to explain what caution you should observe while recruiting an employee. While recruiting this employee, what recruitment tests you had conducted? What questions you had asked? Did you ask the questions related to the job competencies of this position? By the way have you identified the job competencies of every position?

But then this is the syndrome of SMEs. All candidates want to work in branded companies. Those who do not get jobs in branded companies end up in turning to SMEs or to the companies who are yet to establish or start ups. SMEs have to put up with these inferior employees and tread ahead. That is what their life and fate is!

I may sound little harsh however, I have tried to analyse the case dispassionately and critically. My comments need not be taken as criticism of your management style as a whole.

Thanks,

Dinesh V Divekar



[I][COLOR=#0000BF][COLOR=#FF0000]

Caroline

Just because you say that it is a small company doesnt remove the responsibility of the company. the principle of working on trust and personal relationship is the error of the company not the employee

additionally if the employee has made so many errors then there is a critical problem in the recruitment that was done. obviously the employee doesnt have the required skills and the company kept on entrusting him with more & more work with little regard for his capability.

just stating that the company can recover losses is not enough. you need to mention the amount etc. this is not an open-ended contract where the company can do what it wants

just because the company is small, it cannot do immoral & illegal things.

plus look at the impact on morale and on the employees. do you think that by punishing this employee he will actually continue working for you? very doubtful..... what will be the impact on others? they will also never trust the company.

dont forget, there are 2 sides to every story and this employee will have already shared a different story with everyone else

In my opinion, the best thing you can do as a company is to terminate his services because there is pretty much a guarantee that if you try to recover damages, the employee morale over all will be damaged. plus think to yourself - what % of the loss can be recovered by the employees salary

dont cut off your nose to spite your face.

i hope this helps

Regards
Annika

Dear Ms. Caroline
I read all post but i could not figure out what made your employee to GO WRONG. why are we discussing about HOW TO RECOVER LOSS.
1)Did you ever try to find out the REASON OR CAUSE as why he FAILED in meeting company objectives?
2) Is he having experience and right skills to handle that project as assigned by your company
3) Did anybody tried to run the project thoroughly on TRAIL BASIS PRE-IMPLEMENTATION at CLIENTELE LOCATION. If this phase would have successful then BUGS would have been eliminated before implementation at clientele place.
4) Why cant we blame the COMPANY for such loss? What is the responsibility of the TOP MANAGEMENT leading your company?
5) Perhaps you are not following SYSTEMATIC PROCEDURES - SDLC.
There should be something wrong in the loop even though he was handling the project alone.
Please study your employee by doing ROOT CAUSE ANALYSIS and then come to a conclusion.
With profound regards

Dear Caroline
You cannot hold an employee liable for losses suffered by the company, provided it is proved beyond doubt that the losses caused to the company where willfully caused and where caused by an illegal act or omission, not authrised by the company in normal course of activities of business.
Losses caused to the company due to wrong judgment void of malice in act or mind of the employee, doesn't constitute the right to company to claim any damages from the employees and losses of such nature as above stated are covered and understood as business risk.
Unlike company, employees are not liable for losses that occur in course of business.
Regards
Octavious

Dear Ms. Caroline, Do you have any reply for my queries? Looking forward to hear from you. With profound regards
I thank all of you for your advice.
May I know a little more about Supreme Court or other legal aspects on employees' compensation for losses caused to company due to delay in work or negligence.
Is the company liable to bear the losses solely? Or can the employee be asked to share the losses? If yes, By what percentage?
Will it be absolutely illegal to ask employee share the losses caused?


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