Shop owner has 2 employees in total and never had 10 or more employees. It pays ESI/PF. Hence shop assumed it is not covered under any acts like gratuity, bonus, service compensation.

Labour dept got complain from employee stating termination and final settlement not given. At conciliation proceedings stage, it was proved that employee was not terminated but actually absconded and thus employee produced resignation. The Complained employee worked for 9 years and joined on verbal appointment, no appointment letter was ever asked. Now in the conciliation proceedings ACL says shop has to pay "service compensation" for his 9 years of work and settle his FnF. Also, ACL is not reducing the advance amount of 25k with the employee. Employee salary is 11k.

Is shop liable to pay it?

Also, can employee frame other kinds of dues not given later like gratuity, EL, bonus, retrenchment compensation after this conciliation proceedings if any payment is being made to the employee. (EL has been given by the firm)

What kind of documents should the firm take from employee since he has not given any exit documents and is saying, give me money and I will just give a letter stating I was paid service compensation. Can firm protect itself from any other suits of employee in the future.

From India, Bengaluru
Labour Law & Hr Consultant
Hr Manager
Management Consultancy
Hr Consultant
Nagarkar Vinayak L
Hr And Employee Relations Consultant
+2 Others


The ACL is not a judicial authority, he 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 labour law
From India, Mumbai

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
Dear Vignesh,

In the first place, if what you have mentioned about the suggestion of the Conciliation Officer is true, I think in excess of enthusiasm only, the Officer might have suggested like that but it is not correct.

Secondly, the voluntary enrolment of the shop into the ESI and EPF Schemes might have persuaded the employee to stake his claim for statutory gratuity as part and parcel of his F and F when the very Act is not applicable by virtue of the no of employees as of now and in the past as well.

Thirdly, when the employee abandoned his job first and submitted resignation later, he is not entitled to any such thing as " service compensation ". If at all, he can claim only wages for the no of days of EL at his credit. That cannot be more than 45 days at the maximum as per the MS&E Act,2017.

If the employer is willing, he can pay some amount more on humanitarian ground in addition to the above mentioned surrender leave salary and write off the loan amount; that's all. Under these circumstances, the employer is not liable to pay any thing more than this.

If it is not accepted by the employee, you can request the Officer to record that his conciliation ended up in failure and issue a certificate to that effect. Then it is up to the employee to approach the Labor Court u/s 2-A (2) of the ID Act,1947.

From India, Salem
How a shop with 2 employees is paying ESI? There is no provision for voluntary coverage of ESI.
From India, Thiruvananthapuram
Dear colleague,

Mr Umakanthan has given sound views in this matter and I share them but not in entirity.

With just 2 employees, no labour laws are applicable except State Shops and Esta Act/Rules. It is not heard how you voluntarily covered them under ESI and PF.

Since law is on your side, don't yield to pressure from ACL. He has no authority to compel you to accept without your willingness. He can persuade parties for amicable settlement.

You are not bound 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 .

Suggest you use adjusting loan amount against dues as a bagaining point. But if you are inclined to settle this issue somehow, and avoid litigation, forego loan amount as a last resort and and also pay some flat amount as ex- gratia in return of F&N receipt and no monetary claim in future whatsoever.

You remember that you are bargaining from the position of strength and nobody can bend you as per his wishes let alone ACL.

Wish you good luck.

Vinayak Nagarkar

HR and Employee Relations Consultant

From India, Mumbai
It is not correct to say that no labour laws are applicable with only two employees
ID Act is applicable.
If the employee falls under the definition of 'employee' under EC Act,that Act will be applicable for employment injury.
Check the states S&CE workers welfare fund Act also.

From India, Thiruvananthapuram
Dear colleague, You are right these two and Shop Act apply.l I stand to correct to that extent. Regards, Vinayak Nagarkar HR and Employee Relations Consultant
From India, Mumbai
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

Respected Learned professionals,
I have clarified that the firm is willing to pay the amounts applicable on 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 said to the firm that it was wrong in not giving appointment letter instead of verbal agreement. The firm wants to know its mistakes and make amendments for it and the amount it is liable to pay and hence provided the salary details of said employee.

From India, Bengaluru

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