Is It Legal for My Organization to Deny Leave Encashment on Resignation? Seeking Legal Insights

Hi,

My organization (PSU) is denying encashment of balance leaves on resignation. Is this legal, or can it be challenged based on any existing law? I have heard that this year the Honorable Supreme Court has delivered a judgment on this subject, stating that since earned leave has been "earned" by the employee, it cannot be denied even upon resignation. However, I am unable to locate this judgment. I would be grateful if someone could point me in the right direction.

Regards.

Earned leave can be encashed upon leaving the organization due to any reason, including resignation. There should not be a different approach in this regard, and any provision stated in the Standing Orders (if such an order exists in your Standing Orders prohibiting encashment of earned leave upon resignation) of your organization shall be considered invalid. Please review the Standing Orders to ascertain the specific guidelines regarding leave encashment.

Regards,
Madhu.T.K

Dear Madhu,

Thank you very much for your reply. In my organization, there is no specific policy regarding the encashment of remaining leaves upon resignation. However, there are policies in place for encashment in the cases of VRS, Retirement, Death, and Superannuation. Therefore, the interpretation within my organization is not to allow encashment of remaining leaves upon resignation due to the absence of an explicit order in this regard, unlike the other mentioned cases.

My question pertains to the legality of this stance. If it is legally challengeable, what would be the grounds for such a challenge? Are there any acts, rules, laws, case laws, Supreme Court or High Court judgments, or directives from the Government of India that address this issue?

In my view, earned leave is accrued by every employee based on their attendance. Therefore, natural justice dictates that the employee rightfully owns these leaves, and it should not be solely at the discretion of the organization. I believe that filing a writ petition on this matter would likely be accepted and ruled in favor of the employee, although it may be a lengthy process. Should there be existing case law on this matter, it would facilitate its implementation within my organization.

Regards.

In the absence of an agreement/provision to the contrary, a particular matter shall be taken in favor and not against. Therefore, if your Standing Orders do not specify the scope of encasing the EL at the time of resignation, it should be deemed as encashable. Otherwise, it should have been clarified that encashment would not be possible when the employee leaves after resignation. I do not have any judgment in support of it, but the act of not giving EL encashment can be challenged. No doubt of it.

Regards, Madhu.T.K

Dear,

Whether the Supreme Court judgment is there or not as per the Factories Act Section 79, Clause 3, it is clearly mentioned which states if a worker is discharged or dismissed from service, or quits his employment, or is superannuated, or dies while in service, during the course of the calendar year, he or his heir or nominee, as the case may be, shall be entitled to wages in lieu of leave.

Please go through the provisions of the act, and you are entitled to the same.

Thanks,
J.S. Malik

Hi ASKME,

There has been a judgment passed by the Supreme Court on the leave encashment. Mr. Akil Anand had previously posted this, and I am citing his reply to you.

Honorable Supreme Court has given a remarkable judgment on 12.03.2008 relating to the payment of Leave Encashment in the Case No. Appeal (civil) 1832 of 2004, Petitioner: Manipal Academy of Higher Education Versus Provident Fund Commissioner.

Regards,
Chandru
Manager-HR, Chennai

Hi,

Please note that if there is any provision of leave encashment in the employment rules/standing orders as per applicability in your case of the company, or you can refer to the Factories Act if it is a factory or the Shops and Commercial Establishment Act if it is registered under it.

To clarify, the Supreme Court judgment on leave encashment is related to PF, as the judgment speaks about PF deduction not being required in the case of leave encashment since leave is not considered wages under the PF Act.

Thanks,
R.K. Panda

Dear S/Shri Madhu, Malikjs, S. Chandrasekar, R. K. Panda,

Thanks a lot for your replies. Yes, interpretation should be positive, but that's the way it stands as of now. Maybe my organization is trying to "retain" employees. The Factories Act is not applicable here in this instant case.

I'll check the case quoted by you and see whether it is applicable or not. I think it's regarding PF deduction from balance leave deduction at the time of resignation. According to this judgment, leave is NOT part of wages, so I wonder how much claim an employee has on it.

Another thought is whether it is possible to exhaust leaves during the notice period by availing them. Another angle which I am exploring is whether the notice period (days) can be adjusted against the balance leaves OR notice money can be adjusted against the encashment/money value of balance leaves.

Looking forward to more discussion. Once again, thanks a lot for your time and inputs.

Regards.

Dear,

If you are covered under the Shops & Establishments Act, there is no need to worry. Even after your resignation, you can file a petition for claiming it as per your State Enactment.

With kind regards,

V. Sounder Rajan

Chennai – 600001

E-mail: rajanassociates@eth.net

Off: 044-42620864, 044-65874684

Dear AskMe,

Before asking any queries on any issue or subject of your organization, I believe the existing rule position of your organization should first be informed by posting on the site for opinions, as such questions are not general in nature concerning all.

However, the following points are for information:

1. Usually in PSUs, Leave Encashment is permissible if resignation is to take up new employment in another Govt. Dept/ PSU through proper channels.

2. Otherwise, only Earned Leave is encashable and not HPL. This can be contested before HC / SC, in my opinion, through a Writ / PIL. Denying such a right is very much arbitrary. Not allowing such benefit may also be treated as bonded labor as it binds the employees to serve a particular organization and not allowed to freely avail employment opportunities outside.

3. Because HPL could have been availed during the service period but accumulated for the sake of its use at a later date for any reason. As per the clarifications of the Government, leave includes even EOL. If so, HPL obviously is included in the definition of leave.

4. During the Notice period, HPL / Commuted leave can be availed.

5. If the rule specifies EL can be adjusted against the notice period, that could be done. If the rule specifies leave can be adjusted against the notice period, HPL as commuted leave can be adjusted. Usually, service regulations are framed with the Board's approval and administrative orders cannot take away such a right by a simple clarification that HPL cannot be adjusted against the notice period.

Kadalirao

Dear Ask Me,

Logically, it should be mentioned in your employment conditions that a certain number of earned leave days are authorized in a year, out of which you can encash, for example, 50%, 20%, or 10%. This should be a legal requirement; otherwise, one cannot claim it. It is an additional facility given to employees that must be recorded in standing orders if applicable. For example, central Government employees can encash up to 300 days only; beyond that, it is lapsed.

Thanks & Regards,
Ashok Malik

Please review the corrected text below:

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Please go through the definition of an employee under the Factories Act or state factory rules; which clearly states that even managers are considered employees under the Factories Act, i.e., even if you are not covered by the standing order or are outside the purview of the standing orders, or even if the service rules applicable to you do not include you, you are still considered an employee under the Factories Act/rules. Section 79 is applicable to you. The best course of action is to write a letter to the labor department regarding the violation of the Factories Act/rules, clearly mentioning the violation of Section 79. This is the quickest way to secure payment.

Thank you,
A.K. Malhotra
Senior General Manager

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Dear HR Colleagues,

Please guide me on the following issue: An employee has resigned from the service, and their leave was never refused during their employment. Once the person submits their resignation, the leave balance at credit gets frozen, and they are neither allowed to avail leave during the notice period nor given encashment of the balance leave.

This organization is one of the Government Undertakings and is governed by the Bombay Shops & Establishment Act. What is the legal stand on this? Your early responses will help me a lot.

Would like your esteemed opinion on the case of organizations that are registered societies, also exempted under 80G of the Income Tax Act. We have, as per our rules, EPF, leave, and leave accumulation but not leave encashment. We are also registered under the Shops and Establishments Act. Is leave encashment at the time of resignation and retirement a right of employees as per Indian labor law? Please advise.