Navigating Employee Compensation and Legal Procedures in Company Shutdowns

We were working for a US company, and they shut down the company by filing for bankruptcy. We were not given any notice or intimation about the shutdown in advance. They have paid us the salary for the last month.

All the employees who are questioning me about the compensation for not giving prior notice, please let me know your suggestions on the liabilities and procedure to claim compensation, if any, from the employer who is in the US. Your ideas will help the employees who are now jobless.

Employees should look for alternate employment opportunities and not expect compensation for not providing notice. Please see if this article helps you in any manner: Bankruptcy.

Due to a lack of time, I was not able to do much research on your question. Please do not consider this as ignorance, and kindly oblige. However, you have raised a brow and a thought that we need to have more knowledge in dealing with such situations.

If they appeal in the Indian court, they will receive all compensation as well as payment for the period of joblessness.

Regards,

PRANAY

They haven't cleared the PF and ESI dues for that month. We don't have an employer to sign the claim forms, and no one has submitted the returns for the current fiscal year.

Will the EPFO take necessary action against the US employer?

Since they have filed for bankruptcy in US..they need to do the same in India as well u need to inform the Registrar of Companies or may be Labour Office for the same (Pls check). You cannot terminate the employees like this even if your company has become bankrupt there are minimum obligations you need to fulfill if any employee approaches that you have fired them without sufficient notice and compensation your company can be in trouble….

Registered under which act? Also, if over 100 employees, would need to file and gain approval for retrenchment prior to dismissal.

Joseph

Registered under the Companies Act of India, the employment strength is less than 50, approximately 36.

Hi Mike,

I would like to inform you that once I asked our PF consultant about the same case, and they mentioned that if the company shuts down and employees wish to withdraw their PF money, they can obtain the authorized signature of any high-ranking government employee, CA, Lawyer, etc.

I suggest you verify this information with the PF office.

I hope this information will be helpful to you and your employees.

Regards,
Chanda

Dear Friend,

Any firm should not be closed abruptly. Firstly, you have not clearly mentioned the details of your firm. Is it registered as per the Companies Act? Who is the principal employer since you mentioned it is an MNC? If you are an MNC, is it registered as a contractor (either principal contractor) with any local labor department? Are all the employees covered under the PF/ESI Act? In such a case, there is a procedure for closing down the organization. Please refer to the attachment for more information.

Regards,
PBS KUMAR

Closing down of an establishment employing 36 will not require a complicated procedure. Moreover, since the employer has been adjudged insolvent (or is about to be adjudged insolvent), employees may not be able to find a way out. The administrators appointed by the court (in the US) will decide the amount to be paid to each employee. However, since the company is registered in India, the relevance of the insolvency petition in the US will have to be studied with reference to the Companies Act and Insolvency Act in India. Whatever the provisions, the matter will take time to settle.

As pointed out by the aggrieved, it is not the sole responsibility of the HR Manager to pay compensation to the employees. Definitely, as an HR Manager, you have to ensure that all dues are paid to the employees. But at the same time, if the Finance Department does not take the initiative, how can an HR person disburse the amount? The decision to pay compensation etc. should come from the Board of Management delegated through the Finance Department to HR.

I feel that with the depression and recession in the US, many employees are going to be retrenched. This is not a micro-level issue but a national issue. Therefore, some kind of ruling from the Labor Ministry is required to be enacted to rehabilitate those becoming jobless. When employees of Indian companies get protection, why don't employees of MNCs? Let us hope for the best.

Regards,

Madhu T.K.

Dear Madhu ji,

Is there a notification stating that no procedures are required for 36 employees? If so, please provide it. The firm must be registered anywhere as per Indian Acts are concerned.

Regards,

PBS KUMAR

It is quite scary to see this issue as it can impact any MNC today. It is critical to assess the employer thoroughly before joining a newly established multinational company. Thank you all for sharing all the knowledge.

Regards & Season's greetings,
Aparna

I really appreciate your time and thoughts on my post. I am truly grateful to all of you. I am not sure whether this can be posted here as an HR person. However, the passion and love that I have towards my profession create an interest in exploring more in this situation to get the best possible outcome for the jobless employees at the end of the day. As Madhu stated, this matter should be looked at from a broad perspective because it is the current scenario in most companies based on the present market conditions.

The information below might be useful for you to provide a solution:

The company is registered under the Companies Act of India and is registered as a Private Limited in the Registrar of Companies in 2006. All employees are covered under the EPF scheme, and those eligible are covered under the ESI Scheme. The owners of the company are residents of the US. The authorized person who used to sign the forms also resigned from the company on the same day. Salaries were paid until the date the company operated, and there are no pending issues in that regard. However, all 36 employees lost their jobs, and they are unsure how to claim their EPF amount. The EPF claim forms are being rejected as the details for the current fiscal year have not reached them.

When the returns are not submitted and the closing formalities are pending, what is the procedure to get the claims processed? Who will be responsible if an employee files a legal complaint against the company?

Dear Mr. PBS Kumar,

Chapter V-A of the Industrial Disputes Act, 1947 (Sections 25C to 25E) relating to layoff and retrenchment applies to those units in which not less than 50 workers are employed. This chapter does not apply to units employing more than 100 workers (to which Chapter V-B applies).

For companies employing less than 100 workers, prior intimation to the government of its intention to close down the company and thereby retrench the workmen is required to be given (Section 25F). At the same time, for companies to which Chapter V-B applies, prior permission from the government is required to close down (Section 25O). Please correct me if there exist any state amendments regarding the number of employees and the application of these two chapters, viz, Chapter V-A and V-B.

The issue was not, in fact, related to closure and the legality of such closure. Closure has been carried out without any intimation. Since there are no dues pending to EPFO or ESIC, filing a nil return for the forthcoming period is sufficient. If current year details are required, the same can be managed by consolidation of monthly returns. In order to claim the PF, since the authorized signatory has also left, authorities mentioned in the Act, viz, Bank Manager, etc., shall be approached, and it will not be a problem for the employees to get it. Alternatively, they can easily transfer the PF to a new account when they join another firm.

As the employees do not have any dues in the form of salary, the question of filing a suit against the company (under Section 15 of the Payment of Wages Act?) will not arise. What is required is to seek protection from clients who have dues from the company. This will become a law and order matter and requires the attention of the government and local administration.

As stated earlier, it requires general attention, and I believe a solution will be found soon.

Regards,

Madhu.T.K

Good discussion on recession time. Many people lost their jobs without compensation.

Hi All,

I need serious help here. I have gone through the above posts. However, the case is similar, but employee dues and compensations are different.

I used to work in a US-based Software MNC company registered in India ROC with 35 employees here in India. Recently, the company has closed down its operations worldwide without giving any formal intimation or termination letters. They had only paid our closing month's salary as they shut down on the last day of July 2010. They have not filed any bankruptcy in the US. The company is now under a secured creditor in the US. All higher management of the company in the US, including the Board of Directors, has been dissolved. Now, the secured creditors have employed our ex-CTO as the acting CEO of the company to help in winding up the company worldwide.

In terms of compensation, they are only paying us 1 month's termination notice salary as mentioned in our appointment letters. Apart from this, all employees have the following dues pending:

1. Earned Leaves settlement

2. Form 16: They have deducted tax from our salary in the month of July 2010.

3. July 2010 Pay slips

4. Pending Salary Reimbursements viz. Medical, Car Lease, Telephone/Internet, etc.

5. PF: Deducted till July 2010

6. Staff Welfare Fund: This fund accumulated from voluntary deductions from our salaries every month for staff outings and parties. It is a significant amount.

7. Relieving letters

So, I want to know how we can claim all of the above.

a. What are the legal formalities involved in this?

b. From where to start the procedure?

c. Where to read the laws governing Company insolvency in India?

d. How can employees claim the dues, compensation, and complete all the necessary legal formalities?

Regards