How Can We Handle Employee Frustration Over Delayed Salaries Without Legal Action?

Good Day,

I'm heading the HR Department of an IT company, and for the past 3 years, we have been facing severe financial issues. Initially, this was due to internal conflicts between investors, and later, in the past year, it was due to the recession in the US. The headquarters of the company are based in the US, with sales offices in London and Singapore. The development unit is based in Pune, with project-level management being handled in Chennai. Both India offices have been struggling to pay salaries for the past year.

We have tried our best to stay afloat by implementing various strategic and management changes. Currently, we have 3 live projects that generate income. Only one project pays on time, the second is experiencing a 3-4 month delay, and the third is a small-sized venture that generates low income. All revenue is remitted to us via international wire, with no income generated in the India office.

The biggest and most critical issue we are facing is the payment of salaries to our employees. Team A works on Project 1, which pays on time. Team B works on Project 2, facing a 2-month delay. Team C works on Project 3, which generates low income. All projects involve major clients and big names, but they are also facing challenges with their businesses and finances.

After a 3-year struggle and study, the Management decided to pay Team A on time. The remaining funds from this project are distributed among the other teams to manage ongoing costs. Unfortunately, we are unable to pay Teams B and C on time, and they are currently experiencing a 2-month delay, depending on funds received from their projects. Initially, we were paying the entire staff 1/2 month's salary from the collective income, but this led to discontent among Team A, who raised the issue with the client. In the interest of maintaining balance, the management and department heads in both offices have forgone their salaries for the past 7 months. I myself have not received my dues and salary for the past 4 months.

Having been with this company for 8 years, I have witnessed both struggles and achievements. We have always prioritized the well-being of the company and its employees. While 80% of the staff are loyal and hardworking, there are a few individuals within Teams B and C who are understandably frustrated by the situation.

I am seeking advice on how to handle employees in India who have threatened to file cases against the company, falsely accusing the management of withholding their salaries. I have conducted collective and individual meetings with the staff in Pune and Chennai, clearly communicating that the company is not refusing to pay but is unable to do so due to revenue constraints. Any delayed payments will be made as soon as funds are available. Regrettably, some employees have resorted to defamatory and insulting online posts against the company, even going as far as disclosing personal information of managers. This behavior has escalated to threatening phone calls and hacking of our corporate website. Furthermore, these employees have circulated emails within the office inciting revolt.

I am exploring ways to address this issue without resorting to legal action, as it may provoke violent retaliation and sabotage of operations. While we have identified the employees responsible for the defamatory remarks, proving the origin of threatening phone calls remains a challenge.

I seek guidance on whether disciplinary action can be taken against these employees, considering their valid demand for salaries. Can we issue a notice clarifying that the company is unable, not unwilling, to pay and will settle all pending dues in due course? I welcome any feedback, suggestions, or actions to resolve this delicate situation.

Thank you for taking the time to read my message.

Vani Srikant

Can I ask if any of the managerial team are forgoing their salaries? Are any of them facing angry landlords because they can't afford to pay the rent?

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Can I ask if any of the managerial team are forgoing their salaries? Are any of them facing angry landlords because they can't afford to pay the rent?

You should discuss the issue with the management abroad so that they can arrange to clear the salaries until this month. This is the festival season in India, and if the employees resort to legal action or take any steps that could disrupt the company's operations, it would be a serious matter under Indian laws, and they may not be able to handle it. If the employees receive their salaries around Diwali, they would be happy and calm down.

Hope this helps you.

Sparky,

If you had read my post in its entirety, you would have come across this line, "In the interest of maintaining this delicate balance, the management along with the department heads in both the office have forgone their salaries for the past 7 months.." Therefore, to answer your question, yes, the management are, in fact, not just facing angry landlords and lapsed insurances among other difficulties. I don't understand the nature of your question. Do only employees face hardships? I used to be an employee as well before I was promoted to a managerial post. I understand both sides and how hard it is for both the staff and their managers to deal with such difficult times. Would it make you feel better knowing that our branch manager in Chennai is undergoing a divorce because he was so involved in resolving the company's problems he didn't have time for his family?

I'm sorry if this sounds harsh, but I have been looking for answers and resolutions on this and many other avenues as well, and all I see is if the employee is suffering, then it's a huge deal, and everyone assumes all managers and directors are always evil.

I would appreciate if you have something concrete to say, instead of wanting to know who is suffering the most. I want to help both the staff and the company. They both need each other to grow.

Vani Srikant

Thank you, Avika.

We are in constant communication with the US office, and they are working on wiring us enough funds to clear at least a couple of months' salaries before Diwali. Things are looking positive in that regard, and I'm hopeful this will help calm the situation.

However, I require immediate assistance in managing the situation where employees have made defamatory remarks online and are threatening to file false cases against the company and management, accusing them of refusing to pay salaries. Should we ignore these threats and defamation? I do not want other employees to think they can behave in any way without considering the consequences. These actions are detrimental to both the staff and the company. Our clients have also taken note of these actions, and they may withdraw their projects, perceiving India as an unstable partner for their offshore needs. Ultimately, the company may face closure. How will this situation benefit the remaining employees who have not engaged in such behavior and wish to continue working, only to find themselves jobless due to the reckless actions of their colleagues? Is it acceptable for employees to threaten and hack websites instead of contributing to the company's revenue generation?

I would greatly appreciate your feedback.

Vani Srikant

I believe you must have tried talking to such employees and requested them to desist from such defamatory actions.

I think you can call all the employees for a meeting and put across the point that some people amongst them are trying to create a nuisance. This behavior has been noted by the clients, which may harm the business. It could lead to a situation where clients decide to withdraw, potentially jeopardizing the income they currently receive. Additionally, it may result in the closure of the company, which would not be beneficial to anyone.

If you deem it appropriate, you can also share the hardships faced by the management personnel who have not received their salaries for the past seven months. This can help emphasize that senior managers are also experiencing difficulties.

I believe this approach could create pressure on the employees engaging in disruptive behavior. Their colleagues may encourage them to cease such actions to prevent potential job losses.

Hope this can help

Dear Vani,

The situation is clear to the employees. You have explained what is happening.

Please make sure that this discussion has been acknowledged by them, i.e. - a proof that this has already been discussed and the employees are aware of the current situation. This is important because when they raise a claim that they are not being paid and demand legal action, you can clearly state your side.

The employees can also be informed that they are not being forced to stay there, and they can look out for opportunities. Obviously, we can't ask them to stay when the salary is not being paid, but help them understand where the company is heading.

As far as posting information about the company is concerned, please note that legal action can be taken against the person who is doing this, which will cost him/her: a) a black mark in his career reference data, b) monetary penalty, c) please check this statement: I believe that such an attempt to spoil a company's reputation can even lead to investigation and jail punishment under the cyber laws. Kindly refer to these well before you present this information to them.

Please tell them - when someone does not perform well or has violated any code, the company does not go about publishing the individual's details and crimes committed. In the same way, what is it that makes them spoil the image of the company?

Dear Vani,

I am sure you must have different levels of talks with the management as well as staff. But what I believe is if you can call up team-wise meetings and discuss openly about the matter, it will help you and the employees to understand the issue better. First, show your genuine grief and concern for the matter, then present a clear picture of the company's health, and finally, ask them for solutions. Take down all the responses or ask them to write them down. This way, you will get to know how many are thinking from an organizational point of view.

If you find the output of the meetings with the 3 teams unsatisfactory, give them a specific month or date (tentative) for the release of their salaries (if not the whole amount, then part of it). This way, you can win the trust of the employees and keep them working for you.

If this doesn't work, consider threatening them with layoffs (before this, ensure you have your management's approval as well as the list of redundant resources). Not paying salaries on time is not a very serious offense if it happens once or twice, but not paying at all for a continuous period leads to a very unhealthy state of affairs. If they seek legal help, it would be a win-lose situation for the management.

Finally, identify the people who are causing problems (problem children). Keep them away from other staff members. Change their shifts or make them sit in distant places (I understand you may be thinking that in this tech era, how will it help as they can still interact), but the point is you are making them aware that the management knows who the problem creators are, and in this way, you are also letting others know that these individuals are pessimists.

I am sure this is just a passing phase. If your company has survived for the last 8 years, then this small phase of 7 months or 2 years can't really lead to its closure. Try to secure more projects. Now that the World Bank has declared that we are out of recession, the market will definitely pick up. In fact, it has already shown signs of growth. Hence, it is just a matter of another quarter or two.

Regards,

Dev.

Dear Vani,

"Army marches on its stomach" ("C'est la soupe qui fait le soldat") said Napoleon. What is applicable to the army is very much applicable to the employees of some company as well. Situations of this kind happen when management does not keep adequate working capital with them. Your company has been operational for 8 years. Most IT companies were cash-rich companies. Then where has the cash gone?

At this stage, your management needs to borrow money and disburse the salary first. If any employee approaches the labor officer, your management will be in yet another soup. Secondly, investigate why Project B is lagging behind. Tell that team to complete the project as per schedule. This will enhance your cash flow.

Ok...

Dinesh V Divekar

Thank you for your responses.

Ash- We only document MOM for project-related discussions. For management to staff related discussions, only a memo is sent out outlining the time and agenda. I will start another process where a MOM of sorts is sent out after these discussions as well to document what issues were addressed. We have spoken to the staff about being free to leave if they feel this company is not suitable for their career paths. Few have taken the advice seriously, few, as I said before, are willing to stick it out with us. We are in no way holding them back and making them work under duress. But quite obviously the market a few months back was in no position to encourage employees to seek better opportunities.

You have brought up an excellent point that managements never think of, that when employees perform poorly and drop balls on the projects, which does cost the company revenue, time, etc. Most companies do not go about blacklisting them or extracting revenge by ruining their careers. I'm sure there is another side to that as well, but I haven't seen it in my 8 years in this company.

Dev- I agree that the environment now is very unhealthy and the delay in salaries has really twisted the nature of things in the company. Thank you for your words of encouragement. We haven't decided to lay off any staff member so far, unless they wish to leave on their own, we welcome their decision to stay back. But with the state of affairs as they are, the management is currently debating seriously on laying off some of the staff to cut back on our costs.

I do have a question on the legality of the employees approaching legal help. If the company is not doing well financially, due to certain specific reasons, and is trying to mend those gaps to get back on track, during this phase they are unable to keep the flow of payments and fall behind, but are not refusing to pay, when the employees approach for legal help, what course of action will be taken? If we had been refusing to pay it would make sense to demand legal intervention, but what will the law have us do when we are clearly stating that we need time to build back on. Would appreciate feedback.

Dinesh- All the points (including the clever Napoleon quote) are valid indeed. But as I have already laboriously stated in my really long post that we had investor related issues and then the recession hit us (the details of which and what I cannot of course discuss on an open forum, plus I doubt many of you here would even read it). Keeping enough working capital sounds incredibly sensible, yet many companies are exactly in the same position as my company because there have been so many circumstances where both the company and the clients they cater to fell prey to an unstable market which reverberated into a domino effect across the globe. I'm sure if you are reading the news for the past year, you will know where most of the cash went.

It isn't that simple to just instruct Team B to "complete" the project and things will get back on track. I understand that would be the most logical thing to do, and yes, the Team Leads for Team B are in fact investigating and taking measures to fix it. But the problems are also at the client end and his funding.

We are currently managing on loans but too much of that is sure a shot way of shutting the gates on this whole operation. And no, we did not receive any bail-out money from the US government. Disbursal of pending salaries is definitely the top priority for the management. And since you have raised the point of employees approaching a Labour Officer as well, I would really like to know your response to the question I have posed for Dev.

Thank you all again for responding. It certainly helps me to read your views and understand the perspective on certain issues as I have been battling this for so long that I feel I have exhausted my avenues.

Vani

Hi Vani,

Is it like the two offshore offices run only on three projects as mentioned? If so, where is the backup, and who will create the backup?

Can you consider insourcing the employees whom you find fault with?

Moreover, if you have identified employees passing wrong messages about the company, why haven't they moved out of the company yet? This could be a plus point on your side, as good employees will always find opportunities even during recession times.

I believe you are familiar with the Bell Curve (Jack Welch's strategy) for identifying contributors, non-contributors, and so on. Please try to improve the non-contributors or eliminate them.

These are my views. Correct me if I'm wrong in certain aspects.

Regards,
Vinod

Dear Vani,

I am in complete agreement with Dinesh. Nothing offensive, but your company has been running for the last 8 years. The company must be charging depreciation and should have liquid assets. It is unclear where they have disappeared.

Another solution could be to take a loan from the bank, disburse the salaries, and then take legal action against the employees who are spoiling the reputation of the company. Hacking sites and any illegal activities can be punished through Cyber laws.

As this is a passing phase, and definitely in a quarter or two, you'll come out again with flying colors. I wish you good luck.

Vani,

You sure are in an unenviable situation!

However, I do get the feeling that it is the culmination of probably the following interrelated issues:

a) Leadership issues

b) Dissatisfaction with management style

c) Lack of transparency

d) Lack of a cohesive policy to root out potential areas of internal conflict

Please do not mistake me in construing the above as a reflection of your efforts. Your post itself indicates the sincerity and genuineness of your concern and your efforts as a facilitator in trying to explore all possible avenues. My only concern is that the situation that you are in, you may end up becoming a scapegoat if not handled carefully.

The subprime crisis became public sometime in June last year. But industry analysts were crying themselves hoarse about the impending crisis from 2007.

Those companies which foresaw the looming danger took corrective measures and escaped being scalded.

But so far as your company is concerned...as I understand the top management spent crucial time resolving their internal financial issues rather than concentrating on building a strategy to survive the market holocaust.

So the middle management and the rest of the employees who were witness to what unfolded thereafter have also a story to tell. I am sure you empathize with that fact.

In the event any of the employees decide to take legal action, the law generally favors the employee in such cases even if the company makes a decent case for itself. I think that is the case in most parts of the world and more so in liberal democratic countries like India and the US.

So it is recommended not to let the situation escalate further.

However, now that the management has apparently come to grips with the problem, it is imperative to undertake the following:

Form a team which includes members from the senior management, departmental heads, and employees. In fact, though I might sound a bit radical, you may include some of the potential troublemakers too in the core team.

I was, in fact, stating from my own experience that the best way to handle potential troublemakers is to give them responsibility and recognition.

The immediate objective of the core team is to draft a milestone-based action plan and define appropriate rewards at the end of achieving each milestone.

The meeting and subsequent follow-through meetings should be carefully documented, and the minutes of the meeting circulated to all employees and ensure to get the MOMs acknowledged.

A daily progress chart should be made available on the website or on intranet so that everyone is able to visualize how close the company is towards achieving the milestones.

On achieving the first milestone, a major employee engagement initiative can be undertaken wherein close family members of the employees are also invited, and members of the senior management should take the initiative in discussing the issues at hand and how the team has embarked on an action-based plan.

The whole objective of such a meeting should be to reassure all concerned that there is a strong leadership in place and that the management has done its groundwork in assessing the issues on hand and that serious concerted effort is underway to come out of the crisis.

Such an opportunity can also be utilized in conveying that the management had noticed acts of indiscipline amongst the ranks and though it had taken a considerate view so far keeping in mind the difficulties faced by the employees... However, keeping in mind the steps initiated and that any such irresponsible act may seriously dampen the momentum and in the process affect the prospects of other innocent employees and their families... hence, the management will not hesitate to take serious action against the employees concerned.

This point may be deftly conveyed to all in my opinion.

Every effort should be made to recognize the efforts of all, and those who have performed outstandingly should be rewarded suitably.

I think more answers and suggestions may come your way once you initiate such a step.

All the best!

Warm Regards,

Satya

Sir, I have to prepare my first project on financial problems and the tools applied to resolve them using the accounting process. Can you suggest a few sites?

Hi Aaryan, apologies for the delay in responding. I am not very clear as to what your exact requirement is; nevertheless, there is one link which I am appending below that guides you on the basics of financial management. It provides you with related links too, which you can explore yourself. Similarly, there would be other sites on Google that can be looked up: [Basic Guide to Financial Management in For-Profits](http://managementhelp.org/finance/fp_fnce/fp_fnce.htm).

If you are looking for payroll-related software, there are countless such sites on the net like JSM tech, Reylon Softech. There are also countless threads on CITEHR which you can explore.