Terminated for Performance: Do Employers Need to Pay EL Encashment?

Hi Seniors, I need your help. When an employee is terminated from the company on performance grounds, does the employer have to pay EL encashment to that employee?

Regards, Shalini

Dear Shalini Menon,

I am surprised at your query. Such doubts, which are not of a very technical nature but can be solved by common sense, should not arise in the mind of a good HR professional.

Termination vs. Full and Final Payments

Termination (on whatsoever grounds) is one thing, and Full and Final payments are entirely another. Do you mean to ask whether the company can unlawfully usurp the earnings of the ex-employee? If this were considered legal, would not every company go around terminating its employees as they reach their retirement age? Kindly find out what EL stands for, its expanded form, and meaning, which should give you a clue to the answer.

Some members may feel that it is to confirm their doubts, but such minor matters should not create doubts if a person has a sense of the principle of natural justice and fairness.

The best remedy or test is to think of oneself as the one on which this action is proposed to be taken. It will immediately indicate whether the proposed action is fair or unfair/illegal.

Warm regards.

Hi Shalini,

Definitely not, but in F&F, you have to show the EL's encashment in the sheet and deduct the amount for the notice period. By law, if the employee has been terminated, then two months' salary has to be paid with the approval of the management.

Regards,
Lethal_Abhi

Dear Rajkumar, thanks for replying. I have the same thoughts but just wanted to confirm with my seniors before making a decision. Let me share the scenario. The decision was taken because our client had to suffer a monetary loss because of the employee. The employee has been given two months' notice. So, in that case, do we need to encash her leaves again? This is my query.

Regards,
Shalini

Thank you for your response. We continue to request members to always post their queries along with necessary background information to enable viewing the case in the proper perspective and to receive better, more specific responses. I hope your doubts have been put to rest.

Warm regards.

Perhaps you have posed this question to clarify your doubts. However, it should be clear that EL should be encashed for terminated employees, even if the termination is due to poor performance. As the senior moderator mentioned, termination and full and final settlements are distinct processes.

Regards,
U.C. Kaushik

EL encashment is to be paid at the time of separation of an employee, regardless of the reason.

If EL is not given at the time of full and final payment, what legal action can be taken?

Section 80 of the Factories Act, 1948 deals with Encashment of Leave. If an employee has completed 12 months of continuous service with the management and is terminated for performance reasons, they must be compensated with payment for their accrued leaves at the time of termination. An employee who has worked continuously for 4 months in any factory will be eligible for encashment in the event of service termination by the management.

Regards,
R B Yadav Advocate