Can We Legally Withhold Final Pay Due to Non-Performance? Seeking Advice on Ex-Employee's Case

Hi, I want to ask about a full and final case of a non-performer. He resigned from my company 40 days ago because management asked him to resign due to non-performance. His total tenure with the company was 5 months, and he was designated as a Senior Manager in Business Development, with a monthly salary of 45,000 INR. His performance was zero—no business, no clients from his side in 5 months.

We also issued a warning letter regarding his performance shortfall in the 3rd month. He was on probation due to being a non-performer. He resigned on 30th August, so his entire salary for August is part of his full and final settlement, which we have to clear in November.

Now, the issue is that my management does not want to pay him a single penny as he was a non-performer. However, the individual is persistently following up for his payment. I want to know if I can refuse him his August month's salary based on his non-performance. Please help!

Regards, Parul

No, we can't avoid paying him. Even though his performance was not good, he rendered services to the company. Therefore, the company is obligated to pay him as he provided his services.

Because of non-performance itself, he was let go from the company. The company should not say, "We won't pay you a salary because of non-performance."

Regards,
Santosh

You don't have any right to stop his full and final settlement. You will be in a loop if he proceeds legally. As he is a non-performer, hence, you asked him to leave, and he left the organization. But you have to pay him for the days he worked. If you have a component of performance pay in his salary, to that extent, you can reduce; otherwise, you have to pay his salary.

Regards,
Kamesh

Any company can't stop an employee's salary even if it is their last salary. Now, the question is of Full and Final Settlement; whatever amount is generated for their full and final settlement, you have to pay it. One thing I want to add is that if there is a loss for the company, you can debit the same from their settlement amount, and you also have to explain this debit to the employee.

As he resigned on 30th August, it implies he did not serve his probation notice period as well. Many companies deduct a notice period of 7 days during probation resignation, so you can recover his 7 days' salary as the notice period. With these reasons, you can satisfy both your management and the ex-employee.

Regards,
Sanjay Mulay

In my company, we don't have any notice period during the probation period, and as such, there is no monetary loss to the company. The only issue is that all investments made by my company in terms of salary, training, and knowledge are now zero. There is no revenue generation from his end!

Thanks to all of you for guiding me in this case.

Regards,
Parul

If this is the case, then you can't stop his full and final payment.

Regards,
Sanjay Mulay

As F&F involves many legal factors like PF, leave encashment, salary, reimbursements, etc., the company cannot stop his F&F. If you are not processing his F&F, which includes salary, you are unable to deposit PF against his F&F. Since he resigned in the month of Aug '11, you will have to submit Form-3A with his PF withdrawal form. This cannot be issued until the F&F settlement is completed. Legally, the company cannot hold any ex-employee's PF. Therefore, the company will have to process his F&F to avoid legal complications.

Regards,
Amitav Nanda

You need to:

1. Recover the shortfall in the notice period if he has stopped reporting immediately after tendering the resignation letter and/or after a couple of days (difference in the notice period and the period served by the employee after tendering the resignation letter).

2. Settle his final dues, including his salary for 30 days or so of August; as legally, you cannot hold back any payments due to an employee.

Performance Warning and Termination

Ideally, in such cases, at the end of the 3rd month, while issuing a warning letter, the Company should indicate to the employee that should his performance not come up to the expected level in the next one month or so, you need to certainly cover the notice period the Company is supposed to serve such an employee/probationer. Then, his services would stand terminated from the close of working hours of _________ (protecting the interest of the Company).

Yes, you can certainly stop or not pay him anything viz. variable income (incentives/commissions) that was linked to his performance.

Regards

If an employee has served one month's notice for the termination of his service to the company, can he avail any kind of leave during the notice period?

Legal Perspective on Full and Final Settlement

It will be statutory compliance if we look from a legal perspective. Parul, if he files a case in court, the company not only has to pay the F&F amount but also some additional money as incurred by him (court expenses). The best way is to do F&F and get the matter closed.

Parul, a similar incident occurred with reference to Grat-ammt in DTDC, where I am working. His amount was 47k, but we needed to pay him 51k by the order of the court. This incident was due to a delay.

Has the new manager actually done work? Has he really gone into the market? Has he met potential clients? Is there any documentation of what he did? Call some of the people he had met to see if he went there and what he discussed. I know of cases where the salesman has visited one client and wrote four on his timesheet. I have seen another case where the salesman has not bothered to offer to show a demo, which is a mandatory part of that company procedure. If he has not actually done his work, then you have a right to refuse his settlement pay. But it must be strongly documented. And of course, fair.

You cannot stop the full and final settlement of an employee. If the employee has resigned due to poor performance and if your salary structure includes a Performance Bonus component, you can stop this particular component.

Thanks,
Manjunath

You have employed the said person and must have issued an appointment letter. Does the appointment letter have a clause for salary or incentive linked to performance? If so, that is the only avenue under which any deduction can be made. Else, once you have hired a person, there is a contract of master and servant. Therefore, once he has put in service, he is entitled to the consideration, that is his salary. In case you fail to pay, then he can file a civil suit.

Payment and F&F Settlement Considerations

We cannot stop the payment at the time of joining. We will provide the appointment letter to the employee, and we should adhere to the rules based on that. However, the minimum requirement is that the employee should give notice at the time of resignation. Therefore, we cannot clear the F&F settlement for the employee.

It is crucial to remember that performance is not the sole criterion here; management should carefully consider before hiring a candidate.

Regards,
Sudhir Kumar
[Email Removed For Privacy Reasons]

He was a senior manager, and his employment is governed by his appointment contract or letter. I am sure that he might have some variable pay components in his pay structure which were to be given to him as per his performance. If yes, you can withhold the same but not the whole salary. I am also sure that you must not have included anything about not paying the salary in case of non-performance in your appointment letter. Just pay him whatever he is entitled to.

Thank you.