Employee Resignation: Should Companies Compensate for Unserved Notice Period?

If an employee resigns and is ready to serve the notice period, but the company wants to relieve them immediately, is there any obligation on the company to compensate for the remaining notice period? This is not a termination but a relieving as per the discretion of the management.

Have you encountered such an issue before? What is the standard practice in this situation? Please support your views with any relevant court cases.

Thank you.

Dear Vinod,

It is important to first understand the concept of Notice.

From the employer's point of view, it is necessary that the employee gives notice for two reasons:

1. So that the employee completes pending tasks assigned to him/her and hands over duties so that the functioning of the organization is not hampered.
2. To enable the employer to find a suitable replacement in that time.

From the employee's point of view, it is necessary that the employer gives notice so that:

1. The employee can find suitable employment.

The notice period is based on the seniority of the employee and the role he/she performs.

The concept of Notice pay in lieu of Notice served is to compensate the inconvenienced party for the inconvenience caused. In both cases, it is up to the inconvenienced party to waive the notice period without paying or demanding compensation. However, it depends on one very key aspect: was it a forced or voluntary resignation?

In case of a forced resignation, you will have to pay the compensation for the notice period not served/enforced. In case of a voluntary resignation, there is no need to pay any compensation for the notice period not enforced.

However, for the sake of ease of administration and clarity in these kinds of situations, please include the below clause in your employment agreement/employee handbook on the subject of Termination/Resignation:

“In case the employee resigns, the company at its discretion may relieve the employee with immediate effect without paying for the notice period not enforced.”

I hope this solves your query.

Regards,
Savio

Thank you very much for the elaborate answer. This is a voluntary resignation, and my views remain the same. Have you come across any case law on such issues?

Regards,
Vinod Bidwaik

Dear Vinod, I haven't come across any case laws but have dealt with similar situations before. My understanding is that the concerned employee has an offer to join after a month and wants to get a salary up to the day he joins his new organization.

Things to Consider:

1. Will he take up the matter in a court of law? If yes, then it is a lengthy process in which he will lose on the technical aspects of the reason for notice. Of course, there are costs to consider. The costs are not worth it for the employee both in terms of time and cost.

If no, then don't bother; just tell him that the company won't pay. Explain to him the concept of notice and tell him that since he initiated the resignation, you don't need to pay him anything since he has caused the inconvenience. Basically, he is trying now to get the maximum possible amount he can from you.

Regards, Savio

Mr. Savio has explained the concept of the notice period in very clear and simple terms. The notice period required to be given should be spelled out in the appointment letter, the terms of the contract, or the company's internal policy. It is supposed to be clear to both the employee and employer and cannot be changed to suit either party. A few reputable companies are known to have given 6 to 12 months of pay to employees at the time of laying them off. However, if both parties agree, the period can be waived. The decision cannot be made by one party alone, as this will be illegal and not tenable in a court of law.

Regards,
Col. Suresh Rathi

Really good explanation by Mr. Savio, but I have one clarification. Which employee can always put that as per my appointment letter, I need to serve a notice period for 1 month after my resignation. So, to serve that notice period, I have given my resignation letter before 1 month. I am eligible for this 1-month salary with settlement. If the organization does not have any clause like this, then I should have given resignation on the same day and been relieved on the same day. Based on this, I have committed to my new organization that I will be able to join after 1 month. So, why should I lose 1 month's salary which I would have got there if I had joined immediately? Do we have any answer for this?

There is an answer in the explanation I have given above. The principle for the Notice Period in each case of resignation and termination is a principle of fairness to the inconvenienced party. Hence, it is a matter of right for the inconvenienced party to enforce the notice period or seek compensation. It is the duty of the inconveniencing party to serve the notice period or pay compensation.

It is the prerogative of the inconvenienced party to forgo or waive the notice or compensation. The inconveniencing party cannot add to the hardship by demanding the enforcement of notice or compensation.

The second part of the answer is this: Most prospective employers want the candidate to join as soon as possible. They too have a position to fill, remember. They would be very happy to have you join earlier. Most ask candidates to negotiate on the notice period, and in extreme cases, they even buy out the notice period.

In most cases, the resigning employee doesn't lose at all. However, to be fair to all concerned, it is best to have the clause I mentioned enumerated in the offer letter or employment agreement.

Forgive me if I'm wrong, but as I see in the case Mr. Vinod has mentioned, the resigning employee wants to have his cake and eat it too…

Scenarios Where Employers Don't Enforce Notice and Still Pay the Resigning Employee

1. As mentioned earlier, they pay this compensation and more when it is a forced resignation (in case of layoffs or retrenchment to avoid ruining the employee's reputation with a termination).

2. In the case of employees with access to confidential data, they pay a compensation called in today's lingo "Gardening Leave," a cooling-off period before the employee joins another employer.

Regards.

Understanding Termination Clauses in Appointment Letters

It all depends on the termination clause mentioned in the appointment letter. If the termination clause states that upon successful completion of probation/confirmation, either party can terminate the service by giving one month's notice or salary in lieu of notice, then the employee who has resigned voluntarily and is willing to give the notice period is following the protocol. If the company decides to relieve them immediately without notice, then the employer has to pay one month's salary in lieu of the notice period, as mentioned in the appointment letter.

Thanks & Regards,
Saji

I agree with Savio. Resignation serves as a trigger for accepting the resignation and relieving the employee by the employer. If the employer knows that the employee is not adding value during the notice period, it is within the employer's right to relieve them as per the convenience of the company. The logic behind this is clear. Unfortunately, there is no specific law or court judgment on this matter.

Looking at the benchmark set by other industries, the majority supports this logic.

Regards,

It's just a matter of debate if any employee is not adding any value to the service of the company, then the company would not have hired them. At times, a company may relieve an employee to prevent any leakage of confidential matters to competitors. In such cases, the company should acknowledge that if an employee is willing to provide a proper handover during the notice period and offers sufficient time for the employer to either promote from within or hire a replacement, it reflects positively on the employee. If the company decides to relieve the employee immediately, it is solely at the discretion of the employer and not the employee. Therefore, in my perception, the employee should be compensated with the notice period.

Lastly, there are various ways to avoid providing compensation to an employee, but HR should recognize that they are also employees and the same situation could happen to anyone.

Thanks & Regards,
Saji

In general, you will have to pay him the salary for the notice period. The employee has resigned and is willing to serve the notice period as required by the law. You are asking him not to come to the office for that period, for your convenience. Therefore, you will have to pay him for that period.

In practice, you can always offer to relieve him with immediate effect. If he accepts the offer, then he will not get paid for the remaining period. (But you need to make that clear when you offer immediate relieving). If he has the option of joining the new company earlier, he may opt for it. Or in many cases, he will choose it to get time to relax before joining a new company, where work will be hectic and stressful initially.

Concept of "Gardening Leave"

Globally, most companies have a concept of "Gardening Leave." This is a period of notice where the employee is asked not to come to the office but not to join the new company. He is to be available on call until the end of the notice period. This has the advantage of being able to call him back to the office for any clarification or for an explanation of training that his replacement will need.

Ultimately, no one is going to court for one month's salary. The cost and hassles are too high. However, it will leave a bitter taste, and if you need anything in the future, you will not get it from him. (Say a month later some matter has come up, which you need to ask him what he had done about it). Remember that many things are not recorded in files.

I would disagree with you. You may not find value at this time (since he has resigned). However, your agreement with him (in this case, your appointment letter) requires him to serve notice, and you to pay for the time he is under the notice period. As per law, you cannot disown your liability just because you are not able to derive value from his work at this time.

I think you are looking at this from a warped perspective. The employee is not trying to "get the maximum from the company." He is doing what he is required to do under his terms of employment. That is, he is giving one month's notice. He would have asked for a joining date one month later with the new company to honor his existing obligation to his current employer.

There is no concept of inconvenienced and inconveniencing party here. He is resigning, which he has a right to do. There is no bonded labor or a commitment from his side to work forever or for five years or whatever. If he was leaving without notice or violating his obligation, then the company would be "inconvenienced." He has a right to get paid when he is fulfilling his obligation.

It would be illegal for the company to refuse to pay his salary for the period unless it is mutually agreeable. You can still do it, since the employee will not bother to go to court for one month's salary, but it does not make it less illegal for that reason.

It is the moral responsibility of the employer to pay for the notice period which the employee is willing to serve. The contributions of the employee have to be acknowledged. Moreover, the outgoing employees are the mobile marketing agents for the culture of the organization. Hence, it has to be paid if the case is as per the discussion subject.

Thanks,
Vivek

There are agreements and disagreements. There is logic for both sides. However, logic should be supported with some reasoning and case law. We have our opinions, and opinions may not necessarily be right always. I still prefer to have some case law or opinions from those who have encountered such situations. Anyway, thanks for the passionate inputs and discussion…

Regards,

I would like to quote statements from Vinod's and Savio's (respectively) posts:

"Employee resigns and is ready to serve the notice period, but the company wants to relieve him immediately."

"In case of a forced resignation, you will have to pay the compensation for the notice period not served/enforced. In case of a voluntary resignation, there is no need to pay any compensation for the notice period not enforced."

Here in this case, the resigned employee is ready to serve the notice period, but the employer does not allow him to do so. Is this not a forced relieving? Is this employee not affected or inconvenienced because of the employer's act?

In my opinion, in this scenario, the employee must be compensated.

All of this depends on the clauses mentioned in the employment contract, whether the terms align with Mr. Saji's comments or Savio's comments.

If you consider the situation from another perspective, if an employee wants to be relieved quickly, won't the company deduct his notice period compensation from his full and final settlements?

It's better to think of a win-win situation rather than opting for complications and conflicts.

Regards,
Suresh

Though many of you have cited different situations and provided necessary explanations as well, I still feel that the query raised by Vinod remains unanswered. The situation is: "Employee has resigned and wants to serve a 1-month notice period, whereas the employer wants to relieve him immediately." Whether the company has to pay for early relieving.

The correct answer is "YES," provided the resignation/termination clause reads as follows: "1-month notice or salary in lieu thereof from either side." Also, the wording of the resignation letter has a significant impact on interpretation. If it states that resignation may be accepted and the employee can be relieved on or before a particular date, then the company may relieve the employee at any time during the notice period and is not liable to pay any amount due to a shortfall in the notice period. However, if the request is for a 1-month notice period, then, of course, the company has to pay, subject to the wordings in the appointment letter.

Regards,
Prahalad Singh DGM-HR

The obligation on the employee is fulfilled by serving resignation with the prescribed notice period. The employer can relieve the employee at any time during the notice period without any compensation for the remaining period, as the initiative for termination of service was on the part of the employee, not that of the employer. There is no need for any case law on the issue.

Not sure which country you are in... There must obviously be some labor laws that have clauses covering such a situation. In Zimbabwe, for example, it is a legal requirement to provide notice from either side, and compensation must be given on either side in case of breaches. If an employer releases an employee earlier than the termination date, they are required to pay the full package up to the termination date. If an employee leaves earlier than provided for by law, he/she must pay the employer an equivalent of the salary for the notice period not served. The appointment letter must, therefore, comply with labor laws; otherwise, it would be ultra vires! It's concerning that you can simply tell an employee to go away. This has major ramifications for both the remaining employees and the departing employees!

Interesting Scenario

One interesting scenario is where you mistreat an employee, and over time, you end up leaving and becoming a subordinate to that person whom you mistreated! Quite a situation. I witnessed this in 1991!

If the employee tenders resignation with a request to be relieved upon completion of the notice period, the following options are:

1. After tendering his resignation, we have to check whether any clause to this effect is mentioned in his appointment/offer letter.

2. The management has the discretion to relieve the employee immediately, provided that the employee is paid the salary for the notice period if the clause is included in the appointment letter, as per the law. Otherwise, there is no issue.

3. Additionally, some companies do not follow this practice and instead obtain a concurrence letter from the employee stating that no payment will be made as the resignation was voluntary. This may be used as evidence, even if the employee decides to take legal action.

I hope this clarifies your doubts.

Regards,
R. Karunakaran

How can the employer relieve the employee without paying him for the full period? The company has a notice period in its terms of employment. Since that is a requirement in the terms of employment, it does not matter who initiated the termination. It is the liability of the employer to pay the full notice period as long as the employee is willing to work for that period. It is not payable only if the employee was unwilling to work in the notice period or where there is any prior act on the part of the employee that shows he should not be allowed to work (moral turpitude?).

Have you worked in a Pune-based company and been relieved in February or March? My colleague has the same problem. He was relieved by giving a 7-day notice with a 24-day leave balance, totaling a 30-day notice period. The company accepted this but did not pay him for the 24 days. Now, he is challenging the company for the salary. In this case, will he get the salary?

Leave is generally not allowed during the notice period. The likelihood of him winning this case is small. (I assume "challenged" means filed a case in the labor court).

Mr. Dingra,

How can the employer relieve the employee without paying him for the full period? The company has a notice period in its terms of employment. Since that is a requirement in the terms of employment, it does not matter who initiated the termination. It is the liability of the employer to pay the full notice period as long as the employee is willing to work for that period. It is not payable only if the employee was unwilling to work in the notice period or where there is any prior act on the part of the employee that shows he should not be allowed to work (moral turpitude?).

OK, that will be fine if you can get the claim through a court of law. No agreement term of employers provides that the employee will be paid if he is relieved before the expiry of the notice period on his resignation notice. The employer is liable to pay for the period short of the notice period only when he intends to terminate at his own before the expiry of the termination notice by the employer, not on resignation by the employee.

You would also be lucky enough if such an act of the employer is treated by a court of law as an act of moral turpitude, as you interpret, on the part of the employer. Better, as an experiment, you take up the case of the querist and fight the case in a court of law to prove your point. At least you would be able to set an example for the employees for the future to fight against the so-called moral turpitude on the part of the employers. Best of luck.

Regards.

I referred to moral turpitude as a ground for not paying the salary during the notice period. Only in such a case will you be justified in refusing to pay salary when you are asking him not to come to the office because you are justified in not wanting him in the office due to his previous conduct.

In all other cases, the salary of the notice period has to be paid. You can always leverage the fact that courts will take 10 years to give a verdict. But it does not change what you are legally required to do. It's a simple doctrine under contract law. There is an obligation, which one party is offering to fulfill. The other party has to pay the consideration required under the contract. Simply because such other party does not want the obligation fulfilled does not mean he does not have to pay.

There are implicit and explicit terms of the contract.

Even if you look at the Industrial Employment Standing Orders Act, it says "For terminating employment of a permanent workman, notice in writing shall be given either by the employer or the workman - one month's notice in the case of monthly-rated workmen and two weeks' notice in the case of other workmen: one month's or two weeks' pay, as the case may be, may be paid in lieu of notice."

Salary in lieu of notice is definitely required. There is no provision under any law or rule that lets off the employer from paying it (or the employee if he does not want to fulfill the terms). Further, the principle of natural justice also requires that the person be paid as he is offering to do his part of the contract.

As for my taking the matter to court, that is not my call. Let the concerned person decide. But I hope you are not giving such advice to your clients. After 10-15 years, when the case is settled, your client may end up paying a huge penalty, interest, and cost of litigation.

Oh, by the way, the querist is not the one who will go to court. He will be taken to court. The query has been posted by the HR department of a company asking whether they are required to pay him.

Implicit and Explicit Terms of Contract

That is your own interpretation, but as far as the law is concerned, it is not bound to accept what an individual interprets. That is why I have asked you to take the lead and set the example to enable you to prove your point. Even if the querist is interested or not, you can volunteer to provide him service to prove your point, may that take 10 years or even more. If you are able to prove that, definitely I shall start following your interpretations after you win on your point and also if you can prove such an act of the employer as moral turpitude. So far as my advice to my clients is concerned, I never advise them to follow unethical practices. But I do not also try to please someone with false hopes with the wrong interpretation of the law.

Burney, in your case:

1. Your employer will not relieve you at all until the notice period expires, or
2. They will ask you for a two-month notice period reimbursement and relieve you with service and relieving certificates if your appointment letter has this clause, or
3. If you abruptly leave the job, they will not issue you a service certificate and relieving letter that your new employer needs to complete the appointment process.
4. In the case of breaking the contract by you without serving the notice period, the ex-employer can give an adverse remark about you during the employment verification process by your current organization. Now, it is up to your new employer to take into account these remarks!
5. The ex-employer cannot block you from entering into an employment contract with a new organization, provided you have not caused any issues or damages, financial or otherwise, to them that could lead to a court of law.

Hope this clarifies things for you.

Regards,
Suresh

Dear Savio and Vinod,

If an employee resigns and the company wants to relieve the employee with immediate effect, then the company should compensate him/her as per policy in lieu of not letting the employee serve the notice period. This is because the employee serves a notice period in exchange for monetary benefits, and if the company does not allow him/her to serve the notice period, the employee may lose the monetary benefits for the notice period, such as salary and other benefits.

Best,
Saif

Dear Savio,

I think you have mentioned this concept only partially. The notice period has an employee perspective as well. It is given so that the employee can make arrangements for their future living and prepare to find other employment. Please understand HR stands for Human Resources. If there is no humanity and just a narrow company profit perspective, it won't remain Human Resources at all.

One question: Why doesn't every company do this when every employee resigns? Why not take the handover as soon as possible and relieve the employee as soon as possible to save money on the notice period?

Answer: Because it is not the legal way. The appointment is a bilateral agreement, and both parties have their own rights. Please do not get confused by this thin line.

By doing this, if you save some money for any sadistic management, you may get appreciation for some time. However, if even one case goes to court, the company may end up spending much more in terms of litigation costs and the cost involved in wasting resources' time in litigation.

So, it is better to pay the notice amount if you want to relieve someone. I am saying this because I can bet from my experience that no court is going to accept this narrow notice concept.

Regards

Please tell me about compensatory leave. In the case of full and final settlement, will compensatory leave be encashed or not?

Regards,
Gagan

Understanding Forced vs. Voluntary Resignation

I have a very small question. Can some senior HR personnel explain what is the difference between forced resignation and voluntary resignation? When your line manager is forcing you to resign because he is not happy with your work (and that's a hardcore sales position, your third month in the system) and it's quite obvious that you are going to face unemployment and monetary constraints after losing this job. Then, under what circumstances are you supposed to pay for your notice period (especially when you have money commitments towards your family)?

Thanks and regards,
Upal