HR Compliance Dilemma: Can HR Face Legal Trouble for Salary Delays or Bounced Cheques?

HR Compliance and Legal Implications

One of the key roles of HR is compliance. In light of the current financial and salary crisis in Kingfisher Airlines, where the salaries for the months of February and March are still pending, my questions for discussion are:

- Can HR be prosecuted for non-payment or late payment of salaries?
- Can HR be prosecuted if the salary cheque gets dishonored?
- In such situations, what are the remedies for HR professionals?

Kindly share your views.

That's a good topic. I am not sure if HR, per se, can be prosecuted since any case filed by employee(s) will be on the company and not on a specific individual. The individual—in this case, the HR executive—is only processing the salary, and the Finance executive is passing the instructions to the Bank for salary disbursement (or giving the check, as the case may be)—unless, of course, there is clear prima facie evidence of the HR person (or Finance guy or any other functionary) playing mischief or acting with willful malicious intent at the individual level.

However, whatever the HR person(s) may think or do, they are, after all, a part of the Management, and they are bound to take the flack in the situations you mentioned (KFA)—sort of an 'occupational hazard,' so to say. The same would apply, I think, to any individual who is part of a team/crowd handling a situation, be it a cricket team or even the government. How many officers are attending the court cases on behalf of the department concerned, even though he/she wasn't even present at the scene when the 'crime' or 'situation' occurred?

In a nutshell, even though HR professionals or departments can't be held responsible for the situation (with the exception I mentioned above), they invariably end up holding the baby and handling the fire-fighting exercise. But at the end of the day, the buck stops with the top boss.

Regards,
TS

Can HR be Prosecuted for Non-Payment or Late Payment of Salaries?
No, because that is the decision of the management, not an individual's responsibility.

Can HR be Prosecuted if the Salary Cheque Gets Dishonored?
No, because that is processed by the finance department, not by HR.

In Such Situations, What Are the Remedies for HR Pros?
No situation is pending for remedies. 

Few things are really important and common in this case which we need to keep in our mind while discussing this case…

SALARY, CONDITION OF COMPANY, and CONFLICT

Let me start with a question.

Is there any employment T&C any employer is using which can allow any employee to prosecute HR if found not able to pay salary to an employee in this kind of situation/crisis? Neither employee nor employer wants to have this bad condition.

Second, we use a clause of “Notice Period” for a special purpose (for both Employer & Employee) but never use anything like if HR/company is not able to pay salaries to employees in these kinds of conditions, the employee can take legal action against the employer. Also, everyone who is working under an organization is an employee of the company, whether they are from HR or Accounts or any other department, and departments are not an individual entity that can be prosecuted for some reason. I fully agree with TS and Gurgaon HR.

HR is not directly responsible for not paying salaries to employees where the Finance & Accounts department is responsible for all financial activities (Fund Availability) and responsible for fulfilling the requirement of HR to pay salaries to their employees. Then why should only HR be prosecuted?

This is an extreme situation where the company and employees are all well aware of this worse condition of the company and that they are not even able to pay salaries to employees, but it's not as if they have denied paying salaries to employees.

Incident of Mismanagement and Its Consequences

Let me share an incident: Everyone has seen people who try to play second fiddle to bosses. In one such company, the personnel manager gave a suggestion for delaying salaries to staff, and the owner was more than happy. However, one particular employee who was facing hard circumstances committed suicide. The manager got saved because of the system, but wrong advice cost someone his life.

Let me share an incident:

Incident of Misguided Advice

Everyone has seen people who try to play second fiddle to bosses. In one such company, the personnel manager gave a suggestion for delaying salaries to staff, and the owner was more than happy. However, one particular employee who was facing hard circumstances committed suicide. The manager got saved because of the system, but wrong advice cost someone his life.

Advice During a Crisis

Mr. Surya, is that the advice given to the owner during a crisis? We are talking about the crisis/bad condition of the company where the situation demands holding salaries. Holding salaries for some time is meant to save funds so that the company can manage its financial situation to survive.

Secondly, this is really wrong and not acceptable if one does that for whatever reason when there is nothing like circumstances bothering the company financially. You can also imagine the internal and external situation of this company.

In this case, we are discussing the poor financial condition of the company and the lack of funds. They have not denied the payment; they have delayed the payments. It is different.

Very good topic, Sanjeev. Mr. TS and Anil have made it very clear. Even though I am late, HRs are also employees of the company. Do you think HRs will get salaries if the whole company is delayed? The same applies to HR as well. If the company is a sick unit, they may opt for lay-off, lockout, or closure. It cannot be done once the employees' salaries are settled.

Can HR Be Prosecuted for Non-Payment or Late Payment of Salaries?

HRs cannot be prosecuted; only the management should be prosecuted.

Can HR Be Prosecuted if the Salary Cheque Gets Dishonored?

No, the authorized signatory who issues a cheque without available funds (again, the authorized signatory for signing the cheque will be at least a Director) is responsible.

I hope all your queries have been cleared, and please let us know if there is some other query on this.

Regards,
Ramkishore

Penal Action for Delay in Payment of Wages

The penal action regarding the delay in the payment of wages is covered under the Payment of Wages Act 1936. Section 3 thereof states that the employer shall be responsible for the payment of wages to the persons employed by him. The Act further specifies that in the case of a factory, it shall be the Factory Manager as per the Factories Act 1948. In the case of an industrial or other establishment, it shall be the person responsible for the supervision and control of the establishment (as in the case of Airlines).

The Inspector under the Payment of Wages Act has the authority to file a complaint against the person whom he feels is responsible for the payment of wages. Hence, the HR Manager who exercises supervision and control can be made liable for default.

Regards,
KK

Legal Implications of HR Prosecution for Financial Lapses

The subject is the prosecution of HR for certain lapses, as cited in the topic for discussion, such as the dishonor of cheques or late payment of salaries. It hints at some action against an erring individual under some law. The topic thus has legal import and needs to be answered from a legal perspective, not from moral or ethical perspectives.

When an act attracts the penal provisions of any particular Act, it is a settled position in law that the penal provisions of the said Act need to be interpreted strictly, not liberally or broadly, so as to cast a wider net to involve everyone. The labor laws normally envisage an action against an employer for the breach of provisions of an Act. The relevant labor law which is breached defines who is an employer.

Usually, an employer is defined under labor laws as someone who wields the ultimate control over the affairs of the establishment. For example, for the breach of the provisions of the Factories Act, the occupier is the one who is under the ultimate control of the affairs of the factory, and thus for this purpose, the board may nominate one of the directors as the occupier. In such a case, action lies against the said director for any breach of the provisions of the Act but not on any individual officer. Therefore, one needs to figure out who is the entity that has the ultimate control of the affairs of the company under the particular labor legislation. However, an individual officer can be held liable only when the occupier or the employer proves that he has issued instructions for complying with certain provisions, but the officer did not obey his instructions.

The case of dishonor of cheques may attract the penal provisions both under the Negotiable Instruments Act as well as under a labor Act like the Payment of Wages Act or the Minimum Wages Act. The accountabilities need to be established under the respective Acts on the above lines. I have not gone through the provisions of the Negotiable Instruments Act and therefore I am not able to comment on fixing the liability for the dishonor of cheques if the same is issued by a company. Normally, the principle in such cases is that the courts in criminal proceedings lift the corporate veil to find out the person who is responsible for the said cheque.

Regards,
B. Saikumar
HR & Labor Law Advisor
Mumbai

The answer to your question is "No." Kingfisher Airlines is a transport service provider and it falls under the purview of the Shops & Establishment Act. Because all the employees are surely earning more than ₹10,000 per month, they do not come under the purview of the Payment of Wages Act. It is then certainly necessary to follow the conditions of the appointment letter under the purview of the Indian Contract Act. For this, you cannot prosecute HR because they are not part of the agreement contract. You can file a complaint against the contracting authority only.

Mangesh Wakodkar
Aurangabad

It is an emphatic "NO." An HR person is also an employee of the company, and any lawsuit is against the company. Therefore, the top man, either the CEO or MD, is answerable to legal points.

I do agree with the compliance part, and that is why I mentioned it at the beginning of the question. I also think that this is where most HR professionals often make mistakes. In many companies, the financial health of the company is not shared with the HR department; it is considered confidential. Therefore, if the management of the company states that they do not have sufficient funds to pay the employees, in such scenarios, there is hardly anything that HR can do.

"We do not have the funds to pay; however, we need to retain the employees to resolve the crisis as soon as possible." This is a very tricky situation. HR does not have control over the finances of the company, nor do they control the clients and their payments, or sign the salary checks. In such scenarios, how can they be held responsible? They cannot be, even though they are the ones who sign the offer and appointment letters.

Regards,
Sanjeev

All departments come together and make a company. They are all connected to each other and directly come under MANAGEMENT, who controls them and is responsible for all good and bad things.

Agreed, and we all know that HR has nothing to do with this kind of situation and can't even avoid it. They are not responsible for fund availability, but Management (Finance directly under Management) is. It is acceptable that finance, on many terms, never discloses the financial situation of a company/organization to other departments but only to Management, who is directly responsible for this. However, the truth is that no one (Management, Employee, Client, or others) wants to have this crisis situation and feels helpless if found in it.

The concern is acceptable, and we are all well aware of what we should do or not do.

Can HR be Prosecuted for Non-Payment or Late Payment of Salaries?

Can HR be prosecuted if the salary cheque gets dishonored? In such situations, what are the remedies for HR Pros?

So far, we have discussed the main queries/questions at length, and I believe the answer has already been acquired.

Sanjeev, let me narrate an incident. Several years back, I got an offer as a compliance head from a big Indian company. The hiring manager didn't tell me that people don't get salaries on time and the position is demanding in terms of time. By a stroke of luck, due to distance and extended timings, I refused to join. Three to four months later, the same person called me for help. There are several instances when the viability of an individual's rank is questionable, and even entire divisions fail, and we have to keep quiet. Purely for information, there is a body named the "Advertising Standards Council of India," which can penalize misleading advertisements, including those related to recruitment.

Generally, the Works Manager (Incharge of Unit) and the Occupier are prosecuted under the Payment of Wages Act for non-payment of salaries on the due date. However, by discussing the matter with the Unions and arranging for part payments or advances, a way can be found out.

Every employer appoints a person responsible for the payment of wages and allowances to employees. The same applies as per the Payment of Wages Act. Hence, in the given situation, the responsibility for delayed payments or dishonored checks will lie with the person notified for this purpose. If it is HR, they are responsible for fulfilling their official duties. Other discussions are immaterial.

Regards,
S.K. Johri