Is My Employer Legally Required to Pay Leave Encashment? Seeking Advice on Next Steps

amanlko73
Hi, Experts, I have worked in a company in Chennai (Tamil Nadu) for 11 years and 6 months before resigning with a 1-month notice as per the clause in my appointment letter. Besides my pending salary, medical, LTA, and gratuity, they are refusing to pay my Leave Encashment amount.

I have been informed by the HR team that there is no legal obligation on the employer; it is solely at their discretion to pay it or not. They also mentioned that due to the company's financial condition not being ideal, they are unable to pay the Leave Encashment amount.

Could you please advise me if this is correct or not? Can I take any legal action if there is a rule in labor laws that supports my claim? Your help is greatly appreciated.

Regards, Aman Kumar Dubey
kprasoon
Yes, an employer is legally bound to pay wages in lieu of the quantum of leave to which the employee was entitled immediately before quitting employment.

Regards,
Kamal
Shailesh Parikh_HR Pro
Not all types of leaves are encashable. Only earned leaves have certain legal obligations for encashment as they are earned against the days served as per provisions of the Factories Act. However, the company can set an upper ceiling for accumulation as well as for encashment (number of such leaves) as the true objective of such leaves is to avail them and not to encash them.

If you do not have strong legal backing to support your case, unless you have established leave rules or standing orders providing for encashment.

Regards,
Shailesh Parikh
Vadodara, Gujarat
varagantimadhu@yahoo.co.in
Please read below the relevant Section 79 from the Factories Act with reference to your query.

Factories Act, 1948 - Section 79 - Annual Leave with Wages

(3) If a worker is discharged or dismissed from service, quits his employment, is superannuated, or dies while in service during the course of the calendar year, he or his heir or nominee, as the case may be, shall be entitled to wages in lieu of the quantum of leave to which he was entitled immediately before his discharge, dismissal, quitting of employment, superannuation, or death. This is calculated at the rates specified in sub-section (1), even if he had not worked for the entire period specified in sub-section (1) or sub-section (2) making him eligible to avail of such leave, and such payment shall be made:

• (i) Where the worker is discharged, dismissed, or quits employment, before the expiry of the second working day from the date of such discharge, dismissal, or quitting; and

• (ii) Where the worker is superannuated or dies while in service, before the expiry of two months from the date of such superannuation or death.

Hence, the employer is bound to pay the amount against the quantum of unused Earned Leave when relieving you.

Regards,
Madhusudan
rlpandey
It is mandatory as per the Factory Act and other labor laws that the employer is bound to pay your salary up to the extent you have privilege/earned leave in your credit on the date of your exit from the company. Most companies follow the same, but a few do not care at all. In such a situation, an aggrieved employee has a valid claim to recover his leave salary through a civil suit but needs to seek opinion from an advocate.

Regards,
R.L. Pandey
pankajdcosta_109281
Aman, does the Factory Act apply to your organization? Does your appointment letter state anything about leave encashment/adjustment with the notice period, etc.? What does your employee handbook say? If you are still in service, you may want to take a quick look at these and come back with more info.
varghesemathew
If your service was not in a factory setup, you are not entitled to EL encashment under the Factories Act. If it was in a commercial establishment, your entitlement will depend on the provisions of the Tamil Nadu Shops & Commercial Establishment Act. If that is also not applicable, everything depends on the terms of appointment or conditions of service.

Regards,
Varghese Mathew
[Phone Number Removed For Privacy Reasons]
kamalkantps
As per the Tamil Nadu Shops and Establishment Act, they are legally bound to pay you the leave encashment. See section 25, subsection 3 for reference. However, the maximum accumulation of leaves is 24 days as given under the said Act; hence, the encashment of leaves for 24 days is the maximum encashment you may get legally.
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