Legal Dilemma: How to Handle a Lawsuit from a Former Employee of a Closed Firm?

We started a firm in January 2013 and closed in August '13 due to loss and insufficient funds. We hired a Creative Head in January, and he left the organization on 17th May without any information. He has filed a case for non-payment.

Case Details

1. He has produced a forged appointment letter with one of the firm partners' signatures on it.
2. We have not provided any salary slips, nor is there any receipt of acknowledgment.
3. There is no proof of attendance available.

P.S.: We need to pay him 8000/- as the due balance, but he is now demanding 60,000/- as compensation. Please help. The matter is in court, and the first hearing is scheduled for next week.

Ishita, there is a solution in your posting only. When you know that there is a forged document in the opponent's hands, this is the basic claim that your advocate has to make. You have mentioned that you have to pay your ex-creative head an amount of Rs. 8000/-. Please let us know why and how this claim arises. On one hand, you are mentioning that you have not given any appointment letter and pay slips, which virtually suggests that you do not know him. On the other hand, you are saying that you have to pay him Rs. 8000/-. Do you have any other dues payable to employees in any manner? Please check this with your advocate. If these dues are admitted in court, it may have a negative impact on you.

Hi Ishita, you have mentioned that the Creative Head left your organization without informing, which is more or less an absconding case. I do believe that your organization has a notice period policy, which he did not serve. Also, about the forged appointment letter, are you sure that the signature on the letter is not signed by your partner? Your ex-employee would not approach the court for justice without any substantial record or paper. Was he paid a salary when he was associated with your organization? Please shed some light for better understanding.

Going by what Ishita mentioned, it looks as though the salary and other terms were 'VERBAL' rather than through any Offer/Appointment Letter.

Ishita—please confirm regarding the above aspect. Also, please clarify the points raised by Sriram. Usually, in such situations of 'lack of documentation,' it becomes a double-edged weapon—BOTH parties can use it to their advantage. It just depends on the ability, smartness, and ingenuity of the respective Advocate. So the Moral of the Story is: Hire a GOOD lawyer.

All the Best.

Regards, TS

Further to the comments given by other members above, what was the legal status of the firm? Was it a Sole Trader, Partnership, or Limited?

If it was a Sole Trader or Partnership, then the owners are liable to pay any dues, etc. If it was a Limited company, then the liability is limited. If the firm has now gone out of business, any monies or assets should have been liquidated and distributed to the creditors, which include employees.

As you have admitted that you owe him Rs 8,000, the fact that an appointment letter or pay slips were not given means the courts will deem him to be an employee. Therefore, the absence of these documents will have no bearing (after all, it is the firm's fault that the documentation was not in place and not his).

He will be questioned about the company, other employees, the premises, company documentation, clients, etc., to establish that his knowledge about such matters could only have come about by being an employee.

I suggest that you immediately pay him the Rs 8,000. This will stop the court from adding interest and penalties and make the Rs 60,000 compensation demand weak, as he left the firm without going through due process.

I hope the above has been of some help.

Regards, Harsh

Analysis of the Firm's Situation

Looking into the nature of the case and the facts given below, and the interpretation thereof:

"We started a firm in January 2013 and closed in August '13 due to loss and insufficient funds."

It speaks for itself on the state of affairs. A firm folding up within 8 months indicates its premature demise caused by a lack of planning—financial and otherwise—and the managerial acumen of the promoters.

Employment and Documentation Issues

"We hired a Creative Head in January..."

"We have not given any salary slip nor is there any receipt of acknowledgment."

"There is no proof of attendance as such."

In such a case, where there is no proper documentation, one cannot blame him for his action that "...he left the organization on 17 May without information."

Perhaps he was wise enough to know that the ship is sinking and got away to safety.

There is no question of any Notice or Notice Period as there was no documentation from your side.

Financial Obligations and Legal Considerations

"We need to pay him 8000/- as due balance..."

When he left in the month of May itself, why were the dues not paid?

Perhaps, he would NOT have gone in for a Court Case if the outstanding amount was paid to him on time.

It is difficult to imagine this person going to Court with a "forged" appointment letter. On the other hand, it is more likely that he "persuaded" that partner to sign a letter purporting to be an appointment letter. Whether the partner was authorized to do it or not is another matter, but if his signatures are 'real/authentic,' then it cannot be called a forged appointment letter—just because your firm does not issue any appointment letter.

Recommendation for Resolution

I think your firm should not have let this matter go into the Court. There is still time to cut your losses. You can go for an out-of-court settlement and pay him his rightful dues along with interest and some compensation for the trouble he went through.

Hope better sense prevails, and the matter is settled out of the court amicably.

Warm regards.

Normally, I do not make any comment on any legal issue without studying all the relevant documents. Still, I wish to state here that the onus lies on you to disprove the complaint, but you are agreeing that Rs. 8000/- is not paid by you. Therefore, the matter is not in your favor, which seems to me.

Compensation Decision

Now, the question of compensation: it is the court that has to decide the quantum on various parameters.

Regards

In this case, the employee left in May 2013, and your organization was closed during August. That means the individual employee left the organization without any information, and you might have issued a letter to the individual about his absconding from duty. If it is so, this letter will suffice for not reporting before the closure of the organization and not collecting his dues. So, the question of claiming compensation does not arise. Moreover, the individual is in the probation period, and claiming compensation does not arise. Anyhow, I just put my views, and a lawyer is the right person to advise you, keeping the opinions of all the cited persons in view.

Regards,
Eswararao Ivaturi.

After analyzing the above post, I opine as follows:

You should not fully deny the relationship of master and servant with the employee as he might have some documents relating to your company, whether they are fabricated or not. After all, the onus will be on you to prove any fabrication. Moreover, you have to take a unified stand during the court proceedings. Additionally, if we deny the relationship with the employee, we cannot properly respond to and justify the question of 'Why has he filed a case against you?' So, I provide you with the following draft:

Company Background and Employee Relationship

We established our company in January 2013 and employed the individual in the same month as the head to provide guidance and leadership to the unit for its survival and growth, as he claimed expertise in the field during the interview. The unit was entirely under his guidance. However, he caused trouble for the unit, leading us to face losses despite our efforts to make it viable. Feeling incapable, he abruptly left the job in May 2013 without informing us. Since our unit was in its early stages, we lacked policies or documentation regarding employee appointments or terminations. All interactions with employees were verbal agreements in good faith at that time. Upon his disappearance, we reached out to him to return and assist in making the unit viable again. Failing to find a solution, we had to shut down the unit in August 2013 after suffering significant losses and damage to our reputation in the market. All responsibility for these events lies with him.

Current Legal Situation

He has now brought a case against us to manipulate the situation. Nevertheless, we owe him a payment of Rs...[Here you should provide documents/details of calculations to present before the court], and we have no objections to resolving the matter amicably. If he agrees to accept and settle the matter, he should report to the management within 30 days. We assert that our unit is closed and the case is baseless against us.

With the aforementioned context, I am optimistic that the court will view the situation favorably and not award a sum greater than what you have agreed to.

Best wishes,

V. K. Gupta