Is It Fair for XYZ Ltd to Ask Employees to Resign with Only Basic Pay After Contract Closure?

Dear All,

My colleague joined XYZ Ltd (a Power Distribution Franchise, which receives power from the state electricity board) as an Assistant Manager HR on 07/11/2014. However, after 10 days, on 20/11/2014, XYZ Ltd received a letter from the Principal Employer (state electricity board) to close the contract with XYZ Ltd with immediate effect. XYZ Ltd served notice to all employees that they are closing down the business due to the cancellation of the contract with the state electricity board and are compelling employees to resign, after which the company will give one month's notice or salary. Those employees who resigned have received only BASIC wages as one month's notice salary.

Questions Regarding Employment Termination

1) Does XYZ Ltd have the right to ask for resignation from all employees due to the closure of the business or because it has already closed due to the cancellation of the contract?

2) Is it considered closure or retrenchment?

3) Is it legal to pay compensation, i.e., one month's notice salary, which means only basic wages paid by the company?

4) My colleague joined on 07/11/2014, and the company received notice of the closing contract on 20/11/2014. The company is asking him to resign if he wants one month's notice as wages but is only paying basic wages (his basic wages - Rs. 22,000 & Gross salary Rs. 44,000).

Please shed light on the above issues and provide suggestions.

Regards,
Sacheein

My views on your queries are as follows:

Closure of Undertaking

It is a case of closing down the undertaking. This closure is due to unavoidable circumstances beyond the control of the employer.

Under the ID Act, any undertaking which is being closed down for any reason whatsoever, every workman who has been in continuous service for not less than one year in that undertaking immediately before such closure is entitled to one month's notice or, in lieu of such notice, wages for the period of the notice and compensation equivalent to fifteen days' average pay (for every completed year of continuous service) or any part thereof in excess of six months.

Where any undertaking is closed down on account of unavoidable circumstances beyond the control of the employer, the compensation to be paid to the workman should not exceed his average pay for three months.

Resignation and Compensation

When employees opt for resigning from service under whatever compulsion, they are not entitled to any compensation or payment under the ID Act. Whatever compensation is paid by the employer is as per the understanding between him and the resigning employees.

Also, the provisions of the ID Act are applicable to workmen as defined under the Act.

I hope you got answers to all your questions from my views above.

Regards.

Review of Service Rules and Retrenchment Benefits

Please review the service rules outlined in your appointment letter and act accordingly. Retrenchment benefits will only apply after completing one year of service. Since the individual in question joined duty in the same month, they are currently on probation. Therefore, please adhere to the terms specified in the appointment letter or the company's standing rules.

Regards

On record, as described by you, it's not retrenchment but resignation. That too during the probation period. In these circumstances, the employees who have left will have no better choice than to accept one month's salary (not just the basic pay) in lieu of notice. Considering the service of less than one month, no other benefits will accrue. They may request a service certificate stating the 'reason for leaving as closure of establishment' instead of resignation, which could potentially benefit them in their future prospects.