Facing Company Closure: What Are Our Legal Rights and Compensation Options?

Legal Advice Needed for Company Closure and Compensation

I work in a company that is a partnership firm providing services in the IT sector. We have been informed that the company is closing due to operational losses. However, we have not received any formal notice or written confirmation. The company has been operating in Noida for the past 8 months, while the head office in Jaipur has been operational for the past 2 years. We have not been paid our salary for the previous month, and we are terrified that they might disappear without remunerating the 2 months' salary owed to us.

What compensation can we expect in case of unemployment due to the closure of the company or if operations are shifted to a new location (Jaipur), where employees may not find it comfortable to work? We are uncertain if the head office in Jaipur will remain operational. However, our Head of Business Operations has warned us that the director might claim they are shifting business operations to Jaipur if we pursue legal action.

Please advise on the legal procedures we can take. Cite the laws and acts the company might be infringing upon by adopting this approach and the compensations and remuneration we can expect.

We would be grateful for any advice you can offer us.

Regards,
Karan

No one can simply brush aside the employee's anxiety arising from the apprehension that the company might be closed soon due to losses. However, mere apprehension or suspicion cannot take the place of proof. You have not mentioned the total number of employees of the whole company with the breakdown details of the Noida unit.

Legal Requirements for Closure

If the company employed 100 or more workers in total on average in the preceding 12 months, it has to obtain prior permission from the Appropriate Government before closing down. If the strength is less than 100 but 50 or more, the company has to issue a 60-day notice under Sec. 25FFA of the Industrial Disputes Act, 1947, before the date of actual closure.

Since the age of the overall establishment is just two years and the Noida unit is even less than a year, you cannot expect compensation to make both ends meet until you find alternative employment.

Preventive Measures Against Sudden Closure

To send signals to the management that there would be a legal fight from the side of employees in the event of closure of the unit under the guise of shifting the business operations elsewhere, raise a collective industrial dispute regarding some general demands, including non-payment of wages for the particular month, through a Trade Union of which all the employees are members, or a committee of five employees authorized by all before the area Conciliation Officer. Remember, such a move is not an exact remedy for the apprehended closure but a preventive check against the management's sudden closure of the unit and may pave the way for an amicable exit compensation.

Thank you.

Dear Umakanthan, The total number of employees, including both offices, is less than 100 but more than 50. However, the employees in the Noida office are less than 20. This is not just a mere suspicion. The building premises where our office is located has received a notice to vacate from next month. This is how we first became aware of the situation. After confirming with our business head, we were verbally instructed to start searching for alternative employment options. Surprisingly, the directors have not addressed the situation yet. They have delegated the communication to our business head and are unresponsive to our calls and emails. Furthermore, we have not received our salary for the month of August and have already worked for 20 days in September. Employees are fearful that if they do not report to the office, the employers may use it as a reason for termination. These past few days have been mentally traumatic for all of us.

Regards, Karan

Compensation and Alternative Employment Advice

Closure or retrenchment, whatever the unilateral reason for your exit attributable to the management, if the reason for such a mishap is genuine and inevitable, you have to be content with just monetary compensation, which is based on the continuous years of service you rendered. Your service would be just one year, and as such, whatever compensation is based on it is not going to be adequate for your needs.

So, simultaneously try to seek alternative employment and attempt to get the pending salary. It is always better to jump out of a sinking ship before it gets completely drowned.

Regards

Dear Umakanthan, thank you for the advice. Our main concern is the pending salary too. The way they are behaving, it's hard to believe if they have any intention of releasing the salary. Two months' salary is not a small amount that we can compromise. The only thing that is coming to our mind is to warn them to pay our dues, or we will take legal action. There can be two consequences if we use the hardball approach. The best-case scenario will be that they get scared and provide us our remaining salary. The worst-case scenario will be that they will ignore our warnings and test our commitment to see if we have the guts to take the step.