Can Resigned Employees Use Their Leave Balance? Seeking Clarity on Company Policy

Hello, everyone. I'm going through a strange case. I'm working in a Pharma company, and recently, one of my employees resigned from the job. Now, he would like to go on leave, whereas we do not allow leaves for an employee who has resigned. Is it mandatory not to allow him the leaves, or is it a company policy?

When I asked him why he cannot avail the leaves, he mentioned that the leaves are to be availed from his balance leave. Could anyone please provide information on this?

Thank you.

With warm regards,
Anand

Hi Anand, this depends on the company's policies. Some companies allow employees to use their leaves on short notice, where the balance leave can be compensated for notice. On the other hand, some companies do not allow this practice.

Especially regarding EL (earned leave), the company will pay only the basic amount in F&F. However, if an employee avails the leave on short notice, they can use the full day's gross pay, resulting in a loss for the company, although not significant.

I hope the above information helps you understand that there is no specific policy for availing leaves on short notice.

Leave Encashment Policy for Resigned Employees

Once an employee resigns, they sever the contract from their side and, therefore, cannot avail themselves of leave. However, normally, companies' leave policies provide for the encashment of leave balance on the date of resignation. If you do not have a policy, then you must allow leave encashment at the time of leaving the service by the employee as per the Factories Act or the Shops & Estb. Act of your State, depending on the applicability of the Act to your establishment.

Regards, B. Saikumar HR & Labour Relations Advisor Navi Mumbai

Dear Anand, separation from the company and employee leave are two separate issues. Why these were linked is not understood. Withholding leave during the notice period could be a company-specific issue and it does not have legal sanction. No law says that on receipt of the letter of resignation from the employee, the employer is free to withhold the leave of that employee.

Companies talk a lot about how they are employee-friendly or what engagement activities are conducted in their company. But by designing this kind of policy, it shows how this talk is superficial. On receipt of the letter of resignation, making that person *persona non grata* is nothing but eyewash of the HR practices.

Whether the Factory Act or Shops and Establishment Act, either act says that for every 20 days of work, the employee becomes eligible to get a day's leave. This rule continues till the last working day of the employee. Therefore, whether to avail of the balance leave or encash it is a choice of the employee, and if the organization does not interfere in the personal choice, the better.

Thanks,

Dinesh Divekar

In the instant case, as said by Shri Dinesh Divekar, leave and resignation are separate issues. The period of serving notice is the period of working with the company, as the employee is bound to provide services during the notice period. Therefore, availing leave and encashing it in lieu of taking the leave are different activities.

Dear Anand, Your company is right in not allowing leave to an employee who has already resigned. According to the service contract, every employee must serve notice and work physically during the notice period to enable the employer to find a suitable replacement. All learned members have advised you the same. Moreover, in exigencies of work, the company may, at its sole discretion, refuse leave requested or revoke leave already granted.

In this particular case, you can mark him absent for his unauthorized absenteeism and also deduct the full notice pay applicable to his category, legally. However, you have to pay him the balance leave encashment as per your company policy. You may also delay his full and final settlement to fulfill the company policy regarding the notice period in writing. (Provided your appointment letter has no clause stating "either party can terminate the service contract by giving ___ month notice or to pay salary/wages in lieu of notice).

Regards, Suresh

Dear friends,

Sometimes, I wonder why companies waste their time on small issues like stopping the leave of a person who is in the notice period. What is going to be achieved from this? Just a cynical pleasure and nothing else!

Most companies have at least a 60-day notice period. Within this period, a person may take a 10-day leave. What will the company gain by making that person work forcefully? Unfortunately, CEOs create these nonsensical rules, and HR ends up following them.

The Role of Employees as Brand Ambassadors

CEOs and HRs need to understand that employees are their brand ambassadors. What employees say about the company during and after their employment matters a lot. Can HR explain how enforcing these kinds of rules will lead employees to speak positively about their company? With this misplaced coerciveness, can HR effectively engage their employees?

For Mr. Suresh

You mentioned that, "as per the service contract, every employee has to serve notice and work physically during the notice period to enable the employer to look for a suitable replacement." I am unsure how the process of arranging a replacement can be hampered if the employee is not physically available. It is HR's responsibility to arrange a replacement while the employee works in their department. If a few days of absence disrupt the replacement process, then either the organization has a serious issue, or it shows evidence of HR's ineffectiveness, at least in that company.

Thanks,
Dinesh Divekar

Dear Anand, it is no strange case, as already stated by our valued member Mr. Dinesh Divekar, and I also wish to reiterate it: no law, absolutely no law, restricts any employee from taking leaves during the notice period. However, it should not be mixed with the handing over of duties. An employee has the duty to properly hand over their duties to the person coming to replace them or to a person who has been assigned to take over from them during the notice period. If the employee does not properly hand over their duties to the assigned person within the notice period, the management has the full right to withhold the relieving letter. However, you cannot stop them from taking leave. Also, no employment contract is above the law. If any employee is entitled to any leave under any act, such as the Shops and Establishment Act, Sales Promotion Employees Act, or Factories Act, or any other act for that matter, they can avail of the same during their employment term without restriction from any employment contract.

Any service condition stipulated under any employment contract, if it violates any law of the land, is null and void or void ab initio. Mr. Suresh, it is not a matter of big or small management; it is about correct practice. We must answer what is correct as per the law because if they cross any law in finding any practical solution, that solution may seem easy at that moment but might land them in legal trouble afterward. No authority will listen to the excuse that they did not follow the law because it is a small company or just a small proprietorship firm.

Ms. Nandita, I also want to comment on one of your points, which is not correct, though some companies follow it, which is wrong: that leave encashment should be done on basic pay. I am elaborating on this below by taking the legal definitions. It should be done on gross pay.

Wages during leave

Every employee shall be paid for the period of their leave at a rate equivalent to the daily average of their wages for the days on which they actually worked during the preceding three months, exclusive of any earnings in respect of overtime but inclusive of dearness allowance. According to Section 23 of the Delhi Shops and Establishment Act, and this provision is the same in all such acts, an employee shall be paid for their leave at the daily average of their wages. Now let's see the definition of wages given in the Act.

Definition of wages under the Minimum Wages Act

Section 2 (30) "Wages" means wages as defined in section 2 of the Minimum Wages Act, 1948 (XI of 1948). Section 2 Subsection 30 says the wages definition should be taken from the Minimum Wages Act. So let's see what the definition of minimum wages has to offer. Please find below the definition of wages under the Minimum Wages Act.

(h) "Wages" means all remuneration, capable of being expressed in terms of money, which would, if the terms of the contract of employment, express or implied, were fulfilled, be payable to a person employed in respect of their employment or of work done in such employment, [and includes house rent allowance], but does not include:

(i) the value of:
(a) any house-accommodation, supply of light, water, medical attendance, or
(b) any other amenity or any service excluded by general or special order of the appropriate Government;

(ii) any contribution paid by the employer to any Pension Fund or Provident Fund or under any scheme of social insurance;

(iii) any travelling allowance or the value of any travelling concession;

(iv) any sum paid to the person employed to defray special expenses entailed on them by the nature of their employment; or

(v) any gratuity payable on discharge.

Now, if we see the wages definition, it includes all remuneration capable of being expressed in terms of money, and it specifically says HRA is included. So as per the definition, it includes all allowances, all heads, whatever you give to them by whatever name you call them. The only exceptions given are those specifically mentioned under the definition.

Exclusions from wages

Now let us take them one by one:

- Value of house-accommodation, supply of light, water, medical attendance: It is clear that companies that provide boarding and lodging facilities to their employees have to exclude the value of it from wages. HRA will be included, though. The items specifically excluded by the government will also be excluded.

- Any contribution paid by the employer to any Pension Fund or Provident Fund or under any scheme of social insurance: PF or ESI contributions are excluded.

- Any travelling allowance or the value of any travelling concession: TA is excluded.

- Any sum paid to the person employed to defray special expenses entailed on them by the nature of their employment: The expenses to defray special expenses shall be excluded only if they relate to the nature of their job.

- Any gratuity payable on discharge: This will not be counted.

So now, as per the definition, the wage for leave would be gross, not just plain simple basic salary.

Mr. Divekar, your views are invited on this.