Legal Advice Needed: Can We Delay Final Settlement Dues by 3 Months in Appointment Letters?

I, the undersigned, am working as a Corporate Manager-H.R./IR in Pune. My company falls under the Shop and Establishment Act. We seek a legal opinion regarding final settlement dues—when should they be paid? Can we state in the appointment letter that the full and final settlement can be completed three (3) months after the last day of service? Or can we include it in our letter of resignation acceptance?

We usually provide a relieving letter stating, "Management has accepted your resignation dated _______ and we will relieve you on _______. You may collect any dues after obtaining the necessary clearance certificate."

In that letter, can we mention that dues will be settled three (3) months after the last working day, instead of in the appointment letter?

Actually, all dues should be cleared before issuing the acceptance letter, incorporating a sentence stating that this company has no outstanding financial obligations regarding your FnF. This is a good practice. Alternatively, you can provide a week of assurance. You can mention in the appointment letter, ensuring compliance with labor laws applicable to your job service at that time.

Dear Jayant, can you please mention the authority under which a 3-month period can be taken by the employer to pay the F&F settlement dues?

Understanding F&F Settlement

If you analyze the term "F&F Settlement," you will find it normally comprises the surrender value of leave at credit on the date of termination, retrenchment compensation, notice salary if applicable, gratuity if eligible, and salary or wages for the last spell of duty period, each of which has a specific period for disbursement. As far as I know, none of them has such a long duration of three months or more.

Standard Duration for F&F Settlement

At best, as rightly observed in general by our friend Prashant, it should not exceed more than 30 days from the date of termination of employment. The only exception is the proportionate bonus for the service rendered in the Accounting Year for which if the bonus has not been declared on the date of termination.

Dear Nisaljayant,

It has been clear that full and final settlement of an outgoing employee has to be made immediately after collecting no dues certificates and other formalities. At the most, you can clear it in fifteen to thirty days.

In the same manner, you can give a relieving letter as mentioned by you without the content of dates for the settlement amounts, because it is the bounden duty of the employer to clear the employee's dues unless the employee is not submitting the no dues.

Legal Opinion on Final Settlement Dues

Thank you for your prompt reply. I want to add some more information: ours is a partner firm. The owners are the wife and her father is a partner. If they have passed a resolution that final dues will be paid after three months from the date of relieving, can we write in the resignation acceptance letter that, as per company policy, we will clear your final dues within three (3) months? Is it legal? Or is there any alternative? Please advise.

Regards, Jayant Nisal

Corporate Manager - H.R./I.R.
[Email Removed For Privacy Reasons]
[Phone Number Removed For Privacy-Reasons]

Dear Jayant,

Neither the constitution of an establishment nor the social or advantageous status of its owners can confer any rights to override the provisions of the laws of the land applicable to the organization run by them. Apart from that, contracting out, i.e., agreeing not to do something specified in law, is not permitted in Indian labor laws.

In continuation of the post of the learned Mr. Umakanthan, though it may not be directly relevant to the query, a judgment passed by the Supreme Court in the matter of OT to managerial personnel (gist as attached) is worth noting for HR practitioners, especially in factories and for those to whom the ID Act would apply. I would like to know of any relevant issues recently decided in this matter.