Facing Leave Encashment Issues During Notice Period: What Are My Rights and Options?

I am currently serving the notice period. My employer has refused to give leave encashment and said any leaves taken (from my remaining annual leaves) in the notice period will extend the notice period by the same number of working days.

Understanding Leave Encashment Laws

From what I understand, under CHAPTER IV of The Model Shops and Establishments (Regulation of Employment and Conditions of Service) Bill, 2016, it is necessary to allow the employee to encash leaves on resignation.

Similarly, under Chapter IV of the Karnataka Shops and Establishments Act: If the employment of an employee who is entitled to leave under sub-section (1) is terminated by the employer before he has taken the entire leave to which he is entitled, or if having applied for and having not been granted such leave, the employee quits his employment before he has taken the leave, the employer shall pay him the amount payable under section 16 in respect of the leave not taken. Such payment shall be made, where the employment of the employee is terminated by the employer, before the expiry of the second working day after such termination, and where an employee quits his employment, on or before the next payday.

The employer has said it's not in their policy, so there is no way they will allow it. Please advise.

The Karnataka Shops and Commercial Establishments Act, 1961

Leave encashment should be allowed:

(13) If the employment of an employee who is entitled to leave under sub-section (1) is terminated by the employer before he has taken the entire leave to which he is entitled, or if, having applied for and not been granted such leave, the employee quits his employment before he has taken the leave, the employer shall pay him the amount payable under section 16 in respect of the leave not taken. Such payment shall be made where the employment of the employee is terminated by the employer before the expiry of the second working day after such termination, and where an employee quits his employment, on or before the next payday.

Increasing the notice period due to the use of unavailed leave also seems problematic.

(14) The unavailed leave of an employee shall not be taken into consideration in computing the period of any notice required to be given before discharge or dismissal.

Understanding Annual Leave (AL), Earned Leave (EL), and Privilege Leave (PL)

Annual Leave (AL), Earned Leave (EL), or Privilege Leave (PL) are types of leave accrued to the credit of the employee (or earned by the employee) after one year of continuous service with the company. If an employee serves for more years, the accrued AL/EL/PL will be higher.

Utilizing Leave During Notice Period

In your case, you have already submitted your letter of resignation to the management and are currently serving your notice period, as per the terms and conditions governing your employment with the company. You have the right to avail AL/EL/PL. What if you are ill with a fever and unable to attend your duties, especially in this era of the COVID-19 pandemic?

Encashment of Unutilized Leave

Even if an employee exits due to termination or resignation, the employer is obligated to provide encashment for the unavailed portion of AL/EL/PL remaining in the employee's account. Therefore, do not hesitate to request encashment for your unutilized EL.

The requirement for a resigned employee to fully serve the notice period is to enable the organization to ensure continuity despite the loss of experienced manpower. The notice period is intended to prepare a substitute for the resigned employee. Allowing the resigned employee to leave during this period would defeat its purpose. Therefore, during the notice period, leave is not granted, and the insistence on extending the notice period by the days of leave cannot be viewed as illegal. However, for the annual leave that one has in credit at the time of being relieved, it must be paid. The quoted provisions impose a liability on the organization to make such payment. These two matters are different and should not be mixed up.

Sorry to differ with my learned friend KK! HR on the issue of the prohibition on the availing of leave by an employee during the notice period and the proportionate consequent extension of the notice period if any leave is availed.

The Rights of Employees During the Notice Period

The notice period cannot curtail any employment rights or benefits of the exiting employee, nor can it confer any special powers on the employer to override the terms of the contract of employment already fixed or the statutory provisions of the law in force. Leave provisions are there in the statute only to enable the employee to discharge his personal as well as social obligations, which can both be planned and unexpected, just like any other member of society.

Employer Practices and Leave Sanctioning

Of course, during the notice period, there will naturally be more pressure on the employee, such as completing unfinished works, attending to certain important and urgent tasks, and familiarizing the substitute with the basic and priority-based items of the work of the seat. The practice of not sanctioning leave is adopted by many employers only to facilitate all these things. However, it cannot be a rule of thumb or a ruthless policy of lack of empathy. Uncertainty is a common feature of life, and anything can happen at any time.

Considerations for Unforeseen Circumstances

Suppose an employee on the notice period suddenly falls ill, lasting for a shorter period of two or three days, like dysentery or a sore eye. How can the employer be totally inconsiderate to refuse leave or extend the notice period alternatively? Would it be a good HR practice, apart from being illegal?

Legal Implications of Refusing Leave Encashment

The issue of good HR practice does not arise here as the employer has straightforwardly refused to allow leave encashment to employees, which goes against the law. Can such a refusal to adhere to established law attract any fine? The employer's idea is that most people don't know about this law and most likely won't take the trouble of filing a complaint or case, risking issues with their relieving letter.

Legal Procedure to Address Non-Compliance

What will be the legal procedure to handle this situation? Does the employee need to file a complaint with the labor department for non-payment of wages or file a suit in court? The employer is completely unethical and has no regard for its reputation. Therefore, the employee fears that if they confront the employer on this matter, the employer may delay their relieving or file a wrongful suit accusing theft of intellectual property.

Annual Leave During Notice Period

An employee can take annual leave during a notice period if the employer agrees to the leave. However, the employee can only take personal or sick leave during a notice period if they give notice in respect of statutory entitlement to 5.6 weeks' paid annual leave under the Working Time Regulations 1998 (SI 1998/1833).

In other words, holiday entitlement for the employee's final part-year of employment should be calculated up to the end of the period of notice that they work. If you wish to leave before the end of your contractual notice, in practical terms, your employer does not have a great deal of options. Your employer cannot force you to work, even though you may be in breach of contract. You could take them to court for damages that your business will suffer because of them not working their notice period. Courts are unlikely to force staff to work their notice period. Equally, if you breach the employment contract, an employee might not need to work their notice period. (Source: https://rplg.co/b6911cc0)

Leave Encashment During Notice Period

The limited question raised here is: can an employer refuse encashment of leave because an employee, during the notice period, availed leave and consequently served a short notice period?

The answer is that it is illegal to do so. However, if service conditions required it and the employee was informed about it, even then, refusal to encash would be wrong, unjustified, and illegal.

The effect of availing leave during the notice period should legitimately only be to extend the notice period by those many days or, at worst, to treat those days as loss of pay. To reject outright leave encashment solely on that ground is a breach of the legal obligation on the part of the employer.

You should write to the decision-maker and demand encashment. If this is refused, you can approach the Labour Commissioner's office for redressal.

Regards,

Vinayak Nagarkar
HR and Employee Relations Consultant