Is It Legal for Companies in India to Deduct Earned Leaves for a Global Shutdown?

Hi, the company where I'm working introduced a new global shutdown during the last week of December, and it has deducted the earned leaves from every employee for that. Can the company do that in India? Can the company simply declare the shutdown and deduct our earned leaves for their sake? Because as Indian employees, we don't want those holidays. My point is, when the company itself has declared the shutdown, then what's the meaning of taking our earned leaves?

Please provide inputs on whether it is legal in India according to labor law.

Regards,
Lakshmi

Hi Lakshmi,

I can provide you with some general information. In India, employment laws are governed by various statutes, and the specifics may vary depending on your employment contract, industry, and other factors.

Typically, companies are required to comply with the terms and conditions mentioned in the employment contracts and relevant labor laws. The legality of deducting earned leaves for a company-declared shutdown may depend on the specific terms outlined in your employment contract and whether it adheres to applicable labor laws.

Leave Policy in India

In India, the Leave Policy is generally governed by the Shops and Establishments Act of the respective state, and sometimes by specific labor laws applicable to your industry. It's advisable to review your employment contract and relevant labor laws to understand the specifics regarding earned leave, company shutdowns, and deductions.

If you have concerns or queries about the deduction of earned leaves during a company-declared shutdown, you may want to consult with your HR department or seek advice from a legal professional who specializes in labor law in India. They can provide guidance based on the specific details of your situation and the applicable legal framework. Keep in mind that labor laws are subject to change, so it's essential to consider the most up-to-date information.

Thanks

@Lakshmi-k, you mentioned that "The company where I'm working has introduced a new global shutdown during the last week of December and has deducted the earned leaves from every employee for that." Is the company planning to close down its operations, and in view of this, has it asked employees to surrender their leaves?

Procedures for Closure of an Undertaking

There are certain procedures to be followed for the closure of an undertaking. According to the Industrial Disputes Act, the company should inform the appropriate authority and the employees of its intention to close down. Every employee should be given one month's notice. Since the closure is going to be effective in the last week of December, the notice should be issued now.

Settlement Requirements

The settlement should include compensation for every employee who has worked for 240 days in the preceding 12 months, to be paid an amount of compensation at the rate of 15 days' salary for each year of service. The settlement should also include the surrender of up to 24 days' earned leave. Obviously, all employees who have worked for five years should be paid gratuity at the rate of 15 days' salary for every completed year of service. This is the minimum settlement as per the law.

Hi Madhu,

I'm mentioning the annual shutdown from Dec 22nd to Jan 2nd, where the company has declared it as a shutdown of all branches during that period but has forcefully deducted our ELs (mentioning it as a new policy). My question is, can I question the company about the forceful deduction of my leaves? Does the company legally have the rights to deduct our ELs? I'm working at a US-based semiconductor company as an engineer.

Regards,
Lakshmi

Hi, If I am correct, "shut down" means to lay off. If the unemployment caused by a layoff is for a short period, the unemployment should be treated as compulsory leave, either with or without wages. This is as per the Industrial Disputes (ID) Act. The earned leave is governed by the Factory Act or the Shop and Establishment Act. Your organization is not interested in paying for the layoff period directly, so it is paying you through earned leave (EL).

Regards, Sunil Kumar

Hi Lakshmi,

It is a common procedure followed in the IT/ITES sectors.

Normally, during every year-end, there is some sluggishness in projects as clients from the US/Europe are on holiday due to Christmas/New Year celebrations. Since many of these companies outsource projects from US/UK clients, there is not much workload for employees. Hence, many companies declare a common holiday at year-end, and to reduce the accumulated EL or PL balance, those holidays are adjusted against accumulated leave. IT employees, who work under stress throughout the year, happily take this week's break.

It is true that it should not be a compulsory measure, but in IT companies, most employees perceive this break as a good one and do not mind their leaves being adjusted. This has nothing to do with layoffs.

Yes, it should be considered a layoff, and a layoff should also be declared for reasons laid down in the ID Act after informing the concerned officer of the labor department. There is no way earned leave can be surrendered. However, when the system is structured in a way that calls for such an annual shutdown for any reason, there could be a preplanned arrangement whereby the affected employees are given compensation.

Festival Shutdown Practices in Organizations

This is a common practice for many organizations. In the three MNCs where I have worked during my career—Guest Keen Williams, Philips India, and Vesuvius India Ltd—I have noticed that especially during Durga Puja (a famous festival in West Bengal), there is already a 4-5 day festival holiday. Along with it, another 4-5 days are added back, resulting in about a 10-day shutdown. The last 4-5 days are considered as special leave or a 50:50 adjustment by both employer and employee. There is no layoff or closure rule applicable for this period.

This is an amicable settlement/understanding as a shutdown is also part of the process for the smooth running of the organization throughout the year.

Regards,
S K Bandyopadhyay (West Bengal, Howrah)
CEO - USD HR Solutions
[Phone Number Removed For Privacy-Reasons]
[Email Removed For Privacy Reasons]
www.usdhrs.in

Earned Leave Policy

Employees receive earned leave (EL) based on their attendance in a calendar year. At the end of the calendar year, all leaves earned according to the company policy remain in the employees' accounts. The leaves credited to an employee's account cannot be altered or changed unless the employee uses them, ensuring that the maximum accumulation number is not exceeded.

Global Shutdown and Labor Laws

There is no provision for a global shutdown in labor laws unless such disasters are declared by the appropriate government. Employees affected by such changes are required to report this to the relevant government authority. This constitutes unfair labor practice.