Leave Without Pay in IT: Does It Affect Your Continuous Service Under the Shop and Establishment Act?

Under the Shop and Establishment Act applicable to IT companies, if an employee takes Leave Without Pay (LOP) with prior approval, will this period be considered as part of their continuous service?

Dear Leena,

Employees work to fulfill their domestic responsibilities and avail themselves of leave to do so. However, sometimes their needs exceed their permissible leave quota for the year, even with accumulated leave. Against this backdrop, companies create another type of leave: "Leave Without Pay" (LWP).

Even availing of LWP follows the same procedure, and since it is considered an authorized absence, it cannot be called a "break in service."

If the employee absconds from their duties or overstays their leave, it becomes an unauthorized absence. However, upon resuming their duties, the employee may request the regularization of the absence. If the regularization is approved, it cannot be called a "break in service."

For unauthorized absences, if the employee is awarded the punishment, then the companies consider it a "break in service."

These are my observations on how the companies define the "break in service."

Thanks,

Dinesh Divekar

Hi Leena, I received your question. I am certain that being in an IT company, you already have registration under the Shops and Establishment Act.

IT Companies and the Shops and Establishment Act

Based on your question:

1. YES, IT companies are also covered under the Shops and Establishment Act.

2. If an employee takes Leave Without Pay (LOP) with prior approval, YES, this period will be considered as part of their continuous service. Additionally, you will also have to pay gratuity to the employee accordingly (as applicable).

Under the Shops & Commercial Establishment Act, Factory Act, etc., any leave that is already approved by the organization shall be treated as continuous employment only.

The query is answered presuming it's concerned about TN situations:

Both the questions are answered in the affirmative.

Yes, IT & ITES business firms (other than those in which a manufacturing activity is carried on to be considered as a 'factory') have to be registered under the TN Shops & Establishments Act, 1947 vide sec. "(3) 'commercial establishment' means an establishment which is not a shop but which carries on the business of advertising, commission, forwarding or commercial agency, or which is a clerical department of a factory or industrial undertaking or which is an insurance company, joint stock company, bank, broker's office or exchange and includes such other establishments as the State Government may by notification declare to be a commercial establishment for the purposes of this Act. (6) 'establishment' means a shop, commercial establishment, restaurant, eating-house, residential hotel, theatre, or any place of public amusement or entertainment and includes such establishment as the [State] Government may by notification declare to be an establishment for the purposes of this Act;"

"Shop" means any premises where any trade or business is carried on or where services are rendered to customers and includes offices, storerooms, godowns, and warehouses, whether in the same premises or otherwise, used in connection with such business but does not include a restaurant, eating-house, or commercial establishment."

For your Qn.2. The following provisions are stated in the act:

CHAPTER VI HOLIDAYS WITH WAGES

"25. Holidays and sick leave-- (5) A person employed shall be deemed to have completed a period of twelve months' continuous service within the meaning of this section, notwithstanding any interruption in service during those twelve months brought about (i) by sickness, accident, or authorized leave (including authorized holidays) not exceeding ninety days in the aggregate for all three; or (ii) by a lock-out; (iii) by a strike which is not an illegal strike; or (iv) by intermittent periods of involuntary unemployment not exceeding thirty days in the aggregate and authorized leave shall be deemed not to include any weekly holiday or half-holiday allowed under this Act which occurs at the beginning or end of an interruption brought about by the leave."

I don't find a very specific provision addressing your query except the above. The general understanding is when an approved leave is availed by an employee normally there won't be interruptions in the 'continuous service' of the concerned. Except in the circumstances when that approving authority for the grant of leave mentions specially whether the 'break-in-service' consequent to the grant of LOP is approved & availed. Both scenarios are possible i) with a break and ii) without a break. The stipulation is that it should be specified while communicating the approval of LOP. For example, LOP for higher studies, continued sickness, accident followed by a coma state or mental state, etc. Practically, I have seen instances where an employee doesn't report for duty, goes on applying for the grant of LOP, in absentia and later after a while/years reports back for duty and applies for regularization (using medical grounds or such other reasons for not applying for the grant of leave (LOP as he/she exhausted EL/SL) in advance. On return, a departmental inquiry was initiated and regularized, without a break-in-service. So it all depends on the precedents & stand of HOD, circumstances under which LOP is sought & approved. Normally when LOP is approved as per extant rules/service conditions, 'continuous service' is not disturbed.