Dear Respected Members,
We are seeking a legal opinion regarding our suspended employees. I am briefing the case as follows:
Background of the Case
Three employees of high management grade conspired to form a partnership firm through their respective wives. This partnership firm was located and registered at the residence of one of the three employees. All the wives were housewives with no business experience. After eight months of secretly working with the firm, we discovered these facts, corroborated by the Import-Export Code number and Port Shipping data, which are in the public domain. It was revealed that the firm was exporting products similar to ours, and many customers were the same as those of our company.
Actions Taken
Upon learning this, we immediately suspended all of them to prevent further loss and asked them to appear before a one-man inquiry committee headed by our GM. All three employees did not appear before the inquiry committee, instead sending medical certificates. Subsequently, they sent their resignation and claimed gratuity, earned leaves, and eight days' salary, etc.
We replied that their resignation couldn't be accepted during the pendency of the inquiry, and they should appear before the inquiry committee. Their dues could not be paid until their services were terminated. At present, we are showing them as suspended employees in our records. Now they have gone to the Court of Law to press their demand for gratuity, earned leaves, etc.
Opinion Sought
1. Are the steps taken by us correct in law?
2. Can we refuse payment as requested on the grounds that their services have not been terminated and they are still suspended employees?
3. How long can we keep them in the status of suspended employees, given there is no chance of their appearing before the inquiry committee? (Currently, all three are engaged in the new firm partnered by their wives and competing against us.)
4. Are there any other remedies available to us, apart from withholding their dues as mentioned above?
From India, Tirupati
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We are seeking a legal opinion regarding our suspended employees. I am briefing the case as follows:
Background of the Case
Three employees of high management grade conspired to form a partnership firm through their respective wives. This partnership firm was located and registered at the residence of one of the three employees. All the wives were housewives with no business experience. After eight months of secretly working with the firm, we discovered these facts, corroborated by the Import-Export Code number and Port Shipping data, which are in the public domain. It was revealed that the firm was exporting products similar to ours, and many customers were the same as those of our company.
Actions Taken
Upon learning this, we immediately suspended all of them to prevent further loss and asked them to appear before a one-man inquiry committee headed by our GM. All three employees did not appear before the inquiry committee, instead sending medical certificates. Subsequently, they sent their resignation and claimed gratuity, earned leaves, and eight days' salary, etc.
We replied that their resignation couldn't be accepted during the pendency of the inquiry, and they should appear before the inquiry committee. Their dues could not be paid until their services were terminated. At present, we are showing them as suspended employees in our records. Now they have gone to the Court of Law to press their demand for gratuity, earned leaves, etc.
Opinion Sought
1. Are the steps taken by us correct in law?
2. Can we refuse payment as requested on the grounds that their services have not been terminated and they are still suspended employees?
3. How long can we keep them in the status of suspended employees, given there is no chance of their appearing before the inquiry committee? (Currently, all three are engaged in the new firm partnered by their wives and competing against us.)
4. Are there any other remedies available to us, apart from withholding their dues as mentioned above?
From India, Tirupati
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Dear Sharmaji,
Since the proposed disciplinary action is against managerial cadre employees, the application of labor laws other than the Payment of Gratuity Act, 1972 is out of the question in this issue. In such a situation, the terms of the contract of employment and the service regulations applicable to their cadre can only be called in assistance.
Doubt About Authority
First and foremost, I have a basic doubt about your company's authority as the employer of the husbands to question the formation of a partnership firm in the same trade by the wives of the three employees.
Proof of Allegations
Secondly, even if your allegations are based on the suspicion that the said partnership firm is a pseudo one actually run by the three employees, what is the proof? Mere suspicion cannot take the place of proof. The customers being the same might be a mere coincidence based exclusively on the choice of the same customers themselves. The import-export Code No and Port Shipping data available in the public domain may be in the Partnership Firm's name only. As such, how can they prove the allegation that the three employees are secretly working there and creating a conflict of interests against their current employer?
Suspension and Inquiry
Thirdly, it seems that you have placed them under suspension pending inquiry. If so, have you framed any charges and served them before calling them for an inquiry? Without knowing the charges leveled, how do you expect them to participate in the inquiry during suspension?
Contract and Subsistence Allowance
Fourthly, does the contract of employment or service regulations provide for suspension pending inquiry? Was any subsistence allowance paid to them? The principles of natural justice apply to all suspended employees facing disciplinary proceedings irrespective of the sectarian classification. Even if there is no express provision for suspension by the employer, of course, it is inherent with the power to appoint. But non-payment of subsistence allowance during suspension would certainly vitiate the entire disciplinary action.
Non-Compete Agreement
Fifth and finally, have you entered into any non-compete agreement with the three employees?
You are perfectly right in rejecting their resignation on the ground of pending disciplinary action against them. This can be a valid defense against their claim for gratuity.
Therefore, my suggestion would be:
A) To continue with the inquiry after framing formal charges and if they fail to participate, set the inquiry ex-parte and decide according to the inquiry findings.
OR
B) To accept their resignations forthwith after adjusting the notice period salary from their dues.
From India, Salem
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6108Since the proposed disciplinary action is against managerial cadre employees, the application of labor laws other than the Payment of Gratuity Act, 1972 is out of the question in this issue. In such a situation, the terms of the contract of employment and the service regulations applicable to their cadre can only be called in assistance.
Doubt About Authority
First and foremost, I have a basic doubt about your company's authority as the employer of the husbands to question the formation of a partnership firm in the same trade by the wives of the three employees.
Proof of Allegations
Secondly, even if your allegations are based on the suspicion that the said partnership firm is a pseudo one actually run by the three employees, what is the proof? Mere suspicion cannot take the place of proof. The customers being the same might be a mere coincidence based exclusively on the choice of the same customers themselves. The import-export Code No and Port Shipping data available in the public domain may be in the Partnership Firm's name only. As such, how can they prove the allegation that the three employees are secretly working there and creating a conflict of interests against their current employer?
Suspension and Inquiry
Thirdly, it seems that you have placed them under suspension pending inquiry. If so, have you framed any charges and served them before calling them for an inquiry? Without knowing the charges leveled, how do you expect them to participate in the inquiry during suspension?
Contract and Subsistence Allowance
Fourthly, does the contract of employment or service regulations provide for suspension pending inquiry? Was any subsistence allowance paid to them? The principles of natural justice apply to all suspended employees facing disciplinary proceedings irrespective of the sectarian classification. Even if there is no express provision for suspension by the employer, of course, it is inherent with the power to appoint. But non-payment of subsistence allowance during suspension would certainly vitiate the entire disciplinary action.
Non-Compete Agreement
Fifth and finally, have you entered into any non-compete agreement with the three employees?
You are perfectly right in rejecting their resignation on the ground of pending disciplinary action against them. This can be a valid defense against their claim for gratuity.
Therefore, my suggestion would be:
A) To continue with the inquiry after framing formal charges and if they fail to participate, set the inquiry ex-parte and decide according to the inquiry findings.
OR
B) To accept their resignations forthwith after adjusting the notice period salary from their dues.
From India, Salem
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I would like to say in this matter that what will be the result of your inquiry? Terminating the service of employees? It will happen the same way when those people have given their resignation letter. Rather, by giving their resignation letter, your company will not have much liability. If you terminate them, then you will have to give a notice period which will probably not be applicable in the resignation given by them. The notice period will be recovered by the company if the company has a notice period clause indicated in the standing order and appointment letter.
From India, Rudarpur
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From India, Rudarpur
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Dear Colleague,
A very detailed explanation was given by our colleague, Shri Umakanthan Sir, in his reply. A few points to consider are:
1. In the event you have rejected their resignation and lost confidence in them, clearly collect authentic evidence and issue a charge sheet as soon as possible. You may call for their explanation on the grounds of "loss of confidence," stating all facts of the matter mentioned in the charge sheet. Give a specific timeline for submitting their reply in writing. If you can get letters from the customer list for whom you and they supply, it will be good proof.
2. It is also suggested that once they submit or do not submit a reply within the given time for the charge sheet, then post an inquiry and send an inquiry notice. Please conduct the inquiry with an independent inquiry officer, preferably from outside (not by your GM). Maybe an advocate from outside. If they attend the inquiry, well and good. If they do not attend the inquiry two times or more, then conduct an ex parte inquiry in their absence and issue termination letters in consultation with a lawyer.
3. You may forfeit their gratuity claim based on the findings of the inquiry if proved against them, and they are found guilty on the ground of "moral turpitude."
4. Kindly ensure that fair opportunities are given, and then actions are taken in consultation with a good lawyer in this case to avoid any aftereffects as well as to give good communication to other managers of the company too.
5. If you have strong evidence and belief, then use the "Loss of Confidence" provision and before moving, have a good reading of all service rules, code of conduct, etc., of your organization.
6. Some good detective agencies are there that will also be helpful in finding out the facts of their business, which can also be explored.
7. Do not keep them as they are for long but quickly move on with concrete actions with all justice, fair process, and opportunities to prove their side too.
All the best, God bless,
Dr. P. SIVAKUMAR
Doctor Siva Global HR
Tamil Nadu
From India, Chennai
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A very detailed explanation was given by our colleague, Shri Umakanthan Sir, in his reply. A few points to consider are:
1. In the event you have rejected their resignation and lost confidence in them, clearly collect authentic evidence and issue a charge sheet as soon as possible. You may call for their explanation on the grounds of "loss of confidence," stating all facts of the matter mentioned in the charge sheet. Give a specific timeline for submitting their reply in writing. If you can get letters from the customer list for whom you and they supply, it will be good proof.
2. It is also suggested that once they submit or do not submit a reply within the given time for the charge sheet, then post an inquiry and send an inquiry notice. Please conduct the inquiry with an independent inquiry officer, preferably from outside (not by your GM). Maybe an advocate from outside. If they attend the inquiry, well and good. If they do not attend the inquiry two times or more, then conduct an ex parte inquiry in their absence and issue termination letters in consultation with a lawyer.
3. You may forfeit their gratuity claim based on the findings of the inquiry if proved against them, and they are found guilty on the ground of "moral turpitude."
4. Kindly ensure that fair opportunities are given, and then actions are taken in consultation with a good lawyer in this case to avoid any aftereffects as well as to give good communication to other managers of the company too.
5. If you have strong evidence and belief, then use the "Loss of Confidence" provision and before moving, have a good reading of all service rules, code of conduct, etc., of your organization.
6. Some good detective agencies are there that will also be helpful in finding out the facts of their business, which can also be explored.
7. Do not keep them as they are for long but quickly move on with concrete actions with all justice, fair process, and opportunities to prove their side too.
All the best, God bless,
Dr. P. SIVAKUMAR
Doctor Siva Global HR
Tamil Nadu
From India, Chennai
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Dear Manoj Sharma Ji,
The suggestions provided by Umakanthan Ji and Dr. Sivakumar are quite relevant as they analyze the case from various angles.
In my opinion, your case is very weak based on the information provided in the posting. However, since your establishment has already initiated action, the primary objective now is to defend the case. You need to strengthen your case; if necessary, file an FIR by consulting an advocate with relevant documents. Your management should not accept the resignation until they appear for a domestic inquiry. You should appoint an advocate as the inquiry officer, and let the GM be the management representative. You should construct the case as misconduct to validate the action initiated.
Because doing business by the wives of your employees is not misconduct by forming a partnership firm, it can be considered misconduct if there is any use of the name of your establishment, running a business in the company colony allotted for accommodation, or violation of any clause of the appointment or misconduct as per the company's standing order or violation of any policy laid down by the company. Your actions should be as per the guidelines of the Principles of Natural Justice.
You are perfectly right in rejecting their resignation on the grounds of pending disciplinary action against them. This can be a valid defense against their claim for gratuity.
From India, Mumbai
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The suggestions provided by Umakanthan Ji and Dr. Sivakumar are quite relevant as they analyze the case from various angles.
In my opinion, your case is very weak based on the information provided in the posting. However, since your establishment has already initiated action, the primary objective now is to defend the case. You need to strengthen your case; if necessary, file an FIR by consulting an advocate with relevant documents. Your management should not accept the resignation until they appear for a domestic inquiry. You should appoint an advocate as the inquiry officer, and let the GM be the management representative. You should construct the case as misconduct to validate the action initiated.
Because doing business by the wives of your employees is not misconduct by forming a partnership firm, it can be considered misconduct if there is any use of the name of your establishment, running a business in the company colony allotted for accommodation, or violation of any clause of the appointment or misconduct as per the company's standing order or violation of any policy laid down by the company. Your actions should be as per the guidelines of the Principles of Natural Justice.
You are perfectly right in rejecting their resignation on the grounds of pending disciplinary action against them. This can be a valid defense against their claim for gratuity.
From India, Mumbai
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Very good insights are provided by seniors. Cases like these at the senior level are very rare and provide a lot of learning experiences. Thanks to all.
Suggestion on Inquiry Proceedings
My suggestion, as mentioned by the seniors, is that if the employer has strong grounds or can establish strong grounds, they may proceed with the inquiry proceedings. If not, it is better to settle by accepting resignations, as a failure in the inquiry by the employer may create undesired issues later.
If the employer decides to proceed regardless of consequences, then they should conduct the inquiry and terminate based on the findings. If the delinquents wish to take legal action, they can face it.
Thank you, seniors, once again.
From India, Hyderabad
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Suggestion on Inquiry Proceedings
My suggestion, as mentioned by the seniors, is that if the employer has strong grounds or can establish strong grounds, they may proceed with the inquiry proceedings. If not, it is better to settle by accepting resignations, as a failure in the inquiry by the employer may create undesired issues later.
If the employer decides to proceed regardless of consequences, then they should conduct the inquiry and terminate based on the findings. If the delinquents wish to take legal action, they can face it.
Thank you, seniors, once again.
From India, Hyderabad
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Dealing With Problem Employees A Legal Guide.pdf