Legal Consequences of not Non-Payment of an Employee's Salary by the Employer

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INTRODUCTION

The rights of the employees are protected by Indian law to a great extent. Generally, the employers have a notion that the employees are not well aware of the rights that come with their employment and hence they can be fired at any point, or the non-payment of wages can be done without any consequences. But the law protects such cases of non-payment of rightful wages/salary to the employees 

LAWS REGARDING PAYMENT OF WAGES

• Contract labour (regulation and abolition) Act- According to section 21 of this act, a contractor will have to pay the employees he hires on a contractual basis. If such payment is not made, then the principal employer has to pay the contract labour. 

• Shops and Establishment Act- It is no doubt that many states have different rules and laws regarding the payment of wages when it comes to governing the conduct of shops and establishments that are there in different states. But at the same time, the model law which lays down the fabric for the laws to be framed by states says that if an employer works more than the usual hours of working, then he shall be paid twice the rate of his salary. If the employer defaults on payment in such conditions, then the fine levied is around 2 Lakhs. 

• Wages Act- This law includes two more laws in it namely the Minimum Wages Act and the Payment of Wages Act. These two laws are the main laws regarding the payment of wages to the employees by their employers. The Minimum Wage Act provides for the minimum wage that every worker is entitled to. The minimum payment depends on the kind of work the worker is carrying out. It varies on a state-to-state basis. The other law, which is the Payment of Wages Act, refers to the on-time payment of wages to employers without unreasonable delay. To ensure that these laws are complied with properly, the government has appointed some special officers to supervise the matters or issues that might arise concerning the contravention of these laws. These officers are- 

1. A commission is appointed for workmen’s compensation

2. There is a regional labour commission to look over these disputes.

3. The presiding officer of the industrial tribunal is also an important officer of the law when it comes to such disputes. 

Section 4 of the Payment of Wages Act talks about salary distribution and states that the salary distribution can only be extended to a fixed amount of time and not more than that. 

• Industrial Disputes Act- section 33C of the act talks about the payment which is due to the employee and its recovery. When the money is due to an employee, he can file a suit regarding this in the appropriate court and get the money recovered if the court is satisfied with the veracity of the claims made. This section also covers cases where the employee dies, and the salary arrears are recovered by the heirs of the employee from the employer. 

LEGAL ACTION OR  REMEDIES AVAILABLE IN CASE OF NON-PAYMENT OF SALARY/WAGES

1. Send Legal notice- A legal notice should be sent as the first step towards the redressal of non-payment of salary. In this notice, the employee is required to attach the employment contract along with a copy of the bank statement which acts as proof of non-payment of salary. The employee can mention the consequences of non-payment of salary. In most cases, sending a legal notice is enough for the employer to pay the salary arrears because nobody wants to step into litigation. 

2. Approaching the Labour Commissioner- The main duty of the labour commissioner is to reconcile everything between the employee and the employer and address the issue of non-payment after analysing everything available. It is generally advised for the employee to attach a copy of the legal notice and bank statement along with the employment contract to bolster the case. 

3. Labour court- If the labour commissioner is not able to address the dispute, the employee can file a suit under section 33C of the Industrial Disputes Act and can approach the court with the complaint. However, the employee can approach the court within 1 year from the default in payment of salary and the labour court cannot take more than 3 months to adjudicate the matter. But there is an exception which states that in cases where the presiding officer of the labour court feels like it is expedient in the interests of justice to extend the time limit of 3 months, then the time limit can be extended. 

4. Arbitration- Since arbitration is becoming one of the most frequently used dispute settlement mechanisms, in most employment contracts, an arbitration clause is present nowadays. In case of any default on the same, the matter can be adjudicated by the arbitral tribunal. 

5. Application in National Company Law Tribunal- An application before the NCLT can also be made under the provisions of the Insolvency and Bankruptcy code provided that the minimum unpaid salary must not be less than 1 lakh rupees and the maximum amount of unpaid salary should not exceed 1 crore rupees. 

DOCUMENTS THAT ARE NEEDED AT ALL TIMES

• A copy of the employment contract is needed at all times when undertaking any of the remedies available to the employee. 

• Bank statement

• Joining letter of the employee which acts as proof that the employee is a worker in the employer’s company. 

COMPANY’S FRAUDULENT INTENTION

If the company has fraudulent intentions and that is the reason behind the non-payment of salary, then the law adds a layer of protection for the employees and specifies other legal routes for them. These legal remedies are- 

• The employee can file a suit under section 447 of the Companies Act which lays down punishment for fraud. 

• The employer can be imprisoned for a period of six months to ten years.

• Recovery of the full amount of an amount that is three times more than the amount which was originally not paid by the employer.

• Employees can also file a criminal case under the provisions of the Indian Penal Code. 

REMEDY AVAILABLE IF THE EMPLOYEE IS AT THE MANAGER LEVEL

If a default of payment of salary happens for employees who are at the managerial level, which is a very rare thing to happen, the employee can file a summary suit under the Civil Procedure Code order 37.  A summary suit is a fast way of delivering justice because, in such a suit, the judgement is passed without hearing the defence. It goes against the provision of Audi Alteram Partem which specifies that both sides should be heard. Hence, summary suits can be invoked only in a handful of cases such as this one. That is the reason behind not using order 37 as the first resort to addressing the issue of non-payment.

STEPS TO RECOVER MONEY

STEP 1- A legal notice should be sent to the employer’s office.

STEP 2- If the employer does not pay up after sending the legal notice, the employee can approach the police and file a cheating case with all the proof. 

STEP 3- If the filing of a complaint is not fruitful, then the employee can proceed with the suit in front of the labour court.

CASE LAWS

1. Hind Kamgar Sanghatana vs. the State of Maharashtra- In this case, the court held that non-payment of wages to the employee is a violation of the right guaranteed under article 21 of the Indian constitution. Payment of wages which are due is a fundamental right of the employees. Non-payment of due wages infringes on the right of people to live with dignity which is an important facet of article 21. 

2. Central Secretariat Club vs Geetam Singh- In this case, the court held that the non-payment of wages is unpardonable. Extracting and exploiting the workers and not paying them the due amount is inhuman and is short of basic human dignity and decency with which every person has a right to live. 

EFFECT ON WAGE PAYMENT DUE TO COVID-19 LOCKDOWN: AN EMPLOYER’S PERSPECTIVE

Due to the nationwide lockdown because of covid-19, a lot of companies were being shut down to avoid any contact with the virus. However, the government of India and the state governments issued advisory orders to the employers of establishments requesting them to not stop paying the employees during the lockdown. The orders passed were only advisory because there are already a lot of employee-centric legislations which make sure that there is no arbitrary firing of an employee or non-payment of salary. But the order was biassed in the sense that the government needs to keep in mind that not only the employees but the employers too are affected by the lockdown. The economy itself is on the verge of collapse across the globe. The orders passed should be sensitive towards all the stakeholders of the economy and not just one sector of it. 

CONCLUSION

There are a lot of laws within the fabric of Indian law jurisprudence which protects the interest of the employees. The interests of the employees need to be protected because the working sector needs to be a level playing field. If this is not the case, then there will be an unequal distribution of power which will further lead to inequalities. This will lead to the infringement of the constitution which has to be avoided at all costs. 

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Written by Tarushi Goel, a fifth-year law student of O.P Jindal Global University. She is currently pursuing BA LLB and is inclined toward legal research.