How to Send Legal Notice for Non-Payment of Salary to Employer/Company?

In the post-COVID landscape of 2023, the issue of employers not paying salaries to their employees has become increasingly prevalent, causing financial distress and uncertainty for many workers in India. This guide is designed to provide a comprehensive procedure for employees to file a formal complaint against their company for salary non-payment. It underscores the importance of employees being aware of their rights and being willing to take appropriate action when their salaries are not paid promptly. The employers carry a notion that the employees don't have any legal knowledge or any resources by which they can file a case against the employer. However, the reality is that there are various things that an employee can do. To safeguard employee rights, multiple legal remedies exist to claim the unpaid salary as well as interest on the same. This article discusses the ways in which the unpaid salary can be recovered from an employer, by the employee and the steps to be taken.

"Non-payment of salary by the employer can be claimed not just by the employee but also by his/her relatives or legal heirs if the employee is deceased,” says Advocate Dheeraj Kumar.

Table of Content:

• Legal Notice to Address Unpaid Dues
• Insolvency and Bankruptcy Code, 2016 (IBC)
• Acts governing the salary payment by organizations
  • Contract Act
  • Shops and Establishment Act
  • Wages Actrd employee rights, multiple legal remedies exist to claim the unpaid salary as well as interest on the same. This article discusses the ways in which the unpai
  • Industrial Dispute Act
• Documents required for a Legal Notice
• Relief can the employee seek in the legal notice
• Content of the Legal notice
• What steps can be taken by employee / Steps To recover unpaid salary [with timeline]
  • Approach Labour Commissioner/ Labour Court
  • Go for Arbitration
  • File a civil suit
  • Application before NCLT (If the unpaid amount is more than 1 lakh)

Legal Notice to Address Unpaid Dues

The Payment of Wages Act of 1936 is a crucial piece of legislation that mandates the timely disbursement of salaries to employees. In cases where an employer denies or delays salary or wages to an employee, the affected individual is entitled to interest on the delayed payment. To initiate the process of addressing this issue, employees can send a formal legal notice to their employer. This legal notice should include specific documents as evidence of unpaid salary, such as bank statements, appointment letters, salary details, and the employment contract.

Upon receiving the legal notice, the employer is legally obligated to promptly settle the outstanding dues, along with the accumulated interest. Failure to comply with this requirement can lead to further legal remedies being pursued by the employee, including the initiation of Insolvency and Bankruptcy proceedings, arbitration and mediation, or the filing of a lawsuit to recover the unpaid dues.

Insolvency and Bankruptcy Code, 2016 (IBC)

Under the Insolvency and Bankruptcy Code of 2016, employees who have not received their salaries can collectively file a petition citing non-payment of salary. This action triggers the appointment of a resolution professional and the establishment of a creditors' committee. If a resolution is not reached regarding the salary payment, the company may ultimately face liquidation.

To initiate a complaint under the IBC, employees must first send a demand notice to the employer, requesting the payment of unpaid dues within a specified timeframe. Failure to comply with this demand can trigger the insolvency resolution process, typically initiated through an application to the National Company Law Tribunal (NCLT).

Acts governing the salary payment by organizations

1. CONTRACT LABOR (REGULATION AND ABOLITION) ACT

• According to Section 21 of the Act, the contractor shall be responsible for payment of wages to each worker employed by him as contract labor and such wages shall be paid before the expiry of such period as may be prescribed. 
• If the contractor fails to make payment of wages within the prescribed period, then the principal employer shall be liable to make payment of wages in full or the unpaid balance that is due to the contract labor employed by the contractor and recover the amount so paid from the contractor either by deduction from any amount payable to the contractor under any contract or as a debt payable by the contractor.

2. SHOPS AND ESTABLISHMENT ACT, 1953

• Many states have their own legislation governing the conduct of various shops and establishments within their States. According to the provisions of the Model Act, “Where any worker is required to work on any day in excess of nine hours and forty-eight hours in a week, he shall be entitled to wages at the rate of twice his ordinary rate of wages or such higher amount as may be prescribed.”
• If the employer violates any provisions of the Act or any rules made under this Act by the State Government including non-payment of wages he or she is liable to pay a fine that may extend to Rs. 2 Lakhs. The additional fine can also be levied. 

3. WAGES ACT

• The Minimum Wages Act, 1948 and the Payment of Wages Act, 1936 are the two key legislations that govern and regulate wages paid by the employer to the employee. The former Act seeks to fix the minimum wage that must be guaranteed to all workers. The amount of pay is determined with respect to the nature of the work, which is mentioned in the Schedule of the Act. The minimum wage differs from State to State. 
• On the other hand, the Payment of Wages, Act 1936 guarantees timely payment of wages to the employee or the workman. 
• Accordingly, the appropriate Government is provided with the power to appoint the following classes of officers to deal with claims arising out of deductions from wages or delay in payment:
  • Commissioner for workmen’s compensation
  • Regional labor commissioner
  • Officer of the State Government, not below the rank of regional labor commissioner, with minimum experience of two years.
  • The presiding officer of labor Court or Industrial dispute tribunal 
  • Other officers with experience as a civil judge or judicial magistrate.

4. INDUSTRIAL DISPUTES ACT

Section 33C of the Act deals with the recovery of money that is due to be paid to the employee. According to this provision, any employee or someone authorized by the employee, or legal heir in case of the deceased employee can file an application for payment of salary to the appropriate government. On being satisfied that such money is due, the appropriate government issues a certificate for payment of dues. However, if there is a need to compute the amount of money then, it shall be decided by the Labour Court. 

"The Industrial Dispute Act shall apply only to industries. Due to the interpretation of the word ‘industry’ by the Supreme Court in the Bangalore Water Supply Case, the list of employees that can file an industrial dispute includes even those that work in Universities, hospitals, municipal corporations, and clubs,” says Advocate Dheeraj Kumar.

Arbitration, Mediation, and Alternate Dispute Resolution

While arbitration is a potential avenue for resolving disputes, it can be costly and time-consuming. It is essential to check if arbitration is stipulated in the employment contract. Another alternative is mediation, which involves a neutral third party facilitating a peaceful resolution between the parties. However, the effectiveness of mediation largely depends on the employer's willingness to adhere to the mediator's decision.

Filing a Lawsuit

Employees have two primary options for filing lawsuits related to non-payment of salary:

1. Civil Suit: In this approach, employees can initiate a civil suit under the Civil Procedure Code. Typically, a legal notice is sent to the employer demanding payment of dues. If the employer fails to respond, the employee can commence legal proceedings, including filing a summary suit before the District Court. If the employer does not appear in court within ten days, a decision is made in favour of the employee. It's important to note that the lawsuit must be filed within three years from the due date of the salary.

2. Criminal Suit: Employers are legally obliged to pay salaries on time, and if they refuse or fail to do so, employees can file a criminal suit under Section 420 of the Indian Penal Code. Additionally, if an employer issues a bounced check for salary and refuses to make a fresh payment, employees can file a suit under the Negotiable Instruments Act of 1881.  

Conclusion

In the wake of the COVID-19 pandemic, particularly in 2023, where technology companies have resorted to layoffs, the issue of non-payment of salaries remains a complex and challenging problem. However, it's crucial for employees to be aware of their legal rights and take prompt action to protect them.

Seeking advice from an experienced employment law attorney can be immensely beneficial when navigating the legal process and ensuring that all necessary steps are taken to recover unpaid wages. Employers are legally obligated to pay employees promptly, and failing to do so can result in severe consequences. By asserting their legal rights and actively pursuing unpaid wages, employees can safeguard their financial stability and ensure fair treatment in the workplace. Remember, employees have the right to demand and receive the salaries they rightfully earned.  

Documents required for sending the legal notice:

• Copy of employment contract
• Copy of bank statement as evidence for non-payment of salary.
• Appointment letter
• Details of all additional benefits and perks.

Relief that can be claimed in the legal notice include:

• Payment of salary that is in due 
• Payment of interest for the delay 

What steps can you take as an employee to recover unpaid salary?

If the employer does not respond to the legal notice and does not pay the salary then the employee can take the following steps, after a legal notice is sent to the employer-

1. Approach the Labour Commissioner

The employee can approach the labour commissioner and convey the issue to the commissioner. It is advised that a copy of the legal notice sent to the employer, employment contract, a bank statement is attached to the complaint filed before the labour commissioner. The labour commissioner’s duty is to reconcile the differences between the employer and employee.

2. Approach the Labour Court

If the labour commissioner fails to provide a solution, then the employee can approach the labour court. This suit can be filed under the Industrial Disputes Act, 1947. However, this suit must be filed within 1 year from the date from which the salary is due. The Labour Court has to decide the case within 3 months. 

Within a certain period without any extension, the Labour Court decides a timeline. The time frame is around three months, where the Presiding Officer of the certain Labour Court deems it expedient or necessary to do so. The Presiding Officer may for certain reasons in writing actually extend the time frame as he/she deems fit. The Labour Court will also look into the fact whether legal notice for pending payment of provident fund has been sent to the employer.

3. Approach the Civil Court

Employees holding executive or managerial posts can file a suit for non-payment of salary in a civil court, in accordance with the provisions of Civil Procedure Code, 1908. However, it is advised that this should not be the remedy sought by the employee in the first instance. 

4. Application in the NCLT

The Insolvency and Bankruptcy Code, 2016 considers employees as operational creditors. Therefore, an application can be filed in the NCLT for the recovery of unpaid salary. However, for the application of the IBC, certain conditions must be met. These are

• The applicant must be an employee of the company
• The minimum amount of unpaid salary must be Rs. 1 Lakh.
• The maximum amount of unpaid salary is Rs. 1 crore. 

This application must be accepted or rejected within 14 days by the NCLT. The whole corporate insolvency resolution process must end within 180 days. However, the NCLT may extend this by another 90 days. 

Legal notice to an employer for non-payment of salary is to be taken seriously by the employer and the management of the establishment where the employee was working. Notice for payment due can be sent either to the manager or to the person-in-charge of the place or directors of the company where the employee was employed. Legal notice to a company can also be presented in the Court as evidence. Such legal notice sent to a company will act in favor of the employee in the Court of Law. 

The advocate fees for legal notice for payment recovery may vary from advocate to advocate. Therefore, the employee can send a legal notice to recover payments.

Frequently Asked Question:

What to do if your employer refuses to pay gratuity?

Controlling Authority under Section 3 of the Payment of Gratuity Act, 1972 is a quasi-judicial body empowered with disputes that arise when the employer refuses to pay gratuity. In these cases, the employee may make an application under Section 8 to the controlling authority, who decides on the dispute regarding payment of gratuity, after hearing both the employee and the employer.

What is the punishment imposed on my employer if he refuses to pay gratuity?

According to Section 9 of the Payment of Gratuity Act, 1972, the punishment is 6 months to 2 years of imprisonment or fine of Rs 10,000/- to 20,000/- or both. The punishment can be reduced from 6 months if reasons for lesser punishment are recorded in writing. 

What is the maximum period that an employer can withhold the salary of employees?

According to the Payment of Wages Act, 1936, if there are 1000 employees in an establishment, the employer must pay the employees before the expiry of the 7th day after the last day of the wage period. In cases of more employees, wages must be paid before the expiry of the 10th day from the previous wage period.

Can a legal notice be sent for non-payment of bonus or EPF amount?

It is a statutory right to receive payment of bonus and EPF. Therefore, a legal notice can be sent for non-payment of bonus or EPF amount or for non-payment of any other perks and benefits, which are statutory obligations or are agreed between the employee and the employer under the employment agreement. 

Are contract workers covered under the Payment of Wages Act?

The provisions of the Act are duly applicable to the contract labour employed by any factory or establishment if the employment in which they are engaged is otherwise covered by the Payment of Wages Act.

As per the Payment of Wages Act, what are the procedure and provisions relating to a fine deduction from the pay?

The fines for omissions or commission under the Act have been listed and approved by the Central Government. The fines that can be deducted are only such acts and cannot be more than 3% of wages. The deduction of such amount from the wages must happen within 90 days of the commission or omission of such act. 

What penalties can be imposed on employers for contraventions of any provisions of the Wages Act?

Violation of the provisions of the Payment of Wages Act entails a fine of Rs. 1000/- to 5000/- on the employer. On a subsequent conviction, the fine increases to Rs.5000/- to 10000/-. The fine amount is the same, for offences such as deliberate failure to provide information, refusal to maintain registers and for willfully giving false answers.  Failing or neglecting to pay wages to any employee punishment of imprisonment not less than one month which may extend up to six months and fine not less than Rs. 2000/- extendable up to Rs. 15000/- may be done. Additional fine up to Rs. 100/- for each day.

Violation of the Minimum Wage Act in regards to minimum wages, working hours and others comes under the Central Act as offences, and there is a penalty of five years imprisonment and fine of Rs. 10000/-, according to Section 22 of the Act. 

Do employees get paid when the company goes into liquidation?

In 2011, the Supreme Court of India in an important verdict that seeks to protect the rights of employees held that all wages, salary, and sums due to the payment of pension fund, provident fund, gratuity or any other payment for the welfare of the employee must be priorities if the company goes into liquidation. Moreover, the IBC also recognizes the employee as an operational creditor who can make an application for unpaid salary in the NCLT.