Bombay HC: Financial crisis is no excuse for not paying employee

A city labour court ruled that  financial crisis cannot serve as a reason for not paying employee salaries and ordered a computer services company in South Mumbai to pay the overdue salary of an employee, along with retrenchment compensation and interest, for a period of six months.

The labor court recognized that the company was responsible for the hardship experienced by the employee, who had to work without a salary for six months through no fault of their own. The court also noted that the employee suffered additional hardship as they were unemployed starting in April 2019.

As reported by The Free Press Journal, Satej Malaw, a resident of Navi Mumbai, started working for the company as a manager in mid-2017. In April 2019, he was abruptly informed via email that his employment was being terminated due to the company’s inability to pay salaries for several months. Mr. Malaw had not received his salary since October 2018 and was supposed to receive a two-month notice prior to termination, as per his contract.

In 2019, Malaw sought recourse from the labour court after the company failed to appear before the government’s labour officer. The company and its managing director, both named as defendants in his complaint, also failed to appear before the labour court, leading to an ex-parte ruling being issued.

The court stated that Mr. Malaw’s termination was not due to any wrongdoing on his part, but rather the result of the company’s financial difficulties. The court emphasized that it was the company’s responsibility to provide a two-month notice or salary in lieu of notice at the time of termination.

The company is fully aware of its obligation to pay the plaintiff. As an employer, it is the company’s duty to arrange for the payment of employee salaries. “The financial crisis cannot serve as a justification for not paying employee salaries,” stated SM Aundhkar, the presiding officer, labour court. The failure to pay employee salaries demonstrates the company’s mismanagement of finances, according to the court.