make-company-pay-dues

Labour Laws, otherwise known as Employee Protection Laws, are the laws that protect the labor and their interests, such as minimum working age, minimum hourly wage, and so on. A total of 10 articles in the Constitution directly concern labor rights (14-16, 19(1)(c), 23-24, 38, and 41-43A).

Being the diverse country that India is, there are several aspects concerning labor protection laws. These laws and their roots can be traced to pre-independence with the establishment of All India Trade Union Congress in 1920.

If you’re not aware of the specific laws, you may know someone who was recently cheated of their salary or a company that did not agree to pay due-remuneration to their former or current employees – these cases have become a daily affair in the legal space recently, and you’ll find out how. Don’t worry, many people don’t have any idea about what to do or how to deal with situations in which companies bully their employees and don’t pay up thinking they can get away with it.

Why New Companies Matter

India, along with the United States and China, is expected to lead the platform economy by 2020, creating new economic opportunities for both service and white-collar workers, according to a report by the International Labour Organization. Many jobs, such as those on food delivery platforms or personal service platforms, continue to be unregulated.

The entry of digital platforms like Uber has given rise to local competitors who profit from similar business models. For instance, companies like Ola in the ride-hailing space, Zomato, and Swiggy in the food delivery space have a similar model to that of Uber. With a rise in startups, there have been a parallel rise in the legal disputes that these companies face. The cases are filed mostly by their ex-employees over charges of fraud and non-payment amongst others. Due to technicalities, however, some companies evade such allegations.

If the number of reported cases fall or cases of out-of-court settlements rise, courts won’t pay much attention. The problem is not limited to startups, small, and medium enterprises, as it is also rampant with big companies, which also go cashless.

In the most recent recollection, shutdown in the operations of Jet Airways took a significant toll on the unpaid employees with little or no severance packages. Competitors retained many pilots, ground staff, and cabin crew. The company still has around 2400 creditors, including suppliers, vendors, and employees.

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Non-Payment Aspect

Although there is a notable rise in successful and legitimate startups, there has been a proportional rise in firms that exploit their employees. There have been many cases in which firms were accused of non-payment of past salaries of up to months. Due to the resources that many of these companies have, they get away without a record.

Companies believe that employees don’t possess the resources to pursue legal action. There are, in fact, many things an employee can do that can put an employer in real trouble. However, the knowledge regarding the same is not available in the public domain, and lawyer’s advice comes costly.

A Glimmer of Hope

There is a breath of fresh air with some companies coming to the rescue to help the employees get legal aid. My Advo, a legal-tech lawyer profiling mechanism, works to help employees get affordable legal consultation and support. Legaltech firms such as vakilsearch.com and legistify.com provide not only employee protection related services but also other legal services at affordable rates. PracticeLeague is also an artificial intelligence-enabled B2B legal tech startup, which aims to provide a stack-based cloud model platform for law enterprises.

In many cases, employees are unable to arrange a fair amount of resources to afford methods like a legal notice, mediation, or approach to the Regional Labour Commissioner. With arbitrators and mediators more readily available than ever, individuals need not perceive corporate legal matters as complicated anymore. (Stick around for the step-by-step guide to deal with such cases)

Employers can’t be utterly reckless since they need to maintain a brand reputation. Such allegations on employers of committing fraud or wrongful termination can black-list the company in the eyes of potential employees, customers, and investors.

Informal Sector

Indian Laws require any firm, employing more than 100 workers, to seek and receive government permission before dismissing any worker. To get around this law, employers hire employees informally. This loophole has transformed the majority of India’s workforce working as informal workers.

The informal sector is protected directly under articles 14, 15, 16, and 23. Article 14 states everyone to be treated as equals before the law. Article 15 specifically says the state should not discriminate against citizens, and article 16 extends a right of “equality of opportunity” for employment or appointment under the state. Article 19(1)(c) grants explicitly the right “to form associations or unions.”

Article 23 prohibits all trafficking and forced labor, while article 24 prohibits child labor under 14 years old in a factory, mine, or other hazardous employment. The legal proceedings for the informal sector remains a massive hurdle since the only viable solution to deal with them is pro-bono, or free of charge, consultation from licensed practitioners.

The informal sector has inherently been dependent on the trade unions of India. As per the latest data by the Ministry Of Labour & Employment recorded in 2012, there were 16,154 trade unions with a combined membership of 9.18 million. The methods of attaining justice have certainly evolved in both the formal and informal sectors, but at a slow pace for the informal workers.

What Hopes Unpaid Employees can have

Insolvency and Bankruptcy Code 2016: The Best Bet 

Today, there are several legal options for employees to get their dues released. To begin with, the Insolvency and Bankruptcy Code, 2016 (IBC) under which employees have the status of ‘operational creditors,’ can be used to reclaim what’s rightful.

After admitting an insolvency petition under IBC, a committee of creditors is set up along with a resolution professional. In case there are no other feasible solutions, the company is ordered to be dissolved and pay their dues. There have been cases where an individual employee has been able to recover their dues by approaching the National Company Law Tribunal (NCLT).

A group of employees recently applied for an insolvency resolution process against Phadnis Properties, a Pune-based real estate and infrastructure company for unpaid salaries. In the Phadnis Properties case, after admitting the insolvency petition, the NCLT, Mumbai, after hearing both parties, ordered the company to be liquidated.

In the Jet Airways case, Jet Pilots’ union, too, planned to take the airline company to National Company Law Tribunal (NCLT) over non-payment of salaries.

Step-By-Step

To launch a corporate insolvency resolution process against an ex-employer and appeal to settle dues, first, send a demand notice to the company stating that the employee(s) have not been paid.

If the company does not clear their dues within ten days of sending the notice, then an insolvency resolution process is initiated against them, given no pre-existing disputes prevail. The process starts by approaching the examining authority, which, in this case, is the National Company Law Tribunal (NCLT).

The NCLT includes a total of 16 benches (including the principal bench in New Delhi) with each bench dealing with one or more specific states. The application is filed with the NCLT in which the applicant’s state falls. For instance, employees residing in Pune can submit a form that can be filed in the Mumbai NCLT. Many litigation firms deal with the IBC regularly and will carry out the same.

Employees are using this process increasingly to get what is due to them. Under this law, however, employees are categorized as ‘unsecured creditors’ and come after financial creditors in the order of payouts. The process significantly reduces the chances of full repayment of dues, especially in cases of bankruptcy.

To initiate the process online, complete your registration, and apply here for an IBC resolution. After receiving the case number, consult a legal advisor who can help with further proceedings. You can find consultants on these websites: vakilsearch.com, legistify.com, PracticeLeague, and MyAdvo.

There’s Always Door No. 2

Another way to go for employees to settle the dispute is mediation. A neutral third party that acts as the mediator analyses the evidence between the two or more involved parties and resolve the dispute. This solution is only viable if the employer accepts the decisions of the mediator.

Arbitration is also an option worth the consideration if provided under the employment contract. On the downside, arbitration is often cost-intensive, and the repayments or compensations may take a while.

The best way to summarise labor laws is as a powerful movement, and the resources for such a revolution have also advanced. Taking advantage of such tools is not only fair for employees, but is integral to shape the business ethic of the new generation companies. There must be a careful consideration of how to treat employees and employers whether there is termination or insolvency. 

To learn more about the legal structuring and results of proceedings, refer to the NCLT Judgment lists. The practical efficiency and effectivity of the NCLT and the Insolvency and Bankruptcy Code, 2016 (IBC) were well reported by Citizen Matters. The first instance of employees approaching the bankruptcy court was reported by Economic Times in 2017. The Economic Times recently reviewed the evolution of the process again and heavily criticized the procedure, read their report here.