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I work for a small tech company (9 employees) in India. My appointment letter states that I get 2 days of leave for every month of service rendered. I have accumulated 20.5 days of unused leave over the last 2 years. I submitted my notice of resignation two months back (2 months notice period as per appointment letter). The two months notice ends in a few days. Now, the Founder/CEO says that my leaves will not be encashed since the company does not have a leave encashment policy.

My question is: Can my employer legally refuse to encash my leaves?

Please let me know if any more information is required.

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There seems to be one national law about leave, the Factories Act, 1948 §79, which grants an adult employee 20 days of paid leave after a year of employment, assuming the person has worked the required number of days within the year. Sub-section 3 addresses accrued leave at the end of employment (for whatever reason), that he:

shall be entitled to wages in lieu of the quantum of leave to which he was entitled immediately before his discharge, dismissal, quitting of employment, superannuation or death, calculated at the rates specified in sub-section (1), even if he had not worked for the entire period specified in sub-section(1) or sub-section (2) making him eligible to avail of such leave

In the case of a person quitting, the law continues

and such payment shall be made (i) where the worker is discharged or dismissed or quits employments before the expiry of the second working day from the date of such discharge, dismissal or quitting

As for accumulation of leave, sub-section (5) says

If a worker does not in any one calendar year takes the whole of the leave allowed to him under sub-section (1) or sub-section (2), as the case may be, any leave not taken by him shall be added to the leave to be allowed to him in the succeeding calendar year:

Provided that the total number of days of leave that may be carried forward to a succeeding year shall not exceed thirty in the case of an adult or forty in the case of a child

So there is a statutory "use it or lose it" element. That said, the question is whether you are a "worker" as defined by that act. The definitions say:

"worker" means a person employed directly or by or through any agency (including a contractor) with or without the knowledge of the principal employer whether for remuneration or not in any manufacturing process, or in cleaning any part of the machinery or premises used for a manufacturing process, or in any other kind of work incidental to, or connected with the manufacturing process, or the subject of the manufacturing process but does not include any member of the armed forces of the Union

Tech work is typically not considered to be "factory work" and is not obviously part of manufacturing, but writing software might be work "connected with the manufacturing process".

There is an act implemented at the state level (Maharashtra version here), the Shops and Establishment Act. Ch VII of the act governs leave: the terms are similar to the above act in terms of accrual, number of days, prior service. However the payout on termination wording is different:

If an employee entitled to leave under sub-section (1) [or (1-A)] is discharged by his employer before he has been allowed the leave, or if, having applied for and having been refused the leave, he quits his employment before he has been allowed the leave, the employer shall pay him the amount payable under section 36 in respect of the leave

The important difference is that the payout condition is conditioned on either being fired, or having applied for the leave and being refused (after which point you may resign). If you don't make a claim for leave and you resign, then the conditions of that law don't appear to apply. But, in another state, the wording could be different, so it depends on your state.

The definition of "commercial establishment" includes "legal practitioner, medical practitioner, architect, engineer, accountant, tax consultant or any other technical or professional consultant". It is possible that a different state's version of the act includes a payout requirement.

  • My number of days of leave to be carried forward have never exceeded 30, so according to the Factories Act (if it applies to a software engineer) I should get wages in lieu of my leaves, right? And the Maharashtra Act is pretty clear that I should be paid for the leaves. Or am I misunderstanding? – Ram Sharma Mar 3 '17 at 5:25
  • Yes if you can be deemed a factory worker (under the national law). Editing the reply to clarify about the Maharashtra law. – user6726 Mar 3 '17 at 5:32
  • Oh, so I should have applied for 20 days leave before I resigned. :) Thanks for your help. Unfortunately, I cannot upvote your answer, but I will accept it. – Ram Sharma Mar 3 '17 at 5:54

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