Labour Laws Q/A

Adjustment of Loan from Wages

Can an employer adjust the loan from wages payable to an employee when the latter resigns from service?

It is within the rights of the employer to adjust the outstanding loan against an employee when he quits the employment. Where in a case an employee resigned from service and a sum of Rs. 66.35 paise was payable to him as arrears of wages.

However, the employee owned a sum of Rs. 983.46 paise to the employer as balance of advance paid to him. The employer adjusted the entire amount of arrears of wages against the dues payable to him which was objected by the employee on the plea that he has resigned from service and the only permissible deduction was at the rate at which the deduction was being made while he was in the employment and, therefore, the employer was entitled to deduct Rs. 22.50 paise only from wages due for September and part of October, 1975. This contention was, however, accepted by the Labour Court and also Single Bench of Madras High Court.

The Division Bench of Madras High Court has held that when the relationship between the parties has ceased to exist, the employee cannot resist the action of the employer in adjusting the entire amount due on account of wages especially when the dues exceed the amount payable to him.1

Source: H L Kumar, Labour Problems & Remedies

1. Rajapalayam Mills Ltd. v. Labour Court, Madurai, 1986 (II) LLN 962 (Mad HC).

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