Gujarat High Court strengthens employee rights: denial of leave encashment is unconstitutional

In a landmark decision, the Gujarat High Court has once again reinforced the rights of employees by declaring that the denial of leave encashment constitutes a violation of their constitutional rights. This ruling came in the case of Sadgunbhai Solanki, a retired employee of the Ahmedabad Municipal Corporation (AMC), who had sought the payment of leave encashment following his resignation.

The court's decision, which dismissed AMC's plea against a labour court's ruling, highlighted the critical nature of leave encashment, emphasizing that it is no less than a part of an employee's salary and, by extension, a form of property. Justice M K Thakker, while delivering the judgment, stated: "Leave encashment is akin to salary, which is property, and depriving a person of his property without valid statutory provision is a violation of the provision of the Constitution." The court also made it clear that once an employee has earned leave and chosen to accumulate it, the right to encashment is automatic and cannot be denied by an employer in the absence of any valid legal grounds.

This case traces back to 2013 when Solanki, after resigning from AMC, found himself in a protracted dispute over his entitlement to leave encashment. Solanki had served the AMC since 1975 and was employed in the technical department. In 2013, he faced demotion to a lower post after failing to clear a departmental exam. Subsequently, he resigned on March 5, 2013, but the AMC did not acknowledge his resignation for several months. The corporation set an unreasonable one-month notice requirement to accept his resignation, and after the matter remained unresolved, Solanki retired on April 30, 2014.

Upon requesting his leave encashment, amounting to approximately Rs 2.80 lakh, AMC refused, arguing that Solanki was on unauthorized leave after tendering his resignation and was therefore not entitled to the benefit. In response, Solanki sought justice in the labour court, which ruled in his favor in 2018, directing AMC to pay him Rs 1.60 lakh towards the encashment.

When AMC appealed the verdict, Solanki's lawyer, Nirav Sanghavi, presented compelling arguments, stating that the corporation had treated Solanki as retired from March 2013, thus entitling him to all retirement benefits, including leave encashment. Sanghavi further contended that AMC’s failure to respond to the resignation within the stipulated timeframe effectively meant that Solanki should be considered retired within three months of his resignation, according to the service rules.