Can an employer legally withhold the full-and-final settlement after resignation?

An employer generally cannot indefinitely withhold an employee’s full-and-final settlement; statutory dues such as earned salary, leave encashment, and gratuity are payable, and unjustified withholding can be challenged before the labour authorities. An employer may legitimately adjust the settlement for amounts the employee genuinely owes — such as notice-period recovery or unreturned company assets — but withholding the entire amount as leverage is not permitted.

The new Code on Wages tightens the timeline, requiring final wages to be paid within two working days of an employee’s removal, resignation, or retrenchment, though operational rollout of this provision is still settling across states. Where settlement is wrongfully delayed, an employee can raise the matter with the relevant authority. Both sides are best protected by a clear settlement statement itemising every addition and deduction.