Salary is a fundamental entitlement arising from an employment relationship. Where an employer fails to pay an employee’s salary when it falls due, the employee is entitled to take steps to recover the outstanding amount.
An employer’s failure to pay salary does not automatically extinguish the employee’s entitlement to that salary. The appropriate remedy depends on the terms of the employment contract, the applicable law, the reason for the non-payment and the nature of the employment relationship.
An employee who is owed salary should first establish the amount outstanding, review the terms of employment and make a formal demand. Where the employer refuses to pay, the employee can pursue the appropriate legal remedy.
What Is Unpaid Salary?
Unpaid salary is remuneration that an employee has earned under an employment relationship but which the employer has failed to pay when due.
It can arise where an employer:
- Fails to pay an employee’s monthly salary.
- Pays only part of the agreed salary.
- Withholds salary without lawful justification.
- Fails to pay salary for the final period of employment.
- Fails to pay other contractual remuneration that has become due.
- Continues to withhold salary after terminating the employee’s employment.
The precise entitlement depends on the employment contract and applicable law.
Is an Employer Legally Obliged to Pay Salary?
Yes.
Where an employee has performed work pursuant to an employment contract, the employer is generally required to pay the agreed remuneration in accordance with the terms of the employment relationship.
The employment contract is therefore an important document in any dispute over unpaid salary.
The employee should examine the contract to determine:
- The agreed salary.
- The payment date or payment cycle.
- Allowances and other contractual benefits.
- Conditions attached to any bonus or incentive.
- The circumstances in which deductions can be made.
- The procedure for termination.
- Any applicable disciplinary or grievance procedure.
Can an Employer Refuse to Pay Salary Because the Business Is Experiencing Financial Problems?
An employer’s financial difficulty does not automatically extinguish an employee’s contractual entitlement to earned salary.
A company experiencing financial difficulties can take lawful measures to restructure its workforce or business, but it cannot simply assume that employees have surrendered their entitlement to salary already earned.
If the employer cannot pay, the parties can agree on a lawful arrangement concerning outstanding remuneration. An employer should not, however, treat an employee’s earned salary as automatically forfeited because the business is experiencing financial difficulties.
Can an Employer Withhold an Employee’s Salary?
An employer cannot make arbitrary deductions from an employee’s salary.
The legality of withholding or deducting salary depends on the circumstances, the employment contract and applicable legislation.
Where an employer has a legitimate basis for a deduction, that basis should be identifiable and supported by the applicable law or contractual terms.
An employee who discovers that salary has been withheld should therefore ask the employer to state the reason for the withholding and the legal or contractual basis relied upon.
What Should an Employee Do When an Employer Refuses to Pay Salary?
An employee should not immediately commence litigation without first establishing the facts and creating a documentary record.
1. Review the Employment Contract
The first step is to review the employment contract or letter of appointment.
Confirm the agreed salary, payment schedule and any provisions concerning deductions, suspension, leave, disciplinary action and termination.
2. Calculate the Amount Owed
Determine precisely how much the employer owes.
For example, if an employee’s monthly salary is ₦500,000 and the employer has failed to pay for three months, the basic salary arrears are ₦1,500,000, subject to any lawful deductions or other relevant contractual provisions.
The employee should also separately identify unpaid allowances, commissions, bonuses or other benefits where they are contractually due.
3. Make a Formal Demand
The employee should formally demand payment from the employer.
The demand should state:
- The period for which salary remains unpaid.
- The amount outstanding.
- The contractual basis for the entitlement.
- The date by which payment is expected.
- The consequences of failing to resolve the matter.
A written demand creates evidence that the employer was informed of the outstanding obligation.
4. Preserve Evidence
An employee should preserve documents relating to the employment and non-payment.
These can include:
- Employment contract.
- Letter of appointment.
- Payslips.
- Bank statements.
- Emails.
- WhatsApp messages.
- Staff handbook.
- Salary schedules.
- Evidence of previous salary payments.
- Correspondence with the employer.
- Termination or resignation documents.
These documents can become important evidence if the dispute proceeds to litigation.
Can an Employee Recover Unpaid Salary After Resigning?
Yes.
Resigning from employment does not ordinarily mean that an employee has abandoned salary that was already earned.
If an employee resigns while the employer owes salary that had already become due, the employee can pursue recovery of the outstanding amount.
The employee should distinguish between salary already earned and future salary that would have been earned had the employment continued.
The fact that the employee resigned does not by itself extinguish an existing entitlement to salary already earned.
Can an Employee Recover Unpaid Salary After Being Terminated?
Yes.
Termination of employment does not automatically extinguish salary that had already accrued before termination.
For example, if an employee’s employment ends on 15 August and the employee has not received the salary due for the preceding month, the termination does not eliminate the existing salary debt.
The employee can pursue the outstanding salary together with any other contractual entitlements that have become due.
Where the termination itself was wrongful, the employee can also pursue the remedies available for wrongful termination, subject to the nature of the employment.
Can an Employer Refuse to Pay Salary Because an Employee Owes the Company Money?
An employer should not simply deduct whatever amount it considers appropriate from an employee’s salary.
Whether a particular deduction is lawful depends on the applicable law, the employment contract and the circumstances giving rise to the alleged debt.
Where an employer alleges that an employee owes the company money, the employer should establish the basis of the debt and the lawful mechanism for recovering it.
Salary deductions should not be used as a substitute for proper debt-recovery procedures where the employer disputes the employee’s entitlement.
What If the Employer Says the Employee Did Not Meet the Target?
An employer cannot automatically convert a performance dispute into a refusal to pay salary that has already been earned.
The employee’s salary and performance-based remuneration should be distinguished.
Where a contract provides that a particular commission or bonus is payable only after specified targets are achieved, the employee’s entitlement to that particular payment depends on the contractual conditions.
That is different from withholding an employee’s basic salary for work already performed.
The employment contract and relevant performance policy should therefore be examined.
Can an Employer Withhold Salary Because an Employee Resigned Without Notice?
This depends on the circumstances.
An employee who fails to give the required notice can be liable for the consequences provided by the employment contract and applicable law.
However, the employer should not simply assume that it can withhold every amount owed to the employee.
The employer’s rights and the employee’s existing salary entitlement should be separately examined.
Where the employer claims that the employee owes money because of failure to give notice, the basis and amount of that claim should be established rather than simply withholding earned salary without lawful authority.
Can an Employee Sue an Employer for Unpaid Salary?
Yes.
Where an employer owes an employee salary and refuses to pay after demand, the employee can commence legal proceedings to recover the outstanding amount.
Employment-related disputes generally fall within the jurisdiction of the National Industrial Court of Nigeria, subject to the court’s jurisdiction over the particular claim.
The employee must establish the employment relationship and the entitlement to the amount claimed.
The employment contract, payslips, bank statements and other employment records can be important evidence.
How Does an Employee Prove an Unpaid Salary Claim?
The employee must present evidence establishing the entitlement and the amount claimed.
Employment Contract
The employment contract can establish the agreed salary and other remuneration.
Payslips and Salary Records
Payslips can establish the amount ordinarily paid to the employee and any deductions.
Bank Statements
Bank statements can demonstrate whether salary payments were made and the amounts actually received.
Correspondence
Emails, letters and messages acknowledging the outstanding salary can be particularly useful.
For example, where an employer sends an email stating that the company will pay three months’ outstanding salary when its financial position improves, that communication can become relevant evidence of the outstanding obligation.
Evidence of Work Performed
Where the employer disputes that the employee worked during the period in question, evidence showing that the employee performed their contractual duties can become relevant.
Can an Employee Recover Interest on Unpaid Salary?
An employee can seek appropriate interest where the legal basis for the claim supports it.
The entitlement to interest is not necessarily automatic simply because salary remained unpaid.
The employee’s pleadings and reliefs should therefore properly address any claim for interest and establish the basis upon which it is sought.
The court will determine whether interest is recoverable and the applicable rate based on the circumstances and law governing the claim.
Can an Employee Claim Damages for Delayed Salary?
The employee’s entitlement depends on the nature of the claim and the loss established.
A claim for the actual salary owed is different from a claim for damages arising from the employer’s conduct.
An employee should therefore distinguish:
- Salary already earned and unpaid.
- Contractual benefits already due.
- Damages arising from a separate legal wrong.
- Interest claimed on the outstanding amount.
Each head of claim requires an appropriate legal basis.
What If the Employer Partially Pays the Salary?
A partial payment does not necessarily extinguish the employee’s entitlement to the outstanding balance.
For example, if an employer owes ₦1,000,000 and pays ₦400,000, the employee can still pursue the outstanding ₦600,000, subject to the facts and any agreement between the parties.
The employee should keep evidence of both the amount originally owed and the amount received.
Can an Employee Recover Unpaid Salary Without Going to Court?
Yes.
Litigation is not always necessary.
An employer can voluntarily pay after receiving a demand letter or after the parties negotiate a settlement.
Depending on the circumstances, the parties can also explore alternative dispute resolution.
This can save time and legal costs while allowing the employee to recover the money without prolonged litigation.
However, an employee should not allow negotiations to continue indefinitely where the employer has no genuine intention of paying.
What If the Employer Promises to Pay Later?
An employee should obtain any repayment arrangement in writing.
For example, if the employer agrees to pay ₦2,000,000 in four instalments, the agreement should clearly state:
- The total amount owed.
- The amount of each instalment.
- The payment dates.
- The method of payment.
- What happens if an instalment is missed.
- Whether the agreement settles all claims or only the specified salary arrears.
This reduces the possibility of a later dispute about what the parties agreed.
What If the Employer Refuses to Respond to the Demand Letter?
If the employer ignores a properly made demand, the employee can consider commencing legal proceedings.
Before doing so, the employee’s lawyer should review:
- The employment contract.
- The amount claimed.
- The payment history.
- The employer’s correspondence.
- Any applicable limitation period.
- The appropriate court.
- The appropriate parties.
- The reliefs to be claimed.
A properly prepared claim should identify the legal basis of the employee’s entitlement and provide sufficient evidence to support the amount claimed.
How Long Does an Employee Have to Recover Unpaid Salary?
An employee should not assume that a salary claim can be brought at any time.
Limitation periods apply to legal claims, and the applicable period depends on the nature of the claim and the law governing it.
The limitation rules applicable to employment claims should therefore be considered before commencing proceedings.
An employee who is owed salary should act promptly rather than allowing the claim to remain outstanding indefinitely.
What If the Employer Has Closed the Business?
Recovery can become more complicated where the employer has ceased business operations.
The employee should first establish whether the company remains registered and whether it has assets against which a judgment can be enforced.
Where the employer is a company undergoing liquidation or insolvency proceedings, the employee’s claim can also be affected by the applicable insolvency regime and the priority given to employee claims.
Legal advice is particularly important where the employer has stopped operating or is in the process of winding up.
Can an Employer Be Sued Personally for the Company’s Unpaid Salary?
Generally, a company is a separate legal person from its directors and shareholders.
Therefore, the fact that a company owes an employee salary does not automatically make the company’s directors personally liable for the debt.
The circumstances of the particular case must be examined before a director can properly be made a defendant in a personal capacity.
An employee should therefore identify the correct legal employer and the proper parties before commencing proceedings.
What Remedies Can an Employee Seek for Unpaid Salary?
Depending on the circumstances, an employee can seek remedies including:
- Payment of outstanding salary.
- Contractual allowances and benefits that have become due.
- Interest where legally recoverable.
- Other appropriate reliefs arising from the circumstances of the case.
- Costs of the proceedings where awarded by the court.
Where the employee also has a claim arising from wrongful termination, that claim should be separately established.
Conclusion
An employee who has earned a salary is entitled to pursue payment where the employer fails to pay the amount when due.
The first step is to examine the employment contract and establish exactly what is owed. The employee should then make a formal demand and preserve evidence of the employment relationship, salary entitlement and non-payment.
If the employer refuses to resolve the matter, the employee can consider commencing proceedings before the appropriate court, including the National Industrial Court of Nigeria where the claim falls within its jurisdiction.
The employee should also distinguish unpaid salary from other employment claims. Salary already earned and unpaid is different from a claim for damages arising from wrongful termination, future salary or performance-based remuneration.
Where an employer owes you salary, you do not have to simply accept non-payment. The appropriate legal and contractual remedies are available for recovery.
If your employer has failed to pay your salary, Lexforte Attorneys can review your employment contract, determine your outstanding entitlements and advise on the appropriate steps for recovering the money.