This is what happens when you don’t pay your employees before you lay them off

This is what happens when you don’t pay your employees before you lay them off

Startup founders face a lot of pressures as they grow their companies and manage investors’ expectations. Part of that is making tough decisions, like laying off team members.

Strapped for cash, Indian food delivery startup TinyOwl needed to let several employees go and close four offices. Rather than deliver the bad news over email, the company’s co-founders opted to visit each of the offices in question and let the teams know in person.

However, things didn’t go quite as planned. Employees at the company’s Pune office were enraged at the news as they didn’t trust TinyOwl to pay their pending salaries and severances once it had closed. They held co-founder Gaurav Choudhary hostage on the premises for two days, according to Medianama.

24-year old co-founder Choudhary was reportedly held at the office since Wednesday,  after delivering news of the layoff to employees.

Eventually, police responded to Choudhary’s emergency call to address the issue, and local politicians also arrived on the scene to help resolve the situation.

Why didn’t TinyOwl settle its dues?

The company, which employed close to 1,000 people and raised over $28 million from the likes of Matrix Partners, Sequoia Capital and Nexus Venture Partners in just two years, had fallen on hard times. Employees cited high customer acquisition costs as the cause of TinyOwl quickly burning through its funds.

Only last week, the company raised an additional $7.5 million with plans to restructure and streamline operations. That meant layoffs across the board. However, the money wasn’t transferred in time for the announcement.

Paid in full at last

An ex-employee who was laid off from TinyOwl’s Pune office told TNW today that she had been paid in full, and received pending payments as promised even after she left the company.

An hour later, she updated TNW with news that TinyOwl’s employees in Pune had received payments and that they had released Choudhary. We’ve contacted local police and the company to verify this and will update this post when we hear back.

The incident must have been a nightmarish ordeal for employees and co-founders alike.

Another reason for employees’ anger over the situation is that the Indian festival of lights, known as Diwali, is just around the corner. In addition to celebrating with friends and family, people also exchange gifts and buy things like appliances and furniture for their homes, and naturally need to be able to pay for their purchases.

There’s a valuable lesson to be learned here for those running companies and having to lay off staff: be prepared with everything they need, compensation and otherwise, figure out how you’ll communicate the bad news to your team and ways to cushion the blow, whether that’s with extended notice periods or help finding new positions in other companies.

➤ TinyOwl’s hostage crisis [Medianama]

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