Termination Of Employment; Laws, Precautions and Challenges

April 13, 2024 हिंदी में पढ़ें

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Can a company terminate an employee without notice in India? As an employer, managing a business involves the challenging task of terminating employees when necessary. However, it's not merely a matter of saying, & quot You're fired.& quot Various considerations, including legal obligations, must be addressed before and after the termination process. This article outlines the pertinent laws, procedures, and hurdles employers must navigate when terminating employees, ensuring professionalism and adherence to legal requirements throughout.

What is Employee Termination?

In the simplest words, employee termination is ending the working relationship of an employee with a particular company or organization that he/she works at. Once an employee is terminated, he/she is no longer associated with that company in terms of professional relationship, work and salary drawn. Employee termination may be voluntary or non-voluntary. Voluntary termination is when the employee resigns out of his/her own will, whereas, non-voluntary termination is when the employee's job/services are terminated without their free will by the employer. Organizations must have their fixed employee termination policy and procedure in place. These procedures are to comply with the Central and State rules and laws in which that company/organization is established. These procedures may include a formal letter for termination, along with other formalities.

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Important Terms

In India, two types of employers and two types of employees are recognized.

  1. Employers: Establishments and Factories are included in Employers. Establishments include all kinds of employers under their umbrella, whereas factories specifically refer to employers in the manufacturing sector.

  2. Employees: Employees in any kind of job position are included in this. & lsquo Workmen' is a term covered under Factories Act and includes employees that are not involved in administrative, supervisory, or managerial roles.

What are the Types of Termination of Employment?

There can be a few types of Termination of Employment under the two main kinds of Termination as stated below:

1. Voluntary Termination

When an employee voluntarily terminates his/her employment with a company or organization, it is said to be voluntary in nature. This could be due to several reasons including a better job prospect in hand, resigning from the field, starting his/her venture, personal and/or professional reasons, etc. Voluntary termination involves the handing over of a formal resignation letter by the employee to the employer. The standard notice period is 30 days, however, the term may be longer or shorter subject to the organization and the employee contract

2. Involuntary Termination

Involuntary termination, as the name suggests, is when an employee leaves an organization against their will or consent. A Company or organization can go for involuntary termination during downsizing, layoffs, or firing employees for misconduct, etc.

3. Downsizing and Layoffs

When a company reduces its workforce, it is called downsizing or layoffs. Downsizing usually happens when companies do not have enough funds or if they want to save costs or go into a merger. Layoffs also take place because the employee's skill set is no longer required or useful in that company.

4. Firing due to Misconduct

Employees facing termination due to misconduct or workplace issues may not always receive a standard 30-day notice period. However, it's still essential for fairness that they have a chance to present their perspective, especially in cases of policy violations, ensuring procedural integrity and fair treatment in employment terminations. 

This usually involves forming a disciplinary panel, issuing a show cause notice, and allowing the employee to defend themselves. These proceedings should be conducted fairly. Sometimes, the outcome justifies immediate termination without notice or compensation.

5. Illegal Dismissals

An employer has a full charge to hire and fire people in the organization. But, an employer cannot fire an employee without a sufficient and reasonable cause. In many countries terminating an employee's job based on Caste, race, gender, etc are illegal causes of termination. it is also illegal to Fire and employee who has taken maternity leave or leave of absence or has reported some wrongdoings in the organization. If a company has been seen to be guilty of terminating or dismissing an employee illegally, it would have to compensate such employee and also restore the job position or offer a similar one. Companies and organizations can also be penalized if they are found guilty of any illegal or wrongful dismissal/termination.

6. Termination Under Contract

Termination can also occur on specific and predetermined terms set out in the contract signed between the employee and the company at the time he/she is presented with the contract. For example, advisors, interns, and consultants could be hired for specific projects and for specific time periods only and may be terminated at the end of his/her time. However, contracts could be extended or renewed.

What are the Grounds for Termination in India

There are several grounds for which an employee may be terminated as has also been discussed above. In India, the following grounds for termination of employment can be considered:

  • When a fixed-term contract expires,

  • Resignation by an employee

  • When an employee reaches retirement age or superannuation

  • Due to Layoffs

  • Termination for a specific & quot cause& quot , which may include the following-

  • Breach of an employment contract or policies of the Company,

  • If an employee has committed a criminal offense,

  • If an employee is not able to fulfill the job obligations,

  • Misconduct on the part of the employee,

  • If there has been a lacking in the performance or poor performance even after sufficient chances given to or undertakings by that employee,

  • If the management loses confidence in an employee,

  • If there is continued and unreasonable absenteeism, etc.

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Laws Governing Termination of Employment in India

There are several labor and employment regulations that are governed by both States and the Centre since Labour law in India is a concurrent subject as per the Constitution. The main federal laws regulating the termination of employment include Industrial Employment (Standing Orders) Act, 1946, and the Industrial Disputes Act (IDA), 1947. The Industrial Disputes Act 1947 applies to workers not working in a managerial or administrative capacity. It states that any employee employed for more than a year can be terminated only after permission by a suitable government office is granted. Moreover, an employer must also provide a valid reason for terminating that employee and also pay a severance amount which shall be equivalent to fifteen days' average salary for each year of employment. However, there is no standard process to terminate an employee in the given structure of the labor laws in India. Such termination of an employee can be according to the terms and conditions laid down in the individual labor contract as signed between the employer and the employee. The terms should be subject to the country's labor laws as they supersede the provisions laid down in the labor contracts. If no contract has been entered into, then, the state's labor legislation has jurisdiction for the matter.

Important Compliance Rules For Termination of Employees

There are some important compliance rules while terminating an employee in India. These have been stated below:

  1. Notice Period: According to the Industrial Disputes Act 1947, a 30-90 day notice period is necessary when terminating a workman. If a company terminates an employee in India without notice In India, generally breaches legal compliance, save for extraordinary circumstances, which include:

    Gross misconduct such as theft, violence, or fraud.
    Employee's breach of contract.
    Termination during probation, subject to specific terms.

  2. Termination for a cause: It is mandatory as per labor laws to cite reasonable justifications for termination of employment. Wilful disobedience, fraud, theft, dishonesty, wilful damage or loss of employer's goods, habitual absence, negligence in work, etc. are some of the reasonable/accepted causes for terminating employment.

  3. Termination for convenience: In the case of manufacturing units, plantations, and mines with 100 or more workmen, termination for convenience required the approval of the government. In other sectors, a government notification is required. When employers are terminating for convenience, they must ensure that the last person who joins the organization in that exact role is first made redundant. When employers rehire for the same role/job, it is an ideal practice that the workmen/employees who were terminated before are offered that job first to rejoin the company.

  4. Terminating pregnant employees: It is important for employers to balance their convenience against the risk associated with non-compliance with provisions enshrined in the Maternity Benefit (Amendment) Act 2017 while terminating an employee who is pregnant or one who is seeking maternity leave.

  5. Non-compete agreements: Non-compete agreements are not enforceable under Indian law. However, non-solicitation clauses can be enforced in certain limited ways.

  6. Work-for-hire principal: Formal assignments are to be provided by employers to employees for the work-for-hire principle that applies under the Indian copyright regime.

State Labour Laws for Termination of Employees

As has been mentioned before, termination of employees needs to comply with both state and federal laws. The provisions of the contract should be compatible with both central and state laws. Laws governing termination in different States in India have been discussed below:

1. State Labour Law - Delhi UT

According to the Delhi Shops and Establishments Act 1954, an employee shall not terminate an employee who has been working in the company/organization for more than 3 months without giving the employee at least thirty days' notice or salary in place of such notice. However, such notice is not necessary if the employee has caused any misconduct and that is the cause of termination.

2. State Labour Law - Maharashtra

An employer shall not terminate any employee who has been working in the company/organization for more than 3 months without giving the employee at least thirty days' notice in writing, as per the Maharashtra Shops and Establishments Act. If an employee has been with the company for more than 3 months but less than 1 year, the employer shall give a minimum of fourteen days of notice. However, such notice is not necessary if the employee has caused any misconduct and that is the cause of termination.

3. State Labour Law - Tamil Nadu and Karnataka

As per the Tamil Nadu Shops and Establishments Act 1947 and the Karnataka Shops and Establishments Act 196, an employer shall not terminate an employee that has been working at the company or organization for more than six months, except if there is a reasonable cause for termination. A one-month notice shall also be provided to the employee, however, if misconduct is the cause for which the employee has been terminated, then, no notice or associated payoff is necessary.

Employee Termination Procedure in India Key Considerations

Termination procedures can be divided into 3 kinds:

1. Termination due to a cause: If found guilty of wilful negligence, fraud, illegal act, absenteeism, etc., the employer may fire the employee immediately.

2. Severance payment due: This may happen where an employee has been in the company for a minimum of two years and the reason behind termination is redundancy. The severance is decided and calculated on the basis of duration of employment, the performance of the employee, and level of salary.

3. Ordinary Termination: This is the most common procedure for termination. It requires a thirty days notice and the employer shall notify the relevant government of termination if mandated by laws and the courts may also demand a fair hearing from the employee.

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Rights of Terminated Employees in India

Certain rights are vested with the employee at and even after the time of termination. These rights must be fulfilled by the employer:

  1. Right to Receive Notice for Termination of Employment i.e. generally a 30 days notice or salary in lieu of such notice.

  2. Right to be Heard against Termination of employment, as to why he/she should not have been dismissed or discharged.

  3. Right to sue the employer/company/organization for unlawful or illegal termination such as on grounds of religion, caste, gender, disability, etc.

  4. Right to receive a severance pay including the payment of the following:

  • Payment of salary instead of notice,

  • Unpaid salary,

  • Encashment of unused paid leaves,

  • Gratuity payments for employees employed more than 5 years as provided under Gratuity Act 1972,

  • Payment of bonuses if applicable,

  • Any other payment agreed to be paid on termination by the employer under the policies of the company/organization.

Why do you Need a Lawyer?

Dealing with the complexities of employment termination can be daunting, and it often necessitates legal guidance. If you suspect wrongful termination, consulting a labour lawyer is crucial to resolve your matter, protect your reputation and even demand a compensation from your former employer. 

LawRato provides a solution by connecting you with top-rated lawyers specializing in labour laws . Engage in discussions via email, schedule meetings, or seek consultations for tailored legal assistance at your convenience.

These guides are not legal advice, nor a substitute for a lawyer
These articles are provided freely as general guides. While we do our best to make sure these guides are helpful, we do not give any guarantee that they are accurate or appropriate to your situation, or take any responsibility for any loss their use might cause you. Do not rely on information provided here without seeking experienced legal advice first. If in doubt, please always consult a lawyer.

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