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Termination rules for employees in India

January 3, 2024

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This article is written by Kaustubh Phalke. This is an exhaustive article that elucidates what the termination of employees means, the different types of terminations, the statutes that deal with the termination, and the rules mentioned under the termination of employees in India. The article explains the impact of termination on both sides, i.e., on the part of the employee and the employer. This will help the employees to know their rights and the employer to avoid any adverse litigation against them. At the very outset, it discusses the introduction and the meaning of termination, following other important headings about the termination of employees.

It has been published by Rachit Garg.

Table of Contents

Introduction

Earlier, MNCs used to be the most secure place for employees to work, but the time has changed now, and even business giants like WhatsApp, Facebook, Amazon, etc. are known for laying off their employees in huge numbers. The game of layoff marked its beginning in the COVID-19 era, where these giants were smashed by the virus and stagnant economy, but that was justifiable to an extent, and now the current scenario is really worrisome. Interestingly, HR (human resource personnel) play two important roles in ‘hiring’ and ‘firing’ employees. We have seen experts for the purpose of hiring someone but not for firing someone from the job. The process of termination from the job is arduous for both parties, be it the HR department of the company or the employee who is getting terminated. There may be times when hiring is at a lower rate than termination, which makes it important for people to understand the fundamentals of termination.

Some of the reasonable causes for termination are non-performance, redundancy, etc., and since the Indian courts are pro-employee, the employer should be meticulous to defend himself with a substantive piece of evidence to stay protected against wrongful termination. An employer should not overlook India’s anti-discrimination laws. There are various laws that provide special protection to certain categories of employees against discrimination in employment, and such employees can bring suits for wrongful termination if procedures are not followed.

A particular process to terminate an employee has been nowhere defined, although some legislation talks about certain procedures to deal with it. Also, the employees enjoy some rights against unlawful termination, which are discussed in several laws.

In this article, let’s take a look at the process of termination along with certain legislation governing the process of termination.

The meaning of termination

Termination simply means the end of an existing contract between the employer and the employee to work together. The decision to terminate may be taken by the employer or the employee himself. The process requires a high level of legal attention in order to avoid the chaos that may be created later on. Poor job efficiency, redundancy, and wrong behaviour may be some of the reasons for the termination.

The termination process for employees in every organisation is fixed and shall comply with state and central laws.

Rights of employees in India

Notice period

An employee is entitled to work till the notice period ends, and if the conditions are such that the employer is unable to continue the employment for the time when the notice period ends, then he must give adequate compensation to the employee for the same according to the employee contract or the state law applicable. The notice period is 30–90 days, which varies according to the organisation.

Date of termination from employment

The employee is entitled to know the exact date when the notice period ends and the date of his termination during the notice period.

Retrenchment compensation

The employees who are retrenched are to be given adequate compensation according to the rules, state laws, etc.

Gratuity

Gratuity is an amount that is given after employment comes to an end. If an employee is retrenched, then he becomes entitled to the gratuity amount. The employee should have worked for the organisation for at least five years. A salary of 15 days for the time he has worked is to be provided to the employee as a gratuity amount.

Maintenance of muster roll

Muster rolls contain the details of the employee. This should be updated with the date of termination as well. The maintenance of these muster rolls is to be communicated clearly.

Arranged according to seniority

When employees are retrenched, a list is prepared on the basis of seniority and is stuck on the notice board. Ignoring this small step can result in this retrenchment being declared null and void by the courts.

Employment contract

The employee contract paves the way for the termination of employees who do not fall under the definition of workmen. A letter is issued precisely stating the terms of employment, the process of retrenchment and termination,and the notice period and compensation to be granted.

Termination rules for employees

Whatever the reason may be, the employee should not be meticulous while following certain rules of termination to make the process unlawful and create trouble for themselves.

Notice period

A notice period of 30-90 days is to be given compulsorily to the employee before termination. This notice period may vary according to the organisation. When an organisation decides to terminate 100 employees at once, it requires government approval, and while terminating in some other sector, a government notification is sufficient.

Reasonable reason

There should be some grave reason behind the termination of an employee. The following may be the reasons behind termination:.

Not abiding by the rules of the organisation or being undisciplined.
Theft, fraud, and dishonesty.
Willfully making a loss of the employer’s goods.
Taking bribes.
Being absent for more than 10 days without any prior information to the employer.
Being ignorant of the orders given.
Careless behaviour.

Last come, first go

During termination, the person who last joined the organisation should be the first to leave. Similarly, when hiring back for the same job or similar work, the terminated employee should be the first priority.

No termination during leave

Employees are entitled to 10-15 days of paid leave, 10 days of sick leave, and 10 days of casual leave. No employee can be terminated while on leave.

Types of termination of employment

Voluntary termination

When an employee voluntarily terminates employment due to professional and personal reasons is known as voluntary termination. Reasons might include getting a better job, starting a new venture, etc. The process begins with handing a resignation letter to the employer. The standard notice period is 30 days, which may vary according to the organisation.

Involuntary termination

When an employee is asked to leave the organisation without his own will, it is said to be involuntary termination. Usually, it is from the side of the employer. During the downsizing, layoff, etc.

Layoffs and Downsizing

According to Section 2(gg)(kkk) in the Industrial Disputes Act, 1947, it simply means an inability of the employer to give work to his employees due to certain professional reasons.

The organisation reduces its workforce to reduce costs and restructures its workforce. It is common when the skills of the employees do not match the current requirements of the organisation.

Getting fired

It refers to getting terminated for unsatisfactory work performance or because their behaviours and attitude cause chaos at the workplace. An employee who is fired need not be given a 30-day notice period. Those who are fired for the reason of violating company policies must be given sufficient time to explain themselves before being finally fired.

Illegal dismissal

Dismissing an employee for illegal causes or grounds such as race, caste, sex, religion, etc. is illegal dismissal.

If an organisation is found to be illegally dismissing employees, it may lead to compensation, restoration of job positions, etc.

Termination under contract

This is pre-decided at the time the contract is signed between the employer and an employee. The termination of a job due to the end of the contract is a termination under the contract.

This can be renewed or replaced by a new contract.

The salary, compensation, and other benefits are governed by that contract. A notice period of one month and one month’s compensation are required for the termination of a contractual employee.

Termination during probationary period

The probationary period is generally predefined in the employee agreement and generally lies between 3 and 6 months. This allows the employer to test the newly hired person. The employer holds the right to terminate him without any prior notice period or compensation.

Collective dismissal

Employers sometimes use collective dismissal for several reasons, such as retrenchment, redundancy, corporate restructuring, etc. In this case, the employer has an obligation to follow ‘last in and first out’ along with notifying the local government about the collective dismissal.

Laws that govern the termination of employees in India

The Industrial Disputes Act (IDA), 1947

The Act compulsorily mandates a notice period of 30–90 days before terminating workmen. Any organisation having an organization, plantation, or manufacturing units with more than 100 workers requires the government’s approval before “termination for convenience.”. In other sectors, only government notification is required.

The IDA is applicable to ‘workmen’ only. Workmen is defined u/s 2S IDA, which states that such individuals are hired for the purpose of technical, skilled, unskilled ,unskilled and technical operation.

The Industrial Employment (Standing Orders) Act (IESA), 1946

Employers are required to get the conditions of services certified by the concerned government authorities. These conditions are written in establishments. This is done to avoid any future disputes. The standing orders include termination of employees, notice to be given, defining misconduct, etc. The act also talks about the subsistence allowance given to suspended workers against the pending inquiry.

Industrial Relation Code (upcoming)

It allows an establishment with a strength of 300 workers to lay, retrench, or close without the prior permission of the government. Earlier, the strength limit was 100.

The Factory Act, 1948

It specifies that any unavailed leave of a worker should not be taken into consideration while calculating the notice period given before termination. The act stipulates the timeline for making payment against balance leave to a terminated worker; it is mandatory to make payment before the expiration of the next working day.

The Maternity Benefit Act, 1961

The Act prohibits the employer from terminating the female employee while she’s on maternity leave.

State labour law in delhi union territory

Under the Delhi Shops and Establishments Act of 1954, an employer has to give a notice period of at least 30 days before terminating an employee who has worked for at least 3 months, or a salary in lieu of such notice. An employee is free to terminate any employee for any disobedience or mischief without any notice or compensation, but he will have to give the employee sufficient opportunity to the employee for explaining the charges against him.

State labour law in Maharashtra

Under the Maharashtra Shops and Establishments Act, an employee is to be given 30 days of notice if he has been with the organisation for more than 1 year and 14 days of notice period if the employee has worked for less than 1 year but more than 3 months. No compensation is to be given if the employee is terminated for mischief.

State labour law in Karnataka and Tamil Nadu

Under the Karnataka Shops and Establishments Act, 1961, and the Tamil Nadu Shops and Establishments Act, 1947, if an employee has been working for more than 6 months, he cannot be terminated without a reasonable cause. The notice period should be one month. And no compensation is to be granted if the reason for termination is mischief.

State labour law in Andhra Pradesh

Under the Andhra Pradesh Shops and Establishments Act, 1988, there would be no notice period if the person had worked for at least six months.

State labour law in West Bengal

The notice period is 30 days, which shall be given by the employer. The act is applicable to the organisation with no gratuity payment eligible employee as well. This can take place within 30 days of termination.

State labour law in Rajasthan

According to the Rajasthan Shops and Commercial Establishments Act, 1958, any employee who has worked for the organisation for less than 6 months cannot leave the organisation with a notice period of 30 days.

Lack of a well-defined termination procedure: a major worry

The lack of a well-defined termination procedure can result in disputes between the employer and the employee.

Arbitrary termination of employees

Many times, the employees may feel arbitrary use of power by the employer in the termination process. This may lead to unfair and unjust treatment of the employees, which will damage the morale and trust of employees in the employer.

Non-compliance with legal statutes

The lack of established procedures will result in non-compliance with the already existing statutes, which may result in wrongful terminations and expose employers to legal consequences.

Distrust amongst employees

The lack of a termination procedure may result in distrust amongst the employees toward the employer. This will ultimately hamper the productivity of the organisation. Employees may even call for strikes due to a lack of trust.

Increased disputes

The employees may bring legal action against the employer if they feel that the termination is unfair and unjust. Increased disputes will result in a bad impact on the goodwill of the employees.

Job insecurity

Lack of a termination procedure may result in job insecurity among the employees, which can create an unhealthy environment and negatively affect the efficiency of the organisation.

Mandatory notice period for termination of employees in India.

Employees of factories, mines, plantations, or establishments containing more than 100 employees get a notice period of 3 months or compensation in lieu of the notice period.

Notice periods for managerial or senior-level employees are governed by the Regional Shops and Establishment Act, which are generally 30 days for most of the state.

Terminated employees for misconduct are not entitled to any notice period or compensation in lieu of the notice period.

Procedures for terminating an employee in India

Notice period

The employee must provide a notice period to employees before terminating them. This is generally specified in the employee’s contract. The standard notice period is 30–90 days.

Balance payment in lieu of the notice period

If the employer wishes to terminate the employee without giving him the notice period, he needs to pay him the balance in lieu of the notice period.

Severance pay

The employee is paid severance pay by the employer if the reason for termination is other than the employee’s performance or misconduct. The amount may vary according to the length of the service and the conditions of the employment contract.

Retrenchment and layoffs

This is covered under labour laws, and the employer may require the government’s approval before retrenchment and layoffs. Special provisions apply in such situations.

Dismissal on misconduct

The employer holds all the rights to dismiss the employee for non-compliance of the company’s policy. Due process should be followed while dismissing an employee along with the principles of natural justice.

Legal compliances

An employer should comply with all the relevant statutes before taking any decision regarding termination. This will reduce the risk of any legal action against the employer.

Disciplinary enquiry process

The misconduct of the employee must be firmly proved by the employer by the disciplinary process before termination

Once the misconduct is proved by the fair enquiry the employer becomes free to terminate without any notice period.

The following process is to be followed in the enquiry process:

Charge sheet

The charge sheet here is kind of a show cause notice to the employee to give him a sufficient opportunity to defend the charges against him. The charge sheet contains the charges for the employee. It should also contain the relevant provisions of the employee agreement. This can be sent by registered mail to the employee. A personal delivery should be made to the employee, and an acknowledgement shall be taken as a copy of proof of delivery.

Preliminary fact-finding

In order to understand the nature of the misconduct, the employer should conduct an investigation to find out the true facts.

Enquiry officer to be appointed

An inquiry officer is to be appointed externally or internally to conduct an investigation. This officer should be free from any bias for the sake of a fair investigation.

Notice of inquiry

The employee is to be informed about the disciplinary process by way of this notice stating the particulars of this inquiry.

Complying with the principles of natural justice

The employer is obligated to comply with the principles of natural justice while conducting this inquiry.

HR policies

A specific process should be followed for everyone for the purpose of fairness and equality. These policies should be specifically mentioned in the company’s policies and standing orders.

Suspension and payment of subsistence allowance

The employer may suspend the employee during this process for the sake of fairness. To avoid the tampering of evidence and unpredictable difficulties on the part of the employee.

The employee is to be paid subsistence allowance or full salary if the rules of subsistence allowance are not there.

Ex- parte inquiry

If the employee refuses to accept the notice of the inquiry after the best possible efforts,. Then the officer can pass an ex-parte inquiry.

Calling witnesses

Witnesses from both parties should be heard and cross-examined by the officer in order to hear and understand the points raised by both parties.

Enquiry report

The inquiry report should be prepared by the officer on the completion of the process, stating the conclusion along with the reasons and the admissibility of the evidence.

On completion of this process, if the misconduct is proven, the employer can terminate the employee.

Employees’s protection against dismissal

An internal investigation should be initiated if the employee is terminated for the reason of misconduct to comply with the principles of natural justice. The employer should also follow audim alteram partem before termination.

If the services of a worker (who has been in continuous service for at least one year) is terminated for reasons other than misconduct, in addition to the notice of termination, the employer is also required to notify the relevant government of the dismissal within 15 days The average salary for each completed year of continuous service or fraction of a year exceeding six months (severance pay) is payable to workers.

Severance pay requirement for Indian employees

Employees who are terminated for reason other than any disciplinary reason are entitled to retrenchment compensation The pay is calculated as the average of 15 days of pay for every 1 year of continuous service, or part thereof in excess of 6 months.

For employees who are terminated, employers must pay termination benefits, including leave accrued, equivalent pay in lieu of notice (if no notice is given), statutory bonus payment, and any other amounts due under the employment contract. Under the Payment of Gratuity Act, 1972, employees with at least 5 years of continuous service get additional gratuity payments of half a month’s salary for each year of employment.

For employees who are terminated due to misconduct, no entitlement to notice pay or severance pay is required.

Jurisdiction of Courts in case of disputes

An employee can appeal to the jurisdictional authority for the unfair behaviour of the employer or unfair termination. An employee may approach the relevant court for the following reasons:.

If the employer has terminated without stating a particular reason.
If the employee has been proved innocent for the allegation of misconduct.
If the grounds of termination were unfair.

To seek remedy for any of the grounds mentioned above, the employee has to establish a case and seek the approval of the local labour authorities, and now the case may be overseen by jurisdictional conciliation officers, industrial tribunals, or labour courts.

The easiest way to comply with Indian termination requirements.

Keeping track of information becomes really difficult for the employer who hires the workforce globally. The best way to master these complications is to inherit through the employer of record.

Termination of employees : a state-wise perspective

Any termination should comply with the existing relevant statutes. State laws play an important role when no established procedure for termination exists. Some of the major state labour legislation in India are :

State labour law in Delhi Union Territory

According to the Delhi Shops and Establishment Act, the employer cannot terminate an employee who has been working for the corporation for more than 3 months without giving the employee at least 30 days notice or salary against such notice period if the reason for termination is other than misconduct.

The employee is given sufficient opportunity to explain the charges against him.

State labour law in Maharashtra

According to the Maharashtra Shops and Establishment Act of 1948, an employee who has been working in the establishment for more than one year cannot be terminated without a notice period of 30 days. If the employee has worked for more than 3 months but less than 1 year, the notice period reduces to 14 days. And no notice period is to be given if the reason for termination is misconduct.

State labour law in Karnataka and Tamil Nadu

According to the statute, an employee cannot be terminated without a reasonable cause if he’s been working for the establishment for six months. The notice period to be provided is 30 days, and no notice period is given in cases where the reason for termination is misconduct.

State labour law in Andhra Pradesh

Under the Andhra Pradesh Shops and Establishments Act, 1988, there would be no notice period if the person had worked for at least six months.

State labour law in West Bengal

State labour law in Rajasthan

Impact on employers

The process and the cause of termination should be reasonable and valid,since the employers may face legal consequences because of a small mistake, and such consequences may lead them to pay heavy fines and suffer a loss of goodwill.

Complying with the rules and regulations will help the employers avoid disputes and increase the trust of employees in this organisation.

In order to avoid any adverse litigation, the HRs and inquiry officers should abide by the rules and labor laws of the state and central.

Conclusion

The termination of an employee raises several questions about his career and the establishment itself. One single wrong termination may lead to legal consequences for the establishment along with distrust amongst employees. An employer should understand the value of an employee rather than just terminating them from the post they’ve worked hard for. There should be a proper procedure for termination to ensure fairness and stop the arbitrary use of power by the employer. The employer who’s terminating the employee should have sufficient documentary evidence and valid cause to avoid disputes.

Frequently Asked Questions (FAQs)

What is the termination period in India?

The termination period in India is 30 days and may vary for organisations.

What are the rules for termination of employees in India?

The employee is to be given a 30-day notice period if the reason for termination is other than the misconduct of the employee.

Do the employees get a salary after the termination?

One month’s salary is to be given by the employer to the employee who has worked for a year or more for the establishment.

Do you need a reason to terminate an employee?

Yes, employers should have a valid reason before terminating an employee,along with strong proof of misconduct, if any. The employers should give sufficient chances to the employees to explain themselves before terminating them.

What is the compensation for termination of employment?

Compensation and other details are precisely mentioned in the employer agreement. These agreements are enforceable in court.

What is the procedure for terminating an employee?

The first step is to provide a notice to the employee stating the reasons for termination. The second step is to adhere to the notice period, and the third step is to comply with the labour laws applicable at the instance.

Can an employee be terminated without notice?

Yes, an employee can be terminated without notice if the reason for termination is misconduct.

References

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