In this article, Vishnu T.H, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses rights available with ex-employee post termination of employment contract.
The wave of globalization hit India in the year 1991 which exposed the Indian economy to such varied markets that were not even thought of earlier. Today, almost 27 years later, the Indian economy is ripening due to the investments from different people and places. These investments have led to an increase in the flow of technical know-how and advanced skills into the Indian market. The changes that have taken place in the market conditions have led to changes in the relationship between the employer and the employee and this has further given rise to a different class of disputes between them. Prima facie, it is always felt that the employer is in a better bargaining position than the employee as the latter falls into the category dependent upon the former from a monetary point of view. This imbalance in position was felt by the legislature since the very beginning and it led to the sprouting of many laws to protect and safeguard the interest of the employees.This article traces the manner and grounds of termination of employment of employees in the next part and further discusses the rights available to the employee’s post-termination in the third part.
Termination of employment contract
The termination of the employment contract may take place in two ways:
- Either by the employee by way of resignation, or
- By the employer by way of discharge or dismissal.
Dismissal by the Employer against the Employee
Dismissal is a punitive action taken by the employer against the employee whereas discharge takes place when the employee is let go off by the employer due to inefficiency, redundancy, breach of employment contract, etc.
Although both blue-collar employees and white-collar employees can be dismissed and discharged, the termination of the former is governed majorly by the industrial disputes act and that of the latter is governed by the employment contract.
Termination of employment of a blue-collar employee
Section 2(s) of the Industrial Disputes Act, 1947 (“ID Act”) defines a blue-collared worker, or “workman” as “any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment express or implied.”
In case of a blue-collared employee, termination of employment has to take place only on the grounds that are provided for in the ID Act.
The ID Act provides for 3 types of termination:
- Retrenchment: Under retrenchment, the employer has wide powers to terminate the employment of its employees for any reasons other than voluntary retirement, retirement upon reaching the age of superannuation, termination due to non-renewal of contract or termination due to ill-health.
- Lay-off: Under lay-off, the employer is temporarily unable to assign work to the employees on account of shortage of raw materials, the breakdown of machinery, etc.
- Closure: In case of a closure, the employer is on the verge of closing down his establishment and thus has to terminate the employment of the workmen who work there.
The above-stated grounds are governed by the government to a great extent and these grounds cannot be changed or modified by contracting out of it i.e. even in existence of a contract which provides for termination on some other ground or modification of one of the above-stated ground to an extent that it goes against the ID Act, the ID Act shall always prevail.
Termination of the employment contract of a white-collar employee
White-Collar Employees are those who are engaged in Office works. They are professionals with high skills and high education qualification.
In case of a white-collar employee, the termination of the employment contract is completely depended upon the provisions and clauses of the employment contract.
Grounds for the Termination
- The employment contract usually includes all the necessary terms and conditions surrounding an event of termination including the grounds on which the employment can be terminated.
- As opposed to blue-collar employees, the grounds for termination in case of white-collar employees can range from a simple ground like the inefficiency of the employee to a grave reason for the loss of confidence by the management.
- As long as the employment contract is read, understood and accepted by the employee, the courts or tribunals cannot interfere with its contents. In most of the cases, the key grounds of termination are inefficiency, violation of confidentiality provisions and breach of the employment contract.
- In case of inefficiency, the employment contract usually lays down the job description and the duties, which the employees are expected to perform along with performance standards specification the non-fulfillment of which may result in termination.
- In addition to this, most of the employment contracts will have the certain requirement as to the fact that the employee is not allowed to give out any confidential information that he receives in the course of his employment as it may lead to an advantage to the competitors or in certain circumstances insider trading.
- The employer is empowered to terminate the employment of any employee who breaches this provision.
- The next ground, breach of employment contract, may be due to various causes such as providing misleading information, failure to conform with the company’s policy, etc.
- Apart from these grounds, the employment contract may suggest many other grounds for termination because of which it becomes extremely essential for the employment contract to be drafted with utmost care and unambiguity.
Termination of employment contract due to misconduct
Termination of employment by reason of misconduct on the part of the employees, although not an express ground under the ID Act, is a common ground for both blue-collar and white-collar employees. This type of termination results out of the dismissal of the employee as a result of a misconduct on his part thereby making it a punitive action.
The Supreme Court in the case of Govinda Menon v. Union of India has identified misconduct as employee behavior that is “inconsistent with the discharge of duty” or that is “prejudicial to the interest or reputation of the employer.” In addition to this, under Schedule 1, Clause 14 (3) of the Industrial Employment (Standing Orders) Central Rules, 1946, misconduct can include willful subordination, theft fraud dishonesty, the taking or giving of bribes, negligence, habitual absence and disorderly behavior.
Thus, the ground of misconduct is wide enough for the employer to remove the bad apples from the basket of employees. Usually, in case of most companies or establishments, the Human Resource policy describes what constitutes misconduct.
Rights of the Employee post-termination of employment
During the course of employment, the employee enjoys a number of rights relating to his employment conditions, working hours, additional benefits, etc. However, the rights of the employee post-termination for his employment are not discussed much. This is major because of the reason already mentioned that the employer has a better bargaining power than the employee and in case of termination of employment, the employee is put in a very disadvantageous position with no source of income. Thus, it is very important to discuss the rights of the employee post-termination as well, as he is in a vulnerable position where the employer can exploit him.
Rights of the Employees
In the current scenario, the rights of the employees are implied by way of the procedure to be followed by the employer in case of termination of employment of an employee. The procedure that is laid down has certain requirements to be fulfilled by the employer, which the employee can claim as a right since its non-fulfillment will entitle him to sue the employer in the court of law. Following are the rights of the employee:
Right to receive a notice of termination of employment
- When the employer wishes to terminate the employment of the employee, the employee has a right to receive 30-90 days of notice of the same or salary in lieu of the notice.
- In case of the notice of termination of employment, the employee shall cease to be in employment with the employer from the date mentioned in the notice depending upon the notice period.
- In case of salary in lieu of notice, the employer shall give the salary for 1 month or 3 months depending on the notice period and the employment comes to an end with immediate effect.
- The notice must clearly mention the reason for termination of the employment and the arrangement made for the fulfillment of the remaining rights of the employee post-termination.
Right to be heard
- When the employer wishes to terminate the employment of the employee, he must explain the ground for termination of the employment and give an opportunity to the employee to explain his position and show cause as to why he should not be dismissed or discharged.
- This requirement is in consonance with the principles of natural justice under which the aggrieved party has a right to be heard. This opportunity of being heard that is given to the employee ensures that the termination is not out of proportion in comparison with the offence, misconduct, negligence, inefficiency, etc. alleged against the employee.
- It is also important to ensure that the source of income of a person is not taken away from him without giving it a proper thought and without getting an explanation from both sides.
Right to have an inquiry conducted
In case of misconduct, inefficiency, violation of confidentiality provisions, etc. it will not be proper to terminate the employment without conducting an internal inquiry to understand the truth of the matter. Thus the employee has a right to have an inquiry conducted whereby the facts and circumstances shall be weighed and it shall be decided as whether there was the actual fault on the part of the employee or not.
Right to receive a severance pay
A severance pay is a payment received by the employee as a result of the termination of his employment contract with the employer. This includes the payment of the following:
- Salary in lieu of notice when notice is not given;
- The salary for days worked which remain unpaid;
- Encashment of unused paid leave;
- Payment of gratuity to an employee who has worked for more than five years as provided for in the Gratuity Act, 1972;
- Payment of 50% of the employee’s wages for up to 45 days where an employee employed for more than 1 year is laid off;
- Payment of compensation amounting to 15 days average pay for every year of continuous service;
- Payment of bonus for those employees who worked for at least 30 days in a financial year and earned up to Rs. 10,000 under the Payment of Bonus Act of 1965;
- Any other payment agreed to be paid on termination under the company policy.
The above-stated payment is more or less strictly applicable to a blue-collar employee and may differ for a white-collar employee depending upon his company’s policy.
Right to sue in case of illegal or unlawful termination
Whenever an employee is dismissed or discharged, the reason for the termination of employment must be just and reasonable. It must be strictly only on those grounds mentioned by the statutes or by the employment contract. However, if the employment is terminated on illegal grounds such as discrimination on the basis of gender, religion, caste, age, pregnancy, disability, etc. then the employee has a right to sue the employer as well as the establishment on the grounds of illegal or unlawful termination of employment.
An Employee can plead illegal termination in the following cases
- Violation of the state’s anti-discriminatory laws.
- Violation of employment or labour laws in India.
- If termination is viewed as a form of sexual harassment.
- If termination is understood as a retaliation against the earlier act of the employee against the employer. For example, an employee had filed a complaint in the past against the employer.
In case of a suit filed against termination of employment, the courts generally award monetary compensation and rarely interfere with the actual decision of the employer by reinstating the employee. However, reinstatement of employee happens most commonly in case of blue-collar employees whereby the employer violates the express provisions of the labour laws.
As is true for most of the situations, it can be observed that both the employers and the employees have rights to protect themselves when they are bound by a contract of employment. An employee has rights with respect to his working condition, working hours, maternity leave, etc. whereas the employer has a right to terminate the employment in a situation where he is put at a disadvantageous position due to the employee being in the employment of the establishment. In order to ensure that this right of the employee is not all pervasive, the employee is given protection in the form of certain rights post-termination. However, it is observed that the blue-collar employees are in a better position since strict statutes govern their termination whereas the white-collar employees are left to fend for themselves. Thus, it is of utmost importance for the legislators to come up with laws to provide protection to the white-collar employees as well against the whims and caprice of the employer.