Image source: https://www.rightsofemployees.com/termination-policy-in-indian-labour-laws/

This article has been written by Kalpesh Amrute, pursuing the Diploma in Labour, Employment and Industrial Laws (including POSH) for HR Managers from LawSikho.

Introduction 

“Hiring” and “firing” are two important functions of HR. We do have experts for hire but for firing? Not really. Nobody likes to get terminated from their job, even for an HR it is “not so desire” kind of job, but “have to” do it when the situation demands, and when that moment comes how many HR professionals are really prepared with the right knowledge and process to carry out it in “legally correct” manner. When the present world is dealing with the Covid-19 pandemic, many people have lost their job, rather, keep losing it than getting one. So, when hiring is comparatively low and firing is at high, understanding the fundamentals of termination becomes indispensable.  

Although there is no specific or standard process to terminate an employee in India, there are certain acts that throw some light on the topic and provide certain provisions to deal with it. This article mainly focuses on understanding some fundamentals related to termination, some key labor statutes related to termination, and the possible process of termination. It also highlights some important aspects to be considered before terminating anyone.

Important terminologies related to termination

  • Lay-off – [As per Section 2 -subsection (gg)(kkk) ] of the Industrial Disputes Act, it simply means, an inability of an employer to give work to his workmen because of certain business reasons. For example, if there is excessive stock already remaining in the warehouse, or power failure or breakage of machinery making it impossible for workers to work for a certain period of time. We often hear this term with manufacturing and IT workers during a recession or during pandemics like Covid-19. 
  • Retrenchment – [ As per Section 2-sub section (oo), (a), (b), (bb)] – It simply means termination of service of workmen for a reason other than any disciplinary action. However, it does not include superannuation or retirement, expiry of the contract, termination because of health reasons. Example – When a company shuts any of the departments or offices at a particular location and terminates the respective staff it is called retrenchment.
  • Strike and Lockout – In a democratic country like India we often hear this word; strike, but lockout??? Are they the same? Well, not really. In fact, both of them are antithetical to each other. The only common thing is the stoppage of work as a result of both. On a strike, a group of workers refuses to work for a common demand or against a certain cause. Whereas, lockout refers to the temporary closure of the workplace by the employer that also includes freezing of hiring. 
  • Worker, workman, and employee – Can they be used interchangeably? Well, each one of them has been defined in different acts and has relevant significance to that particular act only. While the Factory Act defines a “worker”, essentially covering everyone working in a manufacturing unit, the Industrial Dispute act referred to “workmen” to cover all those persons working in an industrial establishment except those with the managerial, supervisory, and administrative role and shops & establishment act like Bombay prefer calling it “employee” which basically covers everyone working in the establishment apart from the employer and his family. Although this can be a separate topic of discussion, it is important to understand their meaning because, depending on the applicability of the act, it helps to calculate the compensation of the person getting terminated and eases the process of termination. Hopefully, upcoming labour codes in India which unify these definitions under one umbrella, less complicated things, once implemented.
  • Suspension Vs Termination – Since both lead to cessation of work and stop a person from being present from a job as a part of disciplinary action, both are different. 
   
  • Suspension is the cessation of work for a limited period of time.
  • Termination is where a person is discharged from his duties permanently.
  • Suspension is temporary in nature.
  • Termination is permanent dismissal from a job. 
  • In case of suspension, a person is still on the job.
  • In case of termination, a person loses his job forever.
  • While suspended, an employee receives a subsistence allowance during his suspension.
  • In termination, since a person is not on the payroll of the organization, no question of payment.
  • While the suspension is an ad hoc arrangement to carry out an investigation of a pending inquiry.
  • Termination is a final result of an inquiry-based on the outcome of an investigation.

 

Acquaintances with statutes related to termination 

As per The Constitution of India, the seventh schedule, labor, and related things fall under the “Concurrent List”. This means both center and state governments can make their own laws to govern it. Hence, acts related to “Industrial Relations” (Central Acts) and acts related to “Employee Health and Safety” (State Acts) have some provisions related to termination. 

  • The Industrial Dispute Act, 1947 not just defines lay-off and retrenchment and provides compensation formulas in such cases but also enforces employers’ obligations in case of retrenchment like maintaining muster roll, seniority list, re-employment, etc. It calls any issues between a workman and employer an “industrial dispute” but also provides dispute settlement machinery. The act also made it obligatory to provide a minimum of 30 days’ notice to a workman before retrenching him.
  • As per The Industrial Employment (Standing Orders) Act, 1946, employers are required to define the conditions of service in their establishments in writing and get it certified from the appointed government authority in writing to avoid any disputes in the future. Termination of employment and notice to be given, defining misconduct, and suspension or dismissal for such acts are some of the topics along with others to be provided in standing orders. The act also talks about the payment of subsistence allowance to suspended workmen against pending inquiry.
  • The upcoming “Industrial Relations code” allows an establishment sizes up to 300 workers to lay-off or retrenched employees or even its closure without seeking any government permission beforehand, the earlier limit of workers was 100.
  • The Factory Act specifies any un-availed leave of a worker shall not be taken into consideration while computing his notice period, given before dismissal. The act also stipulates a timeline for making payment against balance leave to a dismissed worker, mandatory to make payment before the expiry of the next working day.
  • The Maternity Benefit Act, 1961 prohibits an employer from either issue a notice of discharge or dismiss a female employee during her maternity leave period.
  • along with these federal laws, there are many state acts related to Shops & Establishments in the states like Maharashtra, Delhi, West Bengal, Karnataka, and others made it mandatory to provide one month’s notice or pay in lieu of that for termination other than the cause of misconduct, only thing defers is the criteria of continuous service.

Possible process of termination

While termination of service can happen for various reasons from voluntary resignation by an employee to reach the age of superannuation. However, termination resulted because of misbehavior or as a result of any disciplinary action which may invite an “Industrial Dispute”. how to avoid it then? Unfortunately, while The Industrial Dispute Act does define what is an industrial dispute, there is no standard procedure laid down in the act, hence, procedures based on the principles of natural justice derived from Articles 14 and 21 of The Constitution of India are followed.

Broadly, following steps to be followed in case a workman is found guilty for misconduct and inflict punishment thereon. 

  1. Issuing a charge sheet A charge sheet in simple words is a document explaining the alleged act of misconduct or misbehavior against an employee. The basic idea of issuing a charge sheet is to give a clear idea to an employee about the charges against him. Articulation of words is very important while drafting any charge sheet. For example, if an absence from work or negligence on part of an employee is of habitual nature then the words like “habitual” are an essential constituent of the charge and must be mentioned in the charge sheet. If certain acts like “theft”, “forgery”, “disobedience” are specifically mentioned in the service rules, then, while drafting the charge sheet such act should be referred to with those specific names given in the service rules.  Along with drafting, a proper servicing of a charge sheet is also very much important. 
  2. Conducting domestic inquiryEven though there is no standard procedure to carry out the domestic inquiry is not prescribed; it should be in line with the principles of natural justice. Let the respondent have a fair chance to present his side against the allegations made. In the case, Khardah Co. Ltd vs Their Workmen, Bench of Justice Gajendragadkar has precisely delineated the preferred procedure of domestic inquiry. 

Following principles need to be adhered to while carrying a domestic inquiry – 

  • A fair opportunity to both the parties to be heard;
  • Hearing conducted by the impartial officer to adhere to the principle of “no man can be the judge of his own cause”;
  • An orderly followed procedure;
  • A decision in good faith.

3. Reporting of the inquiry A proper unbiased report must be followed upon completion of the domestic inquiry. A written report will always be handy in case of any future judicial inquiry. The report and the findings should strictly be based on the facts and supporting evidence produced before the inquiry officer in support of the charges mentioned in the charge sheet. In case of the absence of a report, the Industrial Tribunal may outrightly reject any domestic inquiry, and the hearing will take place solely on the merits of the dispute itself. Even though final punishment is at company management’s discretion, submission of the report to the delinquent employee is imperative as it is held by the Supreme Court in the Electronics Corporation of India vs B Karunakar case.   

4. Final punishmentIn case of any proven misconduct or misbehavior a punishment is a must. This helps organizations to maintain discipline by refraining other employees from committing any similar act. Conducting a proper inquiry and its documentation is key before any punitive action is taken by the management. 

Good to know

  • Firstly, don’t get stressed. Yes, it’s ‘easier said than done, but after all, it’s a business decision which you need to communicate, so prepare yourself mentally first.
  • Planning ahead always helps, especially with a mass lay-off. After all, this should be the last possible step that the organization has taken, so if required, redefine roles of those who are retained, to ensure that the show will go on smoothly. At the same time, ready with your severance packages for those leaving, to alleviate some of their pain.
  • Diligent in paperwork, be it with documentation of inquiry or drafting termination letters, be precise and choose words carefully. In the absence of any specific termination process defined in any law, this will protect against any possible backlash. Prior standing orders or service rules such as clearly defining misconduct make your job easier.
  • Communication, the most critical part. In case of lay-offs, inform employees clearly and communicate an honest picture in front of them to avoid any shockwaves. Be compassionate while dealing with their queries. They are not being removed for any fault on their part so avoid any acerbity and try to end things on a good note.

Conclusion

While maintaining discipline and following decorum of the organization is paramount and some tough decisions are inescapable for the survival of the business, it is important to understand that employees are not any tools to be thrown away upon diminishing their utility. Just like a farmer acquires a land after so many years of cultivating it, an employee owns “that” post to a certain extent for which he is relentlessly working for many years. Therefore, before terminating anyone prematurely, possibilities of retaining, transfer, etc. should be explored. After all, their earning bread and butter depend on that job.


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