Employment Termination and Checklist

TERMINATION OF EMPLOYMENT IN INDIA 

By Sandigdha Mishra, Adv.

advocate.sandigdhamishra@gmail.com

advsandigdha@paydirtprofessionals.com

When employers do not follow the proper procedure to terminate an employee then they are caught into a number of legal and reputational risks. Therefore, it is required for the company to create a contract and get it mutually agreed by both the employer and an employee before joining the company. It also helps employees to get to know about their rights and responsibility in a company to avoid the consequences.

In India, there is no standard procedure to terminate an employee. The contract between the employee and employer decides the terms and conditions to terminate an employee. However, employers must be aware of the fact that labour laws always supersede the provisions described in labour contracts.

In the case of absence of a labour contract, employers require to follow the state laws to terminate an employee.

Grounds For Termination

The grounds for termination of an employee can vary in different countries. In India, as per the laws following grounds can be considered:

1. Expiry of a fixed-term contract or mutual separation

2. Resignation by an employee

3. Retirement or superannuation

4. Layoffs 

5. Termination for "cause" -  This may involve the following cases:

6. Established breach of an employment contract or internal policies

7. An employee involved or committed in any criminal offence

8. An employee is unable to fulfil the material obligations of the job

9. Misconduct

10. Poor Performance (After undertaking sufficient process of performance improvement plan)

11. Loss of confidence by management

12. Continue absenteeism

13. Laws Governing Termination Of Employment

As per the Indian Labour Law, employees and employers are categorized into two types each. An employer can be either establishment or factory, whereas, an employee can be either an employee or workman. The labour and employment regulations are governed by both central as well as state government. Acts such as the Industrial Employment (Standing Orders) Act (IESA), 1946 and the Industrial Disputes Act (IDA), 1947 are included in the federal statutes to regulate the employee termination process. The Shops and Establishments Act is enacted in most of the states with minor variations in the rules of implementation. This act regulates the labour and employment in all premises where business, profession and trade are carried out. The implementation of state laws may differ according to the operation area of the employer.

Most employment relationships end by virtue of a notification served by the employer to the employee, indicating employer's unwillingness to renew the employment contract or intention to terminate their employment. However, most employees do not recognize whether the letter or notice of employment termination has been made in accordance with the provisions of the Labor Law or has been arbitrarily issued, for which compensation is due.

What is the Legal Way to fire an employee?

To avoid unnecessary lawsuits arising from discharges, proper rules should be framed to govern them. Here’s the complete procedure to fire an employee legally: 

Serve a Notice: Do not fire an employee without warning! A notice period of 30 to 90 days must be served before terminating an employee. The notice must be given in writing clearly mentioning the reason for termination. An employee may hire a labour lawyer to file a lawsuit against an employer if a proper and timely notice is not served before his termination. 

Settle the Severance Pay: Severance pay is the compensation or benefit paid in the form of money by the employer at the time of resignation on mutual agreement, retirement, laid off or employee leaving the company for any reason except on dismissal by misconduct.

At least one month's payment must be paid to an employee who has completed at least one year of continuous service before termination. In case of mass termination in factories, mines or plantations which employ more than 100 employees, the employer must give at least 3 months of wages to the workmen proposed to be terminated.

The Payment of Gratuity Act 1972 says that a worker is entitled to gratuity payment on termination of his service after 5 years of continuous employment. Under the Industrial Disputes Act, 1947 retrenched workers are entitled to 15 days' wages for each completed year of service.

Avoid Constructive Dismissal: Constructive dismissal is a situation created by the employer in which the employee is forced to quit their job not because they wish to, but they are forced to do so because of the employer's conduct. The resignation could be the result of bad working conditions or changes in terms of employment which leaves the employee with no other choice but to quit. Factors that may amount to constructive dismissal are: 

1) A Demotion 

2) Reduction in salary

 3) Transfer to a less desirable position 

4) Harassment or humiliation by the employer 

5) Offer of an early retirement 

6) Indirect threats of termination

Conduct an Exit Interview: Exit interviews with an employee who has been fired or has resigned can be very beneficial. Good exit interviews fetch important information about the organization, for evaluating and improving the working environment, culture, management, and development.

It is advised to consult a labour court lawyer in India before you fire an employee as a lawyer can provide advice, draft severance agreements, and attend the termination meeting and perform the termination of the employee. If an employee proceeds to file a complaint against the employer, the company would require legal representation. 

Compliance rules while terminating employees

According to the Industrial Disputes Act, 1947, a 30 to 90 days of notice period needs to be served to terminate "workman". For the "termination for convenience" requires approval from the government in case of manufacturing units, plants, mines where more than 100 workmen are serving. Government notification is sufficient for other sectors.

Cause of termination should not include non-performance. Instead of including behaviour which qualifies misconduct.

When an employer terminates an employee for convenience, then they must be ensured to make a person redundant who lastly joined the organization for the same role. Since a few years organizations have made it a practice that they will consider the terminated employees first when starting new hiring.

As per the provision provided in the Maternity Benefit (Amendment) Act, 2017, if a pregnant or a woman seeking for maternity leave is being terminated then the employer must balance her convenience against the risk associated with noncompliance.

Under Indian law, a non-compete agreement cannot be enforced, whereas non-solicitation clauses can be enforced in limited ways.

As stated in the Indian copyright regime, employees must be provided with a formal assignment as per the "work and hire" principle.

Termination - Key Factors 

Usually, clauses of termination are mentioned in the employment contracts which eases the process of termination in the case of mutual agreement or fixed period contract. In the fixed period contract, the employee is considered to be terminated when the contract is over unless renewing the contract or offering a new contract with the new clauses. 

In India, the employee is served with one month notice or one-month wages on their termination. In case of the termination of an employee due to redundancy and the employee is working in an organization for more than 2 years, then a severance package is calculated which depends on the performance, duration of employment and salary package.

Any unfair termination of an employee or the termination which happens without following central and state laws would result in legal penal consequences for the employer. Further, the court may give an order to the employer to pay fines and additional compensation to an employee who was terminated.

The employer must be ensured about the termination process researched and drafted by management teams and HR professionals which can protect them from the consequences. Perhaps, they also need to be ensured about the labour law compliances to avoid unnecessary litigation. In the areas where the compliances are difficult, legal advice is always the best practice to safeguard against risk.

In conclusion, we emphasize that wrongful termination cases are vast and diverse due to the fact that the nature and circumstances of work varies from one workplace to another. 

THANK YOU

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