Indian Labour Law & Termination of Employment - What is the Rule?

Gone are the days when job security was a synonym for a renowned/ multinational company (MNC). In the current era, even big names like Twitter, Meta, and Amazon are making headlines for laying off their employees by hundreds and thousands. The journey dates back to days of illegal termination during COVID-19. But that time was somewhat justified since the virus ruined many businesses. Nobody understood how to stand still amidst the blows of lockdowns. The current scenario is somewhat worrisome, especially for the workforce dependent on that one job for survival.

There is one thing to be kept in mind that employers are not Gods. They also need to follow certain rules before they smash their employees with sudden termination of employment. If employees are unaware of what is wrongful termination of employment, they will not be able to speak up when they face it. Given below is a detailed clarification of the termination rules for employees in India, with or without reasons.  

Labour Law on Terminating Employment

People often assume that a private employer can terminate an employee without assigning any reasons for the termination from the job and the employee can only remain helpless. However, regardless of the private or public sector, employees enjoy some basic rights. The Industrial Disputes Act, 1947 terms termination of employment in India as ‘retrenchment’. It is defined as “termination of service of a workman by an employer for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action” under section 2(oo) of the Act. Exceptions include retirement age, voluntary retirement, contractual projects and prolonged illness of the employee. The Indian labour law on employment termination lays some rights and duties of both the parties, i.e. the employer firing from the job and the employees being fired.  

Difference from Lay-Off

Thanks to big companies, lay off has become a household term where there is a question about job security. In legal terms, laying off can be understood as the failure, refusal, or inability of an employer to provide employment to a workman whose name is included in the muster roll. The term muster roll used here under the Industrial Disputes Act, 1947 can be understood as the official list of workers in a factory/ workplace. Hence, a layoff can be understood as the inability of the employer to keep the employee because of a scarcity of raw material, mechanical or other procedural glitch or a natural calamity, etc. which is disturbing the usual work. The inability of the employer leading to employees’ layoff should be justified, in good faith and not a malicious intention. As per the Indian labour law termination of employment rules, subject to certain conditions being fulfilled including a minimum of one year of continuous service by the employee, laid off employees have the right to be paid 50% of their basic salary + dearness allowances. In case the situation does not improve and the employee has to be retrenched, the Indian labour law applies and the employee has to be compensated accordingly.

What is Wrongful Termination of Employee?

The labour law on termination of employment lays that employment should continue unless there are some reasons to terminate the same. Such termination also needs to be proceeded with by following certain rules and regulations. Given below are the rights entitled to the employees in case of employment termination, which, if not followed, may result in retrenchment being declared null and void, i.e. ineffective as per law.

Rights of Employees in India

Notice Period 

The law states that if an employee needs to be terminated from a job, he/ she should be given a notice period ranging from 30 to 90 days. If continuation of employment is not feasible due to any reasons, the alternative path is compensation for termination of employment in India. Hence, either the employee works at the organisation serving the notice period or is given the salary equivalent to the notice period as per the employment contract, or the applicable state laws, as the case may be.
 

Date of Termination from Employment

If an employee is asked to serve the notice period in pursuance of termination from employment, the communication should clearly specify the date of termination as well as the date of the end of the notice.
 

Retrenchment Compensation

Some states or the applicable rules also contain payment of compensation to employees retrenched by the organisation. Such employees need to be duly compensated as per the rules.
 

Gratuity

If an employee has been working for 5 or more years and is suddenly retrenched, payment of gratuity comes as a right. There are state-wise varied rules of compensation for employees who have served the organisation for years and have been asked to leave. Suppose the number is 7 years, then for each year, the employee salary should be calculated upto 15 days and the sum of 7 years has to be paid at the time of completion as per employee termination policy in India. 

Maintenance of Muster Roll

The details of employees on the muster roll need to be up-to-date. Hence, the date of termination of employees terminated also needs to be updated and communicated. 
 

Arrangement in Seniority

If employees of a particular department or designation are retrenched, a notice containing the names of the employees terminated as per seniority needs to be put on the notice board. In some cases, not doing this minor task may lead to retrenchment being declared null/ ineffective by the courts. The order of seniority not only needs to be maintained in this notice but during termination as well. Usually, the recent joinees are more prone to be retrenched as per law, unless there is a reason for the contrary. 

Re-Employment

In some cases, the rule lays that retrenched employees should be prioritised in case people need to be hired for the same position for which termination was done. If such a terminated employee refuses to take back employment with such organisation due to any reason, other candidates may be considered. 
 

Government Approval

For some organisations (factories, mines and plantation-based workplaces) that employ more than 100 (the number may vary) employees, government approval may also be required based on the applicable state laws. 

Employment Contract

It is understood that the definition of workmen does not include people in managerial or supervisory roles. Hence, in such cases, whereby Indian labour law - termination of employment does not apply, the employment contract paves the way for the rules to be followed. For such employees, an elaborate employment letter is quite necessary, specifically regarding retrenchment, notice period and compensation. In case the employment contract is pro-employer and anti-employee, the labour lawyers help prove the same before the court to attract requisite compensation to the employees.

FAQs Around Labour Law on Employment Termination

1. What are the rights of a terminated employee in India?

   The employees facing sudden termination of employment are rightful to notice or be compensated for the same period. Employees are also entitled to other benefits like gratuity, earned leaves, bonuses etc.
    

2. Can an employee be terminated without notice?

   An employee can be terminated without giving notice by compensating for the period of notice or without compensation if it is a case of disciplinary action, after following the due process. 
   
   

3. Can an employer terminate an employee without any reason?

   People often have this misconception that a private employer can terminate an employee without assigning any reasons for the termination. However, it is against the employee termination policy in India. The reasons need to be stated and the employees should be given the due chance to explain themselves. Even if the specific reason can not be disclosed, employees can not be terminated at the whims and fancies of the employer. A proper notice has to be served or the employee needs to be compensated for the said period.
   
   

4.  What is the minimum notice period for employment termination?

   As per the Indian labour law - termination of employment follows serving a notice period ranging from 30 to 90 days. The same may vary as per specific state laws.
    

5. What is the procedure to terminate an employee?

   The procedure to terminate an employee typically involves providing a written notice specifying the reasons for termination, adhering to the agreed-upon notice period, and complying with applicable labour laws, which may include providing severance pay.
   
   

6. What is the compensation for termination of employment?

   The compensation, notice time, severance pay and other terms that must be provided to the employee upon termination are all outlined in the employment agreement. This contract, which is frequently signed at the outset, is a crucial document that is enforceable in court.
   
   

7. What are the rules for terminating employees in India?

   Termination rules for employees in India vary based on the type of employment, the terms of the employment contract, and applicable labour laws. For workmen (non-managerial employees), termination is governed by the Industrial Disputes Act, 1947, requiring a valid reason, at least 1 month’s notice, salary for the notice period, severance pay and notice to the Government. Employment contracts should outline termination terms. Industries with 100 or more employees must follow certified standing orders and there are state-specific Shops and Establishments Acts governing termination for commercial establishment employees
   
   

8. What is the notice period for termination of employment in India?

   The notice period for termination varies based on employment type and contract terms. For workmen under the Industrial Disputes Act, 1947, a workman with at least one year of continuous service is entitled to one month’s notice or wages in lieu thereof. For non-workmen, the notice period is typically specified in the employment contract and can range from one to three months. Probationary employees usually have shorter notice periods as per contract or company policy.
    

9. Do we get salary after termination?

   Post-termination, employees are entitled to receive various payments. This includes salary for the notice period (served or if the employer does not provide the required notice), along with severance pay for workmen (equivalent to 15 days average pay for every completed year of service if they have worked for at least one year, with any period of service exceeding 6 months being counted as an additional completed year). Employees who have completed five years of continuous service are entitled to gratuity under the Payment of Gratuity Act, 1972. Additionally, any unpaid wages, bonuses, and benefits up to the date of termination must be paid to the employee. 
   
   

10. What is wrongful termination in India?

    Wrongful termination in India occurs when an employee is terminated in violation of legal provisions or contractual agreements. This includes lack of due process for workmen under the Industrial Disputes Act, such as termination without proper notice or valid reason, and breach of contractual terms. Termination based on discrimination related to gender, caste, religion, race, or disability, as well as retaliation against an employee for raising workplace issues or whistleblowing, also constitutes wrongful termination. Employees can seek legal recourse through labour courts or civil courts depending on the violation.