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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 the hundreds and thousands. The journey dates back to the 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 terminate their employees, including the sudden termination of employment. If employees are unaware of what constitutes wrongful termination of employment, they will not be able to speak up when they face it, then seeking the help of a labour lawyer can be the best move. 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. In India, termination of employment is regulated by various labour laws that inherently restrict and shield both the rights of employees and employers. The legislation that forms the legal framework rules of termination is the Industrial Disputes Act, 1947, the Shops and Establishments Acts (state-wise) and the Industrial Relations Code, 2020. These legislations are aimed at ensuring that dismissals do not occur arbitrarily and that appropriate procedures are adopted in terminating employment, particularly when the individual being terminated is a workman or in a formal sector job.
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 out some rights and duties of both the parties, i.e. the employer firing from the job and the employee being fired.
What is Wrongful Termination of an Employee?
The labour law on termination of employment states 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.
Difference from Lay-Off
Thanks to big companies, layoffs have become a household term, where there is a questions 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 an employer to lead to employees’ layoff should be justified, in good faith and not a malicious intent. 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.
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 reason, 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's salary should be calculated up to 15 days, and the sum of 7 years has to be paid at the time of completion as per the 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 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 also during termination. Usually, the recent joiners 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 for 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 the requisite compensation to the employees.
Termination with or without notice
According to Indian Labour Law, the dismissal usually does not have effect until the notice period has run out or a month's notice in lieu of pay is given. The actual length of the notice period may differ and could be reliant on the internal policy of an employer, namely that which is specified in the contract of employment with employees, or through the customary standing orders of a company. Dismissal on short notice would be feasible in highly specific contexts, i.e., the termination for cause (where there is a history of gross misconduct, or a failure by the employee to follow company disciplinary rules). If dismissal short of notice must be issued against the employee, a domestic enquiry or show-cause procedure will have to be adopted.
Wrongful termination and legal remedies
Wrongful termination refers to termination for no reason except being part of an unsafe workplace, absence from work for personal reasons, or absence of due process. According to the law, if an employee is unfairly or wrongfully terminated, the employee can sue the employer in a Labour Court or Tribunal seeking reinstatement or compensation or settlement for the termination. There are provisions available under the Industrial Disputes Act and labour codes for initiation of fair dismissal and protection against a worker being unfairly dismissed or unjustly dismissed, particularly if they had long-term or permanent employment!
Termination of employment contract
In case of a fixed-term worker or contractual workers, employment gets automatically terminated with the contract period lapsing as per the terms and conditions of the contract, subject to renewal. But prior termination would have to be under the terms and conditions of that fixed-term contract and also in compliance with the labour laws at the time of termination.
An employer and an employee always bear the burden of due diligence and laws before they terminate any employee contract, and the last thing they want is to face a lawsuit for wrongful termination or future reputation risk.
FAQs Around Labour Law on Employment Termination
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.
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.
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 whim and fancy of the employer. A proper notice has to be served, or the employee needs to be compensated for the said period.
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.
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.
What is the compensation for the 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.
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.
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.
Do we get a 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.
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 a 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.
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