Employement Documents

Labour Laws Relating to Termination of Employment

Termination of Employment

Labour Law is a concurrent subject under the Constitution of India; both central and state governments have the right to make laws and rules for regulating labour, including their employment and termination. The Industrial Employment (Standing Orders) Act (IESA), 1946 and the Industrial Disputes Act (IDA), 1947[1], are the primary statutes responsible for the regulation of employment in India. These also act as model laws for states in case they plan to make laws on labour and employment.

The rules of labour laws vary from state to state and can have minor differences in implementation. The Shops and Establishments Act, 1956 was enacted to fill the gap and regulate labour and employment in all the work premises involved in trade, business or professional work.

In India, there are no defined criteria or standard procedures for terminating an employee. Due to this, there is no express requirement to frame laws for termination of employment. Indian labour laws provide considerable protection to the employees and workers. It is noteworthy that labour laws always supersede the clauses of an employment contract relating to any termination policy.

Types of Termination of Employment

The following types of Termination of Employment are as follows:

Voluntary Termination

Voluntary termination means an employee terminates his/her employment with a company or organisation.An employee submits a formal resignation letter or verbal notice to her/his employer or supervisor. The standard notice period for voluntary termination is 30 days; however, the term may be shorter subject to the organisation’s employment contract or termination policy. Upon receiving the resignation letter, the supervisor will inform the HR department to initiate the further process of termination.

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Involuntary Termination

When an employee has to leave an organisation against their own free will or consent. A company may terminate the employment during layoffs, downsizing, or misconduct, etc.

Downsizing and Layoffs

To reduce their workforce, a company terminates their employees in bulk. A downsizing of employees is a measure to combat the situation where a company doesn’t have funds to meet the demands of the business or in case where the company goes for a merger. In downsizing, employees are terminated without fault.

Layoffs occur when an employee’s skill set is no longer useful or required in that company in the current scenario.

Getting Dismissed

Due to unsatisfactory work performance, their behaviour, and gross misconduct at the workplace, some employees may get fired.Here, employees get an opportunity to present their case before the concerned authority in the company’s management. An employee fired due to misconduct will not get a notice period of 30 days.

Termination under Contract

Nowadays, companies are hiring people for a specific time period according to their area of specialisation for advisory and consultancy etc. Their employment termination is based on the engagement contract signed between the employee and the employer. These employment contracts may lapse after tenure completion and can be renewed at the discretion of the employer.

Certain Rules for Termination of Employment

  • A terminating notice has to be served for 30-90 days to meet the obligation of provisions under the Industrial Disputes Act, 1947. Section 25N of the IDA, 1947 requires the employer of a factory to obtain prior government permission for retrenchment. Section 25G of the IDA, 1947, provides for the principle of last-in-first-out to be followed. Government approval is required for termination if no. of workmen is 100 or more (manufacturing units, plantations, and mines).
  • Non-compete clauses in the agreements are not enforceable under Indian law, while non-solicitation clauses can be enforced only in a restricted manner.
  • The following reasons can be cited to justify the termination are:
    • Wilful Insubordination and Disobedience
    • Absence without leave for more than ten days
    • Theft
    • Fraud or Dishonesty
    • Illegal gratification
    • Wilful ignorance of Office timings
    • Negligence of work
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Termination of Employment under the new Industrial Relation Code, 2020

The government of India enacted the Industrial Relations Code, 2020, which subsumes three laws pertaining to industrial relations:

  • Industrial Disputes Act, 1947,
  • Trade Unions Act, 1926,
  • Industrial Employment (Standing Orders) Act, 1946.
  • The provisions related to the termination of employment and retrenchment have been retained even after the Industrial Relations Code 2020. However, provisions relating to termination of employment have emphasised on getting government approval for termination (retrenchment) of employees to 300(three hundred) workers on an average working day in the last 12 months or one year. After the implementation of the IR Code, 2020, the Worker Reskilling Fund to be established by the government under the employer is required to deposit the wages for 15 days if an employee is to be retrenched. Under the new code, the penalties for non-compliance have been increased to a maximum amount of Rs. 20 lakhs.

Recent case laws on Unlawful Termination of Employment

The Hon’ble Supreme Court of India has recently adjudicated whether the termination of an employee by a bank (appellant) was justified under the law. The court denied the reinstatement of an employee. The court stated that the violation of Section 25F of the Industrial Disputes Act does not provide automatic reinstatement with back wages. The relief of monetarycompensation can be granted depending upon the facts of the case. The Supreme Court awarded compensation of Rs.5 lakhs to the employee.

In case termination of employment doesn’t meet the prescribed norms under the law, reinstatement with full wages is not always automatic.

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The responsibility of hiring and terminating the employment solely lies with the employer.However, an employer/owner cannot terminate the service without sufficient cause or reason. In situations where termination was done based on caste, colour, religion, gender, etc. are considered illegal grounds for termination in most countries, including India. In instances where an employee has reported malpractice in the business or has taken due approval for absence,the employercan’t fire the employee. A company is liable to adequately compensateand restore their job position as earlier if found guilty of adopting these ill practices.  

Read our Article: The Process of Claiming Damages for Illegal Termination of Work Contract

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