‘Termination’ is a dreaded word for any employee – the very thought of being terminated or dismissed from service causes a lot of distress to him/her. When an employee loses a job he/she no longer has a stable income. A person in service often has dependents to be taken care of, fees, bills and debts to be paid. All this can suddenly overwhelm an individual if he/she stops earning and sends that person into shock and depression.



Employee termination laws

To take care of such eventuality governments all over the world have enacted laws to protect the workers. Prudent management of various organizations has also laid down policies & practices to deal with situations that result in the termination of service of an employee.

Following are some of the steps taken by companies to make the administrators, supervisors, and workers aware of their duties, responsibilities, and rights while working in that company:

  1. Incorporating in the employment letter or contract clearly worded job expectations and responsibilities as well as rules & regulations, and obtaining signed acknowledgment thereof from the employee.
  2. Preparing a handbook giving the company’s policies and procedures relating to a systematic and disciplined factory or office operations, and distributing it either physically or online. Also obtaining signed acknowledgment of this handbook from the employee.
  3. Establishing a performance management system with weekly discussions and quarterly & annual reviews.
    In the event of circumstances requiring the dismissal of an employee, following due disciplinary procedures.
  4. Having an internal checklist for management and department heads as under:
    ( a ) Do I have any company policies or procedures which help govern the employment relationship that I must follow, and whether I follow them?
    ( b ) Have I given my employee a chance for improvement?
    ( c ) Am I acting in fairness and with good judgment?
    ( d ) Am I aware of any discrimination, bias, and operating outside of discrimination?

In India, an employee may be terminated according to the individual employment contract signed between the employer and the employee, if the contract defines a process for termination.

However, as labor laws supersede the provisions of labor contracts, any termination clause in the contract should be checked against law by a professional. In case there is no labor contract or the contract does not lay down a method of termination, the employer has to follow the state law.


Types of employee termination

Termination under contract

Mostly, the employment contracts specifically lay down the process for terminating employment which can be by mutual consent or where employment is set for a fixed period. As in most countries, employees who are terminated are often given one month notice by the employer or payment of one month of wages in lieu thereof.


Termination by law

In India, any termination needs to comply with central and state laws because they supersede contract provisions. Rules relating to appointment and termination of employees categorized as ‘workmen’, who are employed not in a managerial, administrative or supervisory role, are governed by the Industrial Disputes Act, 1947.

The act states that any such employee who has been employed for more than a year can only be terminated after permission is granted by an appropriate government office. Further, an employer must provide a valid reason for termination and pay a severance allowance that is equal to 15 days’ average salary for each year of uninterrupted service.

In the case of other categories of employees, relevant state Shops and Establishments Act is applicable. In all these cases a minimum of 30 days’ notice has to be given to the employee by the employer.

Under the Delhi Shops and Establishments Act, the affected employee has to be in employment for more than 3 months. As per the Maharashtra law, the employee has to be in service for more than a year and as per the laws of Karnataka and Tamil Nadu for more than 6 months.

Additionally, in Maharashtra, if the employee to be terminated has been in service for more than 3 months but less than one year he/she has to be served at least 14 days’ notice. However, if the termination is due to misconduct on the part of the employee no notice needs to be given.

Misconduct in India includes willful insubordination or disobedience, theft, fraud or dishonesty, willful damage to or loss of employer’s goods, partaking of bribe or any illegal gratification, unauthorized absence for more than 10 days, habitual late coming, disorderly behavior during working hours, or habitual negligence of work.

The employee in such situations also should be given an opportunity to reasonably explain the charge against him/her prior to termination.

For cases of misconduct, the employer is required to conduct disciplinary proceedings as laid down under the law in India. It includes the preparation of a charge sheet that has to be submitted to the concerned employee and his / her reply to the charges obtained. This is followed by constituting and having a disciplinary panel for conducting an inquiry –

Enquiry Officer, Presenting Officer, defense and prosecution witnesses. These disciplinary proceedings have to be conducted in a fair manner with the help of relevant documents and witnesses, keeping in mind the principles of natural justice.

After perusal of the inquiry report, a show-cause notice is issued to the employee and after obtaining his/her reply the employer imposes a suitable penalty which in extreme cases results in issuing a termination letter to the employee.

As far as possible, the employer has to ensure that the terminated employee leaves the office with his personal belongings at a time when his colleagues are not present, preferably before or after office hours so that no undue embarrassment is caused to the terminated employee


Termination due to layoff or redundancy

When the company is not financially in good shape or it wants to make its operations more efficient by being lean or it changes its focus from certain areas to some different ones it decides to reduce the workforce or terminate the services of workers who were trained for only one area which is being closed down.

For such layoff terminations the employer has to keep in mind the following points:

  • Notify the employee of the layoff.
  • Communicate how many positions are being eliminated.
  • Clarify whether the layoff is permanent or temporary.
  • Inform the employee which employees will be targeted for layoff. In making this decision employers might consider employee’s length of service ( principle of ‘last in first out’ ), skill, experience or recent job performance. They have to ensure protected categories of employees such as pregnant women and disabled employees are not impacted.
  • Discuss whether the employer has obligations under a collective bargaining agreement or other contracts.
  • Share how the reduction is expected to affect business operations.


The Industrial Disputes Act, 1947 sets out the steps to be undertaken by employers for retrenchment. An employer who proposes to retrench a workman continuously employed for more than one year must give to the workman one month’s notice giving a reason for the retrenchment or pay in lieu of such notice to the workman.

The employer must also inform the local labor officials about the retrenchment within a stipulated time frame. In certain establishments employing more than 100 workers, the employer cannot retrench an employee unless he has given 3 months’ written notice stating reasons for retrenchment or pay in lieu of notice to that employee.

In such cases, prior approval from the relevant government authorities must be taken before the retrenchment is made. The compensation payable as provided in the Industrial Disputes Act is calculated at the rate of 15 days’ wages for every year of continuous service or any part thereof in excess of six months.

However, in case the employment contract provides for more generous severance compensation than what is statutorily prescribed that will apply accordingly.


Severance Pay

Upon termination of the services of an employee the employer is required to clear all dues which are payable to the employee at the time of termination, which is as follows:

  • Pay in lieu of notice, in case notice is not given
  • Salary for the days worked during the month of termination
  • Gratuity, for employees who have completed 5 years of service,in respect of establishments having 10 or more employees. However, it can be withheld for employees who are terminated for a negligent act which has caused damage/ loss to employer’s property or who are dismissed for their act of moral turpitude or riotous/ violent conduct.
  • Leave encashment in case there are leaves not availed by an employee
  • Statutory bonus if an employee is eligible for the same
  • Statutory retrenchment compensation for ‘workman’
  • Such other dues that are payable as per the employment contract or company policy
  • Assist the employee in applying to the appropriate Provident Fund Authority for withdrawal of his/her Provident Fund dues.
  • Ensure the continuation of health insurance coverage of the employee & his/her dependents in case the employee has taken this cover.


Rights of employees in case of wrong termination

Employees are protected to a great degree by laws in India, and both the judiciary and the government tend to have a pro-worker stance in employment termination disputes.

Hence, quite often we find employees who have been dismissed from service exercising their right of appeal. In these cases employees often challenge their termination on the grounds that there was no reasonable cause for the termination; the dismissal is unfair, or misconduct has not been established.

In case the termination is held to be unfair/ illegal the aggrieved employee may claim reinstatement with back wages along with costs and compensation provided under the law.


Impact on employers

Wrongful termination or not following due process as stipulated in the respective state laws, will result in legal punitive consequences for the employer. As mentioned above, the employer may be ordered by the court to pay fines and additional compensation to an employee who was wrongfully terminated.

Employers who regularly review state labor laws and clearly stipulate procedures for terminating employees in their employment contracts, significantly reduce the potential for labor disputes related to the termination of an employee.

Management teams and HR heads should be briefed by employers on termination procedures to ensure protection from any adverse litigation relating to the dismissal of an employee.


Advantages to the employer for being compassionate in terminating an employee:

Regardless of the reasons for an employee’s termination, it is necessary that personnel involved in terminating an employee must always act with a sense of grace and compassion towards that employee even if the employee shows anger.

Employee termination should never be done with an overly negative tone or attitude. Employer or manager terminating the employee should avoid being rude or nasty. In such situations, the employer is in control and the employee is very helpless as he/she is losing his / her livelihood.

The employee has to find a way to recover his/ her job and life. Instead of making matters worse for the worker the employer has to help him/her realize the mistake which is the cause of termination so that in future employments he/she does not repeat the mistake.

The employer should also thank the employee for the positive things done by the employee during service and wish him / her luck for future endeavors. Advice about resources for finding new employment and also an assurance that a positive response will be given to a request for a reference should be conveyed.

Handling termination with a sense of compassion and kindness will have a positive effect on the company’s brand and reputation. It will also show to all past, present, and potential employees that the company cares for them.


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