Laws Governing Termination Of Employee & Precautions

Introduction

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 are required to follow the state rules for termination of employment. In this article we are going to discuss some important points about Indian labour law Termination of Employment and What are the right of a terminated employee in India.

Grounds For Termination

Talking about the Termination and Rules of Termination in India, one major concern of the query arises that, Can company terminate employee without cause in India? According to the Employee termination laws in India there are some guidelines of grounds on which a company can terminate their employees. The grounds for termination of an employee can vary in different countries. In India, as per the laws following grounds can be considered:

• Expiry of a fixed-term contract or mutual separation

• Resignation by an employee

• Retirement or superannuation

• Layoffs 

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

• Established breach of an employment contract or internal policies

• An employee involved or committed in any criminal offence

• An employee is unable to fulfil the material obligations of the job

• Misconduct

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

• Loss of confidence by management

• Continue absenteeism

Employee Termination Law in India

As per the Indian Labour Law, Termination rules for employees in India 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 the 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.

Compliance rules by Labour law on Termination of Employment

• According to the Industrial Disputes Act, 1947, a 30 to 90 days of notice period needs to be served to terminate "workman". 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 Indian Labour Law termination reasons can be considered for the termination are: 

• wilful rebelliousness or disobedience

• theft, fraud, or dishonesty

• intentionally damage or loss of employer’s goods

• taking of bribes or any illegal gratification

• absent without leave for more than 10 days

• habitual late attendance

• disorderly behaviour during working hours

• habitual negligence of work 

• 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.

Compensation for Termination of employment in India

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 ensure that the termination process is 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 litigations. In the areas where the compliances are difficult, legal advice is always the best practice to safeguard against risk.