All You Need to Know About Employee Termination in India

For an economy to thrive, it is important to have regulations in place that protect the interests of employers and employees. These regulations need regulation at the state and central levels. In recent years, there have been numerous instances of employees being laid off due to various reasons. However, can employers terminate an employee at any time? What are the rules surrounding the termination of employment in India? Here is a lowdown into everything that you need to know about the rules and conditions surrounding employee termination in the country.

In India, the primary laws governing the termination rules for employees in India are:

• The Industrial Disputes Act of 1947
  

• The Industrial Employment (Standing Orders) Act of 1946

These laws can be implemented differently in different states based on their field of activity. It is important to note that there are no procedural guidelines in the Labor Law on the termination of the employee. Sometimes, employees are terminated based on the terms of the contract signed between the employer and the employee. If there is no such contract, then the termination can happen as per the provisions of the Labor Law India.

Under the Indian Laws as regards employees employed in a managerial, supervisory or administrative capacity, their services can be terminated in accordance with the terms of their employment contract. However, as regards those employees who fall within the definition of a ‘workman’, as they have the statutory protection under the Industrial Disputes Act,  their services could be terminated only by following due process of law.

Types of Employers and Employees in India

Let’s start with understanding the types of employers and employees in India. Under the labour laws in India, there are two types of employers:

• Factories – this includes all manufacturing units
  

• Establishments – this covers all kinds of employers in the country
  
  

Further, employees can also be categorised into two broad types:

• Employees – this covers individuals employed in any kind of role
  
• Workmen – this includes employees who do not have a managerial, supervisory, or administrative role
  
  

Types of Termination

Termination of employment can be of two broad types:

• Voluntary
  
  Employees can resign and voluntarily end their employment with their employer. There can be various reasons behind this, like getting a better employment opportunity, starting a business, moving cities, etc. For professional reasons, this is called a Constructive Dismissal.
  
  
• Involuntary
  
  Involuntary dismissal of employees can happen if the company is downsizing or laying off people for any reason. Involuntary termination of employment can happen due to the fault of the employee or the company’s decision to downsize with no fault of the employees being dismissed.
  
  In recent years, downsizing has become a common practice across companies to manage costs and boost productivity and efficiency. Also, with evolving business processes and environments, some employees are terminated when they lose their usefulness to the company. These terminations are involuntary in nature.
  
  On the other hand, involuntary termination of an employee for reasons can be sub-par performance, unprofessional behaviour or attitude, fraud, or any other fault of the said employee. According to the rules pertaining to employee rights in India, if a company wrongfully terminates an employee, then it will have to restore the job by reinstating him with or without back-wages and offer the terminated employee a similar position. Companies can also be asked to pay compensation in such cases.
  
  Losing a job can be a stressful period – voluntary or not. Also, in the current volatile economic environment, landing another job can take time. This can mean a loss of income and an impact on your savings and investment plans.
  
  To ensure that you create a financial safety net for your family, you can consider buying a life insurance policy. At Tata AIA Life Insurance Company, we offer a wide range of policies and features to suit your unique needs.
  
  
  

Employment Contracts and Termination

Many people are employed by companies under contract. These contracts specify the terms and contract employment termination procedure. It is permissible for employers to appoint employees on a fixed term contract basis, which is tenure based / duration based, depending upon the needs and requirements of the Company.  If the contract is for a fixed term, then the termination process is as per the set terms. Also, the company can initiate the contract employee termination for any other reason by giving an adequate notice period or compensation.

Important Rules for Employee Termination in India

Whether the employee is terminating his employment voluntarily or the employer is terminating it, there are certain rules that need to be adhered to under the Labor Law on the termination of the employee.

• Employers need to give a notice period of 30-90 days before terminating an employee. If you are resigning, then you will also have to give a similar notice period to your employer.
  
  
• The Industrial Disputes Act of 1947 states that any company that is involved in mining operations, manufacturing activities, or plantation needs to seek government approval if it wants to terminate more than 100 employees. Termination of fewer than 100 employees in these industries and any number of employees in other industries only need government notification (not approval).
  
  
• The Labor Law India protects employee rights in India. However, the employer can terminate an employee if he is found guilty of misconducts enumerated in the Standing Orders including:
  
  
  • Disobedience
  • Complete insubordination
  • Committing fraud
    
  • Voluntary damage to the employer’s property
  • Theft of company’s property
  • Unacceptable behaviour in the office
  • Negligence towards assigned tasks
    
  
  

 

What Can Employees Do When Being Involuntarily Terminated?

There are two broad scenarios that can lead to the involuntary termination of an employee:

• Misconduct – It is important for the company to conduct an internal investigation as per the principles of natural justice. Employees deserve the right to be heard regardless of the accusation behind their dismissal
  
  
• Reasons other than misconduct – If the employee has been in continuous service for more than one year and is terminated for reasons other than misconduct, then the employer needs to give the employee a note of termination and a severance pay based on the provisions of the law.
  
  

Conclusion

As an employee, it is important to know your rights and responsibilities regarding the termination of your services. While the letter of appointment usually defines these clauses, make sure that you understand all the terms regarding termination when accepting an offer. 

L&C/Advt/2022/Aug/1804