Indian Labour Law & Termination of Employment - What is the Rule?

Gone are the days when job security was a synonym of 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 in hundreds and thousands. The journey dates back to 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. 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 smash their employees with the orders of termination from employment. If employees are unaware of what is wrongful termination of employment, they will not be able to speak up when they face it. Given below is a detailed clarification of the Indian labour law against termination of employees, 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. 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 some rights and duties of both the parties, i.e. the employer firing from job and the employees being fired.  

Difference from Lay-Off

Thanks to big companies, lay off has become a household term where there is a question over 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, layoff can be understood as the inability of the employer to keep the employee because of scarcity of raw material, mechanical or other procedural glitch or a natural calamity, etc. which is disturbing the usual work. The inability of the employer leading to employees’ layoff should be justified, in good faith and not a malicious intention. As per the Indian labour law termination of employment rules, subject to certain conditions being fulfilled including 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.

What is Wrongful Termination of Employee?

The labour law on termination of employment lays 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 as null and void, i.e. ineffective as per law.

Rights of Employees in India

Notice Period 

The law lays 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 reasons, 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 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 end of 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 rules. 

Gratuity

If an employee has been working for 5 or more years and 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 salary should be calculated upto 15 days and the sum of 7 years has to be paid at the time of completion as per employee termination policy in India. 

Maintenance of Muster Roll

The details of employees on the muster roll needs to be up-to-date. Hence, the date of termination of employees terminated also needs to be updated and communicated. 

Arrangement in Seniority

If employees of a particular department or designation are retrenched, a notice containing 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 during termination as well. Usually, the recent joinees are more prone to be retrenched as per law, unless there is a reason for 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 terminated employee refuses to take back employment with such organisation due to any reason, other candidates may be considered. 

Government Approval

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 requisite compensation to the employees. 

FAQs Around Labour Law on Employment Termination

Q- What are the rights of a terminated employee in India?

A- The employees facing termination are rightful to notice or be compensated for the same period. Employees are also entitled to other benefits like gratuity, earned leaves, bonus etc.

Q- Can an employee be terminated without notice?

A- An employee can be terminated without giving a notice by compensating for the period of notice or without compensation if it is a case of disciplinary action, after following the due process. 

Q- Can an employer terminate an employee without any reason?

A- People often have this misconception that 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 whims and fancies of the employer. A proper notice has to be served or the employee needs to be compensated for the said period. 

Q- What is the minimum notice period for employment termination?

A- 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. 

Q- What is the procedure to terminate an employee?

A- 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 labor laws, which may include providing severance pay.

Q- What is the compensation for termination of employment?

A- 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.