Termination of employment is a sensitive issue in any organization. In India, the law protects the rights of employees and provides certain safeguards against arbitrary and unjustified termination. This article provides an overview of the legal framework governing the termination of employment in India, including the history and background, key provisions of the law, case laws, and judgements.
History and Background:
The history of labor laws in India dates back to the early 20th century when the Indian Trade Union Act was enacted in 1926. Subsequently, the Industrial Employment (Standing Orders) Act was enacted in 1946, which provided for the regulation of conditions of employment in industrial establishments. The Industrial Disputes Act, of 1947, which is the principal legislation governing the employment relationship, was enacted to regulate the resolution of industrial disputes and provide certain safeguards for workers. Over the years, various amendments were made to the Act to address the changing needs of the labor market and to provide better protection to workers.
Statutes Governing Termination:
Apart from the Industrial Disputes Act, other statutes that govern termination of employment in India include the Shops and Establishments Act, Factories Act, and the Contract Labor (Regulation and Abolition) Act. These laws provide additional safeguards to workers employed in specific industries or establishments. Non-compete clauses in the agreements are not enforceable under Indian law, while non-solicitation clauses can be enforced only in a restricted manner
Key Provisions of the Law:
The Industrial Disputes Act, 1947, provides for the procedure for the termination of employment and the conditions under which an employee can be terminated. Section 2(ka) of the Act defines the term “industrial establishment” as any business, trade, undertaking, manufacture or calling of employers, and includes any calling, service, employment, handicraft, or industrial occupation or avocation of workmen.
Section 25F of the Act provides that an employer cannot retrench an employee who has been in continuous service for not less than one year, except on the grounds of closure of the establishment, the completion of a specific project, or the reduction of the workforce. The employer must also provide the retrenched employee with compensation equivalent to fifteen days’ average pay for every completed year of continuous service.
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
Section 25N of the Act provides that an employer cannot terminate the services of an employee who is a member of a trade union without obtaining the prior permission of the appropriate government.
Types of Termination:
The Industrial Disputes Act recognizes different types of termination:
- Voluntary termination happens when an employee resigns from their job for personal reasons; Resignation is the voluntary termination of employment by the employee. This might involve personal reasons on behalf of an employee, such as getting a new and better job, resigning from a field, or starting up a venture. It requires an employee to hand in a formal letter of resignation to the employer. The standard notice period is 30 days. But this term may be shorter depending upon the organization.
- Involuntary termination occurs when the company fires or lays off an employee. Dismissal is the termination of employment by the employer for reasons such as misconduct, poor performance, or violation of company policies. Retrenchment is the termination of employment due to reasons such as the closure of the establishment, reduction in workforce, or completion of a project
- Illegal dismissal happens when an employee is terminated for reasons such as race or gender, or when they take maternity leave or report wrongdoings in the company. If a company is found guilty of wrongful termination, it may be liable for compensation or penalties.
Remedies for Unjustified Termination:
If an employee feels that they have been unjustifiably terminated, they can approach the labor court or the Industrial Tribunal to seek redressal. The labor court can order reinstatement with full back wages or award compensation to the employee, severance pay and damages depending on the circumstances of the case.
Here are some of the important case laws related to unjustified termination and the remedies available to employees under Indian labor law:
- Air India vs. Nergesh Meerza (1981): In this case, the Supreme Court of India held that termination of a permanent employee without following the principles of natural justice and without giving any reason for such termination amounts to illegal termination. The court ordered the reinstatement of the employee with full back wages and benefits.
- Bank of India v. O.P. Swarnakar, (2003) 2 SCC 721: In this case, the Supreme Court held that if an employee is terminated without giving any notice or pay in lieu of notice, the employee is entitled to notice pay as per their employment contract or statutory requirements.
- Jagannath and Ors. vs. South Eastern Coalfields Limited and Ors. (09.09.2022 – CGHC) MANU/CG/0918/2022: In this case, the Supreme Court held that if an employee is terminated due to redundancy, they are entitled to receive severance pay as per the applicable labor laws.
Grounds for Termination:
Under the Indian labor law, an employer may terminate the services of an employee for various reasons. However, the grounds for termination vary depending on the type of employment and the terms and conditions of the employment contract. Some of the grounds are:
If an employee is found to have engaged in misconduct such as theft, violence, sexual harassment, or other forms of unethical behavior, the employer may terminate their services.
Insubordination refers to disobedience or defiance of the employer’s instructions or policies. If an employee refuses to follow the company’s rules and regulations or disobeys the employer’s orders, it can be a valid ground for termination.
If an employee consistently fails to meet the employer’s expectations or fails to perform their job duties adequately, the employer may terminate their services.
If the employer no longer requires the services of an employee due to the closure of the establishment, restructuring, or technological advancements, the employer may terminate their services on the grounds of redundancy.
If an employee is unable to perform their job duties due to a medical condition or disability, the employer may terminate their services.
If an employment contract specifies a fixed term of employment or a termination clause, the employer may terminate the employee’s services on the expiration of the contract or in accordance with the termination clause.
The following are some of the significant case laws and judgements related to the termination of employment in India:
- SAIL v. National Union Waterfront Workers, (2001) 7 SCC 1 The Supreme Court held that an employee’s services can only be terminated for misconduct, negligence, or inefficiency, and not on account of a change in management or policy.
- Indian Hume Pipe Co. Ltd. v. Its Workmen 1968 AIR 1002 The Supreme Court held that an employee can only be terminated after following the due process of law, which includes providing a reasonable opportunity for the employee to be heard and giving adequate reasons for the termination.
- Kavita Trehan and Ors. vs. Balsara Hygiene Products Ltd. AIR 1995 SC 441, The Delhi High Court held that an employer cannot terminate an employee without providing a reasonable notice period, even if the employment contract does not mention a notice period. The court further held that if an employer terminates an employee without providing a notice period, it amounts to wrongful termination, and the employee is entitled to compensation.
- State of Uttarakhand v. Sureshwati, 2021 SCC OnLine. The Supreme Court held that Only because some documents had not been produced by the management, an adverse inference could not drawn against it.
Procedure for Termination:
The procedure for termination of employment is provided under Section 25F of the Industrial Disputes Act, 1947.
the employer must give a written notice to the workman who is to be retrenched which includes the reasons for retrenchment and the effective date of retrenchment. The employer must pay compensation to the retrenched workman, either at the time of retrenchment or before the expiry of the second working day after retrenchment. The amount of compensation payable to the workman is calculated as follows:
- Fifteen days’ average pay for every completed year of continuous service
- Any part of a year of service in excess of six months shall be treated as a full year of service
- The amount of compensation payable shall not exceed the amount equivalent to fifteen months’ average pay of the workman
The employer must give notice of retrenchment to the appropriate government, stating the reasons for retrenchment, the number of workmen to be retrenched, and the dates on which the retrenchment is to take place. The employer must maintain the seniority of the workmen who are retrenched, and they must be given preference for re-employment if vacancies arise in the establishment in the future.
It is important to note that Section 25F only applies to workmen, and not to employees who are not covered by the definition of “workman” under the Industrial Disputes Act. The section also does not apply to cases where termination is due to disciplinary action or poor performance, as such cases are covered under Section 11A of the Act.
If an employer fails to follow the procedure laid down under Section 25F, the retrenchment may be deemed illegal, and the workman may approach the labor court or the Industrial Tribunal for redressal. The court may order reinstatement with full back wages or award compensation to the workman, depending on the circumstances of the case. Therefore, employers need to follow the due process of law while retrenching workmen to avoid legal disputes and maintain a healthy work environment
State and federal laws govern the termination of employees
State laws can be particularly important when there is a dispute over procedures.
- The Delhi Shops and Establishments Act of 1954 in Delhi Union Territory states that an employer cannot terminate an employee with more than three months of service without providing at least 30 days of notice, except in cases of misconduct.
- The Maharashtra Shops and Establishments Act of 1948 requires at least 30 days of written notice for employees with over a year of service, and 14 days of notice for employees with three months to a year of service, except in cases of misconduct.
- The Karnataka and Tamil Nadu Shops and Establishments Acts state that employees with more than six months of service cannot be terminated without “reasonable cause” and one month of notice. No notice or payoff is required for termination due to misconduct.
Impact of COVID-19 on Termination:
The COVID-19 pandemic has led to an increase in termination of employment, with employers citing reasons such as redundancy or financial constraints. Employers must ensure that the termination is not discriminatory or illegal and that employees are given a fair opportunity to defend themselves. The pandemic has also led to changes in notice periods and severance pay, but employers must comply with the applicable labor laws and contractual obligations. Case laws related to termination during COVID-19 show the importance of following the due process of law and ensuring that the termination is not arbitrary or illegal. Employees who believe that their termination was unjustified may seek remedies under labor laws
ONGC vs. Swapan Kumar Mondal, Smt. Saroj Agarwal vs Union Of India And Other, and Ficus Pax Private Limited v. Union of India all involve the termination of employees during the COVID-19 pandemic. In each case, the court found that the termination was illegal and ordered the reinstatement of the employee with full back wages and benefits. These cases highlight the importance of following due process of law and ensuring that termination is not arbitrary, discriminatory, or illegal
Termination Of Employment Under The New Industrial Relation Code, 2020
The Industrial Relations Code, 2020 was enacted by the Indian government, which consolidated three laws i.e. Industrial Disputes Act, 1947, Trade Unions Act, 1926, Industrial Employment (Standing Orders) Act, 1946. related to industrial relations. The provisions related to termination of employment and retrenchment have been retained and the government approval for termination of employees is required for organizations with 300 or more workers. The new code also requires the employer to deposit the wages for 15 days in the Worker Reskilling Fund if an employee is to be retrenched. Penalties for non-compliance have been increased to a maximum of Rs. 20 lakhs.
Termination of employment is a complex issue that requires careful consideration of the legal framework governing it. Employers must ensure that they follow the due process of law while terminating the services of their employees, and employees must be aware of their rights and remedies in case of unjustified termination. The Industrial Disputes Act provides a robust legal framework for regulating the employment relationship in India, and employers and employees must abide by its provisions to avoid disputes and maintain a healthy work environment.