Legal Considerations and Provisions regarding termination of Employment in India

Introduction

Termination is one of the most important clauses of an employment agreement which describing the procedure of an employee quitting the organization detailing on how the responsibilities and work will be handed over by that employee and the duration of the notice period to be served.

In India, due to absence of standard termination procedure, understanding laws and procedure for termination of employment can get complex and tricky. In this blog, we'll look at some of essential legal considerations for job termination understanding what rules to be followed as an employer are to how companies should handle the process, ensuring that both sides can part ways on good terms.

Terms in Employment Law

Employers in India can be categorized into two types:

Establishments: This term includes all forms of employers.

Factories: This term specifically denotes employers within the manufacturing industry.

Regarding employees, they can be classified as follows:

Employees: This term refers to individuals holding various positions across various sectors.

Workmen: This term is used for employees not engaged in administrative, supervisory, or managerial roles.

Understanding Termination as per Indian Laws

In India, there is no standard employment law governing the employment throughout the country. Under the Indian constitution labour law comes under a concurrent list meaning that both state and central can govern and make labor laws. The Industrial Employment (Standing Orders) Act (IESA), 1946, and The Industrial Disputes Act (IDA), 1947 are the main pieces of legislation governing employment.

As there is no comprehensive employment law in India that provides provisions for termination of India. Termination of an employee in India is mostly done according to the employment contract of the individual. Furthermore, the Shops and Establishments Act, one of the acts which govern all locations where a trade, business, or profession is practiced is subject to labor and employment regulations enacted with minor variations in different states of India. The laws and accompanying regulations specify how different state laws should be implemented based on the employer's kind of business.  Companies while drafting their HR policy should ensure compliance with laws applicable in their particular state of operations.

Rules for terminating employment in India

The termination clause under the employment contract decides the procedure for an employee quitting the employment and only in the absence of such a contract the labor laws of the particular state will prevail having authority over the issue. This is so because written employment contracts are not expressly required by Indian laws. While drafting the termination clause and terminating employees from employment Indian laws should be followed considering the following things:

• Notice Period: A standard notice period ranging from 30 to 90 days is to be kept before terminating the workforce in the organization under IDA. Additionally, while terminating more than 100 employees working in a manufacturing plant, mine, or plantation unit, government approval is required. Furthermore, Termination of employees in other sectors requires only a government notification.
• Employee Misconduct: If employees if in misconduct their employment can be terminated after notifying them of their failure to abide by the employment contract only in case where an employee is found to be in wilful disobedience to his job role and found to be in theft, fraud, or dishonesty; deliberate destruction or loss of the employer's property; accepting bribes or receiving any other illicit satisfaction; missing more than ten days of leave without leave; consistently arriving late; unruly conduct during working hours; or consistently failing to complete tasks.
• Maternity Compliance: Employment termination should be by the provisions enshrined in the Maternity Benefit (Amendment) Act, 2017 as an organization can get into legal complications in case where an employee is terminated during pregnancy or requesting maternity leave.
• Leaves: Most states in India have laws that provide for up to 10-15 days of paid leave in a year. The employees are entitled to at least 10 days of sick leave along with another 10 days of casual leave. Employees applying for leave under such circumstances will not be considered as having had their services terminated.
• Non-solicitation clause: This clause can only be used to a certain extent, whereas non-compete agreements cannot be enforced under Indian law.
• Payment of Severance: Severance payment should be made to employees who are retiring, reaching the end of the contractual agreements, or are laid off. This severance package is calculated based on duration of employment, performance, and salary level. Employers while providing severance pay should look at legal provisions applicable to their industry, location, and type of establishment.

Unfair termination

Employers will suffer legal punitive consequences for wrongful termination or the failure to follow due process as established by state and federal laws. The court may also award damages in the form of fines and other compensation to an employee who was wrongfully terminated. 

Employers must ensure management and HR professionals are well-versed in termination procedures. Contracts may protect employers; however, firms must stay steadfast in compliance with Labor Laws if they are to diminish exposure and risk under potential litigation. In areas where compliance is still difficult, guidance should be sought both legally and practically to promote best practices while sheltering from possible risks.

Conclusion

It is, thus, evident that to manage the termination of employment in India, one must be comprehensive about both the agreements to be abided by in addition to the statutory requirements. Employers must comply with legislation and its requirements and need to avoid unlawful termination and to ensure that entitlements legally due to employees are being paid. These considerations, even if only voluntary, will promote a fair, reasonable, and compliant workplace, while reducing the risk of a reoccurring dispute, and ultimately promote enterprise in the employment relationship. For more legal guidance and personalized services on this you can reach out to us at legal@waterandshark.com.