Termination Rules for Employees in India
Termination Rules for Employees in India, covering relevant laws, procedures, and rights from both the employer's and employee's perspective.
⚖️ Termination Rules for Employees in India
Termination of employment in India is governed by labour laws, contractual agreements, and company policies. The rules vary based on:
Type of employee (workman vs. non-workman),
Sector (organized vs. unorganized),
Nature of termination (voluntary, disciplinary, redundancy, etc.),
Duration and terms of employment.
🏛️ Key Labour Laws Governing Termination
Industrial Disputes Act, 1947 (ID Act)
Applies mainly to "workmen" in industrial establishments.
Shops and Establishments Act (State-specific)
Applies to non-factory employees like in retail, IT, or offices.
Labour Codes (Notified but not fully enforced yet):
Code on Wages, 2019
Industrial Relations Code, 2020
These codes will consolidate older laws once implemented.
🧑💼 Types of Termination
1. Termination by Employer (Involuntary Termination)
A. Termination for Misconduct (Dismissal)
Due Process Required:
Issuance of a show-cause notice.
Domestic inquiry must be conducted fairly.
The employee must be given a chance to defend.
No severance pay required, but final dues must be cleared.
B. Termination due to Retrenchment (Layoff)
Applicable when the employee is terminated not for misconduct, but due to:
Downsizing,
Cost-cutting,
Role redundancy, etc.
Rules under Section 25F of the ID Act:
1 month notice or salary in lieu,
Retrenchment compensation = 15 days’ average pay for every completed year of service,
Notice to the government if more than 100 employees are affected (Section 25N).
C. Termination during Probation
Easier for employers.
Usually governed by employment contract.
Reasonable notice (15 days to 1 month) is expected.
2. Voluntary Termination (Resignation by Employee)
Employee must serve notice period as per contract or pay salary in lieu.
Employer must provide:
Full and Final Settlement (within 45 days),
Experience letter and relieving letter,
PF and gratuity payments (if applicable).
📑 Notice Period Requirements
| Type of Employee | Minimum Notice Period |
|---|---|
| Probationer | 1 week to 1 month (as per contract) |
| Permanent Employee | 1 month (generally) |
| Workman under ID Act | 1 month (with retrenchment benefits) |
| As per Shops & Est. Acts | Varies by state (e.g., 30 days in Maharashtra) |
💰 Final Settlement Includes
Unpaid salary
Leave encashment
Bonus (if due)
Gratuity (if service > 5 years)
Provident Fund (PF)
Any pending incentives
🚫 Illegal or Unfair Termination
Termination is unfair or illegal if:
No proper inquiry for misconduct.
Retrenchment without compensation.
Termination due to discrimination (gender, caste, pregnancy, etc.)
Violates principles of natural justice.
In such cases, the employee can:
File a complaint with the Labour Commissioner.
Approach the Labour Court or Industrial Tribunal.
🏢 Termination in IT, Private, and Unorganized Sectors
Governed primarily by the contract of employment.
IT sector not covered under the ID Act for most roles.
Yet, unfair termination can be challenged in civil courts or through labour authorities if laws are violated.
✅ Best Practices for Employers
Follow documented procedures.
Maintain records of warnings and communications.
Avoid termination without inquiry in misconduct cases.
Adhere to contractual and statutory obligations.
📌 Key Case Law
Man Singh v. State of Haryana (2008)
Reiterated that a proper domestic enquiry is mandatory for dismissal on misconduct.
Workmen of Hindustan Steel Ltd. v. Management (1973)
Supreme Court held that "retrenchment" includes any termination other than punishment or voluntary retirement.
🔚 Conclusion
Termination in India is regulated to ensure fairness and protect both employers and employees. While employers have the right to terminate, due process and statutory compliance are essential. Employees should be aware of their rights and remedies in case of unfair treatment. Do write to us if you need any further assistance.
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