In India, the workforce is technically divided into ‘workmen’ and ‘non-workmen/employees’. Workmen are primarily people who operate on the shop floor in a manufacturing setting and do not include anyone who performs supervisory or managerial duties.
To prevent worker exploitation, some statutory rights under Indian labour laws have been granted regarding the termination of employment and working circumstances. The employment contract and employer policies generally govern the working conditions of non-workers/employees.
Indian Labour Law Nomenclature
In Indian law, there are two types of employers and two types of employees:
Employees
- Employees: A term that covers all types of employees in any kind of role.
- Workmen: Defined under the Industrial Disputes Act, 1947, these are employees whose primary role is not supervisory, managerial or administrative.
Employers
- Establishments: A term that encompasses all employers.
- Factories: Typically refers to manufacturing units. Mines are sometimes included in this category.
In addition, certain state laws may exclude senior management employees from their scope of application. In these instances, employment contracts take precedence for termination of employment. In the case of contract workers, Indian law prohibits their employment in certain sectors. Suppliers of contract labour (temporary workers) are called contractors and must hold a licence. The employer hiring such contract workers must be registered as a “principled employer.”
Employer Obligations During Termination of Employment
Under Indian laws, the obligations of an employer during the termination of employment are governed by several statutes, including the Industrial Disputes Act, 1947, The Payment of Gratuity Act, 1972, The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, and other applicable state-specific laws. The legal obligations can be summarized as follows:
The Industrial Disputes Act, 1947
The Industrial Disputes Act, 1947 mandates a 30 to 90 day notice period when terminating employment for “workmen.” India’s labour laws cite the following reasons that justify termination of employment for cause; willful insubordination or disobedience; theft, fraud or dishonesty; willful damage to or loss of employer’s goods; partaking of bribes or any illegal gratification; absence without leave for more than 10 days; habitual late attendance; disorderly behaviour during working hours; or habitual negligence of work. Employment law firms in Delhi can provide guidance on adhering to these obligations.
Notice Period or Payment in Lieu of Notice
Section 25F of the Industrial Disputes Act, 1947 mandates that no workman who has been in continuous service for not less than one year shall be retrenched until the employer has provided one month’s written notice indicating the reasons for retrenchment, or in lieu of such notice, has paid the workman wages for the notice period. This provision applies specifically to “workmen” as defined under the Act.
For non-workmen or employees not covered under the Industrial Disputes Act, 1947, the terms of the employment contract or standing orders dictate the notice period and thereby the termination of employment. Any violation of this statutory requirement can lead to a declaration of the termination being unlawful.
Retrenchment Compensation
In addition to the notice requirement, Section 25F(b) of the Industrial Disputes Act, 1947 obligates the employer to pay retrenchment compensation to workmen upon termination of employment. The compensation shall be equivalent to 15 days’ average pay for every completed year of continuous service or any part thereof in excess of six months.
The obligation to pay compensation arises in all cases of retrenchment unless the termination is for misconduct or any other lawful grounds, such as voluntary resignation. Failure to comply with the compensation mandate may lead to a legal claim for wrongful termination.
Gratuity
Gratuity is a sum of money paid by an employer to an employee in recognition of their long service and contribution to the company. It is a one-time payment, typically made when the employee retires, resigns after completing five years of service, becomes disabled or dies.
Under the Payment of Gratuity Act, 1972, an employee who has completed five years of continuous service is entitled to receive gratuity upon termination of employment. The gratuity is calculated at 15 days’ wages for each completed year of service. The employer is legally obligated to pay this amount irrespective of the mode of termination (resignation, retirement, or retrenchment), except in cases where the termination is due to proven misconduct involving moral turpitude. The Act also prescribes a maximum limit for gratuity payment, currently set at INR 20 lakhs.
Non-payment of gratuity constitutes a violation of the Act, exposing the employer to penalties.
Settlement of Wages
As per Section 79 of the Factories Act, 1948 and similar provisions under state-specific Shops and Establishments Acts, employers are required to settle all wages payable to the employee within two days of termination of employment.
This includes any unpaid wages for work performed up to the termination date and compensation for unused earned leave, which must be encashed. The prompt payment of wages is a legal obligation, and any delay or default may result in the employer being liable for penalties or interest under applicable wage laws.
Provident Fund and Other Statutory Dues
The employer must ensure that all statutory contributions toward the provident fund, as mandated by the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, are duly remitted up to the date of termination of employment.
The employer is also responsible for ensuring that the employee is provided with the necessary documentation to either withdraw or transfer their provident fund contributions. Failure to comply with provident fund regulations can result in penalties, including prosecution under the Employees’ Provident Fund Act.
Non-Discriminatory Termination
Any termination of employment must be non-discriminatory and in compliance with constitutional guarantees of equality.
Article 14 of the Constitution of India prohibits arbitrary and discriminatory termination of employment based on religion, race, caste, sex, or place of birth. In cases where termination is based on these grounds, the employee may challenge the dismissal in a court of law as being violative of the constitutional rights to equality and protection from discrimination.
Issuance of Service Certificate
Section 79 of the Factories Act, 1948 and other similar provisions under state-specific labor laws require the employer to issue a service certificate upon termination. This certificate must specify the duration of service and any other particulars as may be required under the law. The failure to provide such a certificate may result in legal proceedings under applicable labour laws.
Termination of Employees Protected Under Special Laws
Certain categories of employees enjoy special protection from termination of Employment.
For instance, the Maternity Benefit Act, 1961 prohibits employers from terminating a woman employee during her maternity leave, except in cases of gross misconduct. Similarly, employees covered under the Persons with Disabilities Act, 1995 are protected from discriminatory termination on the grounds of disability. Terminating such employees without adherence to the prescribed procedures can result in penalties and compensation claims.
Statutory Filings and Record Maintenance of Termination of Employment
Employers are required to maintain records and file necessary documentation with labour authorities upon the termination of employment. This includes filing retrenchment notices and maintaining registers as required under the Industrial Employment (Standing Orders) Act, 1946, and other relevant statutes. Failure to comply with such procedural obligations may lead to fines or other penalties.
In cases where an employer fails to fulfill these legal obligations, the terminated employee has the right to seek remedies through labor courts or industrial tribunals. Remedies available to the employee may include reinstatement, back wages, or compensation depending on the specific circumstances of the termination and the violation of legal rights.
The Role of Employment Law Firms in Delhi and India
Employment law firms in Delhi and across India play a pivotal role in providing legal advisory and representation concerning labor and employment disputes, particularly in matters related to the termination of employment.
These firms offer guidance on compliance with statutory provisions under the Industrial Disputes Act, 1947, Shops and Establishments Acts, Maternity Benefit Act, 1961, and other relevant legislation. Their expertise is crucial for both employers and employees to navigate the complex legal framework governing employment termination, ensuring adherence to notice periods, severance payments, and retrenchment procedures.
Employment law firms in Delhi assist in drafting and reviewing employment contracts, standing orders, and other documentation to prevent unlawful termination and mitigate legal risks.
Moreover, these firms provide litigation support in cases of wrongful termination, retrenchment disputes, or discriminatory dismissal. They represent clients before labor courts, industrial tribunals, and other adjudicatory bodies to resolve disputes arising out of the termination of employment.
Employment law firms also advise employers on strategic legal measures during layoffs, ensuring compliance with retrenchment laws and employee rights. For employees, such firms are instrumental in seeking redress for unlawful dismissal, including claims for reinstatement, back wages, or compensation.
Conclusion
The termination of employment in India is a legally complex and highly regulated process, reflecting the country’s emphasis on safeguarding employee rights while balancing employers’ need for operational flexibility.
Indian labour laws, such as the Industrial Disputes Act, 1947 and the Shops and Establishments Acts, place strict conditions on termination, especially for workmen, mandating notice periods, severance compensation, and procedural fairness. While these laws aim to prevent arbitrary or unjust dismissals, they can also create challenges for employers, particularly in cases of retrenchment or downsizing, where compliance with statutory requirements can be both time-consuming and financially burdensome.
Employment law firms are instrumental in advising businesses on legal requirements surrounding termination, such as notice periods, severance pay, retrenchment procedures, and ensuring that dismissals are not discriminatory or wrongful. They assist in preparing employment contracts, policies, and legal documents to ensure smooth employer-employee relationships and reduce the risk of future disputes.
Expert Legal Guidance for Employment Termination and Labor Compliance
Raizada Law Associates, with their in-depth knowledge of Indian labour laws and extensive experience in employment-related disputes, is your trusted legal partners for navigating the complexities of workforce management and employee termination. Whether you are an employer seeking guidance on statutory compliance or an employee facing wrongful dismissal, Raizada Law Associates provides expert legal advisory, drafting services and representation before labour courts and tribunals.
FAQs on Employment Termination
1. What are the legal requirements for terminating an employee in India?
In India, termination of employment requires notice or money in lieu, unless there is wrongdoing. Compliance with legislative provisions is required under the Industrial Disputes Act.
2. What constitutes unlawful termination under Indian employment laws?
Unlawful termination includes discharging employees without due process, notice or a valid reason, as well as violating employment contracts or statutory safeguards.
3. How can employment law firms in India assist with termination disputes?
Employment legal firms in India, particularly those in Delhi, help customers by representing them in wrongful termination cases, ensuring compliance with labour regulations and negotiating settlements.
4. What are the legal procedures for terminating employees on grounds of misconduct?
Misconduct-based termination necessitates a thorough investigation and adherence to natural justice norms.
5. What are the laws surrounding retrenchment and layoffs in India?
Retrenchment and layoffs must adhere to statutory criteria, such as severance, notification and government approval under the Industrial Disputes Act.
