Employment Termination Laws in India

Employment termination may arise due to a number of reasons like performance, better opportunity, shutting down of operations and more. Termination of employment is termed as voluntary, if the employee out of his/her free will, terminates the employment. Termination of employment is termed as involuntary, if the employee is terminated from employment by the Management for any reason. In this article, we look at the basic laws that are application for employment termination in India.

Termination of employment by way of resignation

Resignation is a voluntary form of termination of employment. For a termination by way of resignation to be legal, it must have been voluntarily tended by the employee. Resignation obtained under duress or coercion are not voluntary resignations. A worker’s service is terminated from the date on which the letter of resignation is accepted by the employer or on a mutually agreed date.

The Industrial Disputes Act of 1947

The Industrial Disputes Act of 1947 is one of the main Act that seek to provide job security for workers in industrial establishments. As per the Act, an employee is defined as a person employed in an establishment for hire or reward (including contract labor, apprentices and part-time employees) to do any manual, clerical skilled, unskilled, technical, operational or supervisory work. Establishments include any business, trade, undertaking, manufacture or calling of employers and includes calling, service, employment, handicraft, or industrial occupation or avocation of workers.

The Industrial Disputes Act does not apply for the following persons:

1. Persons employed mainly in a managerial or administrative capacity;
2. Persons employed in a supervisory capacity and drawing wages exceeding Rs.10,000 per month or exercising functions of a mainly managerial nature;
3. Persons subject to the Army Act, Air Force Act, Navy Act or those employed in the police service or as an officer or employee of a prison.

Retrenchment as per Industrial Disputes Act, 1947

Retrenchment means “the act of retrenching; a cutting down or off, as by the reduction of expenses” as per the Dictionary. It is important for all HR personnel to be aware of the meaning of “Retrenchment” as per the The Industrial Disputes Act. As per the Act, retrenchment means termination by the employer of the service of a worker for any reason whatsoever, but excludes:

1. Dismissal inflicted by way of disciplinary action;
2. Voluntary retirement of the worker;
3. Retirement on reaching the age of superannuation;
4. Termination as a result of non-renewal of contract of employment;
5. Termination due to continued ill heath of the worker.

For a valid retrenchment, three conditions must be fulfilled by the employer:

1. One month’s notice in writing indicating the reason for retrenchment or wages in lieu of such notice;
2. Payment of compensation equivalent to fifteen days average pay for every completed year of continuous service or any part thereof in excess of six months;
3. Notice to the appropriate government in the prescribed manner;

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