Compliance with employee Termination and Severance laws

Labour law is a concurrent subject in the Indian Constitution, indicating that regulations governing labour and employment apply at both the federal and state levels. Key federal statutes overseeing the termination of employment include the Industrial Employment (Standing Orders) Act (IESA), 1946, and the Industrial Disputes Act (IDA), 1947, with subsequent amendments.

As well as this, labour practices in India are subject to the Shops and Establishments Act, which is enacted in most states with minor variations in implementation rules. This Act governs labour and employment in premises where trade, business, or a profession is conducted. The implementation of state laws varies based on the geographical area of an employer’s operations, with specific details outlined in the laws and their accompanying regulations.

Let’s dive  into the termination regulations in several key investment destinations in India

In accordance with the Maharashtra Shops and Establishments Act of 1948, employers are forbidden from terminating employees with over a year of service without a mandatory notice period of 30 days. For employees with a tenure of less than a year but exceeding three months, a minimum notice period of 14 days is mandated. Notably, employees terminated for misconduct may be relieved without adhering to a notice period.

The Delhi Shops and Establishments Act of 1954 closely aligns with the provisions of the Maharashtra Act. In Delhi, employers are required to provide a notice period of at least 30 days when terminating employees with more than three months of service, or they have the option to offer a salary in lieu of notice. Termination due to misconduct exempts the employer from the obligation to provide a notice period. However, it is imperative that the employee is given an opportunity to explain any misunderstandings or address allegations.

Under The Karnataka Shops and Establishments Act, 1961, and the Tamil Nadu Shops and Establishments Act, 1947, termination of an employee with over six months of service must not be abrupt and should be based on reasonable cause. A notice period of at least 30 days is stipulated, though employees terminated for misconduct may be relieved immediately without compensation or notice.

As per the Andhra Pradesh Shops and Establishments Act, 1988, there is no specified notice period for an employee who has rendered at least six months of service. The employee retains the right to articulate and explain the reasons for separation in the resignation letter.

According to the Rajasthan Shops & Commercial Establishments Act, 1958 no employee who has been in continuous employment for a period of fewer than 6 months can leave the organisation without giving him a month’s notice period.

Six Key Compliance Rules for Employee Termination in India

  1. Notice Period Mandate: The Industrial Disputes Act, 1947, stipulates a mandatory 30- to 90-day notice period for the termination of employees. Government approval is required for termination for convenience in manufacturing units, plantations, and mines with 100 or more employees, while in other sectors, government notification suffices.
  2. Termination for Cause: India’s labour laws outline specific justifications for termination for cause, including willful insubordination or disobedience, theft, fraud, or dishonesty, willful damage to or loss of the 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.
  3. Last-In, First-Out Practice: Employers terminating for convenience must adhere to the practice of making the last person to join the organisation in the same role redundant first. When rehiring for the same role, employees terminated for convenience should be given the opportunity to rejoin the company—an ideal practice to promote fairness.
  4. Consideration for Pregnancy and Maternity Leave: In the event of terminating an employee who is pregnant or seeking maternity leave, employers must carefully balance their convenience against the potential risks associated with noncompliance with the provisions outlined in the Maternity Benefit (Amendment) Act, 2017.
  5. Non-Compete Agreements and Non-Solicitation Clauses: Non-compete agreements are not enforceable under Indian law, while non-solicitation clauses can only be enforced in limited ways. Understanding the limitations and legality of these agreements is crucial for employers navigating termination situations.
  6. Work for Hire Principle: The “work for hire” principle is applicable under the Indian copyright regime. Employees are therefore required to provide formal assignments, emphasising the employer’s ownership of work created during employment. This principle enhances clarity and establishes intellectual property rights.

“The severance payment for an employee typically hinges on the applicable legal regulations and/or the stipulations outlined in their employment contract. It is essential to highlight that, according to existing labour laws, severance pay is not obligatory for all employees.”

Employers need to ensure that their management teams and HR professionals are well-versed in termination procedures. While contracts offer a level of protection, it is crucial for firms to maintain compliance with labour laws to safeguard against potential litigation. In situations where achieving compliance poses challenges, seeking both legal and practical advice becomes necessary to uphold best practices and effectively mitigate risks.