Grounds for Termination
India recognises the following modes of employment termination: expiry of a fixed-term contract/mutual separation; resignation by an employee; retirement or superannuation; layoffs (termination due to transfer of business/closure of an undertaking/organisational restructuring; and termination by employer for ‘cause’.
A collective dismissal is only permitted in certain circumstances. For workmen: retrenchment is defined as termination of services for any reason whatsoever, other than as punishment inflicted by way of disciplinary action; layoff is defined as the failure, refusal or inability of an employer to employ workmen, on account of shortage of power, raw materials, break-down of machinery, natural calamity or any other reason beyond an employer’s control.
Any dismissal of an individual workman would also be considered ‘retrenchment’ requiring the employer to provide prior notice of termination of either 1 month or 3 months, or equivalent wages in lieu thereof. In addition, ‘retrenchment compensation’ would have to be paid at the rate of 15 days’ wages for every completed year of service. However, employees dismissed for misconduct (provided the employer conducts an inquiry beforehand) no prior notice of termination or retrenchment compensation would be required. For employees other than workmen, as India does not recognise at-will employment, termination of employment without providing any prior notice (or equivalent pay) would typically render the employment contract as an illegal, ‘unconscionable bargain’.
Is Severance Pay Required?
Yes, a severance payment would have to be made by the employer; the quantum of the amount and procedures to be followed would be different (e.g. voluntary resignation versus termination initiated by employer).
While a separation agreement is not mandatory under the law, it is increasingly being followed by Indian companies, especially in cases of contentious separations / separation of senior executives.
Remedies for Employee Seeking to Challenge Wrongful Termination
The remedies available for employees include: reinstatement of employment; back pay; loss of wages and earning capacity; and all other expenses. Workmen can approach the labour department and the industrial tribunal as such.
Currently, legislation in India concerning whistleblowers mainly pertains to listed companies and the public sector. Companies listed on a recognised stock exchange in India have to devise an effective whistleblowing mechanism that enables stakeholders, including individual employees and their representative bodies, to freely communicate their concerns about illegal or unethical practices. Certain categories of companies are also required to constitute a ‘vigil mechanism’ for their directors and employees to report genuine concerns or grievances. The Whistleblowers Protection Act, 2014 (which has not yet seen the light of day, with further controversial amendments being proposed) mainly governs alleged corruption and misuse of power by public servants and seeks to protect persons who expose alleged wrongdoings in government bodies, projects and offices. It is also important to note that the giving of a bribe by any person (including the private sector) to a public servant for an improper performance of public duty, has now been made an offence (penalties extend to fines and imprisonment), whereas previously, only the receipt of a bribe by a public servant was covered.