Grounds for Termination
There are various modes of termination of employment that are recognized in India, including: (i) expiry of a fixed term contract / mutual separation; (ii) resignation by an employee; (iii) retirement or superannuation; (vi) layoffs, termination due to transfer of business/closure of an undertaking/organizational restructuring; (v) termination by an employer for ‘cause’.
‘Collective dismissal’ of employees is permitted under Indian labour laws, only in certain circumstances and upon satisfaction of specified conditions. In case of retrenchment, depending on the number of workmen engaged, employers are required to either notify/seek prior approval of, the concerned labour department. It is important to note that in case of retrenchment, employers follow the “last in, first out” principle, wherein the shortest-serving employees will be the first to be terminated. In a layoff situation, prior approval of the concerned Government may be required, and compensation would have to be paid. Laid off workmen can also be retrenched.
Any dismissal of an individual workman would also be considered ‘retrenchment’ and the employer would have 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, in case of employees who are dismissed for misconduct (provided the employer conducts an internal inquiry prior to such dismissal) no prior notice of termination or retrenchment compensation would be required. Since India does not recognize at-will employment, termination of employment without providing any prior notice at all (or equivalent pay) would typically render the contract of employment as an ‘unconscionable bargain’, and hence, illegal.
Is severance pay required?
Yes. A severance payment would have to be made by the employer. However, the quantum of the amount and the processes followed would be different, depending on specific circumstances.
Is a Separation Agreement required or considered best practice?
While a separation agreement is not mandatory under Indian laws, 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 seeking to challenge wrongful termination include:
- Reinstatement of employment;
- Back pay;
- Loss of wages and earning capacity;
- All other expenses.
Currently, legislation in India pertaining to whistleblowers mainly pertains to listed companies and the public sector. Companies listed on a recognized 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 in such companies. Certain categories of companies are also required to constitute a ‘vigil mechanism’ for their directors and employees to report their genuine concerns or grievances.
The Whistle Blowers Protection Act, 2014 (which has not yet seen light of day, with further controversial amendments being proposed) governs mainly 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 India has recently amended its Prevention of Corruption Act, 1988, wherein the giving of bribe by any person (including the private sector) to a public servant for improper performance of public duty or to improperly perform a public duty, has specifically been made an offence (penalties extend to fine and imprisonment).