At a glance: termination of employment in India

Termination of employment

May an employer dismiss an employee for any reason or must there be ‘cause’? How is cause defined under the applicable statute or regulation?

There is largely no concept of at-will employment in India and employment may only be terminated for reasonable cause, except for persons in management positions in certain states. Procedures for termination of employment vary based on the reason why an employee is terminated and the category of the employee. While ‘reasonable cause’ for termination of employment has not been statutorily defined, employment may be terminated on grounds of redundancy, underperformance, misconduct, superannuation, ill-health or any other legitimate reason.

Must notice of termination be given prior to dismissal? May an employer provide pay in lieu of notice?

Yes, notice or pay in lieu of notice should be provided to employees in case of termination from employment, except if the employee’s employment is being terminated for misconduct. There is no requirement to provide notice or pay in lieu of notice in cases of termination of employment for misconduct.

In which circumstances may an employer dismiss an employee without notice or payment in lieu of notice?

An employee can only be terminated without notice or salary in lieu of notice in cases of misconduct. To terminate employment for misconduct it is essential to establish the misconduct through a disciplinary enquiry that is held for such purpose in accordance with the principles of natural justice.

Is there any legislation establishing the right to severance pay upon termination of employment? How is severance pay calculated?

The Industrial Disputes Act provides that in case of retrenchment, every worker who has been in continuous service for at least one year (ie, 240 days) is entitled, among other things, to retrenchment compensation at the rate of 15 days average pay for every completed year of continuous service or any part thereof in excess of six months. For non-workers, severance payments are set out in mutual agreements between the employers and employees.

Are there any procedural requirements for dismissing an employee?

Per se, there are no procedural requirements when terminating employees for poor performance or misconduct, apart from allowing the employee the opportunity to correct or establish the misconduct in accordance with the principles of natural justice, respectively. However, in relation to the retrenchment of workers, certain establishments (eg, factories, mines and plantations) that employ 100 (or 300 in some states) or more workers are required to obtain the approval of the jurisdictional labour authority. In this regard, before retrenching workers who have been in continuous service for at least one year (ie, 240 days), such establishments are required to meet the following conditions:

1. The worker has been given three months’ notice in writing indicating the reasons for retrenchment or be paid salary in lieu thereof.
2. The employer is required to make an application to the appropriate authority in the manner prescribed, seeking permission to retrench the workers.
3. Once the employer has received permission for retrenchment in accordance with point (2) above, every worker who is employed in such an industrial establishment shall be entitled to retrenchment compensation at the rate of 15 days average pay for every completed year of continuous service or any part thereof in excess of six months.

Establishments other than the factories, mines and plantations referred to above are required to provide the retrenched workers who have been in continuous service for at least one year (ie, 240 days) one months’ notice in writing indicating the reasons for retrenchment or pay salary in lieu thereof; and retrenchment compensation at the rate of 15 days average pay for every completed year of continuous service or any part thereof in excess of six months. Additionally, all establishments including are required to follow the ‘last in, first out’ rule or record reasons for deviating from this rule when retrenching workers.

In what circumstances are employees protected from dismissal?

Women employees who are on maternity leave cannot be terminated from employment during their maternity leave, in accordance with the Maternity Benefits Act, 1961. Further, employees categorised as ‘workers’ cannot be terminated from employment during the adjudication of an industrial dispute, in accordance with the Industrial Disputes Act.

Are there special rules for mass terminations or collective dismissals?

No, there are no special rules in relation to mass termination or collective dismissals. However, the Industrial Disputes Act prescribes a specific process that has to be adhered to when an establishment is be permanently closed down and the workers are being terminated.

Are class or collective actions allowed or may employees only assert labour and employment claims on an individual basis?

Typically, class or collective actions are asserted through trade unions on behalf of a category of employees and not by individual employees.

Does the law in your jurisdiction allow employers to impose a mandatory retirement age? If so, at what age and under what limitations?

Yes, employers are permitted to contractually agree to a mandatory retirement age with employees. However, there is no statutory retirement age that has been prescribed. Typically, the retirement age is between 58 to 60 years.