Remedies against wrongful termination

This article analyses the remedies available against wrongful termination of employment and the factors Indian courts consider when awarding such remedies.

As Indian employment law differentiates between workers ¹ defined at statute and other employees² , the statutory remedies available to workers and employees are disparate. This article analyses the remedies against wrongful termination that are available to workers and employees.

Jurisdiction

The appropriate jurisdiction for availing remedies against wrongful termination of employment will be subject to the right sought to be enforced and the nature of relief claimed. Where the right sought to be enforced is conferred by specific regulations, then the forum established by such regulations will ordinarily have jurisdiction³ subject to the nature of relief claimed. Illustratively, in cases against wrongful forfeiture of gratuity on termination of employment, the appropriate forum will ordinarily be the competent authority established under the gratuity regulations. That said, Indian courts have held that civil courts will have jurisdiction to entertain gratuity claims on the basis that the nature of relief claimed is a money decree re enforcement of statutory conditions and that gratuity laws are social welfare laws⁴ . When determining the appropriate jurisdiction in the context of workers, the Supreme Court has held⁵ that:

a. civil courts will have jurisdiction if the dispute is not an ‘industrial dispute’ ⁶ and, or, does not relate to enforcement of rights granted under industrial laws;

b. civil courts will have jurisdiction if the dispute is an ‘industrial dispute’ and the right sought to be enforced is under common law and not industrial law⁷ ; and

c. civil courts will not have jurisdiction if the dispute is an ‘industrial dispute’ and the right sough to be enforced is under industrial law.

In this context it is pertinent that the defined term ‘industrial dispute’ includes disputes arising out of discharge, dismissal or retrenchment of workers. 

Reinstatement or specific performance

The position at Indian law with respect to specific performance of employment contracts or reinstatement is well settled as far as concerns employees. Indian courts have held that, based on the provisions of the Specific Relief Act, 1963 in context of private employment, even if the termination of employment is wrongful (contrary to terms of employment), the former employee may only claim damages and no relief of specific performance can be granted as an employment contract is: (i) a contract of personal service; and (ii) typically determinable by providing a prescribed period’s notice⁸ .

With respect to workers, the position is more nuanced as industrial law⁹ empowers industrial tribunals to award reinstatement and compensation in addition to or in lieu of reinstatement. Where a worker is terminated for cause, Indian courts have held that the termination order should only be set aside where it is patently disproportionate to the cause¹⁰ or where the enquiry conducted by the employer was unfair. Illustratively, Indian courts have upheld termination of employment and set aside reinstatements granted by industrial tribunals where the employee secured the employment through false representations¹¹ , engaged in misappropriation¹² , or, displayed habitual absence¹³, in each case where the enquiry prior to such termination was upheld as fair.

Where a worker is terminated without cause, reinstatement is only granted when the termination or retrenchment violates the statutorily prescribed procedures. Even in such cases, Indian courts have held that reinstatement with back wages will not be granted as a matter of rule and will be subject to relevant facts and circumstances including inter alia the worker’s age, capacity of the employer and the nature of business of the employer, and, possibility of disharmony between the employer and the worker¹⁴ .

Damages

Indian courts have applied the principle of mitigation of damages set out in Section 73 of the Indian Contract Act, 1872 with respect to claims of damages for wrongful termination by employees. Accordingly, the quantum of damages that can be awarded by Indian courts for wrongful termination of employees’ services must be reasonable in the context of the employment agreement. The Supreme Court, in S. S. Shetty vs Bharat Nidhi, Ltd¹⁵ , observed that where the employment contract expressly contemplates termination by 1 month’s notice, the damages to be awarded in cases where the termination has been effected contrary to such term will ordinarily be 1 month’s salary on the basis that the period contemplated in the employment contract is understood to be the period during which the employee may secure alternative employment¹⁶ . Consequently, Indian courts have generally onlygranted damages equivalent to the salary payable to the employee for the termination notice period and denied damages sought for periods of unemployment beyond such stipulated termination notice period.

With respect to workers, as set out in the preceding paragraphs, the quantum of damages awarded differs based on whether damages are awarded in addition to reinstatement or in lieu of the same. In each case, relevant facts and circumstances are considered including the cause of termination, procedure followed for such termination (i.e. whether retrenchment compensation, if applicable, or other statutorily mandated payments were adequately made), and, time that has elapsed since the termination.

In summary

With respect to employees, the limited remedy available for wrongful termination of private employment is damages to the tune of the salary payable to the employee for the prescribed termination notice period.With respect to workers, the remedies include reinstatement and, or, damages which will be subject to the relevant facts and circumstances. Where the worker is terminated for cause, reinstatement or damages are unlikely to be granted where the cause justifies the termination and the termination process, i.e., the relevant enquiry, is conducted in a fair manner. Where the worker is terminated without cause, reinstatement and damages will only be granted where the termination is effected contrary to the statutorily prescribed procedure.