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Legal Provisions regarding Termination of an Employee

By Bhavneet Vohra July 29, 2016


In almost every Enterprise or Company, whenever any employer recruits an employee to work in the Enterprise at a particular designation, it not only increases the workforce, but during the course of employment they also develop an Employer- Employee relationship. For the growth and success of the business managing these relations is very vital.

Indian Labour Laws does not include the employees who are employed in the corporate sector (white collar employees) who basically do the administrative and managerial work. The Legislations basically only includes the “workmen” who are majorly employed in the Industrial sector and earn low wages as compared to the Corporate Sector.

This article differentiates between the termination with respect to both,

  • White collar employees in the Corporate Sector, which are mostly governed by the Individual Employment Contracts complied with some of the provisions of Indian Contract Act, 1872
  • Workman in the Industrial Sector, in which the termination policy is governed by the Industrial Dispute Act, 1947.

Industrial Disputes Act, 1947

Who is a Workman?

As per the Section 2(s) “workman” is any person employed in an industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward. The definition specifically mentions that it does not include an employee employed in the managerial or administrative capacity; or in a supervisory capacity.

What is the Termination policy of a “workman”?

As per the Section 2(oo) of the Indian Disputes Act, 1947 “Retrenchment” refers to the termination of service as a punishment or for any other reason, whatsoever but it does not include:

  • Voluntary Retirement
  • Retirement on reaching the age of superannuation (60 years)
  • Termination of contract
  • Termination due to long period of ill health

Section 25F defines the conditions that need to be performed for Retrenchment of employee who has been in continuous service for not less than one year which are as follows:

  • One month notice stating reasonable grounds for retrenchment or wages for the period of that notice.
  • Compensation equivalent to 15 days average pay should be paid.

Every state in India also has their own legislation relating to labour laws which is called the Shops and Establishments Act, which also contains provisions for notice of termination of the employee either with or without cause.

Termination of Employment of White Collar Employees

Since there are no specific legislations governing the white – collar workers, so their service conditions are basically governed by the clauses and terms and conditions mentioned in their individual employment contracts which is governed by some basic provisions mentioned in the Indian Contract Act, 1872.

Under what circumstances employment can be terminated?

There can be many grounds and reasons which can result in the termination of an employee which are as follows:

  1. Inefficiency of an employee- If the employer finds that the employee is not efficient enough and is not adding to the growth and productivity of the business due to its poor and low performance, then it is a strong reason for the termination. Though generally this clause is not inserted in the contracts, but in recent times there is clause in the contract relating to achieving a specific target in a certain time period, which if not achieved can lead to termination.
  2. If the Confidential Provisions of the Company are disclosed- It is the moral and legal duty of the employees to not to dispose any trade secret, confidential data, and discussions and policies to any third party who is not associated with the company, which in turn can lead to losses and damage to the business.
  3. If there is breach of the employment contract- If the employee violates the terms and clauses mentioned in the contract and does not perform according to the conditions on the basis of which he was hired and posted at a particular designation, then the employer can use it as a strong reason for the retrenchment.
  4. If there is any misconduct on the part of the employee- If the employee acts outside its authority and indulges in any improper behaviour and misconduct which may cause loss, damage to the enterprise, then in those circumstances the employer can rightly terminate the employment contract.

The following case discusses the termination of an employee who acted outside its authority which can be counted as misconduct: State Of Uttar Pradesh And Anr vs Kaushal Kishore Shukla 1991 SCR (1) 29, 1991 SCC (1) 691

To read the full judgement, refer to the following link:

  1. Termination due to absconding of an employee-. There are no set rules. Time limit can vary as per standing orders of the company but mostly it is 10 days as is in the model standing order. A show cause notice is issued if there is no reply to the mails or calls. But full and final settlement is done only after he shows after giving an opportunity to clarify for the same.

 Ram Shiroman Singh Son of Sri Raja ... vs. the District Inspector of Schools ... on 15 November, 2007

The meaning of the word ‘abscond’ given in Chambers 20th Century Dictionary, 1987 Edition given at page 4 is ‘to hide or get out of the way, especially to escape a legal process’. Such were not the circumstances in the instant case. As it was not a case of “absconding” by the petitioner, so it was not permissible to dispense with requirements of Regulation 36(1) which made it obligatory to frame charges and make enquiry”.

To read the full judgement refer to the following link:

What manner is adopted by companies for termination of employment of White-Collar employees?

Almost all the employment contracts specifically mention the clause which states the period of notice that is to be given to the employees before his/her employment stands terminated. Usually all the contracts offer “30-90 days notice or salary in lieu thereof”. This period can be changed as per the company policy and can vary from one company to another. The termination of employment should also be supported with a strong and reasonable ground which is very essential.

 This case explains that if the contract clearly mentions the tenure and the notice clause, then the company has full authority to terminate the employment. It totally depends on the discretion of the company to renew the contract after the tenure is over or not.
  Gridco Limited & Anr vs Sadananda Doloi & Ors CIVIL APPEAL NO.11303 OF 2011
 In this judgement it is clearly stated that “the renewal of contract of employment depended upon the perception of the management as to the usefulness of the respondent and the need for an incumbent position held by him.”

To read the full judgement refer to the following link:

What conditions needs to be fulfilled by employer after termination of the employee?

In case of workmen- Section 79 of the Factories Act, 1948 the dues should be payable before the expiry of the second working day when the employment is terminated.

As per the Section 7(3) of the Payment of Gratuity Act, 1972, gratuity is payable within 30 days. And as per Section 4 it is payable to an employee who has served for 5 years or more.

An employee is also entitled to the leave encashment for the leaves accrued.

If the establishment falls under the Shops and Establishments Act which is different for every state then, in case of white collar employees, if the employee is terminated then the payment is carried out post the last working day and if there is normal resignation, then the full and final settlement of dues should generally be made within 45 days.

What action can be taken by employees to claim full and final settlement?

The employer can be prosecuted under the Civil law by following the steps listed below:

  1. Initially a legal notice can be sent.
  2. Ideally after that Civil suit for Breach of Contract and recovery of money can be filed.


Bhavneet Singh Vohra

Vivekananda Institute of Professional Studies

Tags: employer , employee , industrial dispute act , labour laws , termination , workman , white collar jobs

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