Sources of regulation
The main statutes which regulate termination of employment are the Industrial
Employment (Standing Orders) Act (IESA), 1946, and the Industrial Disputes
Act (IDA), 1947, as amended. Some States have also passed legislation dealing
with dismissal.
Regulations concerning termination of employment are also found in standing
orders made pursuant to the IESA. Standing orders are written documents dealing
with terms and conditions of employment. Drafted by employers in all establishments,
standing orders are documents on which trade unions or workers are given
an opportunity to object. They are certified by the government Certifying Officer
who adjudicates upon the fairness and reasonableness of the provisions of
any standing order and upon its conformity to the model standing order (MSO).
Another source of regulation is the case law of the courts. Any questions
arising from the application or the interpretation
of a standing order can be raised before the Labour Court and its decision
will be final and binding (sec. 17(2), IDA).
In 2002, the 2nd National Commission on Labour produced a report suggesting
rationalisation and harmonisation of existing labour legislation, as well
as creation of an “umbrella” legislation to ensure a minimum level of protection
for the workers in the unorganised (informal) sector. [1] In 2007, labour law reforms are still the subject of
tripartite discussions in India.
It should be recalled in this context that 93 per cent of the Indian workforce
are employed in the informal sector. [2]
Scope of legislation
The IESA applies to all industrial establishments employing 100 workers
or more (sec. 1(3)). The IESA (sec. 2(i)) and IDA (sec.
2(s)) both exclude managerial and administrative employees, those in
supervisory positions earning more than a specified statutory amount, as
well as members of the Air Force, Army and Police services who are covered
by specific legislation.
Contracts of employment
Workers are classified as permanent, probationers, badlis (a “badli”
means a worker appointed in the post of a permanent worker or probationer
who is temporarily absent), temporary, casual and apprentices (sec. 2,
MSO).
Termination of employment
The contract of employment can terminate, not at the initiative of the employer,
in certain circumstances, including by:
- Mutual
agreement;
- Resignation
by the employee;
- Employee’s
retirement; and
- The
expiry of a fixed-term contract.
Dismissal
The law relating to termination of employment in India distinguishes
broadly between three different situations: dismissal for misconduct, discharge
and retrenchment. Indian law starts from the common law premise that an employer
has a right to terminate the services of an employee without giving a reason. [3] However, this position has been affected
by legislative intervention and by the development by the courts of natural
justice requirements.
As regards termination of employment for disciplinary reasons, some instances
of misconduct which may justify dismissal without notice and any compensation
in lieu of notice are listed in the MSO and include (secs. 14(2)-(3),
MSO):
- wilful
insubordination or disobedience;
- theft,
fraud or dishonesty;
- wilful
damage or loss of employer’s property;
- bribery;
- habitual
lateness or absence; and
- striking unlawfully.
The IDA sets out detailed procedural requirements for retrenchment which
is defined as the termination by the employer of employment of a worker for
any reason, other than disciplinary, with certain exceptions (sec. 2 (oo),
IDA) “Retrenchment” corresponds broadly to terminations based on economic
grounds or related to the employee’s capacity (except retirements, dismissals
for ill health and the expiry of fixed-term contracts).
Thus, the concept of discharge at will can be said
to apply only to employees not covered by the IDA, and not dismissed for
misconduct.
Termination of employment is unlawful if it is for reasons related to trade
union membership or activity; filing complaints concerning the employer;
race, colour, sex, marital status, pregnancy, religion, political opinion
or social origin. In addition, termination of employment in violation of
fair labour practices as defined by legislation or case law will not be valid.
The IDA (Fifth Schedule) lists some practices which will be considered
to be “Unfair Labour Practices”. These include dismissal on account of trade
union activity or membership; dismissal by way of victimization; dismissal
not in good faith but in “the colourable exercise of the employer’s rights”;
dismissal by falsely implicating a worker in a criminal case or on false
or trumped-up allegations of absence without leave, dismissal without due
regard to natural justice or for minor misconduct leading to disproportionate
punishment. The list is not exhaustive.
The Maternity Benefit Act, 1961, provides that absence from work during
maternity leave, as allowed under the statute, should not be considered as
a valid reason for termination of service. Similarly, employees may not be
dismissed or discharged while they are in receipt of a sickness benefit or
disablement benefit for temporary disablement or are receiving medical treatment
for sickness or are absent from work as a result of certified illness arising
out of pregnancy (sec. 73, Employees’ State Insurance Act).
Notice and prior procedural safeguards
Under the IESA, employers are required to give in writing one month’s notice
or payment in lieu of such notice in order to lawfully terminate the employment
of permanent monthly-paid workers. The two weeks’ notice is required for
workers paid on other basis. Notice is not required either for probationers, badlis or
temporary workers (sec. 13, MSO).
Notice is not required for workers found guilty of serious misconduct such
as would constitute summary dismissal. In case of dismissal on disciplinary
grounds, the worker must be given an opportunity of explaining the charges
of misconduct alleged against him/her (sec. 13(2), MSO).
Furthermore, despite the fact that an employer is entitled to dismiss an
employee for serious misconduct or inadequate performance of work, the rules
of natural justice have now influenced labour law jurisprudence in India
to the extent that the employer will be required to give the employee a “hearing”
to answer the charges before the dismissal is effected. This may take the
form of a written complaint to initiate departmental proceedings with a view
to disciplinary proceedings, and the hearing may be a mere explanation from
the employee or may be a full departmental inquiry into the matter with the
necessary documentary evidence. Questions into the legality of dismissal
due to misconduct often hinge on the nature of this internal inquiry and
the Indian courts, in the interest of good industrial relations, have consistently
affirmed the need for the usual rules of natural justice to apply. Central
to these rules are the requirements that the employee has a fair hearing,
including the right to adduce evidence on his or her behalf and to cross-examine
witnesses, and that the hearing be free from bias. An employee who faces
a charge of misconduct may also generally expect only a warning if it is
a first offence or is not habitual conduct. Where a matter relating to termination
is pending before a conciliatory or adjudicatory body, the conditions applicable
to the worker may not be altered (sec. 33, IDA).
Under sec. 25F of the IDA, an employer proposing to retrench workers,
who have been continuously employed for more than one year, must give one
month’s notice or pay in lieu of such notice to the worker, and must also
notify the relevant governmental authority, giving the reasons for the proposed
retrenchment.
Special provisions under the IDA are applicable in relation to industrial
establishments employing 100 workers or more. In this case, workers may not
be retrenched unless three months’ written notice, stating reasons for the
retrenchment, or pay in lieu of notice, is given to the worker. In addition,
the employer must seek prior authorization from the relevant governmental
authority before the retrenchment can be carried out (sec. 25N, IDA).
The concept of “prior authorization” in this context perhaps needs some
elaboration here. The Supreme Court of India has recognized the right of
management to run its own business as it pleases without any interference
by the courts. The decision to retrench is thus left solely up to the discretion
of management. The court will inquire only into the closure to verify that
it is bona fide and for economic reasons and will not question the motive
behind it. The concept of a bona fide redundancy does not, for example, include
a situation where retrenchment is carried out in accordance with unfair labour
practices or to victimize workers. Consequently, the proper governmental
authority is required to examine the reasons given in the notice for the
proposed retrenchment to ascertain whether they are in accordance with good
labour practice and are for bona fide reasons of redundancy. If this is not
found to be so, the governmental authority may refuse permission for the
retrenchment, giving its reasons in writing.
In the absence of any agreement between the employer and the workers retrenched
as regards the procedure for retrenchment, the employer retrenches the worker
who was the last person to be employed in the category, unless for reasons
to be recorded the employer retrenches any other worker (sec. 25G, IDA).
Severance pay
In case of retrenchments, employees with more than one year’s service, and
other than temporary or casual employees, are entitled to compensation equivalent
to 15 days’ pay for each completed year of service (sec. 25F(b), IDA).
However, a distinction is made for cessation of business for reasons beyond
the control of the employer. This might include force majeure, frustration
of contract, etc., but does not include financial difficulties or loss of
stock. In such circumstances, the employee is still entitled to a redundancy
payment, but the amount is less than that given for termination of employment
due to other reasons, being a sum equivalent to no more than the average
of three months’ pay (sec. 25FFF, IDA).
Under the Payment of Gratuity Act, 1972, a worker continuously employed
for five years or more is entitled to a gratuity payment upon termination
of service, except where such termination has been as a result of his or
her wilful omission or negligence resulting in damage or loss of the employer’s
property, in which case the gratuity is forfeited to the extent of the damage
caused. Where the employee has been dismissed on account of his or her riotous,
violent or disorderly conduct or for an offence involving moral turpitude
committed in the course of employment, the gratuity shall be wholly or partly
forfeited. The sum is calculated at 15 days’ average pay for every completed
year of service.
Avenues for redress
Since the 1965 amendments to the IDA (sec. 2A), the dismissal or
retrenchment of an individual is deemed to be an industrial dispute, hence
the ability of a worker to take his or her claim to the Labour Courts. Under sec.
2(a) of the IESA, a worker dissatisfied with his or her termination of
employment is entitled, in the first instance, to raise the matter as a labour
dispute with an officer from the conciliation department of the Ministry
of Labour. The officer will attempt to conciliate the matter and must submit
a report to the Government if conciliation fails, pending a decision from
the governmental authority on whether the matter merits adjudication before
the Labour Court or Tribunal.
Challenges to dismissal can be made to the Labour Court under sec. 11A of
the Industrial Relations (Amendment) Disputes Act, 1971. The Labour Court
may review a termination of employment and set aside a dismissal if it decides
that the dismissal was not justified.
No time limit is prescribed within which an aggrieved worker may raise a
labour dispute. However, excessive delay may prejudice a worker’s case. The
burden of proving that dismissal was for a valid reason rests with the employer.
The Labour Court, Industrial Tribunal and National Tribunal have wide discretion
to review disputes relating to termination of employment, including the examination
of the evidence, and to award relief as they see fit including compensation
in the form of damages and reinstatement (sec. 11A, IDA). Before reinstating
an employee, the judicial body will inquire into the feasibility of reinstatement;
for example, whether the employee has lost confidence in the employer and
whether industrial peace and harmony will be threatened.
Further information
[1] C.S.
Venkata Ratnam, 2006, Oxford University Press. “Industrial
relations”, pp. 505-531.
[2] ILO. 2002. “Women and men in the informal economy: a statistical
picture”, p. 34
[3] See, for example, C.K. Johri: “India”, in R. Blanpain (ed.): International encyclopaedia
for labour law and industrial relations (The Hague, Kluwer Law International,
1999), Vol. 7, p. 102.
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