Termination of employment in India

29 九月 2023

by Kumar Panda

In India, workforce is technically categorised as ‘workmen’ and ‘non-workmen/employees’. Workmen are typically those who work on the shopfloor in a manufacturing set-up and do not involve someone who are undertaking supervisory or managerial function. With a view to avoid exploitation of workmen, certain statutory protections under the Indian labour laws have been provided concerning termination and conditions of work of workmen. The conditions for employment of non-workmen/ employees are generally governed by the employment contract and the policies adopted by the employer.

Termination of employees/ workmen is of two types:

  • termination simpliciter or termination for convenience.
  • termination as a punitive action on account of misconduct.

A person qualifying as a workman can be terminated for convenience only in accordance with the procedure laid down under the Industrial Disputes Act, 1947 (‘ID Act’).

The ID Act specifies the notice requirement of at least a month or pay in lieu thereof to terminate a workman who has completed a service of at least one year (i.e., 240 days) of service along with payment of retrenchment compensation which is 15 days’ pay for every completed year of service.

Further, the employer is required to provide notice to appropriate labour authorities about the termination of workmen. Based on the size of the establishment, an employer employing such number of workmen is required to give a notice period of 90 days instead of 30 days and additionally obtain a prior approval from the appropriate Government.[1],[2]

ID Act also mandates compliance with the rule ‘Last-come First-go’ while terminating workmen which can be deviated only in case of agreement between the employer and workman or due to extraordinary reasons which must be recorded in writing.

In addition to the ID Act, where the establishment has adopted standing orders as per the Industrial Employment (Standing Orders) Act, 1946 (‘IESO Act’), the procedure specified therein must be complied with for termination of workmen. IESO Act is generally applicable to manufacturing entities with 100 or more workmen and few States like Haryana have made it applicable to commercial establishments. 

While so, conditions of service of non-workmen/ employees are governed as per the contract and the policies of the employer. Additionally, the notice and payment of service compensation as provided under the state-specific shops and establishment acts must also be complied with by the employers for terminating employees. The applicability of state-specific shops and establishment acts to managerial employees differs from State to State and is to be examined based on the facts. 

Termination as a punitive action must be undertaken after a domestic inquiry by issuance of notice to the employee, framing charges, and providing the employee a reasonable opportunity to present his case. Further, the action proposed must be based on the nature of the offence.

The state-specific shops and establishment acts like the Andhra Pradesh Shops and Establishments Act, 1988 (as applicable in the states of Andhra Pradesh and Telangana) provide the procedure to be followed for the termination of employees on account of misconduct. However, inquiry for misconduct may not always be necessary when the offence is apparent. For example, an employee can be terminated without a domestic inquiry upon conviction of an employee under a criminal charge. An employee may not be entitled to receive severance compensation if the termination is on account of misconduct.

Employers sometimes resort to termination simpliciter to avoid the obligation of conducting a domestic inquiry as it can be time-consuming. Courts have often held such colourable exercise as invalid and provided relief to employees in the form of reinstatement and payment of back wages.

Workmen can approach labour courts in case of a claim of wrongful termination as per the ID Act. While non-workmen/employees can approach authorities as specified under state-specific shops and establishment acts if the enactment is applicable or to the jurisdiction civil courts if state-specific shops and establishment acts are not applicable.  It is worth noting that Indian courts often lean in favour of employees.

To ensure no prolonged litigation, it is, therefore, recommended to ensure appropriate documentation in case of termination on account of misconduct. As a matter of good governance, internal HR policies must be made robust in dealing with instances that can be considered as misconduct. Even if the employer chooses to resort to termination simpliciter to avoid domestic inquiry, it is a general practice that the notice to the concerned employee should not refer to the misconduct.

It is recommended to obtain relevant acknowledgement from the terminated workman / non-workman recording full settlement of all dues at the time of separation. Based on the designation of the person, a separation agreement can also be executed. In recent times there has been a growing trend of including no-disparaging provisions in such separation documents so that the employees don’t disparage or defame the employer after separation.

[The author is a Principal Associate in Corporate and M&A practice of Lakshmikumaran & Sridharan Attorneys at Hyderabad]


[1] This requirement is applicable to establishments deploying 100 or more workmen in most states and certain states have revised applicability threshold to 300 workmen.

[2] Private establishments and state public sector undertakings have state governments as the appropriate government while entities like central public sector undertakings, ports, airports, mines, etc., have central government as the appropriate government.

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