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.
Footnotes
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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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