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.  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. 
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:
Resignation by the employee;
Employee’s retirement; and
The expiry of a fixed-term contract.
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.  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;
habitual lateness or absence; and
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).
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.
25th October 2010 From India, Madras