Navigating Legalities: How to Properly Terminate a Vice President After a Company Takeover?

Could anyone suggest on the following:

Our company has to terminate an employee holding the position of the vice president. He has been with the company for the past 5 years and has refused to resign. The company must terminate him because the process/operation under his control has closed down due to a takeover of the company.

Legally, what compensation would he be entitled to apart from gratuity? What procedure does one have to follow to terminate such an employee to ensure that the company does not fall into legal hassles?

I went through the Industrial Dispute Act to check whether the case would fall under the definition of retrenchment for him to be entitled to retrenchment compensation. However, I am not sure because the definition of a workman under the Industrial Dispute Act excludes a person holding a managerial or administrative capacity.

Thanks and regards,
Amita

Any employer has the full right to terminate any employee regardless of the position he holds. As per your company policy, you only have to pay him the notice pay. Since you mentioned that the operation under his control has already been closed down, there is no requirement for any transition too. Legally, he cannot do anything. Since he has served for 5 years, he would be eligible for gratuity. So, clarify everything that he is entitled to.

Thanks for your reply.

Does any act prescribe that such employees would be eligible for 3 months' pay/notice? As per our company's policy, he would be entitled only to 1 month's pay. Is this contrary to law?

Thanks and regards,
Amita

Hi Amita,

It is better to have legal advice on this based on the terms and conditions of employment. I hope the termination clause is clearly mentioned in the employment letter. Please proceed accordingly as per the employment letter.

Thanks,
Pavan

Terms and conditions are based only on the offer you made. If it is specified as one month notice pay, then all is well and good. Proceed by paying one month's pay. However, in the case where the offer states three months, you must pay for the entire three months.

Dear,

In addition to the pay against the notice period from your side and Gratuity (for 5 completed years of service), please also clear all his leaves (if any encashable leave). You can terminate his service if it is mentioned in the AL with whatever notice period.

Regards,
Tasneem:)

Again, for bonuses, there are no defined rules. Some organizations pay one month's salary as a bonus for the employee, while a few pay two months of the basic wages to their employees. It is again how you define your way of paying bonuses.

Please correct me if I am wrong.

Dear Amita,

Do you have the acceptance of the appointment letter? In this case, you can relieve him immediately by paying him for the notice period mentioned in the appointment letter.

Hi,

In this case, since the Department is closed down and the Company wants to terminate the Vice President, the Vice President is to be compensated with the following dues:
1) Balance of Earned Leave
2) 3 months' salary - normally for such a senior post, the resignation/termination clause will be a 3 months' notice period
3) Gratuity
4) Termination compensation minimum of 15 days' salary for each completed year of service.

If you pay the above compensation, I don't think there will be any scope for the affected individual for legal remedy.

Regards,
Vijay Gaonkar

Friend,

You can terminate any person with a genuine reason. They have to be paid terminal benefits along with payment in lieu of notice as per the terms of the appointment letter. To avoid paying the notice period, you can serve a letter intimating the termination of their service after three months or so. However, do not forget to obtain acceptance/acknowledgment on the duplicate copy of the letter. Pay all their terminal benefits through a cheque and obtain acknowledgment. Be very careful in building records or documents.

Regards,
Shrivatsa.A.V

No notice or formalities are required except to send him a thank you note along with a communication stating that his service and association were commendable. However, due to obvious business reasons, you have been compelled to discontinue his service.

The reason for the above is that anyone earning more than Rs. 6,500/- cannot seek protection under the ID Act. It is important not to humiliate anyone who is leaving, and providing such a letter serves as a proper example of termination.

With thanks,

Asitabha Sanyal

Dear All,

I am still confused as there were a few employees in our organization who resigned from their jobs without informing us and submitted their resignations 15-20 days after ceasing to come to work. These employees had completed 5 years of service and were seeking payment for bonuses, unused leave, and gratuity.

Is the company obligated to pay them a bonus, and if so, how much?

Secondly, if the company terminates an employee who has worked for more than 1.5 years, is the company liable to provide 3 months' notice pay and a bonus?

Thank you.

Hi all,

As per the Bonus Act, the minimum bonus amount should be paid to whoever served during the period. According to company policy, gratuity has to be paid if an employee completes five years of service and should be included in their full and final settlement. You can deduct one month's notice pay (if the clause is included in their appointment order), showing the deduction as "management holding" or "management loss." Apart from this, their leave balance should be encashed.

Regards,
Ram

Hi all,

The said VP can be terminated/retrenched on grounds of the following:

1) Closure of his unit and non-requirement of his continuance.
2) Despite oral or written information that he has to pack up.
3) Causing nuisance or obstacles when asked to vacate.
4) Unwanted non-performing overhead to the company.
5) Non-utility of his services or inability to make him fit for any job rotation.
6) Being a role model in creating problems, and he has to compensate the company for the dormant period of his maintenance.

Salary may be compensated for 1/2/3 months depending on the company policy. Just because he held the post of VP, he cannot be adamant. Hope he copies the tactics of former MPs who agitated when asked to vacate their guest houses in Delhi. It has become customary for the HR department to comply with the management team. But there has to be a limit to everything. Go ahead and whip at the right moment.

Regards,
Chandru
Manager - HR, Chennai

Hi,

I observe in these columns of query that many companies do not have a clear, well-defined code of HR policy or conduct. If things are not transparent, it is evident that errant employees will take advantage of the ambiguity and act as they please.

We cannot object to their behavior when the HR department itself has not painted a clear picture. For all these issues, the management also bears responsibility. Therefore, it falls upon the HR Manager to persuade the management to acknowledge and heed his voice as HR cannot address all the challenging questions. If you feel that HR is powerless to handle the situation, it may be time to consider stepping away.

Regards,
Chandru

Hi,

We, HR fraternity, need to handle such cases strategically and with a humanistic touch. Is it not prudent to convince the VP about the business challenges and offer the option to submit a resignation for a graceful exit? If he refuses, then you may consider exercising the termination option. We should avoid creating negative ambassadors through hasty actions.

Be generous in settling terminal benefits to avoid any legal complications, which can prove costly when considering advocate fees, management's precious time, the impact on existing management staff, and their morale, etc.

Regards,
V.S. Sarode
AVP-HR
9833989246

Hi,

For termination, ideally, you should have enough documents to support if it's a performance issue. You can have a Performance Improvement Plan detailing expected outcomes documented and signed by both the employee and supervisor. Further, periodic reviews (weekly, fortnightly, etc.) should be conducted and documented with signatures. All of these steps will be considered a fair and transparent process where the employee agrees to the performance reviews.

Therefore, this process will be deemed fair, and your documentation will also be in place.

Regards,
Ashu Sawhney

Dear Amit,

Please terminate his services in accordance with the terms and conditions of his appointment. Keep the termination letter short and simple. You may state, "As per the terms of your appointment letter dated xxx and its clause no. xxx, your services are no longer required with immediate effect. You are being paid an amount of Rs. xxx towards xx months' notice pay accordingly, via cheque no. xxx dated xxx drawn on xxx bank," enclosed herewith. Please attach the cheque for the notice period amount.

The provisions of the ID Act will not apply to him as he is a Management cadre employee. Similarly, there will be no scope for any civil suit if the termination is done in this manner.

Regards,
Mohan

Dear Amita,

Please ensure that you pay him the notice period as per the conditions stated in the appointment letter, which could be one month or three months. Additionally, consider leave encashment and gratuity. Please note that he is not eligible for a bonus as his basic salary exceeds 10,000 per month.

Regards,
J. S. Malik