Seeking Guidance: What Legal Aspects Should We Consider in a Termination Letter?

Hi there,

As HR professionals, we often encounter situations where the company must terminate an employee. There are various legal implications to consider in such cases. I would appreciate it if senior members could shed light on the legalities that should be taken into account when drafting a termination letter for an employee. I would be highly thankful if somebody could assist me by providing a standard format for a termination letter.

Best regards,
Dips

Hi Deepali,

I have seen your mail and am sorry that I could not reply immediately. Before I provide you with a standard format, there are a few points I would like to discuss. These points will make it easier for you to draft a letter in case you encounter a situation where you need to issue a letter of this nature.

a. Discuss with the top management the reason for terminating the employee.

b. Identify the issue faced by the employee that has led to a significant decline in performance, resulting in the management's decision to terminate.

c. Check the records to determine the length of time the employee has served the organization.

d. Verify whether the employee was a permanent employee on the payroll or on probation.

Regarding the letter format, please see below (you will need to customize it to suit the specific circumstances you are dealing with):

Date: XXXXX

Dear ABC,

Ref: Termination of your services from our organization

With reference to the above, the management has decided to terminate your services with immediate effect (or with effect from XXXXX). As previously discussed, the reason for this action is XXXXX (non-performance, fraud, misappropriation of funds, frequent absenteeism, tardiness, etc.). Despite being given opportunities and leniency by the management, there has been no improvement in your performance (or behavior if there are attitude issues or conflicts with colleagues).

Based on the above, you are hereby terminated and relieved from your duties with this organization. Your last working day will be XXXXX.

Your final settlement will be processed by the finance department (please inform them promptly to avoid delays, and ensure there are no outstanding dues to the organization). Kindly return any company property to the Administration Department.

We appreciate your contributions to the company during your tenure with us and wish you the best in your future endeavors. Please acknowledge this letter to confirm your understanding.

Authorized Signatory
Witness

If you need to terminate the employee in their absence, verify the records and send a termination letter via Registered Post to their residential address. Keep the acknowledgment receipt for your records.

I hope you find this information helpful, and I have endeavored to keep it as straightforward as possible. Seniors, please correct me if needed, and I urge you to assist Ms. Deepa as well.

Best wishes to you, Deepa, and may your issue be resolved swiftly. Stay in touch. 😊

Regards,

Sadashiv Rao

Hi Sadashiv,

Firstly, I'm Deepali. Thank you for the help. I also want to know about other issues that should be considered while handing over the termination letter to the employee.

Dips

Hi Deepali,

Thank you for your email. Please note that if the employee was on the payroll and if an appointment letter was issued to him/her, then check for a clause regarding the payment of one month's salary as notice period when the company asks the employee to leave. This clause may not be applicable in cases of fraud or misappropriation.

If the mentioned clause exists, the employee must be paid accordingly.

I am currently unable to recall any other issues, but I will keep you updated if I remember anything. Let's stay in touch!

Regards,
Sadashiv Rao :)

Hi,

Yes, that is there in the clause. Let me know the other issues as you recall. I will look for other members also to respond to me for this.

Regards,
Dips

One should avoid the temptation to use standard drafts of termination letters. One has to consider the following before a draft could be made.

a) To what category does the employee belong? "Workman" under the ID Act, or non-workman as far as the ID Act is concerned?
b) What is the reason for the termination of employment? Is it punitive or a Discharge Simpliciter?
c) If punitive, have all legal formalities been completely observed?
d) If a discharge simpliciter, has a confidential note (not to be issued to the employee) been prepared for office records?

For a non-workman category, have the basic terms and conditions been studied? Once we have answers to these questions, only then should a Termination Letter be prepared so that it will stand the scrutiny of the law.

Regds.

Hi Samvedan,

Thank you for your reply. I'll consider that, but the thing is, I actually have no practical experience in this area, and right now, I have no senior over me to tell or guide. That's why I need to have ideas from standard formats.

Dips

Hi all,

I was wondering, can we issue any such termination letter straight away to any permanent employee irrespective of his position? I agree with Samvedan and Sabashiv Rao that we should go into details of the case on the records and off the records before terminating an individual from their job. However, any disciplinary action calls for a procedure as per the principle of Natural Justice. An opportunity should be given to the employee to express themselves, and based on the merits of the case, disciplinary action should be taken. A termination letter can be issued if decided for it, but it should contain the information about the entire procedure. I feel there should be more discussion on this subject to have clarity.

Regards,

Hi folks,

Let me state a real situation here, even though he has been fired. One of our sales executives did not attend two consecutive sales meetings with the GM, who didn't even care to communicate that he would not be able to come. He didn't pick up the phone. Then management also found him to be an underperformer. Now, when management sent him his termination letter based on the above accounts, he replied saying that he could not come because he went for Ganesh Puja and could not communicate because it was a national holiday (though it was only a regional holiday). He never expressed regrets about it but said that if going for a puja can cost him his job, if serving God led to this result, then let it happen.

So, just look at this situation. What a reason!

Dips

Hi Deepali,

I saw your email on the termination topic and I feel sad for this guy. This only shows his interest and dedication level towards his job. It also goes to show the level of maturity of an individual who assumes that it is a national holiday and is taking solace in saying that he was attending a pooja. It also shows the irresponsibility on his part of not responding to calls.

Being in the sales line, he is expected to deliver his best to customers. What if a customer was trying to reach him on a query? This would only have resulted in showing the service level of the organization. It doesn't take a long time to badmouth an organization for their service level.

This is what I have felt and just putting my thoughts on email to you.

Regards,
Sadashiv Rao :)

Now that the facts are stated, it is clear that at first the issue must be considered from the management culture point of view.

In this vein, I suppose termination is a rather harsh response to his lack of discipline unless we are told that despite a previous record of misconduct and despite opportunities given to him for improvement, he has continued to indulge in such carelessness.

If this is not his first misconduct and if it has not caused SERIOUS damage of interests to the company, it is a fundamental principle of Good Management Practices that one should be given an opportunity to improve.

In the alternative scenario (legal), I would venture an opinion that the management action is safe. But it would be necessary to check if the said employee is covered by the Sales Promotion Employees Act!

Finally, in view of the attitude demonstrated by the said employee, I would not hesitate to say that management action in this case is legally and morally right.

I suppose my perspective is clear!

Hi,

Being in the sales line, he is expected to deliver his best to customers. What if a customer was trying to reach him with a query?

I fully agree with Sadashiv Rao. Sales and customer support are two disciplines that are extremely sensitive to the organization. The customer is always KING. I remember in one of the training sessions, the trainer asked a question, "Who pays your salary?" Many gave different answers. Some of the answers were shareholders, MD, Owner, Accounts, etc. But in reality, who pays the salary - the CUSTOMER. If the customer is not there, then the business does not exist. So the first and foremost duty of any sales/customer support person is to satisfy the customer. It is not just "customer satisfaction" that is required now, it is "customer Delight" that is required.

What is "Customer Delight" after all?

When a product meets customer expectations, it ensures customer satisfaction. However, when customers get value or benefits beyond what they had expected, the brand has ensured customer delight. Common sense suggests that a delighted customer may be more loyal to your brand than a satisfied customer.

Customer delight is not just about better product performance. Consumers have a certain degree of functional expectations from a product, and, in most cases, the product is likely to deliver a level of performance pretty close to that expected by the customer. This is precisely why functional parameters have ceased to be meaningful differentiators for customers to choose one make of the product over the other.

Customer delight is about demonstrating and providing a set of tangible and intangible benefits beyond the functional features, a combination of which provides value beyond what the customer had expected to receive from the brand. It is important to realize that customer delight is a moving target. It is not a fixed benchmark to be achieved. As competition intensifies and responds, the power of some benefits to act as differentiators gets diluted or erased.

Oh, I have moved away from the topic to something on sales. But I think the realization that it is because of the CUSTOMER that every one of us in the organization exists is absolutely essential for everybody in any organization.

Thanks

Bala

Hi there,

I have observed that in most companies, the performance of sales executives considered by top management is solely based on the business they bring in, the targets they meet, etc., while other aspects go unnoticed. However, in the case of termination, why is everything suddenly noticed?

Dips

Dear Deepali,

Having worked for quite some time in direct sales and sales management, I agree with your opinion. It is the "numbers" that matter most to top management. Regardless of any other quality work one may do, it holds zero relevance. While we often speak about "customer delight" in sales meetings, training sessions, etc., a significant amount of lip service is paid to this concept. In reality, the focus of the top management is solely on the "numbers." There are instances, both comical and serious due to the revealing of true attitudes, where the truth becomes evident. One such recent example was when the top management stated, "we have to squeeze juice out of the customers"!

Thank you.

Hi there,

Wow, "we have to take juice out of the customers" sounds so exploitative. I can see many of my friends being exploited like anything. They work 12 hours a day, six days a week (even one for seven days), and then due to some reasons, they leave the company after 3 or 5 months.

Reasons? Targets not meeting. Again, the company overlooks their performance for the last 5 months and the working hours they put in, the follow-ups they did, the clientele they made. But they only look at why the present targets are not being met.

Or should I say employees are short of references. Friends, I have seen. Literally, this is the case in the banking industry. What do you say?

Dips

Dear Deepali,

This is not the case with the banking industry alone - it is the case with many sales professionals regardless of the industry.

In sales, the number of customer visits you have made, the effort you have put in, the quality of work you have delivered, and so on, simply do not matter. What truly matters is, 'Have you achieved the desired numbers?'

This is the reality.

Best regards,
Bala

Hi Bala,

SERIOUSLY, A FEW OF MY FRIENDS HAVE WORKED FOR REPUTABLE BANKS. THE SITUATION IS THAT, IN THE INITIAL MONTHS, THEY USE THEIR REFERENCES TO OPEN ACCOUNTS, SELL INSURANCE, OR ISSUE CREDIT CARDS, ETC. HOWEVER, AS THEY BEGIN TO RUN OUT OF PERSONAL REFERENCES, THE TARGETS BECOME HARDER TO MEET, RESULTING IN SLOWER PROGRESS COMPARED TO THE INITIAL MONTHS. DURING THESE TIMES, THEIR AREA SALES MANAGERS (ASM) AND REGIONAL SALES MANAGERS (RSM) START CRITICIZING THEM VERBALLY. EVENTUALLY, WHEN THE EMPLOYEE'S TOLERANCE LEVEL IS EXCEEDED, THEY QUIT THE JOB. THIS CYCLE REPEATS ITSELF BY USING NEW CANDIDATES AND THEIR REFERENCES.

TRULY, IT'S SIMPLY EXPLOITATION - A USE-AND-THROW SCHEME.

WHAT DO YOU SAY?

DIPS

Dear Deepali,

I agree that it is exploitation. But that is the fact in this 'dog-eat-dog' world of today. Once the utility is over and you find that the figures are not coming in as you envisaged (the figures, in the first place, would have been illogical), the guy is thrown out like 'tissue paper.' That is the terminology we use in this field!

Thanks,
Bala

Well well, psyched. We are going away from the topic. I can't say whether I may also do the same, but I just hate this. By the way, back to the question, give me more issues to be considered.

Dips

Dear Seniors,

I have been asked to draft a termination letter for our company on an immediate basis. I understand that these matters are very legal, and legal documents need to be approved by a lawyer. Please help me with this task.

Regards,
Smita Nair

Dear Deepa,

It's strange that u have been asking a quest. & u havn't recd. a letter for so long. I am a new member in this team. I just thought if I cud help u. I think u have already got one reply. That is really a good one. It helped me too. Otherwise I am just giving u another sample of a termination letter that we follow :

Dear Sir,

This is to inform you that the Management has decided to determine your contract of employment with the Company with immediate effect.

In accordance with clause no. ----of your Appointment letter no. -----------dated ---------, you are being paid herewith --------- (Rupees ----- only), by draft no. -------, dated ---------, in your favour and payable at --------, being a sum equivalent to your 3 month's salary in lieu of 3 month's notice.

You may apply in the prescribed form to the authority for payment of your Provident Fund.

Yours faithfully

OR

This is to advise you that, your services in the Company are no longer required and it stands terminated with effect from the close of business on ----------.

You will be paid an amount equivalent to your three months' pay (whatever is his notice period) in lieu of notice period. We are advising Accounts Department to make payment accordingly to you.

You are advised to contact the Accounts Department for settlement of your accounts.

You are also required to handover all the properties and documents of the Company in your possession.

You will be paid your provident Fund for which you are to apply to the Trustees of the Fund. You are also advised to apply in the prescribed form for payment of your gratuity dues.

Yours faithfully

OR (This does not talk of any payment either)

This is to advise you that, your services in the Company are no longer required and it stands terminated with immediate effect.

You are advised to handover all the properties and documents of the Company in your possession, immediately.

For your Provident Fund please apply to the Trustees of the Fund. You are also advised to apply in the prescribed form for payment of your gratuity dues.

Yours faithfully,

These are some samples I had. Actually we havn't had any fraud practices in our history. Even if there has been we are too soft in this area & just ask the person to leave. He eventually resigns. U cud force him to resign, unless not otherwise.

Hope I have satisfied u.

Thanx.

Ann

Hello,

Although I am not a senior member, I have read a lot about charging employees (as a second-year MBA student specializing in HR). I have referenced two books:

1. KK Chaudhuri - "Personnel Management for Executives"
2. Awasthapa - "HR Management"

Either of these resources should provide you with answers to your questions.

Thank you

Hello Dips! A termination letter, if you are issuing after proper disciplinary action, would need to be legally drafted. It's advisable to consult an expert if the employee is covered under labor laws. If the termination letter mentions any misbehavior/misconduct, then a proper inquiry is to be held. However, for managerial staff, the best option is to terminate services as per the offer of appointment by issuing a discharge simpliciter, which can read as follows:

Shri ---- Design:

In terms of clause no. of the offer of appointment dated issued to you and accepted by you on , you are hereby discharged from the services of this organization. We enclose a check (No. dated ) for an amount of Rs. towards the notice period.

We thank you for the services rendered to the company.

Thanking you.

I hope the above would meet your requirement. Regards, Nair KK

I totally concur with Nair. Termination should not be about a soundly drafted letter of discharge; it is a process in itself which culminates with the issuance of the termination letter. Employees who are governed under statutes (like the Industrial Disputes Act) cannot and should not be terminated unless for punishment, which is established beyond doubt through the domestic enquiry procedure.

As for employees in "managerial" positions (and don't go by designation only), I would still prefer to have them amicably leave the organization rather than issuing a termination letter. Please note that our labor and honorable Supreme and High Courts do not accept management arguments on unilateral terminations unless based on loss of confidence or acts of moral turpitude.

The bottom line, according to me, is that the process involved in terminating an employee is more important (not to say that the termination letter can be ill-drafted) than the letter itself.

Regards,

Mxsingh

Thank you so much for your inputs. Reading this has helped me to use it in my organization as I'm the only HR in my organization. Also, can anyone help me with this:

I had read somewhere that as per the Family Act, an employee can avail leave for their sickness or for their spouse. However, if the period of leave cannot be extended, and the employee does not rejoin work due to family problems and also does not reply to calls or emails, then we will terminate the employee. The main concern is when an employee, handling crucial positions in the organization, exhibits such low behavior. What actions can be taken from the HR side to prevent such behaviors in the future? I would be grateful if you reply to this.

Hi Mr. Rao,

Your suggestions have helped me a lot as I joined as Assistant Manager HR. Thank you for your assistance.

Regards,
Deepanshu C Kalra :)