Immediate Dismissal at Work: What Are the Legal Steps and Risks for Employers?

During the visit of the Managing Director to the production unit, one of the employees, being negligent at work, has been dismissed immediately. Similarly, an HR personnel has also faced dismissal. What are the formalities to be done under the Factories Act and Industrial Dispute Act? What issues may arise for the company if the employee takes the matter to the Labor Court due to lack of compensation?

Dismissal of an Employee

When an employee's services are terminated for bona fide reasons under standing orders, settlements, or service rules without any intention of punishing them, such terminations fall under the category of termination simpliciter (simple terminations). When an employee's services are terminated by way of punishment allegedly for misconduct, such terminations are regarded as punitive or stigmatic since the employee is dismissed for an allegation that casts stigma on their character and conduct without being heard.

While the Courts may not interfere with termination simpliciter of an employee, they may quash a dismissal if it was inflicted without hearing the employee concerned.

The principles of natural justice require that an employee shall not be punished for misconduct without being heard about such misconduct. These principles are not incorporated either under the Factories Act or the Industrial Disputes Act. A factory's standing orders (if applicable, since they are applicable to factories employing 100 or more workmen) or service rules incorporate these principles in the form of a disciplinary procedure. In view of these principles of natural justice, the following basic procedure has to be followed before punishing an employee:

1. They should be served with a charge-sheet setting out the specific details of allegations against them.
2. They should be asked to explain their allegations.
3. If their explanation is not satisfactory, you have to conduct a domestic enquiry into the charges where the employee will be given an adequate opportunity to defend themselves.
4. If they are found guilty in such a domestic enquiry, an appropriate penalty should be imposed on them.

Your company must have standing orders of its own or conduct rules which prescribe such a procedure.

In your case, the employee was dismissed for negligence in their work, which is an allegation against them. Therefore, they were dismissed allegedly for misconduct. Thus, you should have followed the above procedure before dismissing them.

You cannot treat it as retrenchment either, since such terminations will not be regarded as retrenchment as the definition of retrenchment under Sec. 2(oo) of the I.D Act excludes terminations by way of punishment from retrenchment.

If the employee is a workman within the meaning of the I.D Act, in all probability, they will raise an industrial dispute about their dismissal, terming it unlawful.

Regards,
B. Saikumar
HR & Labour Law Consultant
Chipinbiz Consultancy Pvt. Ltd
Mumbai

For termination cases, you must also pay the Notice Pay, Retrenchment Compensation, Leave Pay Encashment, and Gratuity (if eligible). Please complete all the procedures as mentioned by Mr. Saikumar. Ensure that all your procedures are recorded and documented in writing so that these will help you in the event the terminated employee approaches the court of law.

Regards,

Also, you have to pay him suspension allowance as per Section 10 of the Standing Orders Act until the date the domestic inquiry is completed, if he is unemployed for the said period. If you do not conduct inquiries and the workers go to the labor court, then 99% of the time, the court will give an order in his favor for the reinstatement of the workmen as he was not given a chance to defend himself. The question of retrenchment does not arise. When following retrenchment, you have to adhere to the seniority levels. As rightly said by Mr. Saikumar, as per Section 2(oo) of the ID Act, it does not include Disciplinary Action. Now, just issue him a charge sheet stating the misconduct and also suspend him until the domestic inquiry is conducted.

Regards,
Prashant Mhatre

If an employee has already been dismissed from service, there is no necessity for conducting an inquiry. It is important to settle the dismissed employee's dues (unpaid salary, leave encashment) immediately and not later than two days from the order of dismissal.

Preserving Documents for Legal Defense

To combat the case in court, it is crucial to preserve necessary documents relating to the employee's negligence that led to the dismissal.

Sub-compensation for Dismissed Employee

In my reply, there is a typing error in the sentence in the fifth paragraph that relates to retrenchment. The legal position is that dismissal by way of punishment for misconduct without an enquiry cannot be regarded as retrenchment. Also, since Sec. 2(oo) of the Industrial Disputes Act excludes such termination by way of dismissal from the scope of retrenchment.

Regards,
B. Saikumar

If the terminated employee has caused damage or heavy loss to the company and is then terminated without being paid, what will be the consequence?