Why Do Employers Prefer Asking for Resignations Over Terminations? Let's Discuss the Implications and Employee Rights

Respected Friends,

I came across some posts discussing issues related to employers asking employees to resign. I am keen to understand why employers prefer to request a resignation rather than terminate an employee. What are the modalities associated with this process? Additionally, what happens if an employee chooses not to resign and continues to work in the company without a concrete reason for termination? How can an employee ensure that all dues will be paid in the Full and Final settlement? What happens to the variable component payment in such cases if there are no clear directives in the appointment letter or company policy?

I request you to please share your knowledge on this topic.

Thanks

If the company is unable to continue or faces financial problems, they may need to reduce manpower, which could lead to terminating employees. Instead, the employer should communicate with the employee to submit their resignation so that they can clear dues and complete all formalities like a relieving letter or service certificate. This is a win-win situation.

Termination Process

If termination is considered, it is a long and critical process. In the case of termination, the reason for leaving will be recorded as termination, which could be a critical scenario for the outgoing employee. Even if the employee challenges it, the process is time-consuming. Generally, every appointment letter includes a notice period, and management can issue a notice. After the notice period, they can settle accounts.

If management asks the employee to resign and the employee responds positively, management should clear the dues. Even if the employee doesn't respond positively, it is mandatory for the employer to clear the dues under the Payment of Wages Act. The employee can approach legally or contact the concerned labor department officials.

Variable Pay Agreement

Regarding variable pay, there should be a document or agreement, and both parties should abide by it to clear the payments. If there is no document on variable pay, it depends on the management's discretion, and the employee can't insist on it. Normally, every organization issues a clear document on variable pay along with targets (monthly, quarterly, half-yearly, annually), measurement criteria, etc., based on which the employee claims, and management clears the payment. If not, it depends on the goodwill of management. The employee should insist on a document at the beginning where management declares such incentives.

Regards,
Kamesh

Reasons for Resignation Over Termination

There are various reasons for a company to ask for resignation instead of terminating an individual. Firstly, it is to maintain the dignity of the individual, and secondly, it is to keep the scope for future reference intact. It is possible that your prospective employer will accept you more openly when you say that you resigned from your job for X, Y, Z reasons instead of saying that you were terminated for X, Y, Z reasons.

When the company asks you to resign, they also ensure that all your dues are cleared. However, you are expected to maintain the confidentiality of the agreement between you and the employer and not share it with anybody.

I hope this will help. Let me know if you have any doubts. Stay in touch and take good care of yourself.

Dear Piyush, I am keen to know why the employer prefers to ask for a resignation rather than terminate the employee.

Reason for Preferring Resignation Over Termination

When an employer asks for a resignation rather than termination, the main reason behind it is that the employer has to pay basic pay (Basic+DA) to the employee depending on the notice period. For example, if in a company the notice period is one month, then in the case of termination, the company has to pay one month's basic pay (Basic+DA) to the employee. While in the case of resignation, if the employee serves the complete notice period, there will be no deduction. However, if any employee leaves the organization without serving the notice period or in between the notice period, then the employee has to pay the company one month's basic pay (Basic+DA).

Consequences of Not Resigning

What can happen if the employee chooses not to resign from the organization and carry on in the company without a concrete reason? How does an employee ensure that all his dues will be paid in the full and final settlement, and what happens to the variable component payment in this case if there are no clear directives in the appointment letter or the company policy?

At the time of separation, all companies clear the dues of employees depending on the timeframe mentioned in black and white. If they do not clear the same, you can sue them in the labor court.

Best Regards,
Sunita Dhoundiyal

Dear Dr. Piyush Caroli,

Reasons for Employer's Preference for Resignation Over Termination

From the Employer's point of view:

1. To reduce manpower without facing complex problems, including weeding out unwanted employees.
2. To avoid legal implications involved in termination.
3. To acquire freshers and infuse fresh blood to appear latest and up-to-date.
4. Trimming manpower for optimum utilization and to cut down costs, especially when projects are completed and new projects are still awaited.
5. Sometimes to keep the total manpower within limits to avoid PF/ESI, etc.
6. Sometimes swapping takes place for strategic reasons triggered by market compulsions, mergers, demergers, amalgamations, dissolutions/closures, etc.

Reasons from the Employee's Perspective

1. As others have said, to keep the CV intact, without any black mark.
2. It's easier to get relieved when another offer is on hand.
3. It is always better to part as friends; who knows, one may have to come back to the same employer if the situation warrants. Sometimes, it gives better bargaining power.
4. Will help in having business tie-ups, associations, and mutual benefits more easily.

When Termination is Better (Not for Negative Reasons)

In case of closure - A retrenched person will have exemptions/preferences for future career prospects, in mergers/amalgamations, tax savings, receiving full terminal benefits on a notional basis, etc.

The discussion can continue in this manner.

Regards,
Kumar S.

It is clear that if the employee agrees to give resignation, that's well and good. If he/she does not agree, then give him/her the notice period (as mentioned in the appointment letter) or pay in lieu of the notice period. However, it is conditional on him/her confirming. Otherwise, if he/she is on probation or training, management can relieve on the same day, and the full and final settlement should be clear within 24 hours.

Regards

If any employer terminates the services of their employees (e.g., in the workmen category under 2(S) of the ID Act), it attracts Sec. 25F of the ID Act. The employer has to pay the termination compensation. Without complying with Sec. 25F, if they terminate any employee, legal consequences are present. To avoid such legal complications, the Management prefers the employees to resign. For this, Management may offer some financial benefits to employees for resigning.

Termination in Supervisory/Managerial Category

In the case of the Supervisory/Managerial category, it all depends on the terms of the appointment letter. If the appointment order includes a clause on termination, and if it is mutually agreed upon by both parties, termination can be effected with a notice period or pay in lieu of a notice period.

Regards,
G.K. Manjunath, Sr. Manager HR

One of my friends worked in financial services. His boss forced him to resign from the post. What should he do now? He wants the job, and there is no strong reason for his resignation. He is a confirmed employee. Last month, he also received his salary from the company. Please guide him.

I don't think your friend has told you the entire truth. No boss will ask a team member to resign just for fun. There must be a strong reason, either related to performance, discipline, or insubordination. Check with him again.

Dear Shreya,

The damage is already done since he did not seek advice before tendering his resignation. If he had sought advice earlier, many things could have been done to prevent this situation. However, now the probabilities of rectifying the issue are very low. Please ask your friend what reason he provided for leaving the job in his resignation letter. Only then will I be able to provide you with some advice.

Please elaborate on the circumstances under which he was asked to resign. The situation has become more complicated, so it is essential to state the full story so that we can work towards finding a solution to the problem. If needed, feel free to call for further assistance.

Regards

Thanks, friends. Some more concerns left:

1. Employee Rejection of Resignation Advice

What happens in the case where an employee rejects the advice of the management for resignation and prefers to continue as there is a credible reason for terminating him? Can the organization still terminate his employment? How can he safeguard himself in this case?

2. Termination During Notice Period

In case he accepts the advice, puts in his papers, completes the handover process, and serves the notice period, is it possible to terminate the employee with a back date, i.e., before the date of his resignation during his notice period? How can an employee react to this condition?

3. Safeguarding Employment in Whistleblowing Cases

Is it possible for an employee to safeguard his employment in case of whistleblowing? In the case of corporate lobbying pressurizing his retrenchment, is there any legal immunity provided to the worker?

4. Legal Process and Judgment Timeline

How long does it take to reach a judgment if the employee decides to go legal, and what is the process?

5. Legal Action for Mental Trauma and Defamation

Is it possible for the employee to sue the company officials on the grounds of mental trauma and defamation if he is able to prove his innocence in court?

Thanks for the help.

You have been making some serious allegations against the company; therefore, it is appropriate for us to know the size of the company as well as the role and designation of your friend.

Overview

1) Yes, if the person refuses to accept the "suggestion" of the employer to resign, they can still be terminated. The reasons for termination can be any of the following: insubordination, indiscipline, working against the company, etc.

2) If the suggestion of the employer is listened to, then the last day at work is considered final. A letter issued by the company cannot be backdated.

Question numbers 3-5 can only be answered if I know the size of the company as well as the role and designation of your friend, and also if the company is listed or not.

Thank you very much, Sanjeev, for taking the time to reply to the post. These are all generic questions that I thought could be linked to this topic, and hence, I posted them as queries for the benefit of my friends. Would it be possible for you to kindly answer them for a small-sized, mid-sized, and large-sized company, both listed and not listed? This will benefit many people who read this post. Thank you for your guidance.

Regards.

I would like to understand if an employee is being asked to leave the company for reasons related to fulfilling someone's ego. How should one tackle this situation? Also, how can he address the concerns in an ethical manner (legally)? Should he issue a notice to the company or the concerned manager? Can he file a complaint against the concerned party at the police station? What should be the note of compensation requested?

Please suggest your opinion.

Regards,
Dipan

I led a reputed concern in TN as the state head since September '14. Based on my hard work and efficiency in project completion, I was recognized as the star performer in January '15. The previous leader who resigned and left the company is closely associated with my superior and is causing issues for me through a friend who is on my team. In March '15, my NHQ boss decided to promote me from state head to zonal head effective May '15. This decision was not well received by my superior, who had been handling this position in addition to his own responsibilities for the past six months. He teamed up with the former leader to make unsubstantiated allegations against me. However, he managed to convince my higher boss by manipulating him in his own way.

Suddenly, without any prior notice, HR asked me to submit my resignation immediately. When I inquired about the reason, they couldn't provide any valid explanation, stating it was a management decision. Initially, I resisted and escalated the issue to higher levels within the state, but they expressed their helplessness in dealing with internal politics and advised me to resign to secure a decent settlement.

I reached out to my boss and HR via email requesting a two-month extension. My boss agreed and communicated with HR to honor my request. However, post my resignation, HR informed me that no extension would be granted, and I would be relieved on the same day. I have accrued 120 days of privilege leave (which can be adjusted for the 90-day notice period), and my annual variable pay, expected this month, has been affected. The variable pay is calculated from April to March each year, but HR informed me that this amount would not be considered in the Full and Final settlement.

As of now, my colleagues at the company are aware that I resigned voluntarily and was not forced to do so. I am currently unemployed, and finding a job at my level is proving to be a challenging task. I seek valuable suggestions or advice on how to legally defend my rights and seek justice in this situation.

If an employee has been asked to leave because of some misconduct unknowingly, he received all the dues, relieving letter, and experience letter. Will his verification from another company be negative as it is involuntary?

Resignation is better than termination. You will receive all the benefits at the end of your separation as mentioned in the appointment letter. However, you couldn't receive or ask for anything from the employer if you are terminated.

Since you worked in TN, you are governed by the TN Shops and Establishment Act. Since you resigned by giving two months' notice, the employer could not have relieved you before the expiry of two months. Thus, your discharge is illegal. You are governed by Section 41 of the Act, whereby without reasonable cause and one month's notice, you could not have been dismissed. The discharge being illegal is null and void, and you are entitled to reinstatement. File a complaint before the inspector under the Act. If you do not want reinstatement, file a civil suit to claim damages from the employer.

Thanks,
Sushil