Can a Business Loss Justify Termination? Seeking Advice on Grounds and Letter Prep

Termination Grounds and Preparation

Kindly clarify on what grounds a termination can be done. Can it be done if there is any loss in business? How should a termination letter be prepared?

Regards,
Usha

There is a whole raft of reasons to consider when contemplating the termination of someone's employment. However, your question specifically pertains to grounds of loss in business.

In this case, I suggest that you have a meeting with the individual(s) and explain to them that there has been a loss in business and that it is no longer viable for the company to continue their employment. Losing one's employment is very painful and stressful; therefore, you must ease that pain and stress.

During this meeting, you should emphasize that the termination is NOT due to their performance and that if market conditions change, you would be happy to hire them again. You should also discuss that by terminating their employment, any future employer may regard it with some element of suspicion. Instead, suggest to them that resigning would better suit their future employment prospects.

I assume there will be a notice period. In that case, you should allow them to seek and attend interviews. This is a minimal cost to the company but will portray you as a caring employer to those who are still with you.

I hope the above suggestions help.

Regards,
Harsh

P.S. Please share with the community how you eventually handled this situation.

Termination Grounds and Preparation

Fair and consistent procedure governs the termination of an employee in the event of business loss caused solely by them. It is imperative that Human Resources follow the necessary procedures to facilitate a smoother process.

Terminations resulting from misrepresentation occur when an employer uncovers fraudulent statements or deceitful contentions made by the employee regarding the company they represent (clients/customers) or their qualifications for a job. Misrepresentations primarily involve falsifying employment history or qualifications when applying for a job.

In many job applications, employers request candidates to sign a statement affirming that all provided information is true to the best of their knowledge. Some companies, particularly in BPOs and MNCs, provide formal applications that require the employee's signature, indicating that the information provided is true and can be verified at any time.

Therefore, it is crucial to establish that an employee's negligent behavior led to the employer's business loss with evidence to support the decision to terminate. Prior to terminating an employee, a thorough investigation of the situation is necessary, guided by a comprehensive understanding of management practices, and HR must oversee the termination process.

Note: Remember, counseling is mandatory for an employee before termination unless they are proven to be inexcusable.

Regards

Termination and Legal Compliance

Termination can take place for a variety of reasons, including loss of business because you may need to downsize to make the unit viable or close one section of the unit, etc. However, all such terminations may attract the provisions of retrenchment under Sec. 2(oo) or closure under Section 25(FFF) of the Industrial Disputes Act 1947. You need to comply with the procedure laid down under the provisions of Sec. 25-F or Sec. 25FFF of the said Act by paying retrenchment compensation or closure compensation.

Regards,
B. Saikumar
Mumbai

Your request for clarification from the members is not clear. Even though, the following may be of help to you.

Reasons for Termination

Termination is implemented for the following reasons:

- Continuous insubordination
- Continuous malpractice
- Sabotage
- Strained interpersonal relations
- Attitude problems
- Misappropriation of the company's funds
- Using unparliamentary words
- Fraudulent behavior
- Continuous unauthorized absence
- Submitting forged bills for reimbursement
- Continuous personal usage of the company's property/equipment for personal use, unauthorizedly
- Sexual offenses
- Stealing/pilferage in the company's premises

However, terminating an employee for business loss should never result in termination. If proven through performance analysis on a continuous evaluation, he/she could be transferred to any other departments/functions, with the consent of the concerned employee. At the first instance, if termination for business loss leads to unfair trade/business practice, it should be noted that one person cannot be solely responsible for business loss in an organization. Prudent actions need to be initiated to avoid hardship in the company.

Best wishes,

Dr. V. Sundaresan

You make an interesting observation. However, are you saying that termination of employment on grounds of loss in business "CANNOT" or "SHOULD" not occur? I agree that whilst such a loss cannot be the responsibility of just one individual, the fact remains that a loss has occurred. Surely, if a business in difficulty is to survive, and the company trims its highest cost, i.e., the wages bill, it stands a chance of continuing to trade until market conditions improve. (Of course, I accept that there may be other costs the company is able to trim, but that is not the issue raised). Simply moving the personnel to a different department does not help. Would this not create further hardship for the business, perhaps leading to its closure?

I look forward to your thoughts.

Regards,
Harsh

Termination of Employee Services

Termination of services of an employee is governed by the terms and conditions of the appointment order. However, in the private sector, the employee concerned is often orally informed to quit the job within a reasonable time, typically 1 to 3 months. If the employee does not resign, a prescribed procedure must be followed to avoid the possibility of litigation.

Procedure for Termination

This procedure involves framing a distinct charge sheet and serving it to the employee, allowing a 15-day period for the submission of a written statement of defense. If the employer is not satisfied, an inquiry officer is appointed to investigate the facts, and a presenting officer is designated to present evidence and witnesses. Following the completion of the inquiry, the inquiry officer submits their findings to the employer for a decision on whether to terminate or retain the concerned employee.

Broadly speaking, termination of the services of an employee can be resorted to by any one of the following three kinds, namely, (1) Discharge, (2) Dismissal, and (3) Retrenchment.

Discharge

This can be further classified as (a) Discharge Simpliciter and (b) Discharge on the ground of continued ill health. Discharge simpliciter is commonly known as the termination of the services of an employee by the employer by giving notice or paying wages in lieu thereof as required under the contract of employment. Since it is not punitive in character and no stigma is attached to it, the discharged employee is entitled to all service benefits. However, it is not an absolute right enjoined upon an employer by the contract of employment, and the court can set aside the order of discharge simpliciter if found to be mala fide. Therefore, the exercise of this power should be just, fair, and reasonable and should not be arbitrary. For example, the services of a probationer can be terminated on the grounds of unsatisfactory performance within the probation period if so mentioned in the contract of employment or in the Standing Orders. In any other case, it has been held ultra vires of the constitution by various courts. Discharge on the grounds of continued ill health is purely on medical grounds, and the so-discharged employee is entitled to all service benefits.

Dismissal

Dismissal normally takes place on disciplinary grounds based on the omissions or commissions enumerated in the standing orders as misconduct. All the terminal benefits, including gratuity at times, stand forfeited depending upon the gravity of charges leveled and proved.

Retrenchment

Retrenchment has been defined under Section 2(OO) of the I.D. Act, 1947, as the termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action, except voluntary retirement, retirement on reaching the age of superannuation, termination on account of non-renewal of the contract of employment on its expiry, and termination on the grounds of continued ill health. In the case of retrenchment, the employee is entitled to retrenchment compensation as detailed by Mr. Saikumar, in addition to all other terminal benefits.

Regarding the second part of your question, the answer is no. Depending upon the average number of workmen you employed in the preceding 12 months, you have to obtain prior permission from the appropriate Government before resorting to retrenchment; if the number of workmen is 100 or above, prior permission is mandatory. However, all the retrenched workmen are entitled to retrenchment compensation at 15 days last-drawn wages for every completed year of service. The process of retrenchment has to be according to seniority only, and the retrenched employees have preference over re-employment if they so desire.

Regards.

Dear Usha,
Your question about termination has a negative connotation. Ups and downs are a part of business, and HR professionals must exhibit humane qualities by nature. Termination cannot be carried out on flimsy grounds. An employee can be terminated for disobedience, gross negligence, gross misconduct, financial irregularities, market manipulation, or actions harming the company's interests through unauthorized acts or omissions. However, it's important to note that terminating an employee solely due to declining company sales caused by external factors is not permissible.

Please understand that the Hire & Fire practices are not permitted under Indian Labor or workmen acts, and the related bill is still pending in parliament. Therefore, if a company aims to be fair and honest, it should adhere to standing orders, terms of appointment, and ensure that employees are terminated with proper reasons and entitlements as outlined in their Appointment Letter. If the company faces difficulties in meeting salary obligations, negotiations with employees for a settlement involving notice period salary, appreciation/experience letters, or resignation letters based on mutually agreed terms should be considered.

No company or HR head is above the law and justice. Their actions can be subject to scrutiny and challenge in courts, and there is a possibility of filing a class action against the company. HR experts are expected to offer appropriate guidance and information to management.

Therefore, before making any termination decisions, it is crucial to reconsider and reflect on the impact on the individual being terminated.

I hope you will consider my advice.
Regards