Navigating Employee Termination Without a Contract: Legal Risks and Considerations?

Hello all, I work in a manufacturing firm with about 100 permanent employees who have been with the company for 5-30 years. Currently, relations between management and employees are cordial, and there is no labor union or written contract in place.

There is a situation involving a non-performing employee who has not shown improvement despite multiple verbal warnings. Is it possible to terminate him without providing written notice? Could he potentially challenge this decision in a labor court? Additionally, do the same labor laws apply to workmen, supervisors, engineers, and managers in this scenario?

I would greatly appreciate it if you could share your opinions on the above matters.

Thanks in advance.

Addressing Non-Performance and Labor Law Applicability

Your question has two parts: the first part is about how to dispense with the services of a non-performing employee, and the second part is about the applicability of labor laws to all categories of employees. From your post, it is discernible that your management and labor have a long and cordial relationship even in the absence of a trade union, which is very nice. I may not be wrong if I presume that despite the best efforts you have taken to correct, the particular employee is not responding to the correction course and has eventually become deadwood.

Analyzing Non-Performance

As a people-centered manager, have you analyzed the reasons behind his non-performance? What is his past history? How old is he now? Does his lack of performance relate to his psyche or his personal habits? Do you believe he should be shown the exit door? Do you have certified Standing Orders? Regardless of whether the individual is classified as a workman or not, you must follow the Principles of Natural Justice before letting him go. Labor laws are applicable only in the case of workmen as defined in the relevant statute.

Regards

Thanks to both of you for your replies. It is good to see that someone is taking personal time to solve other people's queries.

The employee in question is not a workman but a supervisor with more than 8 years of experience. The problem is his work negligence, and this is affecting the whole department. So, that's why I asked whether the same laws are applicable to supervisors too. We are trying our best to improve the employee's performance and motivate him to do better. Terminating him would be the last resort. I just wanted to confirm the legal procedure for termination because it is a lengthy process, and the work atmosphere can turn hostile when you issue several notices against an employee and fire him.

To avoid such problems in the future, we have decided to have a written agreement with all our employees, mentioning the exit clause clearly to make them aware of the consequences of non-performance. Would a written contract supersede the labor law regarding termination? I have seen many appointment letters mentioning that they can relieve the employee immediately without notice by paying 1 or 2 months' salary. Is it legal to do so?

You just cannot terminate the employee. You have to build a case. Under the Industrial Disputes Act and Indian Constitution Article 311, the termination process has been spelled out.

Regards,
Prabhudesai Satish
Consultant & Legal Head

Contract Compliance and Employee Misconduct

Any contract inconsistent with the provisions of the applicable law is void ab initio and will be considered repeated and willful non-performance, which is certainly misconduct on the part of the employee. In the chain of performance, everyone in the team is an important link. Of course, to err is human and to forgive is divine, but persisting is unwise. There are times when a manager must act firmly, and any slackness in this regard would be disastrous.

It is better to document things to initiate a proper disciplinary proceeding against an erring employee within a specified timeframe. Trying to circumvent based on imaginary reasons by entering into a contract inconsistent with the established legal procedure will ultimately lead to trouble.

Clarification on Employment Termination and Legal Framework

The Constitution of India does not directly address employment or the termination of employees in organizations. It is essential to adhere to the specific rules and regulations laid out for employment matters; otherwise, there is a risk of causing confusion.

Considerations for Termination in Different Employment Contexts

The answer to the questions is dependent on the circumstances of the case:

1. Is this a factory, or does it come under the Shop & Establishment Act?

2. Does this come under the Industrial Employment Standing Orders Act? If so, do you have your certified standing orders, or will model standing orders apply? What are the provisions for termination under that?

3. Does he come under the definition of exempt employees?

In any case, it is important to give a notice (show cause notice? Senior members, please clarify) warning him of termination if he does not improve. Furthermore, it is better that you provide measurable performance indicators that you want him to achieve in, say, 2 months. Also, provide a list of cases where he has been careless and the effect it has had on his team and the company.

If necessary, give another notice after a month if there has been no improvement. Finally, after 3 months, you can issue a termination notice.

It is important that the employee must be given a chance to present his side of the story, in writing or orally. His contention/submission must be considered seriously by the management, and a further reply/information must be given to him. In case he is giving an oral reply, have it written down, signed by senior managers & HR, and the employee to record what he has said (principles of natural justice are important).

Once a termination order is given, you can provide him with his notice pay and ask him not to attend the office from the next day. That is allowed. Alternatively, you can also ask him not to attend the office but remain on call to report if required and pay him his notice pay on the due dates (along with the salary of others) or within 2 days of the end of the notice pay.

As Mr. Umakanthan rightly said, the status of the employee as 'workman' will determine the applicability of the labor laws to him. I would like to add that the mere designation as 'supervisor' does not take him out of the purview of 'workman' under Sec. 2(s) of the Industrial Disputes Act. You need to consider the wage criterion as well because not all supervisors are excluded from the definition of workman.

From your statement about wanting to incorporate an exit clause in future contracts, specifying the circumstances that may necessitate an employee's exit, it is evident that there is no such clause in the current contract to refer to. Moreover, the employee in question has been working for 8 years. All these factors could complicate the process of summarily terminating the employee, even if they are not classified as a workman. It is important to document the grounds for termination in a way that would hold up in court. Even non-workmen have civil remedies for damages, and the employee could succeed in a legal challenge if the defense is based on conjecture rather than evidence.

However, this does not imply that an employer must tolerate deliberate negligence, which can set a negative precedent. It is crucial to establish a substantial body of evidence to demonstrate non-performance, considering the potential risk of litigation down the line.

Regards,
B. Saikumar

Steps for Addressing Non-Performance in Workmen

If the non-performing employee is a workman, then:

1. Display a general notice to all, mentioning that everyone has to contribute to production and improve productivity.
2. Advise the non-performing employee through the supervisor for 3 to 4 days.
3. Subsequently, advise the employee through the Production Manager.
4. If there is no improvement, then start issuing a show cause notice. Also, please check whether you have any workload settlement or job card to prove the production.

Thanks and regards,
C Manimaran

The best way in such a case is to ask him to resign, or else he will face termination as per rules.

Addressing Non-Performance in the Workplace

Non-performance can be highlighted in the warning letter, advisory letter, and annual confidential report to help reform the employee. Ultimately, the lowest level of punishment is removal from service.

Thank you.