Facing Legal Risks? Navigating Employee Termination Without Notice in Delhi

Hi, I am from a large proprietary company in Delhi. Recently, some employees have been hired in our company across various functions.

Company Policy on Offer Letters

As per company policy, the offer letter is given only after joining. The offer letter carries standard terms of termination for all levels/functions. It states that the company can terminate any employee at any time without assigning any reason with one month's salary/notice. On the other hand, if the employee wants to leave, he/she will have to pay the last 5 months' salary.

Termination of Underperforming Employees

We want to terminate the contracts of a couple of employees (middle-senior management) as they are not performing well and are struggling to adjust culturally. These employees are nearly 3 months old, and despite some reminders, they have not shown improvement. We aim to terminate the contracts without paying one month's notice salary as we have indirectly indicated to them on a few occasions.

Legal Concerns and Consequences

If we terminate the contracts of these employees without notice, can they go to the labor court and challenge the termination? What consequences will our company face? Please advise on how we should handle the situation. We need to act fast, so I would really appreciate your quick response.

Thanks,

Chetan

Whatever agreement the Company has signed with employees and employees have agreed to the terms framed by the Company will be valid between both parties (Employee & Employer). As per the Agreement, the Company can terminate employees by giving them a letter in writing in advance (appropriate notice should be given or notice pay). You have a valid reason to terminate them on the grounds of performance. Instead of terminating, ask them to resign and settle their dues. If you terminate the contracts of these employees without notice or notice pay, they can sue the company in a labor/civil court and challenge the termination. In that case, the company will either have to re-employ them or pay the compensation decided by the court.

Regards

Since the employees seem to be in the middle and senior managerial cadre, they do not fall within the purview of the Industrial Disputes Act, and thus they cannot raise any dispute in labor forums. The other option left to them is the civil court, which I am afraid they may not pursue as litigation consumes a lot of time. It is also not desirable from the management point of view since they need to defend their case by engaging a lawyer, which also costs them. It is advisable to try for a win-win situation by persuading them to resign with one month's notice. This way, they too do not carry any stigma, and they will have sufficient time to find alternate employment.

Considerations for Termination on Grounds of Non-Performance

However, if the management wants to terminate their employment on grounds of non-performance, it is better to examine certain issues before making a decision, namely:

1. Whether the employees in question have been provided feedback about the areas in which they are weak.
2. Whether the management has ascertained the reasons for their non-performance, such as a bad and uncooperative boss, lack of training, guidance, or coaching, etc.
3. If so, whether the management has offered to provide such support. You have stated that you have merely given them reminders to improve.
4. Were the employees given enough time to improve?

While it is true that no employer is expected to retain an inefficient employee and pay for their inefficiency, prudent management and HR should address these issues before deciding on termination, as it also involves the livelihood of the employee. If it decides to terminate their services, then it is desirable to try for a win-win situation as it does not hurt any of the parties.

Regards,
B. Saikumar

HR & Labour Law Advisor

Thank you very much for the clarity. Actually, employees are neither given any warning in writing nor any chance to improve. It's been just 2.5 months.

Case of Wrong Hiring

Actually, it is a case of wrong hiring. These were new positions in the company, and in a hurry, management made mistakes in hiring people as well as explaining their expectations to the employees clearly. That's why both parties are dissatisfied (but management thinks more than the wrong fitment, it is an issue of capability). To be fair with employees, within 2 months fulfilling expectations is not justified, knowing that they come from different backgrounds.

Now I have been given this task, and we have to get the position vacated asap as the company cannot continue to pay salaries.

You mentioned this can be challenged only in civil court. If you could give me an idea of how much time/money (on average) it takes to challenge, it will help me resolve peacefully the matter between employees & the management.

Thanks again for your great help.

Addressing Misfit Employees in the Workplace

If management or HR hires misfits, then it is the management or HR that has to blame itself and should not penalize the employees for their actions. It will also be difficult to retain a misfit. This situation demands a win-win solution. You can explore the possibilities of placing them in roles where they can fit after discussing with them or seek their resignations by convincing them that it is the fairest option for both parties.

Regards,
B. Saikumar

I second Saikumar. It is always good if a proper evaluation is taken before you make a final decision to terminate the services. When you admit that it is a case of wrong recruitment and wrong induction, you can always compromise to find an alternative position for the employee. Moreover, it has only been 3 months since he joined, and 3 months is very little time for an employee to demonstrate his performance. I feel if you clearly describe his duties and tell him what is expected from him, you will gain a valuable resource.

Termination Clauses

Now, coming to the termination clauses, I have an opinion that your contract is one-sided, and a one-sided contract may not hold good. For example, there is a provision that the employer can terminate an employee without any reason by giving the employee one month's notice, whereas the employee who has been working for the employer should pay five months' salary. It is clear that those who leave will be leaving for better opportunities and career prospects, and only good performers will be able to get a chance to move. That means only performing employees move out. Had he been a bad performer, you should have sent him out much earlier by paying one month's salary/notice. This good performer would have contributed significantly towards the revenue of the company. In this scenario, is it right to ask him to pay five months' salary if he wants to go? No, I don't believe so.

Being an employee in a managerial capacity, he may not be able to fight against the order of the employer in the Labour Court or other dispute redressal machinery, but there is something more than this when you think about termination, and that is professional ethics. When you find that he is a misfit and there is an error in recruitment, the employee can also say that it is an error in his decision-making, and he has made a wrong decision by leaving the previous organization and joining you, accepting the promises and offers given by you. Certainly, no decision is free from risk.

Designation and Grade Considerations

One more thing to add is that the designation and grade of an employee as Manager/Middle Management Cadre alone cannot decide whether this person is a worker or not. If he was not given any functional responsibilities and authorities of a manager, he will also end up in the same definition of a workman.

Regards,

Madhu.T.K

1. How can you assess a person within 3 months? Did you mention this clause in the appointment letter that "your performance will be assessed every 3 months, and based on that assessment, the company will have the right to terminate your service"?

2. A written warning to improve performance is necessary to justify terminating services.

3. Have you set goals (KRA & KPA) for the employees and informed them in writing?

4. Do you have the acceptance copy of employees' appointment letters?

5. Performance assessment sheets should be available.

6. I believe that providing a notice period and ensuring it is paid to the employees is the right step.

Regards,
Brij N Sharma
HR

Thank you for your comments. We don't have all such things in writing like KRA/KPA/Assessment, etc. Assessment is done purely on the basis of business generated. We believe that at the end of the day, one must earn his/her salary by getting business or meeting management expectations.

We mention in our offer letter that in case of termination, no reason shall be assigned, and we have a copy of acceptance. So, I think we can safely terminate without notice (as verbal warnings are already issued), and employees would be smart enough to gauge the danger.

Since it's a case of middle-senior management, the labor court option is also not available to the employees. So, they will have to accept what management decides. Please share if you have alternate views on various options available to employees in this case.

Dear classiccopperian,

Your query is from a legal point of view, and you have received very good replies from experts in this field. However, I would like you to think from the organization's culture point of view. My points are as below:

a) This is a case of poor recruitment. Termination or resignation after 3 months - what would be the cost of poor recruitment? On what parameters would you like to measure? Who has been made accountable for this loss?

b) Terminations of this kind - will they create fear among other employees? Will it not degrade the morale of existing employees? Have you calculated the cost of low morale, and if yes, then on what parameters? Who is accountable for this cost?

c) Because of their termination, will a positive or negative message be sent in the job market? Will you be able to attract the right talent because of the whims and fancies of the management? Will existing employees refer their friends or ex-colleagues to join your company? If not, then what is the cost of lost opportunities? Who is accountable for this loss?

Termination of employees may give solace to you or your management, but it is nothing but hiding someone's inefficiency. From your last post, I find that you are deriving your strength from the tardy litigation process and not from the implementation of management principles. How long will this continue? The sentence in the first paragraph of your last post says, "we don't have all such things in writing like KRA/KPA/Assessment etc." This sentence speaks volumes. Why was the recruitment not based on the KRAs? Whose failure is this, and what punishment has been given to this person?

While selecting job candidates, we always place a premium on selecting "experienced" candidates. By selecting the wrong candidates, where was your or your management's experience? Leadership does not just lie in placing the blame at someone's doorstep but in doing introspection on why this case happened at all.

I have put forth my comments to shed light on the other side as well. Nothing personal as such against you.

Thanks,

Dinesh V Divekar

Introspection on Mishiring and Management Responsibility

I hope you have already received the reply you were seeking from a legal standpoint. I would like you to introspect and find answers to the following questions:

1. When the issue of mishiring is well known to the management, why is it not taking responsibility and adhering to the rules and regulations set by themselves? Secondly, what actions does the management propose against the person(s) responsible for the mishiring?

2. Does the management intend to convey a message within the organization that even if it is a management mistake, the employees are the ones who will bear the responsibility and consequences?

3. What if a group of performers decides to leave the organization without notice after realizing that the contract between the management and employee holds no value for the management itself?

As a professional, it is important to bring such concerns to the attention of the management, as any haste in handling these matters could damage the organization's reputation in the long run, and mishiring could lead to misfiring as well.

Regards,
Preetam Deshpande

Thank you for your valuable comments. I completely agree with your opinion. Since it's a case of hiring for new positions, the management did not have clear guidelines or expectations for this job. It is unfortunate for both the employee and the management.

Legal Course of Action

The management wants to quickly resolve this issue, so the current concern is only focused on the legal course of action available to the employees. It appears that there are hardly any legal options available to the employees, allowing the management to strongly advocate for immediate termination.

Of course, the lessons learned from this situation will be beneficial for both parties.
Regards

It is good that you are willing to make amends to your recruitment process. At least now, initiate a process to clearly define the roles and responsibilities of each role, competencies required for each role in terms of both qualifications, experience, and specific skills, and inter-relationships among different roles. Formulate realistic and specific standards of evaluation of performance instead of measuring performance by some general standard like the quantum of business generated.

For example, you cannot compare the performance of a salesman who is asked to sell a refrigerator to an Eskimo to that of one who is asked to sell them to the people living in a desert under the scorching sun, so that the mistakes do not recur, and the employees are spared the pain of separation.

Regards, B. Saikumar HR & Labour Law Advisor

The issue has been examined with care, and appropriate suggestions and comments have been given by members. As an HR professional of a proprietorship concern, one can understand your predicament. Your understanding of the situation and fair and balanced attitude towards both the employees and employer are praiseworthy.

While dealing with the issue in the manner suggested by seniors, do ensure that the repugnant and one-sided clause of termination and resignation involving the NOTICE PERIOD is removed from your Offer and Appointment letter. It gives a very bad impression about the company and its culture, and is viewed unfavorably in the eyes of the law. In fact, in the future, you might lose a few cases in court due to such biased and exploitative agreements where an employee is asked to return 5 months' salary if they wish to resign!

Imagine, tomorrow if you receive a better offer, how will you handle it? Would you be willing to part with 5 months of your hard-earned salary, or wait for 5 months, by which time the other company may have rescinded their offer.

Warm regards.

I have read your concern with the contents well noted. I must, however, warn you to try as much as possible to be consistent with your reasons for showing your staff the exit. You initially stated that there is a clause in your offer letter regarding termination. Such a clause applies when an employee commits no offense. In your case, you are touching on a performance issue. To talk about it, you must have enough evidence to buttress your point to avoid future battles.

Regards,
Eric Kwadwo Yeboah
HR - Ghana

Thank you for your valuable comments. Your feedback will help me propose to the management a few changes required in the HR process. In the meantime, I have been asked to assess and evaluate the legal implications in case an employee approaches civil court. Management states that it requires time and money, so employees will likely not opt for this. Also, as per the offer letter, the company stands on a safer side.

I have tried to present the other side of it; that such exploitative conditions like no warning, no evaluation, and not mentioning the reason for termination, etc., may be challenged. I would appreciate it if you could share your views. Is it indeed a time-consuming and costly affair that employees of middle-senior management cannot seek the services of an advocate?

Thanks again.

Probation Period and Non-Performance Consequences

There would usually be a provision in the offer letter that talks about the probation period and the consequences of non-performance during the probation period. You can address it accordingly.

Thank you for your valuable comments. I would like to inquire whether, during a probation period of less than 3 months, the company can legally terminate an employee without paying one month's notice or salary.

Contractual Terms During Probation

The contract states that at any time, including the probation period, and without assigning any reason, the company can terminate with one month's salary or notice. In this scenario, is it legally binding to pay one month's salary or notice to these middle-senior managers upon termination?

Settlement of Outstanding Dues

Furthermore, in the event of termination, what is the maximum time period allowed by law to settle any outstanding dues?

Thank you so much for your time and valuable comments.

Thank you for your comments. I understand that services can be terminated during probation without notice. What about the clause mentioned in the contract which states that termination at any time will require one month's notice or salary?

Legal Validity of Termination Clauses

Which rule will hold legally valid - the provision allowing termination in probation without notice or the contract specifying a one-month notice period or salary for termination? I would appreciate it if you could kindly provide clarification from a legal perspective.

Thank you.

Notice Pay During Probation

If the letter has been worded with notice pay during the probation period, you should give notice pay. Anyway, if you have decided to fire the person, then why should you think of saving one month's salary? Just pay and send him out and close the chapter.

Regards,
Madhu.T.K

Exactly my concern too! There is a big difference between Human Resource management and other management disciplines such as Materials, Supply Chain, Production, Finance, etc. In the latter cases, the resources can be discarded or scrapped based totally on their utility and cost-benefit ratio. Managing humans is an entirely different ball game, apart from ethical, legal, humane, reputation/brand image, and several other issues involved.

I totally agree and would like to quote this reply again for its brevity and giving the correct direction:

Warm regards.

Your overall wording seems to suggest that there is a great emphasis on avoiding legal ramifications at all costs. However, the advice received and the questions posed by seniors do not appear to be given much importance. Additionally, your last post also hints at a possible intention of not paying the notice period to the employees who are unfortunately not at fault.

In the latter part of your posts, you appear to distance yourself from your management's actions, claiming to promote a WIN-WIN situation, etc. As rightly pointed out by Mr. Arvind Singh, there is significant room for improvement in the HR department's functioning, assuming you are indeed the HR personnel and not the proprietor himself.

I appreciate your comments. Unfortunately, being in a proprietorship firm, I am bound to follow the instructions of the management or the proprietors. The HR ground or humanitarian ground may not prove to be useful to tackle the present situation, as it is not as professional as it should have been. I hope you understand the situation. Since I was responsible for hiring, I feel a little guilty and sorry for the employees.

Seeking Legal Information for Employee Dues

The intention is to collect detailed legal information so that I can present a solid case before the management, making them realize the legal consequences. This might prompt them to settle all the dues of employees peacefully and respectfully. I think this way I shall be able to help the employees.

So that's why I solicit information on legal options available to the employees.

Regards