Facing Employee Termination in a Small Business: What Financial Implications Should We Expect?

My dad is running a small business with three permanent employees. We are registered under the Shops and Establishments office. It's a proprietorship. All three employees have been with the organization for over 20 years.

We are having issues with one of the employees as it is becoming increasingly difficult to get work done from him. Please advise on the financial implications we should foresee if we decide to sack him or ask him to leave, in terms of gratuity, retrenchment, etc. If they seek union assistance, what is the maximum amount we need to account for? The salaries of all three employees are between 9,000 and 9,500. We do not intend to shut down operations, but we are concerned that dealing with one employee might provoke the others to quit as well.

Regards

Retrenchment would be on a last-come, first-go basis, i.e., the person who was employed last has to go first. Retrenchment compensation would be 15 days' salary for every completed year of service. Gratuity is not payable since the total number of employees is below 10.

Section 66: Notice of Termination of Service

No employer shall dispense with the services of an employee who has been in continuous employment:

a) For not less than a year, without giving such person at least thirty days' notice in writing, or wages in lieu of such notice.

b) For less than a year but more than three months, without giving such person at least fourteen days' notice in writing, or wages in lieu of such notice.

c) Provided that such notice shall not be necessary where the services of such employees are dispensed with for misconduct.

Explanation

For the purposes of this section, "misconduct" shall include:

a) Absence from service without notice in writing or without sufficient reasons for seven days or more.

b) Going on or abetting a strike in contravention of any law for the time being in force.

c) Causing damage to the property of the employer.

Having employed them for 20 years, try to tactfully remove them and offer extra compensation to get rid of persons who are no longer amenable. Handle them with care and seek advice from a local lawyer who handles labor cases.

Understanding Employee Termination in Small Businesses

You have three permanent employees. But what is the total number of employees working in your organization? What type of business is it?

In general, a small business of the size you are operating does not need to worry about the legal impact of removing any person. You are not covered by the Industrial Disputes Act or by standing orders. You are, therefore, free to act in any manner so long as it is fair. Of course, the employee can always go to the labor commissioner or to the labor court. Many times they do so, even if you have followed all the rules.

Since the person has worked with you for a long time, you should try and see how much compensation or severance package you can give him. Depending on the factory or office, and the state you are in, you need to consider the notice period. In general, a 30-day notice period would be enough. You can terminate him on an immediate basis and give him 30 days' salary. Graduating is not Babel. You have to give him a full and final settlement for his salary, notice salary, and any bonus due to him.

If you are suspecting that he will go to the union, then you must be careful and understand the impact of union action. Will it result in the closure of your business? Does it affect the customers' access to your business? We do not know any of the underlying facts and therefore will not be able to give you any concrete action. It's better you take the help of a lawyer or labor consultant who can understand the matter in detail and guide you.

However, if you suspect others believe him, perhaps your problem is in management and handling of personnel more than any legal issue.

It is not correct to say that the Industrial Dispute Act is not applicable to small establishments. It is applicable even if there is only one workman.

You have to conduct an inquiry and terminate the employee if found guilty. Alternatively, you can persuade him to submit a resignation.

Sorry,

What I actually meant to say is that the restrictive clauses preventing employers from removing employees without the prior approval of the state government do not apply. Other parts regarding inquiry, natural justice, reasoned termination, etc., do apply.