Hi Chawla.Kirti,
The query is missing some details.. Is he a contracted employee (does he have any contract of employment)? Is he in probationary status --meaning not a permanent employee yet? What is written in his/her appointment letter?
In your query, I can see that this type of separation is called retrenchment:
Retrenchment –permanent termination of an employee’s services for economic reasons. This occurs on account of surplus staff, poor demand for products, general economic slowdown, etc. Retrenchment is mainly seen in plantations, agricultural services, forestry and logging, food products, manufacture of machinery and cotton textile. The reasons pointed out behind retrenchment were mainly financial stringency and lack of demand for their products.
Other types of separation -resignation, termination of contract, dismissal (2 things: fired due to non-performance or dismissed do to misconduct), job abandonment (or AWOL) and layoff.
If he/she is contracted employee, what is written in his/her contract? How many days notice of compensation? If probationary, the company has the authority to terminate an employee based on non-performance or any other reasons. If he/she is a permanent one, there should be policy of notice of termination. Will he/she be the only one to be terminated or with the other team members as well? If he/she is performing good, I can suggest that HR may rethink to maximize his/her talents in somewhere else. It's not easy to lose a good performing employee. If HR can save him/her the better for the company. HR must be strong --HR acts as a shield between employer-employee relationship. Losing a good employee has a disadvantage --lost of time and money. Probably HR can transfer him/her to another project or department.