Are Notice Period Clauses Fair or Misused? Let's Discuss Their Impact on Employees and Employers

Dear Members, On one of the WA groups of HR, the Administrator of the group has raised a topic for discussion. Today's topic is on "Positive and Negative Aspects of the Notice Period Clause in the Appointment Letter." He has asked the following questions:

Is the clause of the notice period in the appointment letter used arbitrarily or judiciously?

Is the clause of the notice period used as a weapon for holding relieving letters, experience letters, and F&F settlement, or is vendetta at play if the employee fails to serve the same partially or completely (except in abandoned cases) to the company?

Is it not the truth that the clause of the notice period is misused under the pretext of redundancy by the company for terminating the services of the employee with immediate effect by paying salary in lieu of the notice period?

Is the clause of the notice period used for the convenience of the company even if it is not required in some cases?

I have given the replies to the above questions, and these are below:

Dear Rajaram, Replies to your questions are as below:

Q. 1 Is the clause of the notice period in the appointment letter used arbitrarily or judiciously?

Reply: Judiciousness or arbitrariness is a matter of interpretation. To know whether the use is judicious or arbitrary, we need to know the terms mentioned in the appointment letter. Those who started their careers in the mid-nineties or earlier will remember that the concept of the notice period was reserved only for managers. Junior-level employees could quit the company with just a few days' notice. However, in the post-liberalization era, business started growing, creating a scarcity of talent. To tide over the talent shortage, companies started increasing the notice period. Earlier it was 30 days, then it was 60 days, and now in most companies, it is 90 days. This long notice period gives elbow room to the current employer not just to search for a better candidate but also to maneuver in order to retain an exiting employee. They may promise an increase in pay, promotion, or additional perks.

Q. 2 Is the clause of the notice period used as a weapon for holding relieving letters, experience letters, and F&F settlement, or is vendetta at play if the employee fails to serve the same partially or completely (except in abandoned cases) to the company?

Reply: The appointment letter is a contract between the employer and the employee. Both sides must abide by the terms mentioned in the appointment letter. Now, what if an employee abandons the duties at his/her will? It upsets the operations of the company. To tide over this capriciousness, companies hold the F&F. It need not be construed as vendetta, but it is an action to maintain a culture of discipline in the company. By withholding F&F, companies send a signal to other employees about the fate they can meet if they abandon their job whimsically. Yes, this is a weapon; nevertheless, it has to be used only against defaulters. Its misuse could boomerang on the company.

Q. 3 Is it not the truth that the clause of the notice period is misused under the pretext of redundancy by the company for terminating the services of the employee with immediate effect by paying salary in lieu of the notice period?

Reply: Modern businesses are different from the businesses of the 20th century. In many companies, the work is project-based. Now, what if the project is completed, and the employees who worked on the project could not be absorbed into some other job? What to do in this case? If they are allowed to continue their employment without significant work, then the company will turn from a business organization to a charity organization. To sustain competition, the company has to retain only the relevant and exact manpower. To get rid of the excess flab, companies use the clause of the notice period.

Q. 4 Is the clause of the notice period used for the convenience of the company even if it is not required in some cases?

Reply: There is a skill shortage at all levels. There is a shortage of the right talent at all levels. Against this backdrop, which are the designations that do not require a notice period? It is not easy to get even a quick replacement for an office boy! Therefore, there is no question of removing the clause of the notice period. The notice period is a fait accompli and is going to stay until a situation arises where innumerable candidates chase far fewer jobs!

Final Comments:

While designing the exit clauses, employers should note that these are equal for both sides. The contract should not be tilted towards them. Secondly, in many companies, there are long-serving employees. When they joined some 20-25 years ago, the notice period was just 15 days. Now the current trend demands a notice period of 90 days. Many companies have started extending the notice period. However, changing the conditions of employment somewhere in between is illegal. There is a ruling to this effect by the Delhi High Court.

Thanks,

Dinesh Divekar

Understanding the Notice Period Clause in Employment Contracts

In any contract governed by the Law of Contracts, the clause concerning the notice period in an employment contract is a restrictive provision that allows either party to terminate the contract as previously agreed. Therefore, the notice clause itself cannot be considered arbitrary. As Mr. Dinesh mentioned, its application could be seen as arbitrary depending on the interpretation within the given context.

An employer who acknowledges that employment is not a lifelong commitment and that the notice clause serves as a formal precursor to contract termination by the employee would not solely focus on the literal wording of the clause. Likewise, an employee who understands the ethical considerations behind the notice clause would take necessary steps to adhere to it completely.

Legal Repercussions of Misuse

In cases of employee absenteeism or the employer's misuse of the notice clause, there will be legal repercussions for the party in violation.

I would like to reply with my views, point-wise in the same order.

1. The spirit of such a clause is for mutual convenience. Wherever a healthy relationship has prevailed, there has been no problem.

2. If the notice period clause is used as a weapon, then it reflects poorly on the attitude of the management.

3. A salary paid in lieu of the notice period is welcome and, in most cases, it is part of the appointment order. Sending someone out unceremoniously without any monetary compensation is harsh and unethical. This aspect is a two-way process. Sometimes the management accepts money in lieu of the serving period either in full or part. This is also a part of the appointment order, a prevalent practice.

4. Within the permissible conditions of employment, management can take its time to relieve.

Regards, V. Raghunathan
Chennai

Notice Period: Understanding the Practical Issues

Notice Period per se is a recognized term of employment. No one questions it. However, there are some practical issues that are unclear and need clarification.

Meaning of 30, 60, or 90 Days

1. What is the meaning of 30 days, 60 days, or 90 days? Does it mean working days or actual days? In my view, it implies actual days and does not mean only working days. Many queries keep coming on this issue. In earlier days, we used to mention one month, two months, or three months, and for calculation, we included all Sundays and holidays falling in between.

Leave During the Notice Period

2. Can an employee avail leave during the Notice Period? Many small organizations refuse leave during the Notice Period. An employee continues to be an employee during the Notice Period, and if they have leave, they have the right to avail it. Rejecting leave based on the context that they are in the Notice Period is not correct.

Pay in Lieu of Notice Period

3. What is the meaning of pay in lieu of the Notice Period? Does it include only Basic plus DA or all allowances? This is a point to be debated. However, I am of the view that only Basic plus DA should be considered. I advise my clients to specify this in the appointment letter itself to avoid ambiguity.

Immediate Resignation

4. What do we do if we ask an employee to quit immediately? In my opinion, and as I have practiced, the employee should be given pay in lieu of the Notice Period, even though on paper it will appear as resignation and not termination.

Early Relieving During Notice Period

5. Can the management relieve an employee even before they complete the Notice Period? Many employees call me and ask this doubt. The Notice Period is designed to give notice to make alternative arrangements. In my view, they can be relieved, and there is no need to pay for the balance of the notice period.

Thanks,
T Sivasankaran