How Does COVID-19 Lockdown Affect Contract Termination for Retired Officials?

Engagement of Retired Officials on Contract Basis

We are engaging retired officials on a contract basis, and the office order issued to them includes a clause for cessation of service by giving 3 months' notice or, in lieu, payment of 3 months' salary to the other party by either side. The contract period is fixed for one year, from April to March. In normal circumstances, the closure of the contract for any such employee shall be informed in writing or verbally communicated to them if no extension is considered.

Impact of Lockdown on Contract Termination

However, due to the lockdown caused by this situation, the management has decided to terminate the services of such officials by the end of March 2020. Consequently, no salary credit has been given for April 2020. The query is whether the management's action to close the contract period without complying with the notice period stands, based on the understanding that the contract has come to a close on 31st March, in line with the order of the contract issued to such officials.

No official will be hurt by this action of the management, and this post is only to inquire about the legal position regarding the cessation clause.

Your company management should have considered the terms of the contract of employment - "by giving 3 months' notice or 3 months' salary in lieu of the notice period".

When a contract is arrived at for any services to be rendered, both parties are expected to honor the terms of the contract in letter and spirit.

Dear Sridhar, I prefer to have a different perception because the tenure of the initial fixed-term employment contract is only one year, notwithstanding its extension in the past or in the future, which is nothing but a matter subject to every fresh offer and acceptance of the parties concerned. Even if extended mutually, the tenure remains to be one more year only. Therefore, the question of notice arises only in the case of foreclosure of the contract within the extended period. With the ending of March 2020, automatically the contract comes to an end with the absence of further extension by the employer.

But your post brings in the fact of non-credit of salaries for April 2020. You have to clarify whether those FTC employees were permitted to work as usual under the premise of deemed extension.

Had they been permitted to work for the organization even for a single day in April 2020, with or without the knowledge of the management, the presumption of the extension of the existing contract for another year cannot be found faulted with, and as such, the compliance with the notice clause is mandatory now as opined by the learned members above.

Otherwise, you can simply settle their proportionate terminal benefits.

When the term of the contract is fixed for one year, starting from April 1st and ending on March 31st, no formal communication to terminate the contract is required. It is true that in order to renew the contract, a fresh contract or an office order stating that the contract has been renewed for a further 12-month period is necessary. However, to terminate the contract, no office order is required as the contract automatically comes to an end.

The notice period mentioned in the contract applies only to premature termination, i.e., terminating the contract before the end of March.