Are One-Sided Notice Periods in Employment Contracts Legal and Fair? Let's Discuss

Hi Friends, Nowadays, many companies adopt one-sided separation clauses such as resignation, termination, retrenchment, etc., that look archaic and draconian. The clause states that if the company wishes to terminate or discontinue the service of an employee, it can do so by giving a short notice of 15 days for any reason. On the other hand, when an employee desires to leave the company, they must serve a 3-month notice period; otherwise, FNF dues and the relieving letter will not be cleared.

Is this clause valid and lawful in the employment contract conditions? Can it withstand legal scrutiny?

The employment is a contract, and therefore, the agreement between the two parties can be anything they both mutually agree on. The restriction in specific acts (e.g., Labour Laws, Standing Order) then overrides the contract law.

The only other thing is the contract act has a doctrine of discarding an agreement for undue influence or coercion. There is no real provision for someone agreeing to a disadvantageous term in a contract. Therefore, it is unlikely that the courts will stand up and stop the process. Enforceability is another thing as the entire process is highly time-consuming and expensive, so most companies will not go to court. However, they are free to put a negative BVG.

Thank you, Mr. Saswat, for your insights shared. However, isn't this an undue and disadvantageous agreement condition when organizations play double standards as per their interest and convenience in regard to your view, "The only other thing is the contract act has a doctrine of discarding an agreement for undue influence or coercion. There is no real provision for someone agreeing to a disadvantageous term in a contract"?

Let me add one more clause to my first query. Companies also shrewdly put a clause that during the serving phase of the 3-month notice period, if the company relieves the resigned employee before the completion of the 3 months, then the salary will be given only for the days the resigned employee actually worked. That is, no full lieu of salary for the 3-month notice period.

Isn't this a serious violation of both the contract doctrine and even ethical values?

It's vividly clear that even in this era when society is well conscious about social justice and fair treatment to all, and a culture of CSR, this kind of greedy and oversmart approach is being practiced by organizations. Of course, there are many good organizations that adopt good HR practices and put efforts to adhere to labor guidelines and even excel in them.

The logic "What is mine will be mine and what is yours will be shared" adopted and practiced by organizations must be discouraged.

Some may counter-question and contest why employees join such companies in the first place. It's compelling and not untrue that in this highly challenging market environment, when society is facing greater unemployment challenges, employees have no choice but to join for survival and sustenance.

Here, the government needs to introduce laws to regulate and control dictating practices by companies for better industrial relations to exist truly!!

Regards,

Government Intervention and Labor Laws

Whether the government will or will not intervene is unfortunately not something we can dictate. The law will look at the law and not the ethical side of it. If a candidate signs terms that are in favor of the company, there is nothing the law will do about it as long as the labor laws are not violated. Therefore, things like working hours, minimum wages, etc., are defined. There are also many terms provided in the Standing Orders. The labor commissioner will not allow modifications of Standing Orders that are detrimental to the workers.

Company's Freedom to Set Terms

However, as things stand, the company is free to set its terms. If you don't like it, you should have tried for a different job. It is possible that the company pays more than the market, and that is why people are willing to join, even on adverse terms. Or the candidate doesn't care and plans to walk off without notice. There is little the company can actually do in such a case either.

When a resigned employee doesn't serve the agreed notice period and walks off, the company can easily hold the Full and Final settlement without clearing other things such as a relieving letter, giving a negative Background Verification (BGV), etc.

Labour laws and their enforcement

Labour laws are in place, but are they actually followed? Whether it's working hours, earned leave, statutory bonus, or Provident Fund (PF), employees often find themselves at the receiving end of suffering. There is a clear guideline that even if an employee has not worked for 240 days in a calendar year, they are entitled to get Earned Leave (EL) on a pro-rata basis at separation—whether through resignation, termination, or in the unfortunate event of death—within 2 days of the last working day as per the Payment of Wages Act, 1936. However, this entitlement is sometimes denied, citing the eligibility criteria of 240 days of working.

Company policies vs. statutory requirements

Companies often establish their own bonus policies, like 4%, 6%, etc., proportionate to the number of days worked in the calendar year, while the minimum statutory requirement stands at 8.33%. Labour laws exist, but companies frequently devise their own policies arbitrarily to deprive employees of their rights based on their own convenience.

In our country, the main problem lies in the enforceability of these laws.

Notice Requirements for Employees

The ID Act does not provide any notice period for a resigning employee. However, the Standing Orders and some state-specific Shops and Establishments Acts require employees to provide prior notice of a specific minimum period to the employer before cessation of their employment following voluntary resignation. For example, under the Punjab Shops and Commercial Establishments Act, 1958, an employee who has been in the service of the employer continuously for a period of three months must provide 30 days' notice or pay in lieu of that notice when they resign. A notice period longer than the statutory notice period can be agreed upon in the employment contract. Where the state law provides a particular notice period for the employee, it may not be necessary for an employee who is resigning to give any longer notice period than may be provided for in their contract of employment.

Generally, the notice period should be similar for both parties, and if the notice period is greater than the law provides, this must be reasonable. A labour court is unlikely to accept a situation where the employer's notice period is one month, but the employee is required to serve a longer notice period. Labour courts are likely to consider the employee to be in a weaker bargaining position and would seek to protect the employee's interests. In such a case, the court may require a resigning employee to serve a similar notice period to that provided to the employer (see Central Inland Water Transport Corporation Limited and Ors. vs. Brojo Nath Ganguly and Ors (06.04.1986 - SC)), which discusses how an employer might have higher bargaining power, rendering the employment an unequal arrangement and violating Article 14 of the Indian Constitution).

I think the case of Central Inland Water Transport Corporation Limited and Ors. vs. Brojo Nath Ganguly and Ors. is a wrong one to take. The company is a PSU, and therefore, the fundamental rights and the writ petition for relief would be admissible. The right of Article 14 does not hold against a private company or private individual. If that were the case, the contract law would not have specifically provided that the fairness of consideration is not material to a contract.

That said, lawyers will present different arguments to the courts, and the courts will always give judgments that are based on the case (or even based on their biases). The question is whether an employee can really claim that shelter, confident that the court will support him, or even have the money to fight it in court.

The earlier views are derived from a renowned labor lawyer based in Mumbai.

I understand that any contract should be fair to both parties, and the principle of equality should be implied in it. The contract should not be biased. Private sector employees also have fundamental rights. The contract conditions demanding a longer notice period for resigning employees while allowing a shorter notice period for employers for job termination are exploitative and dictatorial in nature and not an honest approach.

Referring to Punjab State Laws

It's clearly mentioned that a 1-month notice is required for each party or payment in lieu of notice. Most organizations have the same separation conditions for notice periods (1 month, 2 months, 3 months) at different position levels.

I have personally seen individual cases where employers didn't clear their FNF dues even after concerned employees (even at junior levels) served a 1.5/2-month notice period instead of the required 3 months, while the notice period for the employer is only 15 days. This practice is illegal and unlawful.

I strongly believe that no labor court will allow this kind of partiality and unfairness.

Policy Formulation Without Approval

Companies are formulating these policies without prior approval from local competent authorities. Unfortunately, some HR professionals also guide them in doing so.

Industrial relations can be best established if these basic issues are adequately addressed and fairly practiced.