Is It Fair for Employers to Skip Notice Period Payouts After Employee Resignation?

Employment contract termination terms

The employment contract states that either party (Employer or Employee) can terminate the contract by giving 3-months notice or pay in lieu thereof.

HR Consultant's interpretation

The company has appointed an HR Consultant who now states that while the employee needs to give 3-months notice or pay out of his/her own pocket if they leave early, the employer can terminate the employee at any time after receiving resignation and need not pay the 3-months notice period to the employee. Is this valid?

Hi, Not right. When the employee is willing to serve the notice period after resignation, the employee should be allowed the notice period as per the separation clause or compensated with pay in lieu of the same.

However, if the employee makes a request for early relieving, the employer, at their discretion, can consider early relieving either with shortfall recovery or without recovery.

Dear Paul,

I am afraid that your consultant is trying to appease your management by interpreting the exit clause in the employment contract in such a manner. Any conditional clause in the contract of employment that gives rise to mutual rights and obligations should ensure equality of interpretation and implementation for both the employer and the employee concerned. A notice condition on unilateral foreclosure of the contract of employment cannot violate this principle of equality because such a one-sided clause favoring the employer would be against public policy under Section 23 of the Indian Contract Act, 1872.

Still, one may ask why such discretion is granted to the employer in certain employment agreements to accept or reject the buy-out option of the employee. It is only to ensure the protection of the organization's larger interest by way of completing any time-bound assignments or securing a suitable substitute. Thus, it is a different situation in which such discretion would enable the employer to effectively apply the principles of situational management in the organization's interest.

If the employee has expressed their willingness in the letter of resignation to serve the entire notice period, the employer has no choice other than to accept it. On the contrary, if the employer decides to relieve the employee immediately, it amounts to a counter-offer that requires the acceptance of the employee concerned. If the employee does not accept such a counter-offer, the employer should allow them to continue until the expiry of the notice period or should pay them the notice period salary and relieve them simultaneously. This is the correct legal position as per various case laws.

If the provision is the same as you have given above, i.e., "either party (Employer or Employee) can terminate the contract by giving 3-months notice or pay in lieu thereof."

The contention of the Consultant is wholly unjustifiable and incorrect to the core.

Hello everyone, I need help. I joined the organization on 4th September 2023 and resigned on 17th October 2023 due to cultural issues. From 18th to 31st, I served my notice period. However, my appointment letter does not contain any clause regarding serving a notice period or any specified amount to be paid. Now, when I requested my release, they are asking me to pay an amount equal to two months' salary, which was not mentioned in the appointment letter. Additionally, they have withheld my salary for the month of October. Currently, I am suffering from typhoid, and they are insisting that I come to complete the exit formalities. Please guide me on how to proceed.