Is It Fair to Pay Only Basic Salary as Termination Compensation? Seeking Legal Insights

Can you please suggest on the following:

The management of our company has decided to terminate a few employees by paying them one month's salary in lieu of one month's notice for termination. However, the management has decided to pay only the one month basic salary as compensation instead of their last drawn salary inclusive of all allowances, benefits, etc.

I would like to know whether this is the right course adopted by the management. Is there any act which states that the compensation payable in lieu of one month's notice on termination should be equivalent to the last drawn salary and not only the basic salary?

Thank you.

Regards,
Amita

Hi Amita,

Are these employees on probation/contract/confirmed, etc.? What is their tenure of service, and have they been forcibly asked to leave? Also, where do you stand in this? What is your designation, and have you been asked to leave as well?

Regards,
Viraj

Dear Amita,

It depends on the company policy regarding termination. Generally, every company adopts a different approach for each type of case, such as:

1. Termination/Layoff: (which is rare) the company pays the full last-drawn salary for the notice period.
2. Termination with regards to performance: the company pays the last-drawn basic salary as compensation.
3. Termination on disciplinary grounds: the company does not pay at all for the notice period.

I find the above policies justified and I hope they answer your query. There is an act that specifies what needs to be done in the case of a "LAYOFF" and it mandates the employee to be paid their total last-drawn salary for the notice period.

Regards,
Ravi

Hi,

No company can terminate any employee without a valid reason. If you wish to terminate a permanent employee (excluding contractual employees), you must first conduct a domestic inquiry against the employee before taking any action to terminate them. Direct termination without following proper procedures may result in the employee taking legal action against the company.

If the employee isn't performing well, then ethically, the organization must give them a written notice and a time frame to improve performance. Please note that a clause must be added to the notice stating that if the employee's performance doesn't improve, then the management may go ahead and terminate the employment of that particular employee. Do not forget to obtain acceptance from the employee on the same on the company letterhead.

In case the management is still not satisfied with the employee's performance, the organization can ask the employee to resign and provide full salary as per the notice period mentioned in his/her appointment letter/offer letter.

Call me if you need any help.
Sumit
98102 02461

Hello everyone,

It is extremely rare for a company to issue a termination letter; in most cases (excluding gross or violent misconduct), they typically request the employee to resign voluntarily by submitting their resignation. In such instances, no salary is provided in lieu of the notice period as the employee is technically resigning voluntarily.

However, if the company does issue a termination letter, typically only the basic salary for the following month (which would have been the notice period) is paid, not the total salary the employee was receiving monthly. It is advisable to find an amicable solution in such situations to protect one's interests.

Sumit Saxena suggests that if an employee is underperforming, the organization should provide a written notice and a timeframe for performance improvement. The notice should include a clause stating that if performance does not improve, the management reserves the right to terminate the employee's contract. The employee should acknowledge this on the company letterhead.

If performance issues persist, the organization can ask the employee to resign, providing full salary as per the notice period outlined in the employment contract. For further assistance, Sumit can be reached at 98102 02461.

Thank you.

Hi Amita,

The salary considered in this case would be the salary considered for retirement benefits. It will consist of Basic Pay + DA (only the part considered for retirement benefit) + Commission (if provided at a fixed percentage over turnover).

Unless otherwise specified in the Standing Orders of the company, salary means basic salary only. If the company has the practice of paying Dearness Allowance, then DA should also be paid.

Retaining or terminating an employee is an internal matter of the company. However, before terminating for misperformance, the employee shall be given an opportunity to be heard. If the termination is on the ground of misconduct, there should be a conducted domestic enquiry. At the same time, one who has not completed one year of service shall be terminated without paying even the compensation stipulated in the Industrial Disputes Act. As such, it is better to have an understanding by which the employee will accept notice pay offered on condition that he gets a service certificate from the employer.

Regards, Madhu.T.K

Hi All,

If any company terminates an employee based on performance, the employee may take the matter to court. Initially, the company should provide a written notice to the employee outlining the performance expectations. Both parties should sign this document, and the employee should also submit an apology and commitment letter to the company regarding the required performance improvements.

Subsequently, the company should offer the employee an opportunity to improve their performance by transferring them to another department. Following this, the company should issue a written performance notice, allowing a specified period for improvement. Failure to meet the performance standards may lead to the employee resorting to legal action.

In Indian companies, there is a common practice where management instructs HR personnel to obtain an employee's resignation. However, this practice is not necessarily ethical or legal. It's important to ensure that such actions align with labor laws and company policies.

Thank you.

In some organizations, an appointment offer/contract of employment is issued with the condition that your services can be terminated without assigning any reason. For permanent employees, their services can be terminated after complying with all requirements. For contract employees, no such formalities are required.

As far as notice pay is concerned, the amount to be paid by the employer or employee in lieu of notice pay would be equal to basic pay plus DA. However, when nothing has been specified and their PF is deducted on the whole consolidated amount of their salary, the total salary will be paid to them or recovered from them, as the case may be.

Under the Industrial Employment Standing Order Act, when appointing a person, full details of their salary, nature of work, working hours, tenure of appointment, method of termination, etc., should be provided.

Termination should always be supported with a reason.

The category of the employee should not fall under the "worker level".

For compensation, refer to Section 25FFF of the ID Act.

Regards,
Saurabh
9928074042

Friends, just want to check - do we have any rules subject to forceful termination of services of an employee in any of our government regulatory acts? If there is one, let me know.

Dear Anita,

Termination of an employee involves legal implications. Even if the employer has valid reasons to terminate the employee, there are precautionary procedures to be followed beforehand by the employer. As an HR personnel, it is always better to counsel an employee and encourage them to opt for submitting a "resignation." Explain to the employee the difference between termination and resignation, and the benefits of receiving experience and relieving certificates upon submission of the resignation.

In lieu of a one-month notice period, you can offer the employee one month's basic salary. Be vigilant about employment laws and rules.

HEMA

Hi,

Before processing this, an Employee under the I.D. Act is considered a Workman because the said Act provides certain protections, including job security. Therefore, a clause stating that termination of service must be provided with one month's notice by either side would not be constitutionally valid.

Please refer to the judgment of the Karnataka High Court where it is clearly stated that termination by notice is not permissible: "Besides other courts, the Karnataka High Court has clarified that a condition of service allowing the employer to terminate the services of an employee by giving three months' notice or salary in lieu thereof, without assigning any reasons, will be opposed to public policy and therefore ultra vires of the Constitution" (P.A. Babu Jayapreakash Vs. Managing Director, Karnataka Soap & Detergents Ltd., Bangalore, 2003 LLR 387 (Karn. HC)).

Thank you.

Please go through the Karnataka HC Judgment before proceeding:

Termination by Notice - Not Permissible - Employee under the ID Act is a Workman, said the Act affords certain protections including job security. Hence, such a clause (termination of service is invariably provided by one month's notice by either side) will not be constitutionally valid.

Besides other courts, the Karnataka High Court has clarified that a condition of service providing that the employer can terminate the services of an employee by giving three months' notice or salary in lieu thereof, without assigning any reason, will be opposed to public policy, hence Ultra Vires of the Constitution. (Judgment: P.A. Babu Jayprakash Vs. Managing Director, Karnataka Soap & Detergents Ltd. Bangalore, 2003. LLR 387, (Krn. HC).

Dear Amita,

First of all, you should go through the conditions as specified in the appointment letters of these employees. If it is mentioned that one month's salary is to be paid in lieu of notice/termination by the employee/employer, then it's unjustified to pay them just the basic salary in lieu of notice for terminating their services from the company. Else, the policy in vogue in the organization needs to be followed.

Thanks,
Amit Gera

Hello Everyone,

And where is Amita in this thread...after she posted her query on 18/3/2009? Sometimes I find it funny as well as irritating that people just make a posting and then coolly forget all about it. And all of us godforsaken people — me included — who don't have any other work to do, take such postings seriously that we spend time and effort to put our responses.

Isn't there any way to control such postings?

Rgds, TS

Dear Sir,

I joined this organization on Feb '09 as Manager - Training and Facilitation, and I was told by the company that they have enough client base to do business and they are looking for young people who can primarily deliver training and consultation services to their clients (This was what was expected of me and was told to me when I joined, and the same is mentioned in my offer letter as well). In my previous organization, I was working as Assistant Manager. Even though they didn't give me a salary hike, I joined as they gave me a designation hike.

Now, two months after joining this company, I came to know that they have no client base and don't even have training course material to be delivered to their prospective clients.

They then told me last month to start doing Business Development through cold calling and generate a business worth 35 Lakhs in the next six months.

Sir, I have never done sales or BD in my entire professional career. No matter how hard I tried, I have only fixed a few meetings. Now, the price that we are quoting to our prospective clients is way higher than our competitors in the market, and they have good content as well.

Now my boss says I have to put down my papers as I am not able to generate the business without giving me any notice to think about.

Sir, My question is that I joined this company as a trainer who will be delivering the training and doing vendor management, training calendar booking, and content development for their CRT and E-learning portal. Then is it legal for the company to fire me for not being able to do BD? I am doing my primary job well as and when I am asked for.

The company is a renowned corporate house in India.

Sir, please help me as I got married recently and am not aware of the policies of the labor act. It is hard to get a new job on short notice. I was well-established in my previous job but was asked to leave the job on short notice by this company. Therefore, I can no longer go back to my previous organization as well.

Regards,

Jahanzeb Khan

Dear Sir,

I joined this organization on Feb'09 as a manager - Training and Facilitation. I was informed by the company that they had enough client base to conduct business and were seeking young individuals who could primarily deliver training and consultation services to their clients (This was the expectation when I joined and is also stated in my offer letter). In my previous organization, I held the position of Assistant Manager. Even though they didn't offer me a salary hike, I accepted the role due to the promotion in designation.

However, two months after joining this company, I discovered that they lacked a client base and did not even possess training course material to provide to potential clients.

Last month, they instructed me to initiate Business Development through cold calling and generate business worth 35 Lakhs in the next six months.

I have never engaged in sales or Business Development throughout my professional career. Despite my efforts, I have only been able to arrange a few meetings. Furthermore, the prices we are quoting to potential clients are significantly higher than our competitors in the market, and they offer superior content.

Now, my boss insists that I resign as I am unable to generate the expected business, without providing any notice for contemplation.

My primary role in this company was meant to be a trainer responsible for delivering training, vendor management, training calendar booking, and content development for their CRT and E-learning portal. Is it lawful for the company to terminate my employment due to my inability to perform in Business Development, even though I excel in my core responsibilities?

The company is a well-known corporate entity in India.

Sir, I seek your guidance as I recently got married and am unfamiliar with labor laws and policies. Securing a new job on short notice is challenging. I had a stable position in my previous job but was compelled to leave abruptly by this company. Hence, returning to my previous organization is not an option.

Regards,

Jahanzeb Khan

If you need assistance, feel free to contact me.

Sumit

98102 02461

Hi Sumit,

I would need your assistance.

If an employee has been caught engaging in dual employment, the company must issue a charge sheet and provide evidence to the employee. If proven guilty, the company has the right to terminate the employee on ethical grounds. Is the company liable to pay the employee one month's salary in this case?

If the employee isn't performing well, then ethically the organization must give them a written notice and a time frame to improve the performance. Please note that a clause must be added to the notice stating that if the employee's performance doesn't improve, then the management may proceed with terminating the employment of that particular employee. Don't forget to obtain acceptance from the employee on the same on the company letterhead.

In case the management is still not satisfied with the employee's performance, then the organization can ask the employee to resign and provide full salary as per the notice period mentioned in his/her appointment letter/offer letter.

Feel free to call me if you need any help.

Sumit
98102 02461

If an employee has been caught in dual employment, a chargesheet has been issued, and proof has been shown to the employee, the company has terminated him on unethical grounds. Is the company liable to pay him one month's salary? If yes, do we pay based on the basic salary?

Would appreciate responses.

Please let me know if an employee has been terminated by the company for breaching or violating the existing company code of conduct, does the employee have the right to withhold payment for an extended period of time? Please clarify as soon as possible.

Incident of Unlawful Termination and Union Formation

One fine day, our management informed three of our staff colleagues, each with 25 years of service, not to come to work from the next day onwards. Not taking these oral instructions seriously, the employees came to work the following day. They found that their punch cards were missing, and upon hearing this, all other employees joined them in protest against this illegal act. During this process, a significant argument ensued. The management did not consider our request, so we decided to fight against their actions. We formed a union and continued to agitate for eight days without attending work. Even after this, they did not reinstate our colleagues. We returned to work based on an oral promise from the management that no action would be taken against the employees.

After 45 days, I received a letter suspending me on the grounds of allegedly manhandling the manager. A domestic inquiry was set up, examining both my witnesses and theirs. The judgment went in their favor, stating that my witnesses could not be believed, and I was asked to explain why I should not be terminated for proven misconduct. I submitted in writing that I had not manhandled anyone and requested them to drop the charges against me. Without considering my request, they terminated me.

The three colleagues who challenged their illegal removal went to court. I was the general secretary of my staff union, representing them at the labor office. After my termination, management sent a cheque with a letter stating it was a full and final settlement. My lawyer advised me to encash the money and write a letter accepting the cheque but stating that my illegal retrenchment would be challenged in a court of law. I posted the same to management.

Questions on Contesting Retrenchment

Now, my question is where should I contest my retrenchment? Is it correct to accept the settlement money (my gratuity and leave encashment) while filing a case in court? In which court should my case be filed?

Regards

Your case is not a case of retrenchment but termination due to misconduct after a thorough inquiry. It is unclear whether you fall within the category of a workman as defined under the ID Act. Therefore, you must challenge your termination order before the first appellate authority under Rule 20 of the A P Shops and Establishment Rules. It is advisable not to accept a full and final settlement.

Thanks,
Sushil

If a permanent employee's salary is less than that of a skilled worker, what should be done in a private company? All employees are receiving HRA and fixed overtime pay, but as a permanent employee, I am only getting Basic + DA, which is also lower than that of a skilled worker in Jharkhand State. Please explain what should be done, citing government rules for private companies.

Shashikant Kumar Pathak