Notice and Severance

Notice Requirement

The Industrial Dispute Act uses the term "retrenchment" instead of "termination". Retrenchment is defined as termination for any reason except as punishment inflicted by way of disciplinary action, retirement/superannuation, termination for continued ill-health, or expiry and non-renewal of the term of an employment contract.

Reasons for retrenchment could be redundancy, non-performance, or loss of confidence in the worker for various reasons. The Industrial Disputes Act also delineates the manner of retrenchment of workmen and provides a mechanism for the computation of their severance compensation.  Workmen may be retrenched only for just cause and after complying with various statutory requirements, failing which the aggrieved workman or representatives of the workman can raise an industrial dispute in connection with the termination.

An employer is required to give at least one month's advance notice or payment in lieu thereof to a worker who has completed at least one year of continuous service before termination. The notice must be given in writing indicating the reason of retrenchment. While terminating a large number of employees in factories, mines or plantations employing more than 100 workmen, the employer must give at least three months of notice or wages in lieu thereof to the workmen proposed to be terminated.

The services of workmen as well as non-workmen can be terminated without any notice in situations, such as proven misconduct, fraud, etc. Termination proceeds with an internal enquiry in accordance with the principles of natural justice - where the employee is given a free and fair hearing. 

Appeals could be made against wrongful termination. A workman can challenge his/her termination (retrenchment) before appropriate labour authorities and seek reinstatement and/or compensation under the ID Act. A non-workman can take recourse only by instituting a civil suit against his/her employer for damages for wrongful termination.

In case, it is proved that the termination/retrenchment is not proper, then based on various other criteria, the worker can be re-instated to his/her job with back wages. 

Courts in India have held that a worker is entitled to exercise his right to resign from the employment. An employer may be justified in refusing to accept the worker's resignation in limited cases, such as, when a worker wants to leave in the middle of work which is urgent or important and for the completion of which his presence and participation are necessary.  An employer can also refuse to accept the resignation when there is a disciplinary inquiry pending against the employee.

Source: § 2, 25(F-N) of Industrial Disputes Act 1947; § 15 of the Model Standing Orders

Severance Pay

In accordance with the Payment of Gratuity Act 1972, a worker is entitled to a gratuity payment upon termination of his service after five years of continuous employment.

Amount of severance pay is equal to 15 days' wages for each completed year of service. Under the Industrial Disputes Act, retrenched workers are entitled to 15 days' wages for each completed year of service.

Source: §25(F) of Industrial Disputes Act 1947; §4 of the Payment of Gratuity Act 1972