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Legal Aspects of Employee Exit, Disciplinary Actions and Employee Relations – Overview

EMPLOYEE EXIT refers to the severance of employment of an employee. This severance of employment can be in any of the following forms: 1. Retrenchment 2. Termination 3. Dismissal 4. Discharge RETRENCHMENT

Severance of employment is also referred to as Lay Off, which can be of two types – Temporary and Permanent. Basis or reasons of lay off can be Lack of work, Surplus employment, Nonperformance or underperformance, not adhering to norms, Bench employment, etc.  Lay Off has been defined under the Industrial Disputes Act, 1947 as failure, refusal, or inability of an employer, on account of a shortage of coal, power or raw materials or the accumulation of stocks or break down of machinery or natural calamity, to give employment to a workman, whose name is borne on the muster rolls of his industrial establishment and who has not been retrenched. In the case of temporary lay-off, there is no severance of employment and the employee is eligible to receive 50% of his basic wages, during the period of a temporary lay-off. And in the case of permanent lay-off, it amounts to retrenchment, and the employee is entitled to receive retrenchment compensation equal to 15 days’ average pay for every completed year of service. It is to be noted that employees who are working in Supervisory or Managerial positions, are not eligible to receive any such retrenchment compensation and their severance of employment is governed by the terms of their appointment as given in their appointment letter or contract of employment. In case of retrenchment of employees of non-managerial and non-supervisory positions, the employers are required to notify labour authorities, in advance, about the retrenchment to be done, in the prescribed manner and time. In the case of supervisory and managerial employees, advance notice has to be given in accordance with their terms of appointment or with payment in lieu of notice period, as the case may be. TERMINATION

Termination of employment is done in accordance with the terms of appointment, as stipulated in the Appointment Letter (contract of employment). In case of any dispute between the Statute (Law) and the Contract of Employment/Appointment Letter, the former supersedes the latter. Also, if the termination happens as per HR Policies of the Employer Organisation, in that case, the HR Policies have to be communicated in advance, in writing, duly acknowledged by the employee, with his consent to abide by the said policies. A copy of the HR Manual given to the employee at the time of onboarding, duly signed and consented by the employee, will serve the purpose. 


Dismissal can happen in the case of a workman/employee for conducting misconduct of such magnitude that it warrants dismissal and the continuity of employment of such a workman/ employee in service, will be prejudicial to the interests of the employer organization. However, a charge-sheet has to be issued, a domestic enquiry has to be conducted as per the principles of Natural Justice, charges have to be proved and the prescribed procedure has to be followed before dismissal.  DISCHARGE

In a situation like continued ill health of an employee, whereby he is unable to attend his normal duties for a long time, discharge can happen. However, the employee has to be examined by a competent person/Doctor who gives a medical certificate to the effect that the employee is medically unfit to perform his normal duties. The employer may in such a case, discharge the employee from his services, in the prescribed manner.  Note: In addition to these provisions, the employment termination provisions under the state-specific statutes applicable to shops and establishments, standing orders, the employment contract and HR policies also need to be complied with.

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