All about Termination of Employment Contracts in India

What are Employment Contracts?

An employment contract is a legally binding agreement between an employer and the employee and it sets the terms and conditions regarding employment of the employee. After signing the employment agreement, the employee has to give their services to the company as he/she has accepted the terms and conditions set by the company. According to the laws of our country, an employment agreement can be written or oral depending upon the companies. However, having a written employment agreement is the best practice and most companies follow the same practice. Several laws of our country govern the employment of an employee in a company but the main laws that govern employment contracts are the Indian Contract Act, 1872, the Industrial Disputes Act, 1947, and the Arbitration and Conciliation Act, 1996. The employment contract mainly consists of the start date of the employment, the job description, the duration of the employment, the confidentiality clause, the rules and regulations of the workplace, the dispute resolution process, the termination clause, and the non-compete clause.

What is Termination and who can Terminate an Employment Contract?

Employment contracts are detailed documents that set out the rules and regulations that both the employee and the employer have to follow. Termination of an employment agreement means legally ending the contract between the employee and the employer. In our country, the employee or the employer anyone can terminate the employment agreement if they have sufficient reason for the same. Either party can terminate the employment agreement by giving a formal written notice to the other party. The notice period during the termination can differ and it is usually mentioned in the employment agreement. There can be various reasons for the termination of the employment agreement but some of the main reasons are misconduct on the part of the employee, immoral behavior of the employee, not following the roles and responsibilities, and force majeure.

In India, the process of termination of the employment contract also depends on whether the employment contract is terminated because of a reason or without any reason. In case, when the employee is terminated because of a reason and the cause of the termination can be resolved then the company usually gives some days to the employee to resolve that issue and improve their performance. Even if the employee does not do anything to resolve the issue and improve their performance then the company formally terminates their employment by giving them a notice, the number of days of the notice period depends upon the employment agreement between the employees and the employer. In case, when the employee is terminated without any reason then the company usually gives them several days to find a new job and also pays severance depending upon case to case. In our country, if an employee is terminated without any reason then they are entitled to receive severance pay from their company. The amount of severance pay depends upon various factors but it is generally a one-month salary for that employee.

Grounds for Termination of Employment Contracts

There are several reasons on which the employment contract of an employee is terminated by the employer. A company can terminate the employment contract of the employee with or without any reason but they have to provide a notice of the same to the employee.

Termination with Cause

1. Incompetence: In this case, the employer can terminate the employment contract of the employee. The employer usually gives a chance to the employee to enhance their poor performance and perform their responsibilities as stated by the company. When the employee does not enhance their performance after feedback, then the employer can terminate the employment of the employee.

2. Misconduct: Every organization has a defined set of rules that every employee of the organization has to follow. If the employee deliberately does not follow such rules and performs any function that is not appropriate for the company, then the employment agreement of the employee can be terminated on the grounds of misconduct. Various things can be included in misconduct such as theft in the company, bullying of any other employee, criminal behavior in the organization, and fraud in the company.

3. Using Company Resources for Personal Benefit: If the company finds that the employee is using the company resources or time for doing any personal business then the company can terminate the employment contract of that employee. It is defined in the regulations of the company that no employee can work on their project during office hours. The employee can face severe disciplinary actions from the company if the company finds them doing so. The company has all the rights to terminate the employment agreement of such employees.

4. Gross Insubordination: Insubordination in a company can occur in many cases but mostly it occurs when the employee directly shows any form of disrespect towards their employer. It can attract severe disciplinary action towards the employee and the employer has also the right to terminate the employment of the employee in this case. If the insubordination is of a minor level, then the company can leave the employee by only giving him some punishment or suggestion. But if the insubordination is of severe level then the employer only terminates the employment contract of such employee.

5. Breach of Confidentiality: Confidentiality of information is very important in any company and companies are very serious in protecting confidential information. Any information that is not publicly available regarding the company is treated as confidential information. The employees of the company know such information because they are working for the company. It is expected that the employee must not share such information with any person including their family, friends, or any other company. This is clearly explained to the employee at the time of joining the organization in their respective employment contract. If the company finds out that the employee is telling information about the company to any other person then the employer can terminate the employment agreement of that employee. The companies also make their employees sign a Non-disclosure Agreement along with their employment agreement. The companies also make specific contracts with such employees who know more important information regarding the company. The employee needs to know which information about the company they cannot share with the public by doing so the employees can protect the company and can also protect themselves from facing any serious legal issues from the company’s end.

Termination without Cause

1. Resignation: The employee has all the right to give their resignation to their employer if they are not happy with their job or because of any reason they want to change their job. These terms are defined by the company in the employment agreement of the employee. There are a certain number of notice days that the employee has to give to their employee before leaving their job. In this period the employer finds a new employee for that role and the previous employee has to transfer all their knowledge to the new employee.

2. Redundancy: In this case, the employer wants to reduce the workforce of the company because of any reason, or when the position is no longer required by the company then the employer terminates the employment agreement of such employees. There can be multiple factors for the same company when facing severe losses for subsequent months to take such steps. The employer usually terminates employees who have less experience or have spent less time in the organization.

3. Mutual Agreement: When an employer hires an employee for a certain period or for completing a certain task then the employment agreement of such employee terminates after that task is accomplished or the period is completed. It depends on both the parties whether they want to extend such contracts or not. These termination of employment contracts are pre-determined at the time of hiring of such employees.

Wrongful Termination of Employment Contracts

Wrongful termination can be understood as such termination in which the employer terminates the employment of the employee without any valid reason. When the company removes any employees by doing this then such termination of employee is an illegal termination. The employee can take action against the company in such cases. There are laws in our country that protect the rights of the employee very strictly. The employer must have to give a chance to the employee to explain their part before terminating the employment agreement. There can be some cases of illegal termination of employment contracts.

1. Breach of Contract: Most companies enter into an employment agreement when hiring a new employee. The rules of termination of such employment agreement are also mentioned in that agreement. When the employer breaches that employment agreement and terminates the employee without any reason then that is the case of illegal termination of the employee.

2. Discrimination: If the employer terminates the employment agreement of any employee because of his race, religion, gender, ethnicity, age, or any other protected information then it is a case of discrimination against that employee. These kinds of termination of employment agreements are also illegal in the eyes of the law.

3. Retaliation: When the employer terminates the employment agreement of an employee because the employee has reported any illegal activity of the company to the required agencies then that is the case of retaliation. These terminations are also illegal and the employee can take action against the company.

4. Whistleblowing: Those employees who report certain illegal activity to the higher authority of the company or the government authorities are known as whistle-blowers. They can inform regarding any illegal or discriminatory practice that is there in the company. If the employment agreement of such employees is terminated because of this reason, then it is a case of illegal termination. The company can only terminate the employment agreement without any reason with valid grounds.

5. Harassment: If there is any kind of harassment inside the company and any employee speaks about the same and the company fires that employee because of that reason then it is an illegal termination. The employee can take severe action against the company in such cases and take the help of laws that protect the employee from the company.

Conclusion

An employment agreement is a very essential document for both the employer as well as the employees. The rights of both parties are clearly explained in this document. The employee must read the employment agreement with care and must take any suggestion in case it is required. The employee must not put their signature on the employment agreement without going through the same. The employment agreement will help the employees in case of wrongful termination by their company. The employer must provide a chance to the employee before firing him from the job. The employer can only terminate the employment agreement without any reason with reasonable grounds. If the employer is doing illegal termination of the employment, then the employee can take serious legal action against the employer.