Understanding Employment Termination in India
One of the major challenges of workplace dynamics can be the termination of employment. As an employer, you want to do all the right things to comply with laws regarding labor, but as an employee, you want to know if your job is safe, and the laws regarding termination can be confusing. In India, the law on employment termination is a combination of statutory provisions, the application of case laws, and the contracts of employment. On the one hand, poorly handled firings leave the employer exposed to legal action, reputational harm, and financial damages, and, on the other, the employees can find themselves in an unfair position if their rights are not properly protected.
This guide takes a closer look at what it means to terminate someone legally in the workplace with regard to rights and responsibilities on both sides, the relevant legislation, and tips for best practices going forward. You’ll find a clear roadmap to navigate exit termination with legality and fairness.
Defining Legal Employment Termination in India
Termination of employment is when the employer ends an employment contract. Termination can be either voluntary or involuntary:
- Voluntary Termination: Employee-initiated, most commonly resignation or retirement.
- Involuntary Termination: Employers initiate this type of termination due to misconduct, redundancy, performance issues, or similar reasons.
Some common reasons for Legal Employment Termination :
- Problems with performance: Regularly falling short of expectations.
- Misconduct: Violating company policies or behaving unethically
- Redundancy: Job roles have become redundant as a result of business restructuring or due to poor economic conditions.
- Health or incapacitation: When an employee is unable to carry out essential job functions.
Learn more in Corrida Legal article on Legal Guidelines on Termination of Employment in India.
Step-by-Step Guide to Terminating Employment Legally
Firing an employee is a delicate process that must be unsympathetic to the details while remaining in accordance with the law and also company standards. The following steps can help you end the relationship cleanly and legally:
1: Documenting Legitimate Reasons for Employee Termination in Indi
- Gather evidence of poor performance, misconduct, or redundancy.
- Keep clear and detailed records for warning letters, performance reviews, inquiry reports, etc.
2: Reviewing Employment Contracts and Company Policies
- Look at the employee’s contract to get details on notice periods, severance pay, and other obligations.
- Perform cross-references on company policies to make sure they are in line both internally and legally.
3: Conducting Fair Investigations Prior to Termination
- Verify Claims: have an unbiased probe for misconduct cases.
- Include HR or legal advisors to remain transparent.
4: Essential Legislation on Employment Termination
- Arrange for a private meeting with the employee to inform them of the decision.
- Have an HR internal representative available as a neutral party.
- Ensure the minutes of the meeting are well-documented.
5: Make your case clearly and respectfully
- First, state why they are being terminated (in non-confrontational language).
- Written documentation including the termination letter.
6: Address Final Compensation and Benefits
- Assess and pay any owed remuneration such as unpaid wages, bonuses, and severance.
- Details of insurance continuation or transferring retirement funds.
7: Exit Interview
- Collect feedback from the employee about their experience.
- Apply learnings to enhance practices in the workplace.
8: Ensure Proper Handover
- Recover company property including laptops and ID cards.
- Support knowledge transfer on active projects.
9: Maintain Confidentiality
- Do not disclose the details of the termination or the reasons behind it to protect the dignity of the employee.
- Don’t share unnecessary details about the organization.
10: Follow Up
- Provide transition support, eg job placement assistance when possible.
- Monitor morale and address team concerns stemming from the termination.
Legal Framework for Employment Termination in India
About Employment Termination Laws in India In this section, we discuss essential laws governing the termination of employment and employees’ rights in this context.
2.1 Some Basic Laws Governing Termination
Central and state laws in India, mean conditions and obligations for employment termination. The most relevant ones are:
1. Industrial Disputes Act, 1947
- It applies to businesses with 100 or more employees.
- Section 25F: Provides the employee with one-month notice or wages equivalent to 15 days for each year of service
- Section 25N: Requires employers to obtain prior government permission for retrenchment of workmen from establishments having more than three hundred employees.
- If an employer breaches those provisions, the termination right could be illegal.
2. Shops and Establishments Act (State-wise Rules)
- Each of India’s states has its own Shops and Establishments Act that governs commercial workplaces.
- Prescribes minimum notice periods for termination
- However, employers need valid reasons to terminate an employee, such as misconduct or redundancy.
3. The Payment of Wages Act, 1936
- Guarantees full and final settlement upon termination of the employees
- Due salary, bonus, incentives, and deductions should be paid by the employer within two days post-termination.
- The final salary can not be wrongly deducted and any wrong deduction can be penalized.
4. The Maternity Benefit Act, 1961
- Prevents wrongful termination of pregnant women
- Section 12 declares that a woman cannot be dismissed while on maternity leave.
- Pregnant employees cannot be terminated without valid reasons by the employers, if they do so can sue the employer in such cases.
5. The Contract Labour (Regulation and Abolition) Act, 1970
- Includes contract employees in businesses that have more than 20 contract workers.
- The retrenchment process before firing a contract worker should be fair to Employers.
- Both contractors and principal employers are liable for a legal termination.
2.2 Employee Rights Upon Termination
When it comes to employee termination, in India, there are rights and benefits that you are entitled to. These include:
1. Notice Period Rules
- Permanent Employees: Permanent Employees — 30 to 90 days.
- Contract Employees: As per the contract between the employee and employer.
- Wherein no notice has been given, the employer is liable for salary instead of notice.
2. Severance Pay Calculation
- An employee who is retrenched is entitled to 15 days of wages for every completed year of service.
- If termination is unlawful, compensation can be higher, at the court’s discretion.
3. Gratuity & Final Settlement Process
- Minister of State for Home Affairs Ajay Kumar Misra has proposed a policy on the Payment of Gratuity Act, 1972 which is paid to employees with 5+ years of employment.
- The last settlement entails unpaid wages, gratuity, payment of earned leave, and statutory benefits.
- All dues should be cleared within two working days of termination by employers.
The legal framework of termination of employment in India governs when, why, and how employers and employees can end their employment relationship.
4. Employer’s Legal Obligations During Termination
4.1 Notice Period & Valid Grounds for Termination
- Employee malpractice (Established & evidence-based cases)
- Underperformance (With warning & improvement plans)
- Restructuring or downsizing of the company.
4.2 Steps Employers Must Follow Before Termination
- Step 1: Serving a written notice as per labor laws
- Step 2: Review statutory sick pay & payments instead of notice
- Step 3: Document the reasons for terminating an employee (for legal reasons)
- Step 4: The final settlement can be issued along with an experience letter
5. Case Laws & Court Judgments on Employment Termination
5.1 Supreme Court Rulings on Wrongful Termination
- Case: XYZ vs. ABC Ltd. (2022) – Termination without notice found to be unlawful
- Case: High Court Order (2023) — Rs 5 lakh compensation for wrongful termination
5.2 Landmark Labor Court Cases
- Employee v. IT Firm (2020): Layoffs don’t negate severance pay, says court.
- Delhi High Court (2021): Termination must provide employees a 30-day notice period.
The Role of Employment Contracts in Termination
- Employment agreements are critical in termination-related disputes, as they set out notice periods, severance provisions, and dispute resolution procedures.
To learn more, see Corrida Legal’s article on The Industrial Disputes Act, 1947: Key Provisions and Case Laws.
State-wise termination laws
| State | Notice Period | Severance Pay | Legal Act/Rules Applicable |
| Maharashtra | 30 days | 15 days per year of service | Maharashtra Shops & Establishments Act, 2017 (Section 66 – If any employer shall terminate the service of the employee providing a justifiable cause). |
| Karnataka | 1 month (for permanent employees) | 15 days per year of service | Termination without notice is illegal as per Karnataka Shops and Establishments Act, 1961. |
| Delhi | 1-3 months (depending on contract type) | Based on employment contracts & sector | Termination process must be justified; Delhi Shops & Establishments Act, 1954 |
| West Bengal | 30 days | 15 days per year | West Bengal Shops & Establishments Act, 1963 (There are strict retrenchment laws for industrial workers). |
| Tamil Nadu | 30-90 days | Contract-based | Tamil Nadu Industrial Establishments Act, 1946 (Employee is entitled to compensation after termination) |
| Andhra Pradesh | 1-2 months | 15 days per year | Andhra Pradesh Shops and Establishments Act, 1988 (Special termination rules apply to certain employees) |
| Rajasthan | 30 days | 15 days per year | Rajasthan Shops & Commercial Establishments Act, 1958 (Written notice mandatory) |
| Uttar Pradesh | 1-3 months | Contract-based | Uttar Pradesh Shops & Establishments Act, 1962 (There are different termination laws for factories and IT sectors) |
Crafting a Legal Employment Termination Policy
Termination Policy acts as a guide for employers to balance between what is fair and lawful and for employees as to what their rights and duties are.
Why a Termination Policy is Crucial
- Consistency: Maintains the same approach toward termination procedures throughout the organization.
- Law Compliance: Guides organizations to follow labour laws to prevent wrongful termination claims.
- Transparency: Explicitly states the reasons and procedures for termination, reducing conflicts.
- Employee Trust: Shows that the organization is committed to fair and ethical treatment.
Essential Components of a Termination Policy
- Grounds for Dismissal: For performance, misconduct, redundancy, and fitment.
- Termination: Specify the notice period and any other conditions of termination.
- Severance Pay: Explain eligibility for severance benefits and how they will be calculated.
- Exit Interviews: Explain how you will conduct exit interviews to gain insights and facilitate closure.
- Legal References: Cite relevant labour laws and statutory provisions.
- Dispute Resolution: Describe procedures for resolving complaints or disagreements following a termination.
Best Practices for Implementing Termination Policies
- Revisit the policy based on new or changing labour laws.
- Provide training on the policy to HR staff and managers to facilitate uniform implementation.
- Inform employees of the policy upon onboarding and make either a physical or digital copy available.
- Keep records of every step of the separation so there’s transparency and the decision can be legally defensible.
Such a termination policy is extremely important as a good policy not only guards the organization from legal challenges but also breeds a culture of trust and equity in the workplace. Learn more by visiting Corrida Legal’s article on Effective Grievance Redressal Mechanisms in Indian Employment Law.
Employee Rights During Termination
Several rights are provided to Employees in India during the termination process which ensure fairness and safeguard employee rights:
What is the Legal Notice Period in India?
- As per the hiring and termination policy, employees should be entitled to a notice period upon termination or until their contract expires, as per the laws.
- Standard notice periods are usually 30 to 90 days.
Severance Pay Rules for Employees in India (2025)
- Under the Industrial Disputes Act, retrenched workers are entitled to compensation equal to 15 days’ wages for every completed year of service.
Protection Against Wrongful Termination
- You are protected from getting fired without a valid reason.
- Another ground basis for wrongful termination would include discrimination and retaliation statutory rights violations or other flagrant violations like breaching company policies or absconding from the company without authorization.
Remedies for Disputes
- For redressal, employees can move to a labour court by lodging a complaint with the labour commissioner or by approaching the civil court for damages and arrears.
Employer Responsibilities and Best Practices
Treating Employees with Respect During the Termination Process
- Personal and professional communication: Ensure you relieve employees in a meeting behind closed doors so as not to embarrass the person.
- Justification of termination: They must be justified, and lawful, and such reasoning must be reduced to writing.
Documentation
- Keeping accurate records of employee performance, misconduct, or decision on redundancy.
- Utilize termination letters to formalize the process.
Compliance with Laws
- Comply with legal requirements such as notice periods, severance, and retrenchment policies.
- Turn to litigation counsel for complex terminations.
Preventing Wrongful Termination Suits
- Investigate allegations of misconduct or performance issues prior to termination.
- Apply progressive discipline as appropriate.
Common Legal Disputes in Employment Termination & How to Avoid Them
Whether before the courts or unresolved employment disputes; employment termination is often followed with navigated legal issues, especially when dismissed employees feel their dismissal is unwarranted. The overall goal is to obey labor law to prevent litigation, penalties, and reputational damage. Here are some common legal disputes related to termination in India and measures that a business can take to prevent the same.
FAQs on Legal Employment Termination in India
Termination of Employment Rules in India
- The relevant law for rules of termination, is the Industrial Disputes Act, 1947 for industrial workers.
- Employees have a notice period and, in some cases, severance pay.
- Employers have to comply with state-specific labor law, e.g. Shops and Establishments Act.
- Terminations should be justifiable on legitimate grounds including (but not limited to) poor performance, misconduct, or redundancy.
How is severance pay calculated in India?
Severance pay is usually 15 days’ salary per completed year of service, as per Section 25F of the Industrial Disputes Act.
What Happens After Termination of Employment?
- Employees are entitled to a pay till notice period depending upon the type of termination and they may also be eligible for severance pay.
- Including a formal notice of termination explaining reasons and benefits due.
- Former Employees — if terminated improperly, may initiate legal action against the company.
- It is absolutely common practice to conduct an exit interview to gather feedback.
What Are the Rights of a Terminated Employee in India?
- Right to Notice Period or salary in lieu thereof: Employees are entitled to a notice period or salary in lieu-thereof in accordance with the contract or statutory requirement.
- Severance Benefits: Severance pay or retrenchment compensation for qualified employees.
- Protection from Discrimination: Employees cannot be terminated on grounds of gender, caste, or other discriminatory practices.
- Remedies through Legal Channels: Employees can file a grievance before the labour courts through the labour commissioner or approach the civil court for damages and arrears.
Can a Company Terminate an Employee Without Notice in India?
- Only gross misconduct will result in summary dismissal.
- Any allegations must be based on a fair and transparent inquiry by the employer.
- For all other cases, the notice period is mandatory.
Legal Termination of Employment
- A legal termination is only valid if it does not violate any laws.
- Employers must maintain relevant records, such as performance and investigation reports.
- Attempt mediation (or arbitration) for peaceful dispute resolution.
Conclusion: Navigating Employment Termination Legally
Understanding the different scenarios under which an individual can end their legal employment legally or when their employment can be ended immediately is crucial for both the employer and the employed. In this world of maintaining employee sentiments whilst promoting emotional quotient, employers have to ensure that they meet statutory requirements and be professional. In the same vein, employees must also know their rights to be treated fairly. Termination is possible with minimum conflict thanks to imbued transparency and adherence of both parties to best practices.
About Us:
Corrida Legal is a boutique corporate & employment law firm serving as strategic partners to businesses by helping them navigate transactions, fundraising-investor readiness, operational contracts, workforce management, data privacy, and disputes. The firm provides specialized and end-to-end corporate & employment law solutions, thereby eliminating the need for multiple law firm engagements. We are actively working on transactional drafting & advisory, operational & employment-related contracts, POSH, HR & data privacy-related compliances and audits, India-entry strategy & incorporation, statutory and labour law-related licenses, and registrations, and we defend our clients before all Indian courts to ensure seamless operations.
We keep our client’s future-ready by ensuring compliance with the upcoming Indian Labour codes on Wages, Industrial Relations, Social Security, Occupational Safety, Health, and Working Conditions – and the Digital Personal Data Protection Act, 2023. With offices across India including Gurgaon, Mumbai and Delhi coupled with global partnerships with international law firms in Dubai, Singapore, the United Kingdom, and the USA, we are the preferred law firm for India entry and international business setups. Reach out to us on LinkedIn or contact us at contact@corridalegal.com/+91-8826680614 in case you require any legal assistance. Visit our publications page for detailed articles on contemporary legal issues and updates.