What are the rights of an employee fired from the job?
Dec 20, 2022
It is the layoff season. Many companies around the globe are firing their employees in order to cut costs and save profits. In India, many people have left job especially in start-ups. However, not many employees are aware of their rights when they are fired and what they can do if fired wrongly or short-charged at the time of being fired.
We have lately heard a lot of news about mass layoffs at various information technology companies. This indicates that abrupt job losses can happen even in such sectors. However, not many employees are aware of their rights when they get fired without any notice or if they get short-changed while being asked to go. It is important that all employed people are aware of their rights.
Sanket Jain, Partner, Pioneer Legal, says, "Typically, employees are governed by the contracts they sign at the time of joining. However, laws related to labour and employee welfare are sacrosanct and override employment contracts. Currently, there are numerous laws related to the welfare of labour and the most prominent ones are the Industrial Dispute Act, 1947, and the Shops and Establishments Act, 1954. But these laws have inconsistencies and are inadequate to deal with the complexities related to labour."
There is no standard format for employment contracts under labour laws. So, if the labour laws are silent about any issues (say, compensation payable in the event of being fired), then the contract will prevail.
If an employment contract states that the employee is entitled to compensation worth 30 days' wages in the event of a layoff but the applicable labour law states that 90 days' compensation is payable, then the provisions of the labour law will prevail over the employment contract, says Jain. On the other hand, if the law dictates compensation of 30 days' wages whereas the employment contract directs payment of 60 days' compensation, then the employment contract will prevail over the labour law. Effectively, it is the larger of the two amounts that will be payable to the employee, he explains.
Abhishek Mathur, Partner, Luthra & Luthra Law Offices India, says, "After Independence, labour laws were drafted primarily with the intent to protect the interests of the workers, who typically had lower bargaining power. Broadly speaking, the legal framework, in the context of industrial relations and disputes, categorises employees as workman or worker whose nature of job is not managerial or administrative (typically covering workers in the lower rung of the hierarchy)." The other category is of people who have managerial or administrative or a higher profile.
Labour laws closely regulate the termination or retrenchment of such workmen (non-managerial) and supersede the terms of their employment agreement. "However, for other employees having managerial, administrative or higher profile, the law generally allows the parties to determine their own terms of engagement, including termination, subject to certain overriding provisions under any applicable laws like the Shops and Establishments Act. Termination clauses in such employment agreements are generally of two types: one where the employer or the employee can terminate the employment without necessarily attributing any reason but by giving an advance notice, and the other where the employer can terminate the employment for some fault of the employee, as mentioned in the agreement," Mathur adds.
Under the "For fault termination", a company can fire an employee for breaching the terms of the employment contract. This includes acting against the interests of the company. In such cases, the employment agreement may not provide for any notice period or detailed termination procedure. The employee may be asked to leave the job immediately.
In case a company wants to fire an employee to implement cost-cutting measures or any other reason where the employee is not at fault, the employment agreement normally provides that the employee get an advance notice (often 30 to 90 days).
PV Ramana Murthy, Head of Employment and Labour Law Practice, Economic Laws Practice (ELP), says, "The services of an employee who falls under the non-worker category under the Industrial Disputes Act, 1947, are purely governed by the applicable employment contract. When an employer wants to terminate the services of such an employee, they can do so by invoking the relevant clause under the employment contract and by following the conditions laid down under the contract. For example, the employer can terminate the services of an employee by giving the prescribed notice period or paying salary in lieu of such notice. Many times, Indian employers invoke this clause to terminate their employees by issuing a 'termination simplicitor', which means without assigning any reason whatsoever."
Mathur says that the termination clause in employment agreements (with managerial/white collar/higher profiles) usually stipulate that the company can bypass the requirement of giving advance notice to the employee by paying salary and other benefits, as per the agreement, in lieu of the notice.
Often key employees in large corporations are able to get termination provisions that give them some benefits, such as a substantial severance package, worked into the employment agreements. That is how we often hear of large sums being paid to high-profile employees of large companies when they are let go.
What can a fired employee do?
Mathur says, "Where the terms of employment are governed by the provisions of an employment agreement, an employee who is terminated wrongly can sue the company for acting in breach of the terms of the agreement.
Similarly, where the employee does not get the benefits due on termination, the employee can make a claim for such benefit. In cases where termination of a workman is governed by provisions of labour laws, the law itself stipulates the remedy available to such worker."
Thus, if a terminated employee is given a shorter notice period or is paid less compensation than what is mentioned in the employment contract, it is considered a breach of contract. In such a scenario, an employee can sue the company for breach of employment contract.
Jain from Pioneer Legal says, "Breach of employment contracts is dealt with by the labour courts usually in case of blue-collar employees. However, an employee who has signed an employment contract can also approach a civil court for breach of employment contract. The jurisdiction of courts will be determined based on your place of work."
Prominent labour laws
Industrial Disputes Act, 1947: Does it apply to you?
As mentioned above, if the employment contract is silent on any issue, the laws on such issues will be applicable. Normally, an individual will either be covered under the Industrial Disputes Act, 1947, or the Shops and Establishments Act.
The Industrial Disputes Act is a central law, so the rules are the same throughout the country. An employee will be governed under the Industrial Disputes Act if she/he satisfies the definition of 'workman'. Broadly speaking, the act defines a workman as an individual who is not working in an administrative or managerial capacity.
Even if an employee satisfies the definition of a workman, other parameters must also be satisfied before the person can get the cover of the Industrial Disputes Act. Some of the parameters are the nature of work, the industry and so on.
If an employee covered under this act is fired, she/he is eligible for retrenchment compensation. "The retrenchment compensation is payable as 15 days of last drawn basic salary for each completed year of service," says Jain.
Further, government permission is needed for firing employees if the establishment covered under the Industrial Disputes Act has employed 100 or more workmen a working day for the past 12 months.
According to the act, a company or establishment is required to provide the reason for termination. However, the act would not apply to employees who do not fall under the definition of workman or to employers that do not qualify as an industrial establishment according to the act.
The Shops and Establishments Act: Does it apply to you?
If an employee is not covered under the Industrial Disputes Act, then the provisions of the Shops and Establishments Act will override the terms of the employment contract to the extent they are inconsistent with the provisions of this act. However, the establishment where the employee works should fall within the purview of this act. Each state has its own Shops and Establishments Act and so the case would depend on where the employee's place of work is situated.
For example, an employee working in Hyderabad for a multinational company with multiple offices in India will be covered under the Shops and Establishments Act of Telangana.
Read the contract
As the current laws are old and archaic, individuals need to read their employment contracts first. Jain says, "An individual joining a firm must carefully read and understand the terms of the employment contract. There may be areas in the contracts (apart from salary) that can be negotiated."
Change in labour law coming
The government is planning to replace the old labour laws with the Industrial Relations Code, 2020. Though the laws have been passed by Parliament, the date of implementation is pending. Mathur says, "Given the need for uniformity and clarity in the application of labour laws, Parliament has enacted four separate laws, generally referred to as the labour codes. These codes have consolidated and amended dozens of existing labour laws. However, these labour codes are yet to be notified. These codes strike a reasonable balance between protecting the interests of the employees and the requirement of certain flexibility and clarity for industry."
[The Economic Times]