Understanding Termination Clauses in Employment Contracts

Dear All,

I have a query regarding the termination clause for a confirmed employee. If an employee is terminated due to non-performance and the company does not want him to serve the notice period, is the company liable to provide an advance of one month's salary?

Kindly shed some light on this matter.

Thanks.

Regards,
Aarti Khanna

Dear Aarti,

To my knowledge, the company is not liable to pay for one month, as this does not fall under normal termination. Usually, there is an article in the termination clause of the employment contract which states that the company reserves the right to terminate the employment agreement with or without notice in cases of gross misconduct, disciplinary issues, poor performance, violation of ethical standards and/or community values and standards, fraud, etc. The service of the employee with the company will be terminated with immediate effect.

Best Regards,

Sameer

Fine. Hopefully, it should be mentioned in the letters. Then only, it is applicable.

Regards,
Aarti Khanna

But I think before we terminate on the basis of poor performance, you need to have a solid written proof. For example, in his career, you should have given him some warning letter(s) regarding his poor performance while evaluating him and explained to him.

Kiran Nampally

According to me, the details on termination should be given in the appointment letter if a company wants to terminate an employee due to poor performance. As Kiran has rightly pointed out, you must have solid written proof of the same before terminating.

Thanks,
M. Kannan

Hi Aarti,

First of all, when terminating someone, certain points must be taken into consideration. On what grounds are we terminating him? For poor performance, disciplinary matters, breach of law, etc. Whatever the reason may be, he must be asked to provide his explanation for the allegations against him. According to natural justice, everyone has the full right to present his side/opinion to protect his job.

Whether it is included in the letter of appointment, he must be asked through proper notices for the allegations proposed against him. In cases of termination, only on the basis of the appointment order's clause, the court can have a sympathetic view towards the terminated employee, and this may work in his favor.

So, based on my knowledge, in cases of terminating confirmed employees for various reasons, please consider all possibilities before making any further decisions.

Regards,
Atul Malve

Hi,

As rightly mentioned by Atul Malve, there should be some justification for terminating any employee. First of all, is the employee provided with the job description? What are his/her key result areas? What was his previous performance, and what actions have his seniors/superiors taken to improve his performance? Has this information been effectively communicated to the employee, and has his confirmation been obtained?

Above all, we should not forget that we are dealing with human beings. Termination is not a trivial matter. The message conveyed to the co-employees through the termination is crucial. If other employees perceive it as victimization, it can lead to significant issues and instability among the workforce. Therefore, it is essential to handle such situations carefully. If the employment contract specifies a one-month notice period, it is advisable to honor it by paying the one-month notice and ensuring a clear exit. This approach helps mitigate legal implications and provides the employee with an opportunity to search for a new job.

Thanks and regards,
Kamesh

Dear All,

This is what was quoted by Aarti: "If an employee is terminated on the basis of non-performance and the company doesn't want him to serve the notice period even." I think the question is not about what measures should be followed before terminating an employee; the question is about whether, if an employee is already terminated due to poor performance, the company is liable to pay for the notice period or not???

Best Regards,
Sameer

Hi,

I am giving my comments for the first time. As an HR Manager, I would like to focus more on the preventive side. In every company, there is a probation period, and it is during this period that we should assess the team member's ability to perform. This evaluation encompasses both attitude and skills.

If the individual does not meet the required level, terminating them during the probation period is the best solution, as there will be no need to pay any compensation.

Thanks for all your views.

But what about the person on confirmation? I think it's the management of the company who plays a major role in formulating the policies and molding them too. It's mainly at their discretion.

But in any case, does the company need to pay any kind of salary for a confirmed employee upon termination?

Regards,
Aarti

Hi Aarti,

Consider the following:

Any person who worked with any company for 240 continuous days is supposed to be a confirmed employee.

If management wants to sack him for any reason, first, you need to give him/her a show cause notice and wait for his reply.

If his reply is satisfactory, you must give him time to improve. If his reply is unsatisfactory, you can keep him under suspension and organize for an internal inquiry (to be conducted by a qualified lawyer where management and the employee will be at liberty to present their side).

During the suspension period, the company needs to pay "Subsistence allowance". For the first 90 days, 50% of the total salary; for 91-180 days, 75% of the total salary; after 180 days, the full salary needs to be paid as subsistence allowance.

The company needs to wait for the internal inquiry result. If whatever management says is proved (e.g., lower performance in your case) in the internal inquiry, you can proceed with punishment based on the gravity of the offense (lower performance in your case).

After this internal inquiry and subsequent punishment, the victim (punished employee) can put forth his case before the labor commissioner.

The labor commissioner will try to resolve issues between management and the victim to his best ability without compromising laws. If it cannot be resolved at his level, he will forward the files stating the issue not resolved to the labor court.

In the labor court, both have the right to fight on their own and win or lose.

In the above sequence, if anything is not followed, management will be liable for declaring punishments on its own will and wish.

For deciding on punishments based on the gravity of misconduct, you need to seek advice from lawyers or refer to previous labor law judgments.

In most cases, labor courts give decisions in favor of workers.

Devarajan

9841822629

Dear Aarti,

Please check the appointment letter issued to the concerned employee to see if the termination clause includes performance issues along with conduct. If so, you can terminate without providing any notice pay, even if the employee is confirmed in the services of your company, provided the following points are satisfied:

1. A memo/notice must have been issued to the employee suggesting improvement in performance.
2. A show cause notice is required, providing reasonable time for the employee to give an explanation.
3. The principles of natural justice should not be violated; therefore, reasonable time should be given for the employee to reply.
4. An inquiry must be conducted in the presence of a witness based on the employee's reply.
5. You must have all the above documentary evidence with you.

If you have completed this process, a termination letter can be issued without giving notice pay.

With Best Wishes, Srinivas

Dear Aarti,

Please review the appointment letter issued to the concerned employee to check if the termination clause includes performance issues along with conduct. In such cases, you can terminate the employee without providing any notice pay, even if the employee is confirmed in the services of your company, provided the following conditions are met:

1. A memo/notice must have been issued to the employee, suggesting improvement in performance.
2. A Show Cause Notice is required, giving the employee reasonable time to provide an explanation.
3. Principles of natural justice should not be violated, so it is necessary to provide the employee with a reasonable amount of time to reply.
4. An inquiry must be conducted in the presence of a witness, based on the employee's response.
5. Ensure you have all the above documentary evidence.

If you have completed this process, a termination letter can be issued without providing notice pay.

With Best Wishes,
Srinivas

Dear member,

In your query, one point is not clear. Whether the employee is on probation or has been confirmed by your company. Please refer to the clause of termination in the appointment letter given to the employee by your company. In all probability, if the company does not want to serve the notice of termination, the employee should be paid salary in lieu of the notice period, applicable to him.

Thanks & regards,

R. K. Nair

Hi,

In my opinion, if an employee is being terminated during the probation period, then the company is not liable to give them notice. However, in the case of a confirmed employee, the company is liable to pay them advance salary for the mentioned notice period.

Dear Aarti,

Let us keep it simple: If there is a Notice Pay clause in the Appointment letter, it is applicable both ways. If an employee resigns, he must either pay or serve the notice period. Similarly, if the employee is terminated, the date of termination from the date of intimation should cover the notice period, else the Company needs to pay.

The terms which are important and only relevant are two: Termination and resignation. It is totally irrelevant to get into the reasons leading to any of the above acts or whether the act is valid. Therefore, even if the termination is not legal, it is a separate issue and in no way connected to the notice pay.

Regards, SC

Hi everyone, I am new to this forum. I have a query regarding the salary structure in my company. I am responsible for preparing the HR department and other processes. Our payslip contains the following components: basic = 50% of gross, HRA = 50% of basic, conveyance = 800, medical reimbursement = 1250, and the remaining amount as other allowances. I designed this structure to avoid the company's contribution to PF for employees with a basic salary above 6500/-. However, I am now confused because giving them a hike next year might create issues with their basic pay.

I followed the 50% basic rule for metro cities, but I am open to suggestions on a more favorable and beneficial salary structure for the company, similar to other IT companies. Please advise on a better method with percentages.

In my 32 years of career and 8 companies, I have seen a termination order issued only once. In that case, the company went for settlement with the employee as the employee filed a case in court. Mostly, HR managers try to obtain resignation from the employee. Whatever you may state in the appointment order, it cannot override the constitution of India.

Apart from termination, recently, a few employees were denied terminal benefits like PF and Gratuity on the last date of their retirement.

To All,

What Devaranjan and Srinivas have stated is absolutely correct. Any employee completing continuous 240 days of service is entitled to get one month's notice or pay in lieu thereof in case an employer wants to terminate the services of an employee. Failing this, the employee can have the termination order quashed by the labor court under the Industrial Disputes Act. In the case of non-performance by an employee, the employer can take action for termination only after conducting a domestic inquiry as per the Industrial Disputes Act, as described by Mr. Devaranjan and Mr. Srinivas.

Thanks,
Y C Bhardwaj
Ph: 9891998574

PF and gratuity are not terminal benefits. The employer has no power or authority to stop PF. Even if the employer is not willing to provide PF withdrawal/transfer forms, it is quite possible for the employee to obtain them from the PF authorities.

With Best Wishes,

Srinivas

Dear Aarti,

To terminate a confirmed employee, there is no option except any one of the followings: 1) Pay the notice period salary to get rid of the non-performing employee immediately to avoid spoiling any more work of the organization; OR 2) Save the notice period salary, BUT BEAR WITH paying the salary to the non-performing employee for the duration of the period until you are able to prove indiscipline/non-performance on the part of the employee by adopting a due long process of disciplinary action against him by giving him/her notice, waiting for a reply, appointing an inquiry officer to adopt a due domestic inquiry process, giving due consideration to the inquiry report, and then deciding to terminate him/her, and getting the organization's efficiency more spoiled. HOWEVER, by this process, you can save the amount of gratuity due to his/her termination on account of indiscipline. SO, IT IS YOUR DISCRETION to choose any one of these two options.

Dear All,

I have a query regarding the termination clause for a confirmed employee. If an employee is terminated based on non-performance, and the company doesn't want him to serve the notice period either, then is the company liable to give him an advance of one month's salary? Kindly shed some light on the same.

Thanks.

Regards, Aarti Khanna

Dear Aarti,

Once you have terminated the services of a confirmed employee and the terms of exit as stipulated in the Appointment Letter say "one month's notice," then you are bound to pay the employee one month's salary. Also, allowing a terminated employee to serve out the notice period is not advisable.

Best Wishes,
Vasant Nair

Hi,

Termination can be done without assigning a reason. However, you need to pay the salary as per the terms of the appointment, which may be one or two months depending on the terms of the contract. If you are providing any reason for termination, you need to go through the disciplinary action process.

Thank you.

Dear Sameer
Reason for non performance must be important and also depend on type of work and other many thing also,
In any normal condition u can not terminate an employee u can only retrenchment,... ''Non performance'' found if habitual, practice made by employee and time period of non performance all these thing important for termination , after all we should settle the case because a short period of non performance is not able to go termination.

Hi,

I am in the process of terminating the services of an employee who is currently on probation. She is a female employee and is pregnant. I would like to handle this matter sensitively. She has been regularly informed about the need to improve her performance, but there has been no significant change.

Please suggest if there are any legal implications if we terminate her and provide some tips on handling this matter appropriately without causing much distress to the employee concerned.

Thank you.

Hi Aarti,

Mr. Atul is correct; it doesn't matter whether you mention the termination clause in the letter of appointment. Every establishment is supposed to follow certain procedures in case of termination. If your establishment is covered under the Shops & Establishment Act, then go through the Act for termination procedures. Similarly, if it is under the Factories Act, then you may follow the same procedure laid down in the Act.

However, for any reason, every employee should be given an opportunity to provide an explanation or enough time to prove their performance in writing. In the aforementioned case, you are supposed to pay him notice/salary for 30 days. Otherwise, you may have to face legal implications.

You may be in a hurry to hire, but be careful when firing.

Best regards,

Vishwanath

Hi,

The termination depends on the level of the employee, specifically, performance appraisal. You should have appraised him of his performance in the previous reports. Additionally, you need to counsel him and warn him about his lackadaisical approaches. If he continues to underperform, place him in the firing line and terminate his services. Keep him informed that he is under scrutiny and will be terminated if he continues to underperform. One month's salary is not required.

Regards, Shankar

I think that depends on Company Mercy. Management needs to decide whether to allow a notice period or not. Non-performance is not an immediate situation; it requires time to address. The key issue is how serious seniors are about performance as they are equally responsible for their performance.

Dear All,

I have read the various posts on the issue of terminating the services of an employee for non-performance. In my opinion, there's a huge confusion that has been generated on this simple matter - "whether one month's wages are to be paid to the employee or not".

The appointment letter always has an exit clause mentioned in it, be it resignation or termination of the services of an employee. In either case, notice or salary/wages in lieu of such notice is to be given by one party to the other.

In the present case, it is very simple - act according to what is mentioned in the Appointment Letter. In all likelihood, there should be a one-month notice clause contained in the Appointment Letter. If so, then my dear friend, your Company is obliged to pay the concerned employee one month's salary/wages as part of his/her full and final settlement.

Trust the matter is clear now.

Best Wishes,
Vasant Nair

Dear Vasanth Nair & M/s. Aarthi Kanna,

Appointment order will not hold good when this termination was fought as a case with trade unions, labor commissioner & labor court. Hence, it is better not to go as per the appointment order but to follow the law (ID Act & standing order).

In any case, it is better to pay notice pay or more than notice pay and support the employee until he finds another job and settles down. Keeping the employee in your control is very important even if you no longer require his services.

Devarajan.N.R

Termination Notice

During the period of probation and after confirmation, the services may be brought to an end by either side giving one month notice to the other or paying one-month salary in lieu of notice. This is not applicable in the case of discipline, attendance, non-performance, or any other disobedience of company rules.

This is the termination clause mentioned in our app/confirmation letters. I think salary giving is not applicable.

Dear Aarti,

I don't know what you are presuming about termination on account of discipline, attendance, non-performance, or disobedience. But, if you think that your organization can terminate the employee with one stroke by merely issuing the termination letter without observing due formalities required in disciplinary proceedings, I am afraid your presumption is not correct. The very next day, the employee will go to court and prove his termination to be wrong. This would come over the head of the management, as a more undisciplined employee, becoming a headache for the management as well as other colleagues and spreading indiscipline among other employees.

So, even in cases of discipline, attendance, non-performance, and disobedience, you may also have to give him an opportunity to defend against the charge by serving him with a notice/charge sheet and to prove the charge against him before his termination.

SO, PLEASE DON'T FORGET TO TAKE ADEQUATE PRECAUTIONS BEFORE TERMINATING ANY CONFIRMED EMPLOYEE. The rest depends on you and how you would like to take my advice.

Hi Arti,

In your case, please see your appointment letter. Does it contain a clause regarding your obligation and that of the company's at the time of dispensing with the service? If not, does your letter specify that your service is terminated for lack of proper performance? If so, it amounts to charging you for inefficiency, for which they should give you a proper opportunity to explain your conduct/situation. If that is not done, your termination of service is illegal. If you are not in the probation period, you ought to have the employer pay for the notice period in lieu of the notice.

Aarthi,

You need to be appraised in detail. Please give a call to my mobile 9841822629 or our office landline 044-27168024 extn 612 and ask for Devarajan.

Deva

This is for information of all that there is no provision for termination or any procedure laid down for the same under the Factories Act.

Also, it is relevant to state that there cannot and should not be any conflict with regard to terms and conditions of employment stipulated in the Company's Standing Orders and those mentioned in the Appointment Letter.

Well, as Mr. Dhingra has very correctly summed up that while terminating an employee's services all relevant safeguards MUST be considered before implementing such decisions to avoid legal complications and resulting grief at a later stage.

Vasant Nair

Dear Mr. Vasanth Nair,

The Factories Act and Standing Orders are essential for the day-to-day operations of any company. In the case of termination, one must adhere to the Industrial Disputes Act.

--Deva

Dear Devjani,

The Industrial Disputes (ID) Act does not lay down any specific process or procedure for the termination of an employee. Instead, it is the Company's Standing Orders that outline the entire process of employee separation. Any industrial dispute that arises typically falls under the provisions of the ID Act.

Thank you for educating me on this matter!

Cheers,
Vasant Nair

Termination of a confirmed employee without notice or pay in lieu of notice can be challenged in court. Such termination may be treated as illegal. You must give a warning letter first, and then you can proceed with termination if performance does not improve. This is injustice. Why did you not terminate when the employee was under probation? An employee alone is not responsible for performance decline. A mentor or the boss is equally responsible.

Dear All

Is below termination is Valid & employer is liable to pay Two months salary along with pending salary of 15 days + compensation for mental torture & harassment !

I am confirmed employee and worked in Sr position with MNC. I requested through e-mail to my employer for for causal leave due to some swear problem !My services are terminated without giving me any notice " my appointment letter having a clause that "12 Termination of employment

During the probationary period and any extension thereof, your services may be terminated on either side by giving one month’s notice or salary in lieu thereof. However, on confirmation the services can be terminated from either side by giving two months(60 days) notice or salary in lieu thereof.

my query is Is employer is liable to pay my pending salary that was for 15 days

2 That employer is liable to pay Notice period salary that is for Two months

That employer is also liable to pay Compensation for illegal termination .

Reason of termination is that just asked for medical/causal leave and also deputed my junior in my absence for looking after my work and whole year about 20 casual leaves are also pending against me . first i received a mail from company director that

"Any how you are free to discuss your problems with me at any time during 24x7. you should have informed me before going at-least on phone Please try to contact me on my cell phone and discuss your current problems meanwhile i will request ED who will allow you to work on your laptop"

After few days i received another mail from office network .

"Since you are absenting from your duties w.e.f ------ without any prior approval from undersigned. Further to inform you that undersigned made several phone calls but you did not respond. You intentionally switched off your cellphone.Keeping the above in view that it seems you are not interested to serve further more with the company and management has lost confidence in you.Your services are hereby terminated from the strength of the company with immediate effect.You are hereby advised being a Manager that huge charge is lying with u. It will be better that you should hand-over the charge of your Dept. and submit your identity card and other official documents to undersigned "

Lastly i replied exact wording is given below

"As per my last mail i applied for Medical Leave and also replied to your mail in which you have requested ---- to allow me to work through my Laptop and also discuss with you verbally through phone and my cell phone is never switched off since ------ , if you also lost faith on me then you can ask me to resign my self instead of terminating me like this way and in my ---- years experience no single employer has terminated me and your termination is total violation of principle of natural justice . As per the rules of the company & conditions of appointment letter , terminated employee is liable to pay two months salary by the company in case of termination by the employer .So now what i assume i am on Medical leave or Terminated ,

Thanks "

manjiv

Dear Manjiv,
You did not mention whether you had had a phonic talk or not with your director when you were first asked to contact him on cell phone and if had a talk, what was the outcome of discussion between you and the director?

Just meet them in person. They will take you back. They didn't follow the termination procedure as laid out in the ID Act. Sacking for leave will not stand in a court of law. If you make a case, you will win. Consult a lawyer if required.

Devarajan

Hi Arti,

Termination of service for non-performance is not a normal action of the employer, which may involve a controversy regarding the admissibility of notice or notice pay in lieu thereof. Pre-conditions in the instant case are as follows:
(a) Laying down of performance norms by the employer on record;
(b) Communication of these norms to the employee concerned, like all other employees falling in the category;
(c) Communication by the employer to the employee regarding deficiency in his performance and allowing him an opportunity to explain his conduct in this regard to meet the requirements of natural justice.

If the above parameters have been complied with by the employer and he is not satisfied, he can then terminate your services, and for that, no notice period is required.

Dear All,

In the event an employee is terminated without any clause in the appointment letter specifying termination due to poor performance or misconduct, the employer is liable to pay the employee's two months' notice period salary if the employee is confirmed. If the employee serves a legal notice regarding this matter along with a request for compensation for harassment and mental agony, the employer is also liable to pay.

Hi,

Is the process of termination discussed for employees at the workman and executive levels the same or different? When terminating an employee for poor performance, is the procedure the same after completing the probationary period and confirming their work status? If the processes differ, could you please clarify how they vary?

Regards,
Bharat

Hi Arti,

The instant case does not fall within the ambit of cessation of employment by either side in the normal course. Non-performance is one of the misconducts as defined under rules of conduct applicable to the employee concerned, and the case shall have to be dealt with accordingly. The clause of one month notice by either side will not apply.

S.K. Johri

No confirmed employee can be terminated without paying some compensation. This could be a minimum of one month. If an employee is terminated without being given any notice or compensation, and if he makes an appeal in court, the compensation amount may increase to three months if he is able to prove that he has been victimized. Termination of a confirmed employee is normally not done; instead, the company pays some compensation and obtains a resignation to settle his account.