Indian Labor Laws – Part 2 – Employee Termination for Misconduct

This is my second article in the series on employment and termination of employees by Indian corporations. My previous article addressed the question of whether an IT-enabled and software development company qualifies as an ‘industrial establishment’ within the meaning of the Industrial Disputes Act 1957 (“IDA”) and whether such a company can follow the ‘contract and fire policy for termination of necessary services for reasons other than employee misconduct without compliance with the IDA. This article deals with a situation where termination of services is necessary due to an employee’s misconduct and compliance with procedures required by Indian labor laws.

For clarity let us take a hypothetical situation where an employee services say Mr. Shyam Nagpal has been terminated by an IT company with immediate effect for misconduct and the company now wants to understand the legal consequences of such termination.

Mr. Nagpal was engaged in software development and officiated as “Group Leader”. As a group leader, Mr. Nagpal was responsible for supervising and regulating the work of two or three associates in his team, in addition to providing software development services. Mr. Nagpal’s performance during the first year of service was above average, but his performance deteriorated thereafter and he was frequently late for work. In light of Mr. Nagpal’s lackluster performance and due to the company’s decision to reduce its workforce, Mr. Nagpal’s services were terminated effective immediately with one month’s salary in place. The Company soon realized that it had not taken adequate steps to terminate Mr. Nagpal’s services and is evaluating his involvement and exposure under the law.


The validity of Mr. Nagpal’s dismissal and the consequences thereof under Indian law would largely be determined by the crucial question of whether Mr. Nagpal was a ‘worker’ within the definition of IDA.

An employee is called a worker if he or she is employed to perform any manual, unskilled, skilled, technical, operational, clerical, or supervisory work for hire or pay. A person who is primarily employed in a managerial or administrative capacity, or who is employed in a supervisory capacity receives wages in excess of Rs 1,600 per month or performs duties primarily of a managerial nature is excluded from the definition of a worker. Supervisor means a person who has the authority, in the interest of the employer, to hire, transfer, suspend, fire, remove, promote, lay off, assign, reward or discipline other employees or the responsibility to direct them or resolve their complaints or effectively recommends such action and in the exercise of such authority use independent judgment. Simply put, a supervisor is someone who has authority over others, to supervise and direct.

The Labor Courts and Civil Courts of India have considered the actual and predominant functions performed by an employee and the remuneration received by such employee as the basis for determining classification as “worker” or “non-worker” and have held that mere managerial or administrative designations are not conclusive of any employee’s status as “non-worker.”

The Supreme Court of India has repeatedly held that it is the main functions performed by an employee that must be taken into account for the purposes of determining the actual status of the employee, i.e. whether the employee has been performing administrative work, management or supervision. . An employee may occasionally be required to perform managerial, supervisory, or administrative work, but such occasional performance by itself does not determine the actual status of the employee and it is the primary or most important duty performed by the employee that determines the actual status of the employee and whether or not the employee in question is an IDA worker.

Accordingly, whether Mr. Nagpal, who was presumably not in a managerial or administrative role, was employed in a supervisory capacity as a Group Leader or for software development/technical work, would depend on whether the principal and principal functions performed by he were:

(a) those of a supervisory nature, that is, had powers to give instructions to others on the actual manner in which they should perform and carry out their duties and examine the work done by others to ensure that it was being done correctly, or

(b) of a nature carried out by a software developer.

If Mr. Nagpal did primarily supervisory work, but incidentally or for a fraction of the time, also did some software development work, then he was employed in a supervisory capacity and would not be an IDA worker. Conversely, if the primary work performed was software development, the mere fact that some supervisory functions were also performed incidentally or as a small fraction of the work performed by Mr. Nagpal will not convert his employment as a skilled worker. in one of supervision. ability.

Considering that the nature of the work performed by Mr. Nagpal was primarily software development and not supervisory, Mr. Nagpal would be classified as a “worker” in terms of IDA.

In terms of the IDA, an employee in the worker category who has been in continuous service for at least one year cannot be dismissed at the will of the employer unless the employee is dismissed through disciplinary means or as a consequence of non-renewal of the employment contract. worked. employment, or terminated for continued ill health, etc. Termination for any other reason, including termination of service for reduced turnover, is equivalent to dismissal and the IDA prescribes a detailed procedure for the dismissal of a worker, including compliance with the last-come-first-served rule. leave, notice, payment of prescribed compensation, i.e. 15 days of average wages for each full year of continuous service, prior government filings/approvals, if required, etc.

For termination of service for disciplinary reasons, the procedure for dismissal of an employee (who is classified as a “worker” under IDA) for misconduct and/or indiscipline (which should normally be incorporated into a company’s Employee Handbook) would need to be in terms of broad principles of natural justice, the IDA and the guidelines evolved from various court decisions as follows:

(i) issue a charge sheet;

(ii) conduct an internal investigation;

(iii) carefully read the investigation officer’s report;

(iv) issue a show cause notice to the employee; Y

(v) issue sanction order.

In light of the foregoing, the termination of Mr. Nagpal’s services for misconduct not following the principles of natural justice, viz. sending notices, queries, providing the employee with the opportunity to defend himself may be open to challenge. Violation of the provisions of the IDA makes the directors, manager, secretary, agent or other official connected with the administration of the company liable to prosecution and sanctions if it is proven that the offense was committed with knowledge or consent and would entitle to the dismissed employee to raise the dispute in the labor court and seek reinstatement of services with back wages.


In order to minimize the exposure arising from the termination of Mr. Nagpal’s services for misconduct without following the procedure prescribed by IDA, it is advisable that the company do the following:

(i) The Company must immediately settle and pay all outstanding debts due to Mr. Nagpal, including gratuity under the Payment of Gratuities Act 1972, if any, as soon as possible.

(ii) The Company must maintain adequate supporting evidence to demonstrate Mr. Nagpal’s poor performance on the job. Notices/reminders from the Company to Mr. Nagpal to improve his work and productivity should also be part of this paperwork.

In order to minimize employee-related disputes and complaints, it is advisable to abide by the rules and guidelines set forth in the Employee Handbook and exercise due caution and adherence to the procedure related to termination before terminating employees for misconduct.