Indian Labor Laws – Part 2 – Termination of Employee 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 necessitated due to the misconduct of an employee and compliance with the procedures required by the labor laws of India.

For clarity let’s take a hypothetical situation where the services of an employee 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 on his team, as well as 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. Considering 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 his place. The Company soon realized that it had not taken appropriate steps to terminate Mr. Nagpal’s services and is evaluating his involvement and exposure in accordance with the law.

Assessment

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

An employee is called a worker if he is employed to perform any manual, unskilled, skilled, technical, operational, clerical, or supervisory work for contract or remuneration. A person who is mainly employed in a managerial or administrative capacity, or who is employed in a supervisory capacity receives wages exceeding Rs 1,600 per month or performs duties primarily of a managerial nature is excluded from the definition of worker. Supervisor means a person who has the authority, in the interest of the employer, to hire, transfer, suspend, fire, recall, promote, fire, assign, reward, or discipline other employees or the responsibility to direct them or resolve their grievances or effectively recommend such action and in the exercise of such authority uses 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 in the “employee” or “non-employee” category and have held that mere managerial or administrative designations are not conclusive of any employee’s “non-worker” status.

The Supreme Court of India has repeatedly held that it is the main functions performed by an employee that should be taken into account for the purpose of determining the actual status of the employee, i.e. whether the employee has been performing clerical 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 technical/software development work would depend on whether the primary and principal functions performed by he were:

(a) those of a supervisory nature, that is, they had the power to give instructions to others on the actual way 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 primarily performed supervisory work, but incidentally or for a fraction of the time, also performed 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.

Given 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 category of worker 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. job. employment, or terminated due to continued ill health, etc. Termination for any other reason, including termination of service for reduced turnover, is tantamount to dismissal and the IDA prescribes a detailed procedure for the dismissal of a worker, including compliance with the last-come-first-serve rule. leave, notice, payment of prescribed compensation i.e. 15 days average salary for each full year of continuous service, prior government filings/approvals if required, etc.

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

(i) issue a charge sheet;

(ii) conduct an internal investigation;

(iii) carefully read the report of the investigating officer;

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

(v) issue sanction order.

In view of the above, the termination of Mr. Nagpal’s services for misconduct without following the principles of natural justice, viz. sending notices, consultations, providing the opportunity to defend the employee may be open to challenge. Violation of the provisions of the IDA makes the directors, manager, secretary, agent, or other officer connected with the management of the company liable for prosecution and penalties if the offense is proven to have been committed with knowledge or consent and would entitle to the dismissed employee to raise the dispute before the labor court and seek the restoration of services with back wages.

remedies

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 for the company to do the following:

(i) The Company must immediately settle and pay all outstanding debts owed by Mr. Nagpal, including tip under the Tip Payment Act of 1972, if applicable, as soon as possible.

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

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 compliance with the termination-related procedure before dismissing employees for misconduct.