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Many IT professionals in India seem to be facing a tough time on account of tightening of the visa regime in the United States of America. Amongst other drastic measures being adopted by the Indian IT giants on account of the said factor, they are being witnessed to cut their staff strength substantially. The challenge for both employers and employees in the IT sector (in India) may escalate further if the recent McKinsey report is to be believed, according to which almost half of the IT services workforce in India will become redundant in the next three to four years. However, the issues and challenges concerning dismissal of employees is not limited to IT industry, as the legal complexities surrounding termination appears to be prevalent across all industries.

Though the existing legislative framework in India specifically deals with several situations under which an employee may be terminated, however, employers are till date seen to be struggling with certain situations / events not specifically captured under the applicable enactments. Dismissal of employees on grounds of non-performance may qualify as one of the said situations. This article makes an attempt to analyze the the legal obligations and pre-conditions which an employer should take into consideration while terminating an employee on the grounds of non-performance.

Termination of Workman

Indian labour laws make a distinction between an employee who is categorized as a ‘workman’ and the ‘non-workman’. Employees that primarily discharge (i) administrative or managerial functions or (ii) those rendering supervisory functions and earning more than the prescribed threshold are not considered to be workmen. The Industrial Disputes Act, 1947 (“IDA”) is the key federal statute that governs industrial relations in India and grants certain special protections to workmen (as compared to the non-workmen category of employees) in case of termination of their employment including their retrenchment. ‘Retrenchment’ as defined in the IDA means termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action and specifically excludes the events of voluntary retirement of workman, retirement on reaching the age of superannuation, termination as a result of non- renewal of contract of employment or termination on the ground of continued ill- health.

In view of the aforesaid and considering that the applicable laws do not specifically deal with the said subject matter, it may be imperative to examine whether termination of a workman on the grounds of non-performance attracts the statutory provisions of ‘retrenchment’ (as defined under the IDA) or would fall within ambit of the said exception of misconduct (i.e. the case of punishment being inflicted by way of disciplinary action).

Whether a case of ‘misconduct’ or ‘retrenchment’?

The Supreme Court of India in State of Punjab and Ors. v. Ram Singh Ex. Constable, partially examined the said question and observed that the word misconduct though not capable of precise definition, its reflection receives its connotation from the context, the delinquency in its performance and its effect on the discipline and the nature of the duty. It may involve moral turpitude, it must be improper or wrong behaviour, unlawful behaviour, wilful in character, forbidden act, a transgression of established and definite rule of action or code of conduct but not mere error of judgment carelessness or negligence in performance of the duty. In yet another case of Rajasthan State Road Transport Corporation v. Jagdish Ram and Anr., the Rajasthan High Court, clearly laid down that termination on the basis of unsatisfactory service does not invite an inquiry (for misconduct). Thus, the aforesaid judicial pronouncements clearly suggest that termination of a workman on the grounds of unsatisfactory performance do not invite the statutory provisions and procedures relating to misconduct.

The Supreme Court of India, while dealing with similar subjects prior to notification of the term ‘retrenchment’ in the IDA (in the year 1953), narrowly interpreted the term retrenchment in Pipraich Sugar Mills Ltd. v. Pipraich Sugar Mills Mazdoor Union, to mean discharge of surplus labour force. However, even after incorporation of the said definition by the law makers, the Indian courts continued to interpret the said term to mean merely the discharge of surplus staffs or labour force in a running or continuing business or industry for reasons such as economy, rationalization in industry, installation of new labour saving machinery, etc. The words ‘for any reason whatsoever’ (as incorporated in the definition of the term ‘retrenchment’) were not interpreted in their literal sense to include reasons arising out of any act of commission or omission on the part of the workman (like loss of confidence, performance issues, etc.).

However, the Indian courts took a contrary view in later part of the century thereby removing the cobwebs with respect to definition of the said terminology. In the year 1983, the question again came before the Supreme Court in the matter of Management of Karnataka State Road Transport Corporation v. M. Boraiah and another, wherein it was held that termination on the ground of services not being found satisfactorily falls within the ambit of retrenchment. Further, in a landmark case of Punjab Land Development and Reclamation Corporation v. The Presiding Officer, Labour Court, Chandigarh, the Full Bench of the Supreme Court confirmed that the words ‘for any reason whatsoever’ needs to be interpreted and understood in a much wider and literal sense. Accordingly, the term ‘retrenchment’ was finally held to mean the termination by the employer of the services of a workman for any reason whatsoever (without limiting the criterion for retrenchment to the extent of superfluity of labour or staff) except those specifically excluded from the definition.

The aforesaid judicial observations reflect the existing legal position and outlines the roadmap with respect to termination of a workman on the grounds of unsatisfactory performance.

Termination of Non-Workman

In India, every state has its independent Shops and Commercial Establishments Act (“S&EA”) which regulates employment conditions in shops and commercial establishments. Termination of non-workmen category of employees (working in a shop or commercial establishment) are broadly governed by the provisions of S&EA being applicable to the respective employee, read with terms and conditions of the employment contract executed between the parties.

Under most of the S&EA, an employee is entitled to notice of one month or wages in lieu of notice if the employer wishes to dispense with the services of that employee except in case of misconduct. Where an employee’s services are terminated on account of misconduct, an employee is not entitled to any notice or payment in lieu thereof. Generally, the said enactments define misconduct to include acts of theft, fraud, misappropriation or dishonesty in connection with the employer's business or property. The scope of the said definition has however not been extended to capture the circumstance of inefficiency or unsatisfactory performance by the employee. In view of the aforesaid, it may be concluded that the said notice period is a pre-condition for terminating an employee, including the case of termination on the grounds of inefficiency or unsatisfactory performance. The Madras High Court while dealing with the question that ‘whether or not the notice period requirement (referred under the Tamil Nadu Shops and Establishments Act, 1947) gets attracted in the event of termination on the grounds of inefficiency’, in the case of Miss T.N. Chandra
v. South India Corp (Agencies) Ltd. and another, held that an employee cannot be thrown out of job on the ground of 'extremely unsatisfactory conduct' without following the procedure established by law and putting the employee to notice.

Pre-condition for initiating the termination procedure

An employee may challenge / dispute the case of his or her termination by the employer (on account of non-performance) mainly on two grounds, namely by questioning the procedural aspect (of the termination) and by denying existence of the element of non-performance. Therefore, despite complying with the aforesaid legal requirements, a termination may construe to be bad in law if the employer fails to prove (in the respective forum) the existence of the alleged grounds amounting to termination. In this regard, for the purpose of analyzing the genuinity of employer’s allegation (i.e. non-performance), the Indian courts have generally been witnessed to take into consideration the warnings / communications made by the employer to the employee concerning the deficiency in the services. In the case of M. Visvesvarya Industrial Research and Development Centre v. Mr. Dilip Madhavrao Vaidya, the Bombay High Court, has observed that the cases where communication is found to be insufficient in this regard, the same may be construed to be arbitrary exercise of employer’s power. In fact, the Supreme Court on the said issue observed that an informal, if not formal, give-and-take, on the assessment of work of the employee should be there. The employee should be made aware of the defection in his work and deficiency in his performance. The Supreme Court of India has also observed in the case of Dr. Mrs. Sumati P. Shere v. Union of India, that timely communication of the assessment of work in such cases may put the employee on the right track. Without any such communication, it would be arbitrary to give a movement order to the employee on the ground of unsuitability. Thus, it is advisable for the employers to establish and record a formal line of communication with the employees with respect to their performance evaluation.


In the absence of any defined set of rules specially designed for the cases of non-performance, the Indian courts have walked an extra mile to unfold the complicated legislative framework and demarcating the intent of the law makers in relation to termination of employees on account of performance issues. However, with the growing number of cases concerning such terminations, it may be prudent for the legislators to notify a simplified procedure and requirements for the said purposes.

Further, the complex labour regulations in India have constrained the growth of the formal manufacturing sector where these laws have their widest application, clearly indicating a need for modification of the same, in light of the economic objectives of the nation. Though the government of India has been taking various initiatives to simplify the labour law regime in India with an intent to promote the country as an investor friendly destination, however, a sigh of relief has yet not been offered to the employers on issues such as discussed in this article.
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In exercise of the powers conferred by Section 112 of Factories Act, 1948 (“Act”), the Government of Tamilnadu published the amendment to the Tamil Nadu Factories Rules, 1950 (“Rules”) vide gazette notification dated April 26, 2017. The said notification inserted rule 84 B prescribing the guidelines for the employment of women in night shifts, making it mandatory for the occupier of the factory to take all steps to prevent the commission of the acts of sexual harassment in the factory.


Ministry of Labour & Employment vide notification no. G.S.R.404 (E) dated April 25, 2017 has amended paragraph 68-J and paragraph 68-N of Employees’ Provident Fund Scheme, 1952 (“Scheme”). According to the amendment, a member would only be required to submit a self-declaration to withdraw provident fund savings to pay hospital bills in case of serious illness. A member would no longer be required to submit any medical certificate or any other certificate or document or any proforma, whatsoever, to avail advances under paragraph 68-J or under paragraph 68-N of the Scheme.


The Income-tax Appellate Tribunal (“ITAT”) while adjudicating the income-tax dispute appeal filed by Mr. N. Rebello against Reliance Communication and Sistema Shyam Teleservices, has held that an amount deducted by an employer for not serving out a notice period cannot be brought to tax. In this case, two companies while settling dues had deducted salary for the notice period which the person had not served, but this deduction was not taken into account during tax assessment. However, the Ahmedabad bench of ITAT vide its order dated April 18, 2017, said the only salary received would be taxable, and not portions which were deducted by a company for not serving out a notice period.


In exercise of its powers under Section 18 of the Child and Adolescent Labour (Prohibition and Regulation) Act, 1986 (61 of 1986), the Ministry of Labour and Employment vide notification dated April 20, 2017 has notified the Draft Child Labour (Prohibition and Regulation) Amendment Rules, 2017 (“Draft Rules”) to amend the Child Labour (Prohibition and Regulation) Rules, 1988 (“Rules”) inviting objections or suggestions. The said Draft Rules propose to fix the working conditions for the child artists and for employing children in family enterprises. Children will be allowed to assist their family in running family enterprises without affecting their school education.


The Ministry of Law and Justice on April 12, 2017 has notified the Employee's Compensation (Amendment) Act, 2017 (“Amendment Act”). The Amendment Act shall come into force on the date of their publication in the official gazette. The provisions of section 18A & section 30 of the Employee’s Compensation Act, 1923 (“Act”) have been amended and a new section 17A (Duty of employer to inform employee of his rights) has been inserted. As per the Amendment Act, every employer is required to immediately inform the employee, at the time of employment, of his rights to compensation under this Act, in writing as well as through electronic means, in English or Hindi or in the official language of the area of employment, as may be understood by the employee.


The Ministry of Labour & Employment vide notification dated April 12, 2017 has notified Employees' Provident Funds (Fourth Amendment) Scheme, 2017 (“Amendment Scheme”). The Amendment Scheme inserted paragraph 68 BD in the Employees’ Provident Funds Scheme, 1952. The Amendment Scheme enabled the members of retirement fund body i.e. Employees' Provident Fund Organisation (“EPFO”) to withdraw up to 90 % of their fund for making down payments while buying homes. The Amendment Scheme also allows the EPFO subscribers to use their EPF accounts for paying equated monthly instalments of home loans.


In pursuance to the policy of the Government for optimum use of information technology for efficient service delivery and widening the reach of EPF benefits, the Minister of Labour & Employment in 217th special meeting of the Central Board of Employees Provident Fund (“CBEPF”) in New Delhi on April 13, 2017 launched Aadhaar Seeding Application. The CBEPF has developed this Aadhaar seeding application with support of the Common Service Centers (“CSC”) and Centre for Development of Advanced Computing (“CDAC”). With the implementation of Aadhaar Seeding Application, now Provident Fund member or pensioner can walk in any of the field offices of EPFO or CSC outlets with UAN & Aadhaar and seed the Aadhaar with the UAN.


At the request of thousands of Micro Small & Medium Enterprises, the Employees' State Insurance Corporation (“ESIC”) has extended the Scheme to Promote Registration of employers/ employees from April 01, 2017 to June 30, 2017 vide its notification dated April 11, 2017. The Scheme offers a onetime window for employers/ employees to join ESI and absolve from any past non-compliance.


Employees' State Insurance Corporation (“ESIC”) on April 10, 2017 launched a mobile application “AskAnAppointment” (AAA+ ) for the ESI patients with the support of its system integrator. The said mobile application makes it easy for the beneficiaries to seek prior appointment for OPD registration in their stipulated dispensary and avail priority services avoiding long queue. Appointments upto 7 days can be booked in advance. This aaplication facility shall be available in all 32 ESIC dispensaries in Delhi and shall be gradually extended to other dispensaries.
Did you know?
Whether an employee can be dismissed for abusing the superior with filthy language?

While dismissing the writ petition against the award of Labour Court modifying the punishment of dismissal of workman to reinstatement without back wages, for abusing the superior with filthy language, Hon’ble Karnataka High Court, in the matter of The Management of Shrinagar Cinema Theatre v. Sri S. Thimmaraju Kondapalli (2017) LLR 418 has held that punishment of dismissal from service has to be in rarest of rare cases only in an inevitable situations since it is a capital punishment.

Whether submission of application for leave amounts to sanctioning of leave?

Hon’ble Delhi High Court in the matter of Delhi Transport Corporation v. Rajender Kumar (2017) LLR 390 held that mere submission of leave application does not create any right to the employee that his leave has been sanctioned when as per standing order the requirement is that an employee shall not absent himself from his duties without having first obtained the permission from the authority except in cases of sudden illness. Thus, removal from services of an employee who is found guity of absence from duty without sanctioned leave, for a very long period, is justified.

Whether principal employer is bound to ensure aminities to Contractors’ employees?

It was observed by Hon’ble Gujarat High Court in the matter of Makavana Kankuben Mangabhai and Others v. State of Gujarat and Others (2016) LLR 278 that principal employer is duty bound to ensure that employees engaged through contractors are paid wages as declared/ revised from time to time, by the appropriate government under the Minimum Wages Act, 1948. The court further observed that if any amenity is required by the provisions of the Contract Labour (Regulation and Abolition) Act, 1970 to be provided for the benefit of the contract labour but not being provided by the contractor concerned has to be provided and ensured by the principal employer.

Whether continuing departmental and criminal proceedings simultaneoulsy amounts to double jeopardy?

Hon’ble Karnataka High Court, in the matter of Yemanura v. Union Bank of India (2017) LLR 273 has held that as the standard of proof in departmental and criminal proceedings is quite different, therefore departmental and criminal proceedings can proceed simultaneously. The court further opined that acquittal in criminal cases cannot be the basis of taking away the effect of departmental proceedings and departmental action cannot be termed as double jeopardy.

Whether workers of contractor claim reinstatement with principal employer?

Hon’ble Delhi High Court, in the matter of Indira Gandhi National Open University v. Union of India and Another (2016) LLR 12, has held that the workers of the contractor, even on illegal termination, have no legal right to claim reinstatement from the principal employer. It was further observed that mere performing work for the principal employer or in the premises of the principal employer is not sufficient to establish relationship of employer- employee between the principal employer and the worker of the contractor. Thus, reinstatement of worker by the principal employer is not justified.
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