What Indian Law says about Termination

Forward by Kalyani

Termination of Employment

Existing regulations require companies to obtain government permission to close an operation or lay off workers in firms with 100 or more employees (service-industry companies, such as IT firms, are exempt). The Industrial Disputes Act, 1947 requires employers wishing to close an establishment to apply for permission at least 60 days before the intended closing date. If the government does not convey its decision within 60 days of the application, approval is deemed granted. A company can appeal against a rejection to the Industrial Tribunal.


Workers in an establishment that is closed illegally (that is, without approval) remain entitled to full pay and benefits. Dismissal for misconduct is allowed without notice under the Industrial Employment (Standing Orders) Act, 1959. The Payment of Gratuity Act 1972 entitles workers to a gratuity of up to Rs350,000 after five years of continuous service.

It is usually difficult for large companies to dismiss staff. Retrenchments and layoffs require full explanation to and prior approval from the state government. (Retrenchment under an agreement specifying a termination date requires no prior notice.) The last-in, first-out principle is usually followed.

Compelled by mounting competition to cut wage costs or consider moving out of high-wage locations such as Mumbai (Bombay), several companies have resorted to voluntary retirement schemes (VRSs) or redeployment. Beneficiaries under an approved VRS of a private-sector company are exempt from tax on monetary benefits of up to Rs500,000.