Introduction
The recent overhaul of Indian labour laws has clarified several aspects of job security, particularly the distinction between lawful termination, retrenchment and unfair dismissal. It has also required both employers and employees to revisit how termination decisions are assessed under the Industrial Relations Code, 2020.
Against this backdrop, the procedure to be followed in cases of wrongful termination, as opposed to lawful termination or retrenchment, assumes practical importance not only for lawyers but also for anyone entering the modern workforce. The article therefore examines wrongful termination, retrenchment, procedural safeguards and remedies under the Code, including the circumstances in which reinstatement, backwages or compensation may be granted.
This article explains the technical definitions that shape the labour law landscape and breaks down the essential legal mechanisms and procedural safeguards available to an employee or worker challenging an unfair termination.
Definitional challenges
There is a marked difference between a “worker” and an “employee” despite laymen using the terms interchangeably. The significance of understanding these definitional clauses lies in the fact that only persons that fall within the ambit of these definitional clauses may avail the recourses and remedies.
Workers are defined under Section 2(zr) of the Industrial Relations Code, 2020 (hereinafter, “Code”) as persons employed in an industry to do manual, unskilled, skilled, technical, operational, clerical or supervisory work. Pertinently, the definition does not include apprentices, which are covered under Apprentices Act, 1961 i.e. persons employed in managerial or administrative capacity, and supervisory employees whose wages exceed the statutory threshold of Rs. 18,000 per month. Definition of “Employee” under Section 2(l) of the Code has enhances and now includes persons employed on wages in managerial, administrative and supervisory capacities as well. This distinction matters because a “worker” may ordinarily invoke industrial dispute mechanisms, whereas a non-worker employee may have to rely on contractual remedies, civil proceedings or arbitration where provided in the employment contract.
Further, only an industry can initiate or be implicated in an industrial dispute. Hence, it becomes pertinent to establish the definition of an industry. “Industry” as defined in Section 2(p) of the Code encompasses any systemic activity carried on by co-operation between employer & employee regardless of capital investment & profit motive. This is the definition in compliance with the ratio decidendi of Bangalore Water Supply & Sewerage Board v. A. Rajappa, (1978) 2 SCC 213.
Illegal Termination v. Retrenchment
The second schedule of the Code says that a termination would be considered unfair according to Sections 2(zo), 84, 86(5) and 101(1) if it is done to
- victimise a worker;
- done in bad faith under the guise of exercising an employer’s rights;
- by falsely implicating a worker in a criminal case on false evidence or on concocted evidence;
- for patently false reasons;
- on untrue or trumped up allegations of absence without leave;
- in utter disregard of the principles of natural justice in the conduct of domestic enquiry or with undue haste;
- for misconduct of a minor or technical character, without having any regard to the nature of the particular misconduct or the past record or service of the worker, thereby leading to a disproportionate punishment.
In contrast, retrenchment as defined under Section 2(zh) of the Code means termination of services by the employer, subject to statutory exclusions. The employer is therefore liable to pay retrenchment compensation, when the termination is under the said definition. Ordinarily, a worker who has completed at least 240 days of continuous service is entitled to notice or wages in lieu of notice and statutory retrenchment compensation.
Retrenchment has 3 notable exceptions. These are:
- Superannuation age
- Voluntary retirement
- Non-renewal of contract of employment
The Court in Haryana State Electronics Development Corpn. Ltd. v. Mamni, (2006) 9 SCC 434 & Punjab SEB v. Sudesh Kumar Puri, (2007) 2 SCC 428 has upheld the rights of workers to retrenchment compensation and has strongly condemned the employer’s action of creating artificial breaks to avoid breaching the statutory threshold of 240 days in an attempt to avoid advancing the retrenchment compensation to employees.
While retrenchment occurs due to surplus of employees, illegal termination occurs to unlawfully dismiss an employee. Therefore, there is a marked difference between illegal termination and retrenchment.
Remedies
Where the termination is unfair or illegal, the adjudicating forum may order reinstatement, continuity of service, backwages, compensation or a combination of these remedies depending on the facts of the case.
In Hindustan Tin Works v. Employees, (1979) 2 SCC 80, the Hon’ble Supreme Court awarded backwages to workers whose termination was found to be illegal and observed that denial of backwages after reinstatement could, in appropriate cases, penalise the victim of an unlawful termination.
However, later decisions have treated reinstatement and backwages as discretionary remedies rather than automatic consequences. In Allahabad Jal Sansthan v. Daya Shankar Rai, (2005) 5 SCC 124, the Court declined full backwages and emphasised that factors such as gainful employment, length of service, delay in raising the dispute, nature of employment and conduct of the parties may influence the relief granted.
This creates a practical tension because a person who has been wrongfully terminated cannot always be expected to mitigate the effects of termination immediately. Nevertheless, the contemporary judicial approach is fact-sensitive: courts may award reinstatement, partial backwages, lump-sum compensation or other appropriate relief depending on the equities of the case.
Procedure
The principle of Audi Alteram Partem i.e. “hear the other side” is a principle of natural justice that is embedded in the very fabric of labour issues and proceedings. The Courts aim towards upholding these principles of natural justice to ensure complete justice is done to labours’ issues. In labour law proceedings, the concept of Audi Alteram Partem manifests in the form of unbiased domestic proceedings against an employee where they are heard out and the subsequent suspension- if applicable- is made with the view of balancing rights of employee & employer. This is also the reason for Subsistence Allowance being given to employees who are suspended.
To establish a fair termination, an employer must ensure compliance with Principles of Natural Justice in any and all inquires instituted against an employee. While the employer, in juxtaposition, must make note of all instances that establish concretely the absence of good faith and Principles of Natural Justice in the proceedings.
An employee who believes they are unfairly terminated must make note of the following as pre-filling requirements:
- Was a chargesheet made citing allegations based on which an inquiry was instituted? A chargesheet is a necessary document intimating the employee of the allegations made against him or the grounds on which an Inquiry against him will be conducted.
- Whether any formal legal notice was serviced stating termination? An employee who is dismissed without notice is considered to be dismissed unfairly due to the existence of the Principle of Audi Alteram Partem.
- Was a domestic inquiry conducted or not? If a domestic inquiry was conducted, was such inquiry committee or officer constituted/ appointed fairly? At every step in the domestic inquiry, compliance with Principles of Natural Justice must be complied with and in case of any lapse, unlawful termination may be alleged.
- Was the employee given a chance to present their case before the committee reached their decision and was there a cross-examination of allegations based?
- Were the inquiry reports submitted? Was the judgement pronounced? The inquiry reports & judgment pronounced must detail the exact reasoning fir the decision. Vague terms or reliance on ambiguous evidence tilts the case in favour of the employee.
Practical checklist: The employee should preserve the appointment letter, employment contract, standing orders or service rules, salary slips, attendance records, warning letters, charge-sheet, inquiry notices, inquiry report, termination letter, emails, messages and proof of any notice pay, compensation or settlement offered. These records help determine whether the dispute should proceed before labour authorities, an Industrial Tribunal, civil court or an arbitral forum.
In the case of Syndicate Bank v. K. Umesh Nayak, (1994) 5 SCC 572, the Court categorically held that the domestic inquiry must be fair & unbiased and proper opportunity must be given to employees. Court observed that findings must be based on evidences and as long as there is a legally constituted & convened inquiry, the Court will not interfere in the findings of the same. However, if a violation is observed, the termination may be set aside.
An employee alleging unfair termination must keep a record of all these facts such that unfair labour practices may be alleged. Thereon, the person must categorize themselves either as a “worker” or an “employee” and their workplace as an “industry” in order to bring the dispute within the realm of the Industrial Relations Code. An individual worker aggrieved by dismissal or retrenchment can now approach the Industrial Tribunal directly after a mandated 90-day conciliation period fails to yield a settlement.
Conclusion
The overhaul of labour laws under the Industrial Relations Code, 2020, has significantly clarified job security frameworks while highlighting the critical nuances between legal retrenchment and wrongful termination. Securing appropriate remedies heavily relies on precise legal categorization; an individual must accurately establish whether they qualify as a “worker” or an “employee,” and ensure their workplace fits the systemic definition of an “industry”. This categorization dictates whether a dispute is funneled through Labour Courts or Civil Courts.
Furthermore, while the Code strictly prohibits unfair labour practices that violate natural justice the judicial approach to remedies remains complex. Ultimately, navigating this landscape requires meticulous procedural documentation and by maintaining rigorous records and adhering to the Code’s structural boundaries, aggrieved individuals can effectively counter unfair termination and successfully pursue reinstatement and compensation.
Author : Himanshu Sachdeva, Senior Associate
Co-Author : Rea Agrawal, Intern
