Unlawful termination of employment remains by far the most contentious issue in Indian labor laws. This is largely due to absence of the concept of an at-will employment system. In general, employment may be terminated only for reasonable cause or employee misconduct, subject to complying with necessary procedures.
If the employer has not complied with applicable law or contract while terminating employment, the employee has a right to challenge the termination order as per the processes set out under the applicable national or state laws. In the past, courts have passed orders of reinstatement along with back-wages and continuity of service, in cases where the employees were successful in proving that employment termination was unlawful or in cases of unfair labor practices. However, recently there has been a shift in the manner the courts have been adjudicating upon employment termination related matters.
Termination of employment of an employee is governed by both federal and state level labor laws. The Industrial Disputes Act, 1947 (IDA), inter alia contains provisions with respect to retrenchment, layoffs, unfair labour practices and closure of an establishment. The IDA defines “retrenchment” to mean the termination by the employer of the service of a workman for any reason whatsoever other than as a result of a punishment inflicted by way of disciplinary action. Retrenchment excludes:
voluntary retirement of the workman;
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