At a glance
| Document type | Employer letter template |
|---|---|
| Issued by | Employer |
| Templates included | 5 ready to use versions |
| Download format | Word (.docx) |
| Statutory reference | Industrial Relations Code, 2020 |
| Last reviewed | 26 August 2026 |
| Maintained by | Engage HR editorial team |
Four ways employment ends at the employer's initiative
Getting the classification wrong is not a labelling error. It changes what has to happen before the employment can lawfully end.
| Dismissal for misconduct | Retrenchment | Expiry of fixed term | |
|---|---|---|---|
| What it is | Punishment inflicted by way of disciplinary action, following an inquiry. | Termination for any other reason whatsoever, subject to stated exclusions. | The term ending by efflux of time, expressly excluded from retrenchment. |
| Preceded by | A disciplinary process: allegation, hearing, finding. | A business decision, and the conditions precedent that attach to it. | Nothing, if the contract was properly documented. |
| Notice required | As the contract and applicable procedure provide. | One month in writing indicating reasons, or three months where the special provisions apply. | None. It ends on the stated date. |
| Compensation on top of dues | None arising from the classification itself. | Retrenchment compensation, computed on completed years of continuous service. | None arising from the classification itself. |
| Where employers go wrong | Dismissing without a hearing, then calling it a business decision. | Treating it as an ordinary notice-period exit and omitting compensation and notification. | Calling something fixed term that was never on a written contract. |
Standard termination letter format
Ten elements. The reason section is the one that has to be settled before anything else is drafted.
- Header. Employee name, code, designation, department, date, and the subject line naming what the letter is.
- The decision. That employment is being terminated, stated plainly in the first line rather than reached after three paragraphs.
- The reason. Stated accurately, in terms consistent with the classification the employer has applied.
- The process followed. For misconduct, the notice of allegation, the hearing, and the finding, with dates. For retrenchment, the basis of selection.
- Last working day. The date, and whether the employee is required to work the notice period or is being paid in lieu.
- Notice treatment. Whether notice is being served or paid, and the amount where paid.
- Dues. What will be paid, on what basis, and by when.
- Company property and handover. What must be returned and to whom, by when.
- Continuing obligations. Confidentiality and anything surviving the employment, by cross reference.
- Documents to be issued and the route to challenge. What the employee will receive, and how to appeal where an appeal is available.
Where retrenchment applies, the letter is only part of the obligation. The compensation, the notification to the appropriate authority and, where required, the prior permission all sit outside the letter and have to happen.
5 letter templates
Termination Letter for dismissal for misconduct, after inquiry
This is punishment by way of disciplinary action, which is expressly outside the definition of retrenchment. The letter's job is to show the process happened.
[Company Letterhead] Ref: [Reference Number] Date: [Date] STRICTLY PRIVATE AND CONFIDENTIAL [Employee Name] Employee code: [Employee Code] Designation: [Designation] Department: [Department] Sub: Termination of employment Dear [Employee Name], 1. Decision Following the disciplinary inquiry into the allegations set out below, [Company Name] has decided to terminate your employment with effect from [Last Working Day]. 2. The allegations By notice dated [Date of Charge Sheet], you were called upon to show cause in respect of the following: [Allegation 1, stated as it was put to the employee] [Allegation 2, stated as it was put to the employee] 3. The process followed You submitted a written explanation dated [Date of Explanation]. An inquiry was held on [Inquiry Dates] before [Inquiry Officer Name and Designation]. You were given copies of the documents relied on, the opportunity to be heard, and the opportunity to question the evidence against you. [You were assisted at the inquiry by [Representative Name] / You chose not to be accompanied.] The inquiry report dated [Date of Report] was furnished to you on [Date Furnished], and you [made representations dated [Date] / did not make representations] against the findings. 4. Findings The inquiry found [Findings, stated specifically]. Having considered the findings and your representations, [Company Name] has concluded that the misconduct is established and that termination is the appropriate consequence, having regard to [Factors Considered]. 5. Last working day and dues Your last working day is [Last Working Day]. You will be paid: Salary up to and including your last working day [Notice pay in lieu, where applicable: [Notice Pay Basis]] Encashment of accrued leave in accordance with [Leave Policy Reference] [Any other statutory dues, as applicable] Your full and final settlement will be processed within [Settlement Period] of your last working day and credited to your account on record. 6. Company property Please return all property of [Company Name] in your possession, including [List of Items], to [Return Contact] on or before [Return Date]. 7. Continuing obligations Your obligations of confidentiality, and any other obligations expressed to survive your employment under your appointment letter and [Agreement Reference], continue after your last working day. 8. Appeal You may appeal against this decision by writing to [Appeal Contact] within [Appeal Period] of receiving this letter, stating your grounds. The appeal will be considered by someone not involved in this decision. 9. Documents [Company Name] will issue [List of Documents] following completion of your settlement. Yours sincerely, [Signatory Name] [Signatory Designation] [Company Name] Received: Signature: ______________________ Name: [Employee Name] Date: [Date]
Termination Letter for retrenchment
The conditions precedent sit outside the letter and have to be satisfied. This version states them so the letter is evidence that they were.
[Company Letterhead] Ref: [Reference Number] Date: [Date] [Employee Name] Employee code: [Employee Code] Designation: [Designation] Department: [Department] Sub: Notice of retrenchment Dear [Employee Name], 1. Notice This is notice under the applicable provisions that your services with [Company Name] will stand retrenched with effect from [Retrenchment Effective Date]. 2. Reasons for the retrenchment [Statement of reasons, for example: the closure of the [Function or Unit Name] following [Business Reason], as a result of which the position of [Designation] in that unit ceases to exist.] This is a termination for the reasons stated above and is not a disciplinary action. Nothing in this notice reflects on your conduct or performance. 3. Basis of selection [Where a category is affected: Within the category of [Category], the workers selected are those last employed in that category. / Where a departure applies: The employer has departed from that order in respect of [Worker Category], for the following reasons which are recorded: [Reasons].] 4. Notice period [Either: You are given [Notice Period] notice in writing from the date of this letter, expiring on [Notice Expiry Date]. / Or: In lieu of notice, [Company Name] will pay you wages for the notice period of [Notice Period], amounting to [Notice Pay Amount].] 5. Retrenchment compensation You will be paid retrenchment compensation computed on your continuous service of [Years of Continuous Service], at the rate applicable, amounting to [Retrenchment Compensation Amount]. This is payable at the time of retrenchment and is in addition to your other dues. 6. Other dues Salary up to and including [Retrenchment Effective Date] Encashment of accrued leave in accordance with [Leave Policy Reference] [Gratuity, where payable, computed as [Gratuity Basis]] [Any other statutory dues, as applicable] These will be settled within [Settlement Period]. 7. Notification to the authority Notice of this retrenchment has been served on [Authority Name] in the prescribed manner on [Date of Notification]. [Where prior permission applies: Prior permission was applied for on [Application Date] and granted on [Permission Date] under reference [Permission Reference], and a copy of the application was served on you on [Date Served].] 8. Re-employment Where [Company Name] proposes to take any person into employment in this category within the period provided by law, you will be given an opportunity to offer yourself for re-employment. Please ensure [HR Contact] has your current address and contact details. 9. Company property Please return all property of [Company Name] in your possession, including [List of Items], to [Return Contact] on or before [Return Date]. 10. Documents [Company Name] will issue [List of Documents] on completion of your settlement. We are sorry to be writing to you in these terms, and we thank you for your service. Yours sincerely, [Signatory Name] [Signatory Designation] [Company Name] Received: Signature: ______________________ Name: [Employee Name] Date: [Date]
Termination Letter for termination during probation
Probation shortens notice but does not remove the need for a reason and a fair process where one is owed. This version says what was assessed.
[Company Letterhead] Ref: [Reference Number] Date: [Date] STRICTLY PRIVATE AND CONFIDENTIAL [Employee Name] Employee code: [Employee Code] Designation: [Designation] Department: [Department] Sub: Termination of employment during probation Dear [Employee Name], 1. Decision [Company Name] has decided not to confirm you in the position of [Designation], and your employment will end with effect from [Last Working Day]. 2. Background You joined [Company Name] on [Date of Joining] and were placed on probation for [Probation Period] under clause [Clause Reference] of your appointment letter dated [Appointment Letter Date]. 3. Assessment Your performance during probation was reviewed against the expectations set at induction and in your discussions with [Manager Name]. The areas in which the required standard was not met are: [Area 1, with what was expected and what was observed] [Area 2, with what was expected and what was observed] These were raised with you on [Dates Raised], and [describe support provided, for example: additional supervision, training and a review on [Date]]. 4. Decision on confirmation Having considered your progress and your response at the meeting on [Meeting Date], [Company Name] has decided not to confirm your appointment and to end your employment during the probation period. 5. Notice and last working day In accordance with clause [Clause Reference] of your appointment letter, the notice applicable during probation is [Probation Notice Period]. [Either: This letter constitutes that notice and your last working day will be [Last Working Day]. / Or: [Company Name] will pay you [Notice Pay Amount] in lieu of notice, and your last working day is [Last Working Day].] 6. Dues Salary up to and including your last working day [Notice pay in lieu, where applicable] Encashment of accrued leave in accordance with [Leave Policy Reference] [Any other statutory dues, as applicable] Settlement will be completed within [Settlement Period]. 7. Company property Please return all property of [Company Name] in your possession, including [List of Items], to [Return Contact] on or before [Return Date]. 8. Documents [Company Name] will issue [List of Documents] on completion of your settlement. We wish you well in your future work. Yours sincerely, [Signatory Name] [Signatory Designation] [Company Name] Received: Signature: ______________________ Name: [Employee Name] Date: [Date]
Termination Letter for expiry of fixed term
Termination on completion of a fixed term is excluded from retrenchment. This letter is a confirmation of a date already agreed, not a termination decision.
[Company Letterhead] Ref: [Reference Number] Date: [Date] [Employee Name] Employee code: [Employee Code] Designation: [Designation] Department: [Department] Sub: Completion of fixed term engagement Dear [Employee Name], 1. Purpose of this letter This letter confirms that your fixed term engagement with [Company Name] comes to an end on [End Date], being the end date stated in your appointment letter dated [Appointment Letter Date]. 2. The engagement You were engaged on fixed term employment for the period [Start Date] to [End Date] under a written contract, on hours, wages, allowances and other benefits not less than those of a permanent employee doing the same work or work of a similar nature. 3. Completion Your engagement ends on [End Date] by completion of its term. This is not a termination for any reason relating to your conduct or performance, and no notice is required from either party for the engagement to come to an end on that date. 4. Extension [Company Name] has considered whether to extend your engagement and has decided not to do so, for the following reason: [Reason for Non-Extension]. This decision does not reflect on your work, which we have valued. 5. Dues Salary up to and including [End Date] Encashment of accrued leave in accordance with [Leave Policy Reference] [Statutory benefits for which you are eligible in proportion to the period served, as applicable] [Gratuity, where payable] Settlement will be completed within [Settlement Period] and credited to your account on record. 6. Company property Please return all property of [Company Name] in your possession, including [List of Items], to [Return Contact] on or before [End Date]. 7. Continuing obligations Your obligations of confidentiality under your appointment letter continue after [End Date]. 8. Documents [Company Name] will issue [List of Documents] on completion of your settlement. 9. Future opportunities If a suitable role arises, we would be glad to hear from you. Please keep in touch with [HR Contact]. Thank you for your work with us. Yours sincerely, [Signatory Name] [Signatory Designation] [Company Name] Received: Signature: ______________________ Name: [Employee Name] Date: [Date]
Termination Letter for termination with payment in lieu of notice
Where the contract reserves the right to pay in lieu, the letter should exercise it explicitly and state the amount, rather than leaving it to the settlement.
[Company Letterhead] Ref: [Reference Number] Date: [Date] STRICTLY PRIVATE AND CONFIDENTIAL [Employee Name] Employee code: [Employee Code] Designation: [Designation] Department: [Department] Sub: Termination of employment Dear [Employee Name], 1. Decision [Company Name] has decided to terminate your employment. Your last working day is [Last Working Day], being the date of this letter. 2. Reason [Statement of reason, stated accurately and consistently with the classification applied. Where the reason is not disciplinary, say so expressly: This is not a disciplinary action and does not reflect on your conduct.] 3. Payment in lieu of notice Clause [Clause Reference] of your appointment letter dated [Appointment Letter Date] entitles [Company Name] to terminate your employment by making a payment in lieu of notice. [Company Name] exercises that right. You will be paid [Notice Pay Amount], being [Notice Period] of your [Basis of Computation, for example fixed monthly remuneration], in lieu of notice. 4. Other dues Salary up to and including [Last Working Day] Encashment of accrued leave in accordance with [Leave Policy Reference] [Gratuity, where payable] [Any other statutory dues, as applicable] Your full and final settlement will be processed within [Settlement Period] and credited to your account on record. A statement of the computation is enclosed. 5. Handover Please complete the handover of your work to [Handover Contact] before you leave today, including [Handover Items]. 6. Company property Please return all property of [Company Name] in your possession, including [List of Items], to [Return Contact] before you leave. 7. Continuing obligations Your obligations of confidentiality, and any other obligations expressed to survive your employment, continue after your last working day. 8. Documents [Company Name] will issue [List of Documents] on completion of your settlement. 9. References Requests for verification of your employment should be directed to [HR Contact], who will confirm your dates and designation. Yours sincerely, [Signatory Name] [Signatory Designation] [Company Name] Received: Signature: ______________________ Name: [Employee Name] Date: [Date]
What it has to contain
| Element | Why it matters |
|---|---|
| A reason stated accurately | The reason determines which rules apply. A letter that describes a redundancy as a performance issue, or a dismissal for misconduct as a business decision, has misclassified the event, and the conditions attaching to the correct classification will not have been satisfied. |
| The last working day, stated as a date | It fixes when salary stops, when dues are computed to, and when the settlement clock starts. A letter saying employment ends with immediate effect without naming the date creates an argument about all three. |
| The treatment of notice | State whether notice is being served or paid in lieu, and where paid, the amount and the basis. Where the contract reserves a right to pay in lieu, the letter should exercise it expressly rather than leaving it to be inferred from the settlement. |
| The process that preceded it, where the reason is misconduct | The letter is the record that the inquiry happened. Setting out the charge, the explanation, the inquiry, the report and the representations, with dates, is what shows the finding was reached properly rather than announced. |
| Retrenchment compensation, where the classification applies | Retrenchment carries compensation computed on continuous service, payable at the time of retrenchment. Treating a retrenchment as an ordinary notice-period exit omits it, and the omission is a condition precedent that was not satisfied. |
| What is due and by when | Listing the components and the settlement period converts an open question into a commitment. Most disputes after an exit are about money the employee expected and did not receive on a date nobody stated. |
| A route to challenge, where one is available | Where the termination follows a disciplinary process, an appeal considered by someone uninvolved costs little and removes the complaint that there was no way to be heard. |
How to write one
- Classify the termination before drafting. Decide whether this is punishment by way of disciplinary action, or termination for some other reason. That single question determines whether the retrenchment conditions apply, and it has to be answered honestly rather than by choosing the label with fewer obligations.
- Check whether the special provisions apply to the establishment. The special provisions on lay-off, retrenchment and closure apply to establishments above a headcount threshold measured on an average per working day over the preceding twelve months. Where they apply, retrenchment needs longer notice and prior government permission, which changes the timeline entirely.
- Establish whether the person is a worker. The retrenchment provisions attach to workers, and not everyone employed is a worker within the meaning of the Code. This is a question to settle with counsel against the individual's actual duties rather than by job title, because the answer decides which regime applies.
- Complete the process before writing the letter. For misconduct, that means the charge, the explanation, the inquiry and the report. For retrenchment, it means the selection, the compensation computation, the notification and any permission. A letter issued before the process is finished documents a decision taken without it.
- Compute the dues before issuing. Notice pay, leave encashment, gratuity where payable and retrenchment compensation where applicable should be worked out before the letter goes out, so the letter can state them. Issuing first and computing afterwards is how settlements drift.
- Deliver it in person where you can. Hold a short meeting, hand the letter over, take acknowledgement, and follow with an emailed copy the same day. A termination that arrives only by email, with no conversation, is the one most likely to be contested.
- Settle within the period you stated. The single most common source of post-exit disputes is a settlement that slips past the date the letter promised. If it is going to be late, say so before the date rather than after.
The classification that decides everything
Before a termination letter can be drafted, one question has to be answered: is this punishment inflicted by way of disciplinary action, or is it termination for some other reason?
Section 2(zh) of the Industrial Relations Code, 2020 defines retrenchment as the termination by the employer of the service of a worker for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action. So dismissal following a disciplinary process sits outside retrenchment. Almost everything else at the employer's initiative sits inside it.
The section then carves out four situations that are not retrenchment: voluntary retirement; retirement on reaching the age of superannuation; termination as a result of non-renewal of the contract on its expiry or under a stipulation in it; and termination as a result of completion of tenure of fixed term employment.
What that leaves inside retrenchment is broader than most employers assume. A role removed because a function closed, a position that is no longer funded, a separation described as a mutual parting but initiated by the employer: each of these is termination for a reason other than disciplinary punishment, and each attracts the conditions that go with retrenchment.
This is why the classification cannot be chosen for convenience. Recasting a disciplinary dismissal as a business decision moves it into a regime with conditions precedent that were never satisfied.
What retrenchment requires
Where the classification is retrenchment, section 70 of the Industrial Relations Code, 2020 sets three conditions precedent for a worker with at least one year of continuous service. They are one month's written notice indicating the reasons or wages in lieu, compensation of fifteen days' average pay for every completed year, and notice to the appropriate Government.
Where the classification is retrenchment, section 70 of the Industrial Relations Code, 2020 sets conditions precedent for a worker who has been in continuous service for not less than one year. That worker may not be retrenched until three things have happened.
First, one month's notice in writing indicating the reasons for retrenchment has been given and the period has expired, or wages for the notice period have been paid in lieu. Note that the notice must indicate the reasons; a bare notice of termination does not satisfy it.
Second, compensation equivalent to fifteen days' average pay has been paid at the time of retrenchment, for every completed year of continuous service or any part of a year in excess of six months. The appropriate Government may notify a different number of days' average pay.
Third, notice in the prescribed manner has been served on the appropriate Government or the specified authority.
Section 71 adds a rule on selection. Where a worker who is a citizen of India belonging to a particular category is to be retrenched, and there is no agreement to the contrary, the employer shall ordinarily retrench the worker who was the last person to be employed in that category. The employer may retrench another worker, but the reasons have to be recorded at the time rather than reconstructed later.
Section 72 provides for re-employment: where the employer proposes to take any person into employment within one year of the retrenchment, retrenched workers who are citizens of India must be given an opportunity to offer themselves for re-employment.
The threshold that changes the timeline
A stricter regime applies where Chapter X is engaged, which turns on the establishment being neither seasonal nor intermittent and having employed not less than three hundred workers on average per working day over the preceding twelve months. There section 79 requires three months notice and the prior permission of the appropriate Government.
There is a second, stricter regime, and whether it applies turns on the size of the establishment.
Section 77 governs when Chapter X applies. Chapter X carries the special provisions on lay-off, retrenchment and closure. It applies to an industrial establishment which is not of a seasonal character, or in which work is not performed only intermittently, and in which not less than three hundred workers were employed on an average per working day in the preceding twelve months. A higher number may be notified.
Where Chapter X applies, section 79 sets different conditions precedent for retrenching a worker in continuous service of not less than one year. Three months notice in writing indicating the reasons must have been given and expired, or wages in lieu paid. And prior permission of the appropriate Government must have been obtained on an application, a copy of which is served on the workers concerned.
The practical difference is not one of degree. Prior permission is a process with its own timeline, and a retrenchment carried out without it, where it was required, was not lawfully carried out. An employer near the threshold should establish the position from the average per working day over the preceding twelve months before committing to any date.
Section 73 is worth knowing alongside these. Where the ownership or management of an undertaking is transferred, every worker in continuous service for not less than one year immediately before the transfer is entitled to notice and compensation under section 70 as if retrenched. That does not apply where three conditions are all met: service is not interrupted by the transfer, the terms after transfer are not in any way less favourable, and the new employer is legally liable to pay retrenchment compensation on the basis that service has been continuous.
Who these provisions apply to
One limit runs through everything above, and it is the one most often overlooked when reading a template.
The retrenchment provisions are framed in terms of workers. Worker is a defined term in the Code, and not everyone employed by an organisation falls within it. Whether a particular individual is a worker turns on what they actually do rather than on their job title, and it is a question to settle with counsel on the facts of the role.
This matters because the two regimes are different. Where the person is a worker, the conditions precedent apply and a termination that ignores them is defective. Where they are not, the position rests on the contract, on the organisation's own procedure, and on whatever other enactments cover the establishment.
The practical error is to assume the answer from seniority. A designation containing the word manager does not settle it, and organisations that have assumed it does have found the assumption tested at the worst moment.
Separately, state enactments governing shops and establishments apply to many workplaces and impose their own requirements on notice and termination. Those are not addressed on this page and have to be checked for the state in question.
Common mistakes
| Mistake | Why it causes trouble | What to do instead |
|---|---|---|
| Calling a disciplinary dismissal a business decision | Dismissal as punishment by way of disciplinary action sits outside retrenchment. Recasting it as a business decision moves it inside, so the compensation, notification and permission requirements now apply and none of them was satisfied. | Classify honestly. If the reason is misconduct, run the disciplinary process and say so in the letter. |
| Treating a retrenchment as an ordinary exit | Notice is given, dues are settled, and the retrenchment compensation and the notification to the authority never happen. Those are conditions precedent, not administrative follow-ups. | Work through the conditions in order before the effective date: written notice indicating reasons or wages in lieu, compensation paid at the time of retrenchment, and notice served on the authority in the prescribed manner. |
| Assuming one month's notice is always enough | Where the special provisions apply to the establishment, retrenchment of a worker in continuous service of not less than one year requires three months notice and prior permission of the appropriate Government, not one month. | Check the headcount test for the establishment before setting the timeline, because the difference is months rather than weeks. |
| Calling something fixed term that was never documented as such | Termination on completion of a fixed term is excluded from retrenchment only where there was a genuine fixed term engagement on a written contract. An arrangement described as fixed term in conversation does not qualify. | Document fixed term properly at the outset, on a written contract with the parity of terms stated, or accept that the exclusion is not available. |
| Issuing the letter before the inquiry concludes | The letter is drafted in advance and the inquiry becomes a formality, which is visible from the dates on the file and undermines the finding regardless of its merits. | Complete the inquiry, furnish the report, consider the representations, and only then draft the decision. |
| Promising a settlement date and missing it | The employee has left, has no way to chase it and no information about where it has reached, and this is the point at which a separation that was accepted becomes a dispute. It is also the easiest failure to avoid. | State a period you can meet, compute the dues before issuing, and tell the employee in advance if anything will slip. |
Statutory reference
- Act
- Industrial Relations Code, 2020
- Key limits
- These provisions are framed in terms of workers, and worker is a defined term that does not cover everyone employed by an organisation. Whether a particular individual is a worker turns on the duties actually performed and is not addressed here. State enactments governing shops and establishments impose their own requirements on notice and termination and are not covered.
| Provision | What it says |
|---|---|
| Section 2(zh) | Defines retrenchment as the termination by the employer of the service of a worker for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action, and excludes voluntary retirement, retirement on reaching the age of superannuation, termination as a result of non-renewal of the contract on its expiry or under a stipulation in it, and termination as a result of completion of tenure of fixed term employment. |
| Section 70 | Sets the general conditions precedent to retrenchment of a worker in continuous service of not less than one year: one month's notice in writing indicating the reasons, given and expired, or wages for the notice period in lieu; compensation equivalent to fifteen days' average pay, or average pay for such days as the appropriate Government notifies, paid at the time of retrenchment for every completed year of continuous service or any part in excess of six months; and notice served on the appropriate Government or specified authority in the prescribed manner. |
| Section 71 | Requires that within a category the worker last employed be ordinarily retrenched first, unless for reasons to be recorded another worker is retrenched. |
| Section 72 | Requires that retrenched workers who are citizens of India be given an opportunity to offer themselves for re-employment where the employer proposes to employ any person within one year of the retrenchment. |
| Section 73 | Treats a worker in continuous service of not less than one year immediately before the transfer of ownership or management as entitled to notice and compensation under section 70 as if retrenched, unless service is uninterrupted, the terms after transfer are not in any way less favourable, and the new employer is legally liable to pay retrenchment compensation on the basis that service has been continuous. |
| Section 77 | Applies Chapter X to an industrial establishment which is not of a seasonal character or in which work is not performed only intermittently and in which not less than three hundred workers, or such higher number as notified, were employed on an average per working day in the preceding twelve months. |
| Section 79 | Sets the conditions precedent where Chapter X applies: three months notice in writing indicating the reasons, given and expired, or wages in lieu, and prior permission of the appropriate Government obtained on application, a copy of which is served on the workers concerned. |
Frequently asked questions
What is the difference between termination and retrenchment?
Retrenchment is defined in section 2(zh) of the Industrial Relations Code, 2020 as termination by the employer of the service of a worker for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action. So dismissal for misconduct following a disciplinary process is not retrenchment, while termination for business reasons ordinarily is, and carries conditions precedent that dismissal for misconduct does not.
What notice is required for retrenchment in India?
Under section 70, for a worker in continuous service of not less than one year, one month's notice in writing indicating the reasons, or wages for the notice period in lieu. Where Chapter X applies to the establishment, section 79 requires three months notice indicating the reasons, and in addition the prior permission of the appropriate Government.
How is retrenchment compensation calculated?
Section 70 provides for compensation equivalent to fifteen days' average pay, for every completed year of continuous service or any part of a year in excess of six months. The appropriate Government may notify a different number of days' average pay. It is payable at the time of retrenchment, not deferred to the settlement.
When does the requirement for government permission apply?
Under section 77, Chapter X applies to an industrial establishment that is not seasonal or intermittent, and in which not less than three hundred workers were employed on an average per working day in the preceding twelve months. A higher number may be notified. Where it applies, section 79 requires prior permission of the appropriate Government before a worker in continuous service of not less than one year is retrenched.
Is expiry of a fixed term contract a retrenchment?
No. Section 2(zh) expressly excludes termination as a result of completion of tenure of fixed term employment, and also excludes non-renewal of a contract on its expiry or under a stipulation in it. The exclusion depends on there having been a genuine fixed term engagement on a written contract, so an arrangement called fixed term without that documentation does not attract it.
Who has to be retrenched first?
Section 71 deals with selection. Where a worker who is a citizen of India belonging to a particular category is to be retrenched, and there is no agreement to the contrary, the employer shall ordinarily retrench the worker who was the last person to be employed in that category. The employer may retrench another worker, but the reasons must be recorded at the time rather than afterwards.
Do retrenched workers have a right to re-employment?
Section 72 provides that where the employer proposes to take any person into employment within one year of the retrenchment, retrenched workers who are citizens of India must be given an opportunity to offer themselves for re-employment. This is a reason to keep contact details current and to check the retrenchment list before hiring back into the same category.
Do these rules apply to every employee?
They are framed in terms of workers, and worker is a defined term. Not everyone employed falls within it, and whether a particular person does turns on what they actually do rather than their designation. This page does not answer that question, and it should be settled on the facts of the role before a termination is planned.
Exits in Engage
Engage computes the settlement from the employee record, so notice pay, leave encashment and gratuity come from the same continuous service date the letter states rather than a spreadsheet built for the occasion. The disciplinary history, the letter and the settlement statement sit against the employee together, and the settlement date is a tracked commitment rather than a sentence in a letter nobody is measuring.
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