Employee exits are a sensitive subject and require tactful handling by employers. A dispute with an outgoing employee is undesirable in any jurisdiction, but this is especially true in India. This is for 2 reasons. The first is that litigation, by default, is time consuming in India and can be both expensive and logistically difficult. The second reason is that Indian courts have historically been employee - friendly and labour laws in India are considered welfare legislations, in addition to being regulatory laws. This is especially true for cases involving termination of employment, employee reinstatement, cases of termination(s) for misconduct, or en masse reductions in workforce by employers during downsizing or closure exercises.

 

Therefore, it is critical for employers to ensure that the employee exit process is not just in compliance with legal requirements, but that it is handled gently (yet pragmatically) by experienced human resource professionals with guidance from employment lawyers, wherever needed to mitigate risk of litigation.

 

In the subsequent paragraphs, we have briefly discussed the different types of employee disengagement/exit scenarios in India, with their respective merits and demerits. Please note that this Guidance Note does not discuss exit scenarios viz. workmen, i.e., blue collar employees. Guidance regarding blue collar employees can be accessed here. 

 

Exit Scenario 1: Resignation 

 

An employee offers a written resignation to the employer, serves notice (or seeks a waiver, as per the terms of the employment contract) and is relieved from his duties at the end of the notice period (or immediately, if waived by employer). It is also possible for the employee to ‘buy out’ the notice period by paying salary in lieu of notice, or for the employer to ask the employee to leave without serving notice, by paying salary in lieu of notice.

 

Merits: This is a safe option for a quick and seamless disengagement with the employee.

 

Demerits: It is voluntary, and legally the employer cannot ‘ask’ the employee to resign. Therefore, it cannot be relied on for pre-planned downsizing or workforce reduction.

 

 

For employees whose presence is important for effectively implementing the downsizing or closure exercise, or who need to be retained till a specific date for any reason, a Retention Agreement could be executed with certain time-bound pay-outs or other benefits which are spread out in a manner that ensures (or at least incentivizes) such critical employees to stay till a particular date. Subsequently, closer to the date where such critical employees can be let go, an MSA could be executed with these employees as well.

 

The above steps would allow the employer to systematically manage employee exits, and therefore avoid unnecessary disruption of operations during a downsizing or prior to a closure.

 

Exit Scenario 2: Termination Simpliciter 

 

An employer may terminate the services of an employee under the employment contract without assigning a specific reason or without attributing it to the employee. This is done by serving a notice in writing (or with immediate effect by paying salary in lieu of notice).

 

 

Merits: This type of termination is without any stigma and has no adverse effect on the employee’s future. Unlike resignations, the employer can choose a suitable time and date of exit (as long as the employees are made aware that there is no stigma, and some other pragmatic placatory steps are taken – for instance, giving them recommendation letters at the time of exit, a token ex-gratia payment on exit, etc.). Further, there may be employees whose position is not such that their exit needs to be planned or an MSA negotiated and executed. To save time, effort, and cost, such employees may be disengaged via termination simpliciter.

 

At the time of downsizing or prior to a closure, this option may be used for those employees who do not resign and refuse to execute an MSA, or for employees who offered to resign or sign an MSA but have not done so as per agreed timelines.

 

Demerits: In cases where there were any prior disciplinary issues with an employee, the employee may challenge the termination simpliciter as being an attempt to circumvent due process (i.e., a fair domestic enquiry). Therefore, the termination letter should be drafted carefully to ensure that the intent is clear, and the entire process of disengagement with the employee should be handled deftly to mitigate the risk of a dispute.

 

Further, some employees may not be aware of the distinction between a ‘for cause’ termination and a termination simpliciter and may assume that both are stigmatic exits.

 

 

Exit Scenario 3: Termination for Misconduct 

 

If an employee has engaged in any misconduct (as defined under the policies of the employer), the employer can terminate the employment after a proper domestic enquiry. The enquiry process should be fair and transparent, as per principles of natural justice, and the employee should be given an adequate chance to defend himself.

 

A domestic inquiry may be carried out by undertaking the following steps

 

Merits: This option serves as an adequate punishment for misconduct, and a deterrent for other employees.

 

Demerits: Since this option impairs the employee’s ability to find alternate employment, there is a possibility of a dispute with the exiting employee.