Crucial Insights: Understanding Termination Clauses in Employment Contracts

A termination clause refers to the agreement between an employer and an employee in regard to the termination of the working contract. It states the rules to be followed by the employer as well as the employee when the termination of service takes place.

 Termination clause and rules in India

 Some countries such as the USA and the UK have very strict termination rules set by the government. Every employer has to adhere to these guidelines when firing or laying off their employees. In India, there are some very well-defined labour laws which state how an employee needs to be treated at the time of termination.

 Important points for HR Managers to note.

 Include the termination clause in the employee handbook.

1. The most important thing is to maintain clarity right from the beginning. Like every other organisation, your firm also has a fixed termination clause. Explain it to the employees when they join. Include the clauses in the employee handbook and ensure all the employees read and understand them and sign on them too.
2. State laws supersede institutional laws -
   You need to draft your own termination rule but remember to stay in tune with the state laws. The state laws always supersede the company laws, so the termination clause you draft cannot be in disagreement with the state laws.

Common termination reasons

 Termination for misconduct - 

1. If an employee is found to be flaunting the rules set by the employer, he may be terminated from his position. This includes long leaves without notice, theft or fraud, dishonesty or involvement in bribery, improper behaviour with colleagues, etc. In such a case, the immediate termination of services may be warranted.
2. Standard termination -
   If the termination is pre-planned, for a reason such as redundancy, you will need to provide the employee with a notice period of at least 30 days, or a month’s salary, before you terminate him. This is a clause mentioned in the country’s labour laws and you need to adhere to it.

The labour laws in India are designed to fiercely protect the rights of the employees. This is why it is common to find employees challenging their termination legally. Hence, as an HR manager, it becomes extremely important for you to draft the firm’s termination clause with care. Mention all the points carefully and when you serve a termination notice, justify it with the clauses mentioned. This will prevent lawsuits from being filed and would also lead to your employees feeling less threatened.

The bottom line

 As an HR manager, you must follow the labour laws of the country. This is why you need to draft the termination clause with a lot of precision. Ensure your employees understand the clauses as this will lead to a smooth termination process later on. Make the termination clause as simple and lucid as possible, while including the keywords required. At the time of the termination of the employee, play fair and offer the due compensation, notice period, etc. This will keep the image and reputation of your business intact and will also prevent legal notices being served to you.