Termination of employment is one of the most sensitive HR functions. Done improperly, it can expose employers to labour disputes, wrongful termination claims, and statutory penalties. The Industrial Relations Code, 2020, the Code on Wages, 2019, and state-specific Shops & Establishments Acts together establish the legal framework for termination.
This blog outlines a step-by-step termination process that HR teams must follow to ensure compliance, fairness, and risk mitigation.
1. Reason Identification
Termination must be based on valid grounds:
- Misconduct or poor performance
- Policy violation
- Absenteeism
- Redundancy or business restructuring
- Termination during probation
Employers must document reasons clearly to avoid claims of arbitrary dismissal.
2. Termination Approval
- HR recommendation
- Department head approval
- Final approval from management/director
Multi-level approval ensures accountability and reduces bias.
3. Documentation & Due Process
- Issue warning letters (if applicable)
- Serve a show-cause notice
- Record employee’s explanation
- Conduct a domestic enquiry (mandatory for misconduct cases)
- Prepare an enquiry report
Failure to follow due process can lead to reinstatement orders under Section 25F of the Industrial Disputes Act.
4. Issue Termination Letter
- Mention effective date of termination
- State reasons factually and objectively
- Specify notice period or salary in lieu
- Confirm last working day
Termination letters must be legally precise to withstand tribunal scrutiny.
5. Access & Asset Recovery
- Collect ID card
- Recover company laptop, mobile, and devices
- Retrieve files/documents
- Block email and system access
This protects organizational data and prevents misuse post-exit.
6. Handover & Clearance
- Ensure proper departmental handover
- Obtain no-dues certificate
- Complete HR, admin, and IT clearances
7. Full & Final Settlement (FnF)
- Pay salary up to last working day
- Process leave encashment (as per law)
- Adjust recoveries (advances, notice-pay deductions)
Under the Wage Code, FnF must be completed within two working days of termination.
8. Statutory Compliance
- Initiate PF exit process
- Update ESI records
- Process gratuity (if eligible under Payment of Gratuity Act)
- Ensure tax compliance and issue Form 16
Non-compliance here can trigger penalties under the Code on Social Security, 2020.
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- Document valid reasons for termination.
- Follow due process (show-cause, enquiry, report).
- Issue legally compliant termination letter.
- Recover assets and block access.
- Complete handover and clearances.
- Process FnF within statutory timelines.
- Update PF, ESI, gratuity, and tax records.
- Maintain documentation for audits.
Disclaimer: This blog is for educational purposes only. Termination procedures may vary based on establishment type, state laws, and judicial interpretations. For case-specific advice, consult a certified Labour Law Consultant or practicing advocate.