Notice and Severance

This page was last updated on: 2021-03-12

Notice Requirement

The Labour Act provides for the termination of contract through notice. The contract termination notice period is dependent upon the payment period of the employee (daily, weekly, fortnightly and monthly basis) and length of service. The notice period is one month by either party for an employee in continuous service of the employer for one year or more; two weeks for an employee after continuous service of an employer for six months to one year; one week for an employee for a continuous service of less than 6 months.

The parties can agree to a longer termination notice. The employer can further waive the right to receive notice of termination upon request of an employee. Also, the employee can accept payment, instead of notice of termination, equivalent to total wages and entitlements to which the employee would have been entitled to for the required notice period.

There can be multiple reasons for termination of contract by an employer: incapacity of an employee to perform work; repeated failure of an employee to perform work; gross misconduct by an employee; and changes in operational requirements. The employer is to provide an employee with a written notice stating the reason for termination of employment.

There is also termination due to death. The employment contract, in such a circumstance, is to come to an end one month after the death of an employee. Where the employee leaves employment because of the conduct of the employer, it is considered summary termination, whereby the employer is taken to have terminated the employment contract. An employer is entitled to dismiss summarily an employee where the employee had fundamentally broken his obligation under the employment contract.

Sources: §72-79 of the Labour Act, 2017

Severance Pay

A worker is entitled to severance pay after being in continuous service of the employer for at least six months. Severance Pay is due where the employee has been unfairly dismissed by the employer; the employee dies in the service of his employer; the employee terminates the employment contract due to a physical incapacity; the employment contract is terminated due to the death and insolvency of the employer; and in any circumstance where regulations require so. 

However, severance pay is not required in several circumstances. First, where an employee has been summarily dismissed with justification. Second, where an employee abandons his employment or takes leave from the workplace for a period of more than 7 days without permission of the employer. Third, where the employment contract terminated was a probationary contract. The calculation of severance pay is negotiable between the employer and the employees/trade union.

There is also provision for gratuity pay. It is available to a worker who has completed at least one year of continuous service. The gratuity pay is one month salary for each year of service where the total length of service with the employer is ten years or less. The gratuity pay is one and a half month’s salary for each year of service where the worker has completed more than 10 years. The gratuity pay further rises to one and three quarters of a month’s salary for each additional year of service where the length of service exceeds 15 years. The total gratuity payment cannot exceed 36 months gross salary.

Sources: §80 & 81 of the Labour Act, 2017