India — Termination & Severance

Termination and severance protections in India are primarily governed by the Industrial Disputes Act, 1947 (the "ID Act"), a central legislation enacted to provide investigation and settlement of industrial disputes and to protect workers from arbitrary dismissal, retrenchment, layoff, and closure. The ID Act extends to the whole of India and came into force on 1 April 1947.

The ID Act consolidates multiple employer obligations into a comprehensive framework. "Retrenchment" is defined broadly under section 2(oo) to include the termination by the employer of the service of a workman for any reason whatsoever, other than as a punishment inflicted by way of disciplinary action, and subject to specific statutory exceptions. The ID Act distinguishes between "appropriate Government" authority—Central Government for industries such as those carried on by or under the authority of the Central Government, railways, and certain controlled industries; State Government for other industrial establishments.

Chapter VA of the ID Act (sections 25A through 25J) governs conditions precedent to layoff and retrenchment for establishments employing fewer than 100 workers. Section 25F establishes three mandatory conditions for retrenchment: (a) one month's notice in writing indicating the reasons for retrenchment, or wages in lieu of notice; (b) retrenchment compensation equivalent to fifteen days' average pay for every completed year of continuous service or any part thereof in excess of six months; and (c) notice served on the appropriate Government or specified authority. These protections apply to any workman who has been in continuous service for not less than one year.

Chapter VB (sections 25K through 25R) imposes stricter requirements for larger establishments—those employing 100 or more workers on any day of the preceding twelve months. Under section 25N, no workman employed in such an industrial establishment who has been in continuous service for not less than one year may be retrenched until: (a) the workman has been given three months' notice in writing indicating the reasons for retrenchment, or wages in lieu of such notice; and (b) prior permission of the appropriate Government or specified authority has been obtained. The government or specified authority must conduct an inquiry, afford a hearing to the employer, the workmen concerned, and other interested persons, and then grant or refuse permission by order with reasons in writing, having regard to the genuineness and adequacy of the reasons stated by the employer, the interests of the workmen, and all other relevant factors. If the government does not communicate its decision within sixty days from the date of application, permission is deemed granted. Section 25Q prescribes penalties—imprisonment for a term which may extend to one month, or fine which may extend to one thousand rupees, or both—for an employer who contravenes section 25N.

Section 25FFF addresses closure compensation. Where an undertaking is closed down for any reason whatsoever, every workman who has been in continuous service for not less than one year immediately before closure is entitled to notice and compensation in accordance with section 25F (as if retrenched). However, where the closure is on account of unavoidable circumstances beyond the control of the employer, the compensation shall not exceed the worker's average pay for three months. Financial difficulties (including financial losses) and accumulation of unsold stocks do not, by themselves, constitute unavoidable circumstances beyond the employer's control.

The Industrial Relations Code, 2020 (the "IR Code") was enacted to consolidate and simplify three central labour statutes: the Industrial Disputes Act 1947, the Trade Unions Act 1926, and the Industrial Employment (Standing Orders) Act 1946. The IR Code was passed by the Lok Sabha on 22 September 2020, by the Rajya Sabha on 23 September 2020, and notified in the Gazette on 29 September 2020. The IR Code raises the establishment-size threshold requiring government permission for retrenchment from 100 workers to 300 workers, expands the definition of "worker" to include sales promotion employees, working journalists, and supervisory employees earning up to ₹18,000 per month, and provides a uniform definition of "wages" with a 50% ceiling on exclusions to ensure retrenchment compensation is calculated on a fair and substantial portion of actual earnings.

As of May 2026, the IR Code has not yet come into effect. "Labour" is a subject in the Concurrent List of the Constitution of India, and implementation requires both Central and State Governments to finalize and notify rules. The Central Government pre-published draft rules under the IR Code; however, full implementation awaits coordinated State rule-making. Until the IR Code is notified and brought into force, the Industrial Disputes Act 1947 remains the operative statute governing termination, retrenchment, layoff, and closure across India.

Employers hiring in India for the first time should design termination procedures, severance calculations, and prior-approval workflows around the ID Act's Chapter VA and VB requirements, noting that larger establishments (100+ workers) face the three-month notice period and mandatory government-permission hurdle for retrenchment, and that closure triggers separate compensation obligations under section 25FFF even when the employer ceases operations entirely.

Source: The Industrial Disputes Act, 1947 Source: Industrial Disputes Act, 1947 (full text) Source: Industrial Relations Code, 2020 (Press Information Bureau) Source: Implementation of Labour Codes (PIB release)

Termination for misconduct in India follows a procedural track entirely separate from "retrenchment" and is exempt from the notice, severance, and government-permission requirements that attach to retrenchment under the Industrial Disputes Act, 1947 (ID Act).

Section 2(oo) of the ID Act defines "retrenchment" as "the termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action," and then lists additional exclusions (voluntary retirement, superannuation, non-renewal of a fixed-term contract, and termination on grounds of continued ill-health). The statutory effect is clear: when an employer dismisses a workman as punishment for misconduct following a disciplinary proceeding, the termination does not qualify as retrenchment, and the employer is not required to provide the one-month notice (or three months for establishments with 100+ workers), the fifteen days' average pay per completed year of service, or prior government permission that sections 25F and 25N mandate for retrenchment.

However, the exclusion from retrenchment protections does not grant the employer unfettered discretion. Dismissal for misconduct must comply with the principles of natural justice and the procedural requirements prescribed in the Industrial Employment (Standing Orders) Act, 1946 (IES Act) and the model standing orders certified under that statute. The IES Act, which applies to industrial establishments ordinarily employing 100 or more workmen (section 1(3)), requires every such employer to define and certify standing orders covering, among other matters, "suspension or dismissal for misconduct, and acts or omissions which constitute misconduct."

The Industrial Employment (Standing Orders) Central Rules, 1946, which prescribe model standing orders applicable to establishments under Central Government control, railways, major ports, mines, and oilfields, set out the mandatory procedural safeguards for disciplinary dismissal. Standing Order 17(ii) provides that no order of punishment (including dismissal) may be made unless:

1. The workman is informed in writing of the alleged misconduct and is given an opportunity to explain the allegations;
2. A departmental enquiry is instituted before dealing with the charges;
3. The workman may take the assistance of a co-worker to help him in the enquiry, if he so desires;
4. The records of the departmental enquiry are kept in writing;
5. The approval of the owner, agent, or the chief mining engineer (or a person holding a similar position) is obtained before imposing the punishment of dismissal; and
6. A copy of the enquiry proceedings is given to the workman on the conclusion of the enquiry, on request.

If the workman is not found guilty of the charges, he shall be deemed to be on duty during the full period of suspension and shall be entitled to full wages for that period (Standing Order 17(iii)). During the pendency of the enquiry, the workman may be suspended and is entitled to subsistence allowance equal to half his wages for the first 90 days and three-fourths of his wages for the remaining period (as amended by later statutory provisions and the model standing orders).

State governments have issued similar standing-order rules for establishments within their jurisdictions, and many large establishments maintain certified standing orders that mirror or expand upon the Central model. Employers hiring in India for the first time should verify the applicable standing-order framework for their industry and state, ensure that their employment contracts and internal policies incorporate the certified standing orders, and rigorously document all disciplinary proceedings.

Indian courts have consistently held that dismissal without compliance with natural justice—even when labeled "dismissal for misconduct"—is invalid and may be set aside or converted to wrongful termination with compensatory relief. The Supreme Court of India has repeatedly affirmed that disciplinary proceedings must be conducted fairly, that the workman must be afforded a reasonable opportunity to defend himself, and that procedural violations causing prejudice to the workman warrant judicial intervention.

Practical implications for cross-border employers:

• An employer wishing to dismiss a workman for theft, insubordination, fraud, or other misconduct cannot simply issue a termination letter citing cause. The employer must first conduct a formal departmental enquiry in accordance with the certified standing orders, preserve a written record, and obtain the requisite approvals.
• Temporary workmen, probationers, and badli (substitute) workers are generally not entitled to notice or pay in lieu of notice if their services are terminated (Standing Order governing notice periods), but even they must be given an opportunity to explain charges of misconduct if the termination is framed as a punishment.
• The burden of proof in a disciplinary proceeding rests on the employer. Documents tendered must be proved by witnesses who are subject to cross-examination, and the enquiry officer's findings must be based on the record.
• If the employer fails to follow the standing-order procedure and the workman challenges the dismissal before a Labour Court or Industrial Tribunal under the ID Act, the tribunal may reinstate the workman with back wages or award compensation, even if the underlying misconduct was substantiated.

In summary: dismissal for misconduct is excluded from the definition of "retrenchment" under section 2(oo) of the ID Act and therefore does not trigger the notice, severance, or government-permission requirements of sections 25F, 25N, and 25FFF. But the exclusion applies only when the employer has complied with the principles of natural justice and the procedural safeguards mandated by the Industrial Employment (Standing Orders) Act, 1946, the certified standing orders, and settled case law. An employer who bypasses these requirements risks having the dismissal set aside and being ordered to pay substantial compensatory awards.

Source: The Industrial Disputes Act, 1947 — Section 2(oo) definition of "retrenchment" Source: Industrial Employment (Standing Orders) Central Rules, 1946 — Standing Order 17 on disciplinary action

The Industrial Disputes Act, 1947 (ID Act) imposes mandatory minimum notice periods for retrenchment that vary by establishment size. The notice requirement is distinct from severance compensation and from the prior-government-permission threshold; an employer must satisfy all three conditions before a lawful retrenchment can take effect.

## One-month notice for smaller establishments — section 25F(a)

Section 25F(a) of the ID Act provides that no workman employed in any industry who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until "the workman has been given one month's notice in writing indicating the reasons for retrenchment and the period of notice has expired, or the workman has been paid in lieu of such notice, wages for the period of the notice."

This provision applies to establishments employing fewer than 100 workers on any day in the preceding twelve months. The notice must be in writing, must state the reasons for retrenchment, and must specify the period of notice. If the employer chooses not to require the workman to serve out the notice period, the employer may pay wages in lieu of notice for the full one-month period. The payment in lieu is due at the time of retrenchment, together with the retrenchment compensation mandated by section 25F(b).

Continuous service for not less than one year is the qualifying threshold. Under section 25B of the ID Act, a workman is deemed to have been in continuous service for one year if the workman has worked for a period of 240 days in the twelve months immediately preceding the date of retrenchment. The 240-day calculation includes periods of lay-off, authorized leave, and interruptions due to strikes and lock-outs that did not break the employer–employee relationship.

## Three-month notice for larger establishments — section 25N(1)(a)

Section 25N(1)(a) of the ID Act, which governs establishments employing 100 or more workers on any day in the preceding twelve months (Chapter VB), raises the minimum notice period to three months. The section provides that no workman employed in such an industrial establishment who has been in continuous service for not less than one year shall be retrenched until "the workman has been given three months' notice in writing indicating the reasons for retrenchment and the period of notice has expired, or the workman has been paid in lieu of such notice, wages for the period of the notice."

The three-month notice applies in addition to the government-permission requirement under section 25N(1)(b). An employer who obtains government permission for retrenchment but fails to provide the three-month notice (or pay wages in lieu) has not complied with the statute.

As with section 25F(a), the employer may elect to pay wages in lieu of the three-month notice period rather than requiring the workman to serve out the notice. The payment in lieu must be made at the time of retrenchment, together with the fifteen days' average pay per completed year retrenchment compensation prescribed by section 25N(9).

## Payment in lieu of notice: wages for the notice period

The statutory language — "wages for the period of the notice" — is the formula specified in both sections 25F(a) and 25N(1)(a). The statute does not define the precise calculation methodology for converting the notice period into a lump-sum payment, and practice varies. The term "wages" as defined in section 2(rr) of the ID Act typically includes basic wages and dearness allowance but excludes certain other components; employers and tribunals apply that definition by analogy when computing payment in lieu of notice.

The payment-in-lieu mechanism allows the employer to effect an immediate separation without requiring the workman to continue working during the notice period. However, if the employer elects to give notice rather than pay in lieu, the full notice period must run. If the employer dismisses the workman before the notice period expires without paying wages in lieu for the remaining period, the retrenchment may be challenged as non-compliant with section 25F(a) or 25N(1)(a).

## Distinction from ordinary termination notice under standing orders

The notice requirements in sections 25F(a) and 25N(1)(a) apply specifically to retrenchment — the termination of a workman for any reason whatsoever other than as punishment inflicted by way of disciplinary action, and excluding the statutory exceptions listed in section 2(oo) (voluntary retirement, superannuation, non-renewal of a fixed-term contract, continued ill-health).

Ordinary termination notice for non-retrenchment scenarios (resignation by the workman, mutual termination by agreement) is governed by the Industrial Employment (Standing Orders) Act, 1946 and the certified standing orders applicable to the establishment. The model standing orders typically prescribe notice periods for resignation or termination, but these standing-order notice periods do not apply to retrenchment; the statutory retrenchment-notice periods in sections 25F and 25N control.

Conversely, dismissal for misconduct following a disciplinary inquiry under the standing orders is excluded from the definition of "retrenchment" by section 2(oo) and therefore does not trigger the one-month or three-month retrenchment-notice requirement. An employer who has conducted a valid departmental inquiry in accordance with the principles of natural justice and the certified standing orders may dismiss a workman for proven misconduct without statutory retrenchment notice.

## Interaction with contractual notice provisions

Employment contracts in India frequently specify notice periods for termination by either party. Where the contract specifies a notice period longer than the statutory minimum, employers typically honor the longer contractual period to avoid contract-breach claims. Where the contract specifies a notice period shorter than the statutory minimum, the statutory minimum prevails, because the ID Act is protective legislation and its floor cannot be waived by contract. For example, a contract stating "one month's notice by either party" cannot reduce the three-month retrenchment-notice requirement under section 25N for an establishment with 100 or more workers.

## Practical guidance for cross-border employers

Count the workforce on any day in the preceding twelve months to determine whether the establishment is subject to Chapter VA (< 100 workers, one-month notice under section 25F) or Chapter VB (≥ 100 workers, three-month notice under section 25N, plus government-permission requirement).

Verify continuous service: the workman must have worked 240 days in the twelve months immediately preceding retrenchment to qualify for notice and retrenchment compensation protections under section 25B.

Draft the notice in writing, state the reasons for retrenchment, and specify the notice period. If you elect to pay in lieu, tender wages for the statutory notice period (one or three months) at the time of retrenchment, together with retrenchment compensation.

Do not conflate retrenchment notice with standing-order notice. Retrenchment (termination for economic or operational reasons) triggers sections 25F/25N. Resignation, mutual separation, and lawful dismissal for misconduct do not.

For establishments with 100+ workers, the three-month notice is only one of two conditions precedent: you must also obtain prior permission from the appropriate government or specified authority under section 25N(1)(b) before the retrenchment can take effect.

Source: Industrial Disputes Act, 1947 — Section 25F, Chapter VA (Delhi Labour Department) Source: Industrial Disputes Act, 1947 — Section 25N, Chapter VB (Delhi Labour Department) Source: Industrial Disputes Act, 1947 — Section 25N (Income Tax India official compilation)