Termination of Employment in India: Misconduct, Domestic Inquiry, Retrenchment, Notice Pay, Probation & Wrongful Termination Remedies 2026

Updated: 21 August 2026

Termination of employment in India cannot safely be analysed through a single rule such as “give one month’s notice and terminate.” The legal consequences depend on who the employee is, why employment is ending, the nature of the establishment, the employment contract, certified or model standing orders, applicable State employment law and, for statutory workers, the Industrial Relations Code, 2020.

A major change for 2026 is that the Industrial Relations Code, 2020 came into force on 21 November 2025. Employers, HR teams and employees should therefore avoid relying blindly on old Industrial Disputes Act terminology without checking the current Code.

This guide explains the current framework for misconduct dismissal, termination simpliciter, retrenchment, probation, fixed-term employment, domestic inquiry, notice pay, compensation, prior Government permission and remedies before the Industrial Tribunal.

Termination law at a glance

Situation	Key legal issue
Dismissal for misconduct	Disciplinary action; retrenchment definition excludes genuine punishment imposed through disciplinary action
Non-disciplinary termination of a statutory worker	May amount to retrenchment unless it falls within a statutory exclusion
Retrenchment after at least 1 year continuous service	Section 70: one month notice/pay in lieu + retrenchment compensation + Government notice
Factory/mine/plantation with 300+ workers	Chapter X may apply; Section 79 generally requires 3 months’ notice/pay in lieu and prior Government permission
Fixed-term contract expires	Expiry/non-renewal and completion of fixed-term tenure are expressly excluded from retrenchment, subject to genuine contractual structure
Managerial/administrative employee	Industrial Relations Code “worker” remedies may not apply; contract, State Shops law and other statutes become critical
Suspension pending misconduct inquiry	Section 38: proceedings ordinarily within 90 days; subsistence allowance rules apply
Individual worker challenges dismissal	Termination dispute is deemed an industrial dispute; direct Tribunal application after 45 days from conciliation application, subject to statutory limitation

The Industrial Relations Code is now operative

The Central Government notified 21 November 2025 as the commencement date for the Industrial Relations Code, 2020. This is crucial because many employment-law articles still describe the Industrial Disputes Act, 1947 as though it were the primary central statute for current retrenchment disputes.

Official commencement notification: Ministry of Labour and Employment notification dated 21 November 2025.

The Industrial Relations Code, 2020 now provides the principal central framework for industrial disputes, standing orders, disciplinary proceedings, retrenchment and related remedies.

First question: is the person a “worker”?

This classification determines much of the legal route.

Under Section 2 of the Industrial Relations Code, “worker” broadly includes persons employed in an industry to perform manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward. It excludes persons employed mainly in managerial or administrative capacity and, subject to the statutory wording, supervisors drawing wages above the notified/statutory threshold.

The current statutory text excludes a person employed in supervisory capacity drawing wages exceeding ₹18,000 per month or a higher amount that may be notified by the Central Government.

This does not mean every employee earning more than ₹18,000 is outside labour protection. The ₹18,000 exclusion concerns the supervisory category. A high-paid employee performing technical, operational or clerical functions may still require a functional duties analysis. Designation alone is not decisive.

Employee vs worker: why the distinction matters

A managerial or administrative employee may be governed substantially by:

the appointment letter and employment agreement;
applicable State Shops and Establishments legislation;
company policies and service rules;
specific benefit statutes;
principles of contract law; and
special statutory protections such as maternity, anti-discrimination or whistleblower-related protections where applicable.

By contrast, a statutory worker may have powerful industrial-law remedies including retrenchment compensation, industrial-dispute adjudication and reinstatement-related relief.

Termination for misconduct vs retrenchment

This is the most important distinction in the current law.

Section 2(zh) defines retrenchment broadly as termination by the employer of the service of a worker for any reason whatsoever otherwise than as a punishment inflicted by way of disciplinary action, subject to specified exclusions.

Therefore:

a genuine dismissal imposed as disciplinary punishment is not retrenchment merely because employment ends;
a non-disciplinary discharge of a worker may fall within retrenchment even where the employer calls it “termination simpliciter”; and
the label used in the termination letter does not replace statutory analysis.

What is excluded from retrenchment?

Section 2(zh) expressly excludes certain situations, including:

voluntary retirement;
retirement on reaching superannuation;
termination caused by non-renewal of the employment contract on expiry or termination under a contractual stipulation of the kind contemplated by the provision;
termination on completion of the tenure of fixed-term employment; and
termination on the ground of continued ill-health.

These exclusions should not be treated as drafting shortcuts. A sham fixed-term arrangement repeatedly renewed to defeat statutory rights may attract scrutiny on its actual facts.

Dismissal for misconduct

Misconduct cases ordinarily involve allegations such as theft, fraud, insubordination, violence, falsification of records, serious attendance misconduct, sexual harassment findings, data theft, breach of confidentiality, unauthorised absence or other misconduct recognised by the applicable standing orders/service framework.

The employer should identify:

the precise misconduct alleged;
the rule, standing order or policy allegedly violated;
the evidence supporting each charge;
the employee’s explanation;
whether a domestic inquiry is required;
whether the inquiry complies with natural justice; and
whether the punishment is proportionate to the proved misconduct.

Domestic inquiry: core procedural safeguards

A legally defensible disciplinary process should ordinarily include:

a clear charge-sheet or statement of allegations;
sufficient particulars of date, place, conduct and documents;
reasonable opportunity to submit a written explanation;
an impartial inquiry officer where a formal inquiry is required;
disclosure or production of relied-upon material consistent with the applicable rules;
opportunity to cross-examine management witnesses where evidence is led;
opportunity to lead defence evidence;
a reasoned finding on each charge; and
a separate and proportionate disciplinary decision.

A termination order drafted as a neutral discharge may still be vulnerable where the real foundation is alleged misconduct and the employer has bypassed the required disciplinary process.

Section 38: 90-day disciplinary timeline and subsistence allowance

Section 38 of the Industrial Relations Code specifically addresses suspension pending investigation or inquiry.

Where a worker is suspended pending misconduct proceedings, the investigation/inquiry should ordinarily be completed within 90 days from suspension.

The standing orders must also provide subsistence allowance. The statutory structure provides:

50% of wages for the first 90 days of suspension; and
75% thereafter where delay beyond 90 days is not directly attributable to the worker.

Official text: Industrial Relations Code, Section 38.

Standing orders and termination

Standing orders are no longer a peripheral HR document. They regulate matters such as classification, attendance, misconduct, disciplinary procedure, suspension and termination for covered industrial establishments.

Employers should compare every proposed disciplinary termination against the applicable certified or model standing orders before issuing the charge-sheet.

For a detailed overview, see our guide: Standing Orders Under Indian Labour Law.

Termination simpliciter: why the label is dangerous

Employers often use the expression “termination simpliciter” to describe a non-stigmatic termination by giving contractual notice.

For a managerial employee governed primarily by contract, that may be an important contractual concept.

For a statutory worker, however, the broader retrenchment definition must be examined. A non-punitive termination that does not fall within one of the statutory exclusions may still amount to retrenchment, triggering Section 70 or, for establishments covered by Chapter X, Section 79.

The legal analysis should therefore ask:

Is the employee a “worker”?
Is the termination disciplinary?
Does any Section 2(zh) exclusion apply?
Has the worker completed one year of continuous service?
Does Chapter IX or Chapter X apply?

Section 70 retrenchment: one-month notice and compensation

Section 70 applies to a worker who has been in continuous service for at least one year, subject to the statutory framework.

Before retrenchment, the employer must satisfy the statutory conditions, including:

one month’s written notice indicating the reasons for retrenchment and expiry of that period, or wages in lieu of the notice;
payment, at the time of retrenchment, of compensation equivalent to 15 days’ average pay for every completed year of continuous service or part thereof exceeding six months; and
service of prescribed notice on the appropriate Government/authority.

Official text: Section 70, Industrial Relations Code.

Retrenchment compensation: worked example

Suppose a covered worker has completed 7 years and 8 months of continuous service.

For statutory compensation, the part of service exceeding six months is treated in accordance with Section 70. The employer should calculate the applicable average pay carefully and avoid using an arbitrary “basic salary only” formula where that does not match the statutory definition.

The amount should be paid at the time of retrenchment, not merely promised in a later F&F settlement.

Section 71: last come, first go

Section 71 provides the ordinary retrenchment sequence for workers in a category. In the absence of an agreement to the contrary, the employer ordinarily retrenches the last person employed in that category unless reasons are recorded for departing from that sequence.

This is commonly described as the “last come, first go” principle.

An employer selecting one worker while retaining more junior employees should therefore preserve an objective record explaining the selection criteria.

Section 72: preference in re-employment

If the employer proposes to recruit again within one year after retrenchment, Section 72 requires an opportunity to eligible retrenched workers to offer themselves for re-employment, with statutory preference as provided by the Code.

Chapter X: establishments with 300 or more workers

For specified industrial establishments—principally factories, mines and plantations—Chapter X applies where at least 300 workers, or a higher notified number, were employed on average per working day during the preceding 12 months.

Official text: Section 77, Industrial Relations Code.

Section 79: three-month notice and prior Government permission

Where Chapter X applies, retrenchment of a worker with at least one year’s continuous service generally requires:

three months’ written notice indicating reasons, or wages in lieu of that notice; and
prior permission of the appropriate Government on the statutory application.

Where permission is granted or deemed granted under the statutory mechanism, retrenchment compensation is also payable.

Official text: Section 79, Industrial Relations Code.

Worker re-skilling fund: additional employer obligation

Section 83 creates a worker re-skilling fund. In retrenchment cases, the employer contributes an amount equivalent to 15 days’ wages last drawn by the retrenched worker, or another notified amount, and the statutory mechanism provides for credit to the worker’s account within the prescribed framework.

This is separate from the ordinary Section 70/79 retrenchment compensation analysis.

Official text: Section 83, Industrial Relations Code.

Can an employer simply pay notice salary and terminate?

Not in every case.

Notice pay may satisfy one contractual or statutory requirement, but it does not automatically cure:

failure to pay retrenchment compensation;
failure to obtain prior Government permission where Section 79 applies;
failure to comply with standing orders;
a punitive termination imposed without disciplinary process;
victimisation or unfair labour practice;
discriminatory or statutorily prohibited termination; or
non-payment of final statutory dues.

Probationary employees

Probation is primarily governed by the employment terms, applicable standing orders and governing legislation. A probation clause often permits shorter notice or termination where the employee has not been confirmed.

However, employers should distinguish:

non-confirmation based on suitability/performance; from
punitive termination founded on misconduct.

If the real foundation is misconduct, fraud, harassment, theft or another blameworthy allegation, merely describing the employee as a “probationer” may not eliminate procedural risk.

Employers should preserve appraisal records, probation-extension communications, performance feedback and the contractual basis for non-confirmation.

Fixed-term employees

The Industrial Relations Code expressly excludes termination arising from expiry/non-renewal of qualifying employment contracts and completion of the tenure of fixed-term employment from the retrenchment definition.

That makes fixed-term drafting important. The contract should clearly identify:

commencement date;
end date or objectively ascertainable tenure;
renewal mechanism;
early-termination provision;
notice requirements;
benefit eligibility; and
whether employment automatically expires or requires a separate act.

Termination of managerial and senior employees

Senior managerial/administrative employees may fall outside the Industrial Relations Code worker definition. Their remedies may therefore be contractual rather than industrial.

In a purely private contract of personal service, courts ordinarily do not compel continuation of the employment relationship as though the employee had a proprietary right to the post. Damages, notice pay, contractual dues or other remedies may be more relevant, subject to specific statutory exceptions and the nature of the employer.

For this category, review:

termination-with-cause clause;
termination-without-cause clause;
notice and pay-in-lieu provisions;
bonus/variable-pay terms;
ESOP/vesting consequences;
confidentiality and IP obligations;
non-solicitation clauses;
arbitration/jurisdiction clauses;
State Shops and Establishments requirements; and
full-and-final settlement obligations.

Notice pay and F&F settlement after termination

Termination documentation should keep distinct:

earned wages;
notice salary or shortfall;
retrenchment compensation;
leave encashment;
gratuity;
statutory bonus where applicable;
reimbursements;
variable pay under the contract/policy;
lawful deductions; and
return-of-property claims.

For the current final-wage framework, see Notice Period & Full-and-Final Settlement in India.

For unpaid wage remedies, see Employer Not Paying Salary in India: Code on Wages Remedies.

Can an employer withhold earned salary because of misconduct?

Misconduct allegations do not create an unrestricted right to confiscate wages already earned.

Any deduction or set-off should be tested against the Code on Wages, applicable rules, contractual rights and the nature of the claim. A company may have a separate damages or recovery claim, but that is not automatically identical to a lawful wage deduction.

Termination and employment bonds

If an employee is subject to a service bond, the consequences of employer-initiated termination depend heavily on the wording and reason for separation.

An employer that itself terminates employment for restructuring or convenience should not automatically assume that the employee owes the entire bond amount. The legal position is materially different from a voluntary premature resignation triggering a properly drafted minimum-service covenant.

See our detailed guide: Employment Bonds Legal in India?

Individual termination dispute under Section 4

The Industrial Relations Code preserves an important individual remedy.

Where an employer discharges, dismisses, retrenches or otherwise terminates the service of an individual worker, the dispute is deemed to be an industrial dispute even if no union or other worker joins the case.

A worker may apply directly to the Tribunal after 45 days have expired from the date of applying to the conciliation officer. The Code requires the direct Tribunal application to be made before expiry of two years from discharge, dismissal, retrenchment or termination.

Official text: Section 4(9)–(11), Industrial Relations Code.

What relief can the Industrial Tribunal grant?

Section 50 empowers the Tribunal/National Industrial Tribunal to grant appropriate relief in discharge or dismissal disputes. Depending on the case, industrial adjudication may involve setting aside an unjustified dismissal, reinstatement, lesser punishment or other appropriate relief.

Reinstatement and back wages should not be treated as mathematically automatic in every case. Relief depends on the statutory violation, nature of employment, length of service, misconduct findings, passage of time and the circumstances established in evidence.

Wrongful termination remedies for workers

A worker challenging termination should consider whether the case involves:

illegal retrenchment;
lack of required Government permission;
violation of standing orders;
dismissal without fair inquiry;
victimisation or unfair labour practice;
retaliation for union activity;
non-payment of statutory compensation;
discriminatory termination; or
termination during protected statutory leave.

The remedy may involve conciliation, Tribunal adjudication, recovery proceedings for money due, or another statutory forum depending on the complaint.

Wrongful termination remedies for non-workers

A managerial/administrative employee may have to pursue remedies based on the employment agreement and applicable State employment statute. Depending on the facts, claims may include:

notice pay;
unpaid salary;
contractual bonus or commission;
leave encashment;
gratuity and other statutory benefits;
damages for contractual breach;
declaration or statutory relief where a special law applies; or
arbitration where the employment agreement contains an enforceable arbitration clause.

Termination during maternity leave

Employers must separately examine maternity-protection legislation. Termination connected with maternity absence or designed to defeat maternity benefits can create significant statutory exposure.

General contractual termination language does not override mandatory statutory protections.

Termination after POSH proceedings

Where misconduct arises from a workplace sexual-harassment complaint, the employer must coordinate the POSH statutory process, the Internal Committee’s findings/recommendations, service rules and the disciplinary framework.

Employers should not mechanically issue a dismissal simply because a complaint was made; equally, once misconduct is established through the statutory process, the disciplinary authority must act consistently with applicable service rules and proportionality.

Termination for poor performance

Poor performance and misconduct are legally distinct concepts, though they can overlap.

A defensible performance termination should ordinarily be supported by:

job description and measurable expectations;
performance reviews;
specific deficiencies communicated to the employee;
reasonable opportunity to improve where policy/contract requires;
PIP documentation where used;
objective comparison rather than selective targeting; and
consistent treatment of similarly situated employees.

For a statutory worker, however, a performance-based non-disciplinary termination must still be tested against the broad retrenchment definition.

Abandonment of service and unauthorised absence

Employers should be cautious with automatic “job abandonment” clauses.

Where standing orders treat prolonged unauthorised absence as misconduct, the safer approach is ordinarily to document notices, seek an explanation and follow the applicable disciplinary process rather than simply deleting the worker from payroll without procedural compliance.

Retrenchment vs redundancy

“Redundancy” is a business description; “retrenchment” is the statutory legal category.

A role may become redundant because of:

automation;
merger of departments;
cost reduction;
loss of business;
outsourcing;
closure of a product line; or
reorganisation.

If the affected person is a statutory worker and no exclusion applies, the legal termination may still amount to retrenchment.

Employer termination checklist

Classify the employee correctly: worker or non-worker.
Identify the true reason for termination.
Check appointment letter and amendments.
Check certified/model standing orders.
Check State Shops and Establishments law.
Determine whether misconduct inquiry is required.
Determine whether the case is retrenchment under Section 2(zh).
Calculate continuous service.
Check Section 70 or Section 79.
Calculate notice pay and retrenchment compensation separately.
Check re-skilling fund contribution.
Check pending maternity/POSH/union/statutory-protection issues.
Calculate final wages and other F&F components separately.
Prepare a legally accurate termination letter.
Preserve the evidence supporting the decision.

Employee termination review checklist

An employee receiving a termination letter should preserve:

appointment letter and employment agreement;
salary slips;
job description;
promotion and appraisal documents;
warning letters and PIP documents;
charge-sheet and inquiry documents;
termination letter;
standing orders/service rules;
emails and messages relating to the termination;
attendance records;
proof of continuous service;
F&F calculation;
proof of notice pay/retrenchment compensation; and
any evidence of victimisation, discrimination or retaliation.

Frequently asked questions

Can a private company terminate an employee without reason?

The answer depends on the employee’s legal category and governing documents. A managerial employee’s contract may permit without-cause termination on notice, subject to applicable State law. For a statutory worker, a non-disciplinary termination may constitute retrenchment and trigger statutory safeguards.

Is one month’s notice always enough?

No. Section 70 uses one month for ordinary retrenchment of qualifying workers, but Chapter X cases can require three months and prior Government permission. Contracts and State laws may also prescribe different obligations for other employees.

Can an employee be fired immediately for misconduct?

Summary dismissal may be contemplated for serious misconduct under applicable rules, but the employer must still satisfy the governing disciplinary procedure and principles of natural justice unless a legally recognised exception applies.

Is a domestic inquiry compulsory in every termination?

No. It is principally relevant where termination is punitive and based on misconduct. A genuine fixed-term expiry or valid non-disciplinary separation may involve a different procedure. For workers, however, non-disciplinary termination may attract retrenchment law.

Can a probationer be terminated without inquiry?

A genuine non-confirmation or suitability-based probation termination may be governed by the probation clause and applicable rules. If the real foundation is misconduct or the order is punitive/stigmatic, bypassing the required disciplinary framework creates substantial risk.

Does retrenchment compensation replace notice pay?

No. Section 70 separately addresses notice/pay in lieu and retrenchment compensation. They are distinct statutory requirements.

What is the limitation to challenge termination before the Tribunal?

Under Section 4(10)–(11) of the Industrial Relations Code, a worker may directly approach the Tribunal after 45 days from applying to the conciliation officer, and the direct application must be made within two years from the termination event specified by the statute.

Can a Tribunal reinstate a dismissed worker?

Yes. Section 50 gives the Tribunal broad remedial power in unjustified discharge/dismissal cases, including reinstatement or other appropriate relief. The exact relief depends on the case.

Primary legal sources

Conclusion

The safest way to analyse termination in India is to begin with classification and legal character—not with the wording of the termination letter.

For statutory workers, the Industrial Relations Code now draws a sharp distinction between disciplinary dismissal and retrenchment. A company cannot ordinarily convert retrenchment into simple contractual termination merely by paying notice salary, nor can it convert a punitive dismissal into a non-disciplinary discharge merely by changing the label.

For managerial and other non-worker employees, the contract and State-specific employment law become more important, but statutory wage, gratuity, maternity and other protections may still apply.

This article is published solely for legal information and public awareness. It does not constitute solicitation, advertisement or case-specific legal advice. Employment termination disputes are fact-sensitive and should be assessed against the employee’s actual duties, contract, establishment type, standing orders, State law and current statutory notifications.

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