Wrongful termination claims can seriously impact an employer’s reputation, finances, and workplace culture. In India, such claims arise when an employee is dismissed without complying with employment contracts, statutory protections, or the principles of natural justice. Courts and labour tribunals closely examine termination processes, and even minor procedural lapses can result in reinstatement with back wages.
To safeguard against these risks, employers must adopt structured, transparent, and legally compliant termination practices. Laws such as the Industrial Disputes Act, 1947 and the Industrial Employment (Standing Orders) Act, 1946 play a central role in governing employment relationships. This blog outlines practical best practices every employer, HR professional, and manager should follow to prevent wrongful termination disputes.
Conduct a Thorough and Impartial Investigation Before Termination
A legally defensible termination always begins with a proper investigation. Employers should never rely on assumptions, unverified complaints, or hearsay. Instead, collect all relevant evidence such as attendance records, emails, CCTV footage, system logs, and witness statements.
It is advisable to appoint an independent inquiry officer with no personal interest in the outcome. Indian labour law mandates strict adherence to the principles of natural justice—audi alteram partem (hear the other side) and nemo judex in causa sua (no one should be a judge in their own cause).
The Supreme Court, in Workmen of Motipur Sugar Factory v. Motipur Sugar Factory (1965) SCC 369, struck down dismissals that were made without a proper inquiry, holding that procedural defects can invalidate even otherwise justified terminations.
In cases of alleged misconduct:
- Issue a formal charge sheet clearly stating the allegations
- Provide the employee reasonable time (at least 48 hours) to respond
- Allow the employee to present evidence and cross-examine witnesses
- Maintain written minutes of proceedings
- Prepare a detailed inquiry report with findings and reasoning
It is equally important to distinguish between misconduct and poor performance. Performance-related issues should be supported by prior appraisals, feedback sessions, and documented improvement plans. This paper trail demonstrates fairness and reduces claims of arbitrariness.
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Apply Disciplinary Policies Consistently Across All Employees
Inconsistent disciplinary action is one of the most common triggers for wrongful termination claims. If one employee is warned for misconduct while another is terminated for the same behaviour, courts are likely to infer discrimination, victimisation, or retaliation.
Employers should:
- Regularly review standing orders, HR policies, and employment contracts
- Implement a progressive discipline framework, including verbal warnings, written warnings, suspension, and termination as a last resort
- Train supervisors and managers to apply policies uniformly
- Maintain centralized documentation of disciplinary actions
The Supreme Court, in L. Michael v. Johnson Pumps Ltd. (1975) 1 SCC 574, invalidated a termination based on “loss of confidence” because the employer failed to apply standards uniformly and could not substantiate the allegation with evidence.
Conducting periodic audits of disciplinary records helps identify inconsistencies early. Any deviation—especially in cases of serious misconduct such as theft or fraud – must be clearly justified in writing with reference to company policy.
Communicate Clearly, Document Everything, and Use Professional Language
Poor communication often escalates manageable separations into prolonged disputes. Every stage of the employment relationship- from counseling to termination—should be documented in writing.
Key best practices include:
- Follow up verbal discussions with written summaries or emails
- Ensure termination letters clearly state objective grounds, such as policy violations or inquiry findings
- Reference relevant clauses from employment contracts or standing orders
- Avoid vague or subjective language like “not a cultural fit”
Before termination for performance-related issues, employers should implement Performance Improvement Plans (PIPs) with clear goals, timelines, and measurable outcomes. Failure to meet these benchmarks provides strong evidence of fair opportunity and good faith.
Coordination between HR, payroll, and IT teams is equally important to ensure timely final settlements and access revocation. Delays in salary or dues can lead to separate claims under the Payment of Wages Act, 1936, even if the termination itself is valid.
Handle Severance, Settlements, and Post-Termination Obligations Properly
A well-structured severance package can often prevent disputes from escalating into litigation. For workmen, Section 25F of the Industrial Disputes Act, 1947 mandates:
- One month’s notice or salary in lieu thereof
- Retrenchment compensation equal to 15 days’ average pay for each completed year of service
For managerial and supervisory staff, severance is governed by contractual terms and statutory benefits such as gratuity under the Payment of Gratuity Act, 1972.
When entering into settlement agreements:
- Ensure the employee voluntarily releases claims
- Clearly disclose all amounts payable
- Make payments through bank transfers for verifiable proof
Post-termination obligations include issuing relieving letters, experience certificates, and Form 16 promptly—ideally within 2–3 days. Employers should also retrieve company assets, revoke system access, and remind employees of ongoing confidentiality obligations.
Professional handling at this stage reduces the risk of civil suits, harassment claims, or complaints before consumer forums.
Train Managers and Conduct Pre-Termination Legal Reviews
Preventing wrongful termination claims requires proactive training and oversight. Employers should regularly train managers on:
- Labour and employment laws
- Anti-discrimination principles under Article 14 of the Constitution
- Retaliation protections for whistleblowers
Role-playing termination meetings helps managers deliver decisions calmly and factually. Before finalising any termination, a pre-termination review involving HR and legal teams should assess:
- Compliance with internal policies and statutory requirements
- Any connection to protected activities such as union membership or complaints
- Objective data supporting the decision, such as KPIs or performance metrics
Conclusion
Preventing wrongful termination claims in India is less about avoiding terminations and more about doing them right. Indian courts consistently uphold employer decisions that are fair, transparent, and well-documented.
By following structured investigations, applying policies consistently, maintaining clear communication, and ensuring statutory compliance, employers can significantly reduce legal exposure while fostering a culture of trust and accountability. Implementing these best practices today is an investment in long-term organisational stability and legal safety.
Disclaimer: This blog is for general informational purposes only and does not constitute legal advice. Privacy laws may vary based on circumstances and jurisdiction. Readers are advised to consult a qualified legal professional, such as Bisani Legal, for specific advice regarding data protection, privacy rights, or related legal concerns.
