By Harsh Singh Dahiya, Advocate, Supreme Court of India | Partner, Sterling & Partners

Losing a job is one of the most destabilising events in a person’s professional life. In India, where labour protections have historically been among the most comprehensive in Asia, employees are often surprised to discover — sometimes only after termination — exactly what the law requires their employer to do, and what it does not. The law in this area has also recently undergone a fundamental restructuring: India’s four new Labour Codes, which came into effect on 21 November 2025, have replaced a patchwork of over 29 central labour statutes, including the Industrial Disputes Act, 1947 (“ID Act”). Understanding both the old framework and the new one is essential for employees and employers navigating termination in India today.

The Old Framework: Industrial Disputes Act, 1947 and the Rights It Created

For most of post-independence Indian labour history, the Industrial Disputes Act, 1947 was the central statute governing the termination of workmen. The Act drew a critical distinction between “workmen” — defined broadly to include any person employed to do manual, skilled, unskilled, technical, operational, clerical, or supervisory work for hire or reward — and managerial or administrative employees above a certain grade. The protections under the ID Act applied to workmen; senior managerial staff were generally governed by their individual contracts of employment.

Under Section 25F of the ID Act, a workman who had been in continuous service for not less than one year could not be retrenched unless the employer had: (a) given the workman one month’s written notice or paid wages in lieu of notice; (b) paid retrenchment compensation at the rate of 15 days’ average pay for every completed year of continuous service; and (c) obtained the prior approval of the appropriate government in specified cases. Retrenchment under Section 25F was defined as the termination of a workman’s services by the employer for any reason whatsoever — meaning that even a termination framed as “performance-related” could be treated as retrenchment if it did not arise from misconduct.

Section 25G prescribed the “last in, first out” rule for retrenchment within a particular category of workmen, and Section 25H gave retrenched workmen a preferential right to re-employment if the employer took on fresh hires within one year of retrenchment.

Termination for misconduct followed a different track. Where an employer alleged that a workman had committed misconduct — acts of dishonesty, insubordination, violence, habitual absence, or other grounds typically specified in the Certified Standing Orders — the employer was required to conduct a domestic inquiry, charge-sheet the workman, afford a reasonable opportunity to be heard, and record a reasoned finding before imposing punishment. A dismissal without a domestic inquiry was almost invariably set aside by Labour Courts and the Supreme Court as violative of the principles of natural justice.

What the Supreme Court Has Said on Natural Justice in Dismissal

The Supreme Court of India has, over decades, built a robust body of jurisprudence protecting workmen from arbitrary termination. In Delhi Jal Board v. Mahinder Singh (2000), the Court held that even temporary employees are entitled to a fair procedure before termination, particularly where allegations of misconduct are involved. The Court has consistently held that the right to livelihood is a component of the right to life under Article 21 of the Constitution, and that an order of termination that visits an employee with civil consequences — loss of income, damage to career, impact on dependants — requires a pre-decisional hearing.

The standard remedy awarded by Labour Courts and the Supreme Court for illegal termination has historically been reinstatement with full back wages, though courts have in recent cases shown greater flexibility where reinstatement is impractical.

The New Labour Codes: What Has Changed?

The four Labour Codes enacted between 2019 and 2020 — the Code on Wages, 2019; the Industrial Relations Code, 2020; the Code on Social Security, 2020; and the Occupational Safety, Health and Working Conditions Code, 2020 — came into full nationwide effect on 21 November 2025. The Industrial Relations Code, 2020 (“IR Code”) is the successor to the ID Act and is the most relevant to termination.

Key changes include: the threshold for government approval raised to 300+ workers; retrenchment compensation retained at 15 days’ average pay per year; a new Worker Re-skilling Fund requiring employers to contribute 15 days’ wages per retrenched worker; and wage settlement timelines tightened to two working days under the Code on Wages, 2019.

Workmen vs. Managerial Staff — Why the Distinction Still Matters

The IR Code distinguishes between “workers” and supervisory or managerial employees. Workers are broadly defined; those engaged primarily in managerial functions may not qualify. Senior managerial employees whose contracts are silent on notice are governed by their employment agreements and the general law of contract.

Remedies for Wrongful Termination

For Workers

A worker who has been wrongfully retrenched has the right to raise an industrial dispute before the designated conciliation officer and, if conciliation fails, have the matter referred to an Industrial Tribunal or Labour Court. The Tribunal has the power to set aside the termination, direct reinstatement, and award back wages.

For Managerial Employees

Senior employees whose termination violates the notice provisions of their employment contract can approach civil courts for damages. Where the termination involves false allegations of misconduct published to third parties, the employee may also have a defamation claim.

Key Takeaways

  • Retrenchment of workers requires one month’s notice or wages in lieu, plus 15 days’ average pay per completed year as retrenchment compensation.
  • Establishments with 300 or more workers must additionally seek prior government permission before retrenchment.
  • Termination for misconduct requires a domestic inquiry, a charge-sheet, an opportunity to be heard, and a reasoned order.
  • The Supreme Court has repeatedly held that the right to livelihood is part of Article 21.
  • Wages on exit must be settled within two working days under the Code on Wages, 2019.
  • Managerial staff not covered by the IR Code’s protections can sue for breach of contract.

About Sterling & Partners
Sterling & Partners is a Supreme Court of India law firm advising both employers and employees on labour and employment disputes, wrongful termination, retrenchment compliance, and appellate proceedings. Contact Sterling & Partners for a confidential consultation.