Saturday, March 28, 2020

Termination On Grounds Of Non-Performance

You are a huge company. Mr. A has been working for you since the early years of the Company, and is one of the most honest, trustworthy employees, and he used to be hard working. But now, Mr. A is under-performing, and not an asset to the Company. He hasn't done anything wrong to the Company. No fraud, no gimmicks. Can you fire him because he didn't perform?

Termination of non-workmen category of employees who are working in a shop or commercial establishment are broadly governed by the provisions of Shops & Establishments Act being applicable to the respective employee. 

In a Mondaq article on the subject, under TN Shops & Establishments Act,

"an employee is entitled to notice of one month or wages in lieu of notice if the employer wishes to dispense with the services of that employee except in case of misconduct. Where an employee's services are terminated on account of misconduct, an employee is not entitled to any notice or payment in lieu thereof. Generally, the said enactments define misconduct to include acts of theft, fraud, misappropriation or dishonesty in connection with the employer's business or property. The scope of the said definition has however not been extended to capture the circumstance of inefficiency or unsatisfactory performance by the employee." 

The Madras High Court dealt with the issue of whether the notice period requirement is manadatory or not in the event of termination on the grounds of inefficiencyin the case of Miss T.N. Chandra v. South India Corp (Agencies) Ltd. and another. The Hon'ble Supreme Court in this case held that an employee cannot be thrown out of job on the ground of "extremely unsatisfactory conduct" if the procedure established by law is not followed and if the employee is not put to notice.

“Section 41(1) of the Act is both prohibitory and mandatory and it stipulates in categorical terms that no employer shall dispense with the services of a person employed continuously for a period of not less than six months, except for— 
(a) a reasonable cause; and 
(b) without giving such person at least one month's notice or wages in lieu of such notice."

Therefore, notice period is a pre-requisite for terminating an employee, even including the cases of termination due to of inefficiency or unsatisfactory performance.

In the year 1983, in Karnataka State Road Transport Corporation v. M. Management, the issue came before the Supreme Court , in which it was held that termination of employee on the ground of services not found satisfactory falls within the framework of retrenchment.

In Punjab Land Development and Reclamation Corporation v. The Presiding Officer, Labour Court, Chandigarh, a full bench held that the phrase "for any reason whatsoever" needs to be interpreted and understood in a much wider and literal sense. Accordingly, the term "retrenchment" was eventually considered to mean the termination by the employer of a worker's services for any cause whatsoever, without restricting the retrenchment criterion to the extent of the superfluity of a worker or employee, except for those expressly excluded from the concept.


It falls under retrenchment. However, courts have also discouraged firing employees solely on the basis of under performance. They have made mandatory the following of due procedure, and have tried to shift weight on the company to discourage the practice in a mass scale. 

Answer: Therefore, Mr. A can be fired. You have to give him exact notice of how he under performed, and also satisfy the court. 

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