A contract is a legal document that binds atleast two parties to one another and requires them to meet certain obligations detailed in the contract. In some instances, contract termination can occur that will make the contract void of legal binding. Only the parties involved in the agreement may terminate a contract.

1] IMPOSSIBILITY OF PERFORMANCE :-

A contract typically requires one or more parties to do something which is called Performance.

Eg :- A company may hire and sign a contract to have a public speaker talk at a company event.

Once the public speaker fulfills his duties agreed upon in the contract, it is called performance. If for some reason it is impossible for the public speaker to fulfill his duties , it is called impossibility of performance or sometimes Frustration.

2] BREACH OF CONTRACT :-

When a contract is intentionally not honored by one party, it is called a Breach of Contract and is grounds for contract termination. A breach of contract may exist because one party failed to meet his obligations fully.

Eg :- If you purchase a product that did not arrive until a day after they agreed upon the delivery date that is an immaterial breach of contract.

However, if your orders did not come until two weeks after the delivery date and it affected your business, then that is material breach of contract.

2] DISCHARGE : The termination of employment of employees who are not workman are governed by the notice period in their employment contract and the Shops and Establishment Act ( ”S & E” ) of the state in which they work. Generally the State S & E’s provide for atleast one month’s notice of termination or pay in lieu of termination and in some instances, termination needs to be with cause and in some cases the employer needs to pay compensation for terminating the employee. The notice of dismissal under an employment contract should not be less favorable than what is prescribed under the law.

3] RETRENCHMENT : The ID Act sets out the steps to be undertaken for retrenchment. The term retrenchment has been defined to mean termination by the employer of employment of a worker, for any reason other than disciplinary grounds, with certain exceptions.

An employer who proposes to retrench a workman, who has been continously employed for more than one year , must give one month’s notice ( together with the reason for retrenchment) or pay in lieu of such notice to the workman.The employer must also inform the local labour authorities of the retrenchment within a stipulated time frame.

Termination of employment may take place due to misconduct, discharge or retrenchment.

1. MISCONDUCT : Termination of employment can be for misconduct, for which the employer is required to conduct disciplinary proceedings . The procedure to terminate an employee in India, for conducting a disciplinary proceeding has been set out under law. It includes constituting and having a disciplinary panel, serving a show cause notice to the errant employee, and giving the employee a reasonable chance to put chance to put forth his defense. Proceedings have to be conducted in a fair manner, keeping in mind the principles of natural justice.

In some cases, the outcome of the disciplinary proceeding may justify dismissal without notice and any compensation. Under the law, the term misconduct provides a list of circumstances and events would amount to Misconduct. It is an inclusive list and hence the employers have the right to include in their company policies/ service rules, such other events as it may deem fit, which would in their line of business amount to misconduct.

Misconduct includes Wilful Insubordination or Disobedience; Theft , Fraud or Dishonesty; Wilful damage or Loss of employer’s property; Bribery; Habitual lateness or Absence; Striking unlawfully and Sexual harrasment.

The aforesaid procedure for termination will apply to all employees whether workman or non-workman.

As previously mentioned, any termination needs to comply with federal and state law because these laws supersede contract provisions. However, state law becomes the rule of the thumb for terminating an employee. State law itself is dependent on the area of operations.

☆ LABOUR LEGISLATION GOVERNING TERMINATION IN INDIAN STATES :

In the following section, we examine state laws for termination in several prominent investment destinations in India , including Delhi Union Territory, Maharashtra, Karnataka and Tamil Nadu.

☆ STATE LABOUR LAW IN DELHI UNION TERRITORY :

Under the Delhi Shops and Establishments Act of 1954, an employer cannot terminate an employee who has been with the company for more than three months without giving the employee atleast 30 days of notice or a salary in lieu of such notices. The employer need not give notice if misconduct is the cause for termination. However, the employee in such circumstances, should have an opportunity to reasonably explain the charge against them prior to termination.

☆ STATE LABOR LAW IN MAHARASHTRA :

Under the Maharashtra Shops and Establishments Act, an employer cannot terminate an employee who has been with the company for more than a year without giving the employee atleast 30 days of notice in writing. If an employee has been with the company more than 3 months but less than a year, the employer needs to give atleast 14 days of notice. The notice is not necessary if the employee is being terminated for misconduct.