Introduction

The employment termination should be based on valid reasons such as an employee’s conduct, capacity, or the operational needs of the business. The process must be fair and transparent, giving the employee an opportunity to defend themselves, and must not be based on discriminatory grounds. Additionally, employees are generally entitled to notice or compensation, and special protections are provided for vulnerable groups to prevent unjust dismissal.

This article provides a detailed explanation of the grounds for termination of employment under Nepal’s labor law.

Laws Regulating the Termination of Employment in Nepal

The termination of employment in Nepal is regulated by the Labour Act, 2074 and Labour Rule, 2075 which outlines the valid grounds, procedures, and protections to ensure fair and lawful dismissal.

Protection from Unlawful Termination of Employment

The employment of any worker shall not be terminated except in accordance with the provisions of Labour Act and the rules or regulations established under it. Furthermore, a valid and sufficient reason must be provided when terminating the employment.

Types of Termination of Employment

Termination of Time-based employment:

Employment ends when the contract period specified in the agreement expires. However, if the employment is project-based and the project duration is extended due to the nature of the work, the employment continues until the extended period ends.

Termination of Work-Based Employment:

Employment terminates upon completion of the specific work stated in the contract. For project-based work, if additional work is added or the completion period is extended, the employment continues until all such work is finished.

Termination of Casual Employment:

Employment can be terminated at any time by either the employer or the employee, at their will.

Voluntary Termination:

Any labourer can voluntarily terminate their employment by submitting a written resignation to the employer. The employer must accept the resignation within 15 days and inform the labourer of the acceptance. If the employer does not respond within 15 days, the resignation is automatically considered accepted from the day after the deadline. Resignation can be cancelled if both the employer and labourer mutually agree to do so. If the labourer continues to work after the resignation has been accepted and becomes effective, the resignation is considered cancelled.

Grounds for Termination of Employment

On the ground of incompetence:

Employment may be terminated if a laborer’s work performance is unsatisfactory or poor for three or more consecutive years, based on evaluations conducted according to the Labour Act and related rules.

The work performance evaluation must be properly conducted as prescribed by the Act or its regulations before termination.

For enterprises with ten or more employees, the employer must provide the labourer at least seven days to offer clarification before terminating their employment.

On the ground of health:

Employment may be terminated if a labourer becomes unable to work due to physical or mental incapacity, grievous injury, or if prolonged medical treatment affects their ability to perform work, based on a medical doctor’s recommendation.

Protection During Treatment for Work-Related Accidents or Diseases:

Employment cannot be terminated while the labourer is undergoing hospital treatment for an accident or occupational disease sustained during work. If treatment is at home, employment cannot be terminated for up to one year from the start of treatment. Full remuneration must be provided during this period unless the labourer receives benefits from the Social Security Fund.

Protection During Other Medical Treatments:

For medical treatments unrelated to work accidents or occupational diseases, employment cannot be terminated for at least six months. However, if a medical doctor clearly recommends that the labourer cannot return to work, termination may occur before six months.

Reassignment to Suitable Work:

If a labourer is physically incapacitated or injured but can perform other work suitable to their health condition, the employer must provide such alternative work instead of terminating employment.

On the Grounds of Misconduct

A labourer may be dismissed for:

• Violence/Hostage: Battery or causing injury/hostage-taking of employer, colleagues, customers, or related individuals. Causing unrest or destruction.
• Bribery: Taking or giving bribes.
• Theft: Stealing property from the workplace.
• Financial Misconduct: Financial misappropriation within the enterprise.
• Intentional Damage: Intentionally damaging employer’s property.
• Unauthorized Absence: Absence from work for 30 consecutive days without leave.
• Divulging Secrets: Disclosing production tech or confidential info to cause damage to the enterprise.
• Competition/Collusion: Working with competing businesses or providing them secret information.
• Criminal Conviction: Conviction of a crime involving moral turpitude.
• Fake Credentials: Submitting fake educational or other certificates for employment.
• Substance Abuse: Consuming narcotics or alcohol during work hours or coming to work under the influence.
• Repeated Misconduct: Being punished more than twice for other misconducts within a 3-year period.
• Other Dismissible Offenses: Committing any misconduct that prevailing law designates as grounds for dismissal.

Notice to be given before termination of employment

Notice Period Requirements

Except in cases where employment is terminated due to misconduct, the employer or employee must provide the following notice to each other:

• Employment up to 4 weeks: At least 1 days’ notice must be given by either employer or labour before termination.
• Employment from 4 weeks to 1 year: At least 7 days’ notice is required.
• Employment over 1 year: At least 30 days’ notice must be provided.

If Notice is Not Given by Employer

If the employer terminates employment without giving the required notice, they must pay the labourer an amount equal to the remuneration for the notice period.

If Notice is Not Given by Labour

If the laborer terminates employment without giving the required notice, the employer may deduct an amount equal to the remuneration for the notice period from the laborer’s final pay.

Retrenchment

Retrenchment refers to the process of reducing the workforce in an organization by permanently terminating employees due to reasons such as financial difficulties, restructuring, adoption of new technologies, or redundancy of certain roles. It is often a strategic decision aimed at cutting costs, improving efficiency, or adapting to changing business conditions, and is typically governed by labor laws that ensure fair treatment and compensation for affected employees.

Grounds for Retrenchment

Retrenchment may occur due to financial difficulties, redundancy caused by mergers, or partial/complete closure of the enterprise.

Notice Requirement

Employers must give at least 30 days’ advance notice to the Labour Office and the authorized trade union (or labour relation committee) detailing the reasons, date, and number of labors to be retrenched.

Consultation Process

Employers must discuss alternatives to retrenchment and criteria for selecting labors with the trade union or labour relation committee. Retrenchment proceeds based on the agreement reached.

Retrenchment Without Agreement

If no discussion occurs or no agreement is reached, the employer may proceed with retrenchment after informing the Labour Office.

Order of Retrenchment

Retrenchment generally follows this order:

• Foreign workers,
• Workers with more misconduct punishments,
• Workers with weaker performance,
• Workers most recently hired.

Exceptions can be made with valid reasons.

Protection for Union Representatives

Office-bearers of the collective bargaining committee or authorized trade union members are retrenched last, unless otherwise agreed.

Compensation

Workers with at least one year of service receive compensation equal to one month’s basic pay per year of service; those with less than one year receive proportional compensation. Workers eligible for unemployment allowance under social security laws do not receive this compensation.

Exceptions

Retrenchment provisions do not apply if closure or retrenchment is ordered by the Government or Labour Court, or in special economic zones. Employers with ten or fewer employees are exempt from these retrenchment provisions.

Re-employment after Retrenchment

If an enterprise that has retrenched its workers resumes operations within two years or requires additional workers, it must give preference to re-employing those previously retrenched. However, if the retrenched workers do not respond to a prescribed notice, the employer may hire others. If the employer fails to notify or rehire the retrenched workers, those workers can apply to the Labour Court within thirty-five days. Additional related provisions will be specified as prescribed.

Compulsory Retirement

Labors in regular employment are subject to compulsory retirement upon reaching the age of 58. However, if specific work requires retirement at an earlier age, provisions for such exceptions can be included in the organization’s bye-laws with prior approval from the Council as prescribed.

Payment of Benefits Upon Termination

When an employee’s employment is terminated, the employer must pay all due amounts, including remuneration and benefits, within 15 days of termination. The employer is also required to assist the employee in accessing benefits from the Social Security Fund, insurance, or other entities. If the employer fails to make payments or provide assistance within the stipulated time, they must continue paying the employee as if they were still employed until the dues are cleared. If the employee does not collect their payment, the employer may deposit it into the employee’s account or with the relevant office. Additional provisions for such deposits and payments will be specified as prescribed.

Priority of Workers’ Benefits in Enterprise Liquidation

In the event of the closure or liquidation of an enterprise, the remuneration and other benefits owed to workers must be prioritized for payment above all other claims, regardless of other prevailing laws. However, if insolvency laws apply to the situation, the payment process will follow those specific legal provisions.

Issuance of Experience Certificates for Terminated Employee

Upon termination of employment, if a worker requests a certificate of experience, the employer is obligated to provide it. This certificate must include key details such as the worker’s period of service and the position held. It serves as formal proof of the worker’s professional experience and is essential for future employment opportunities.

Conclusion

In conclusion, the legal provisions governing employment termination and misconduct in Nepal aim to ensure a fair and transparent process while safeguarding the rights of both employers and employees. Clear guidelines on grounds for dismissal, evaluation procedures, and employee rights, such as the issuance of experience certificates and priority in re-employment, help maintain workplace discipline and protect workers from unjust treatment. Adherence to these regulations fosters a balanced employment environment, promoting industrial harmony and ensuring that employment practices align with legal standards.