Employment Termination in Nepal: Classification and Procedure

Any employment of a labourer may not be terminated under any circumstances other than those set forth in the Labour Act. In addition, the terminating party is obligated to provide a valid and adequate reason for Employment Termination in Nepal. 

1. Laws Regulating the Termination of Employment

The substantive provisions pertaining to employment termination in Nepal are regulated by the Labour Act, 2017 (2074). These provisions encompass the retrenchment to be executed, the grounds for employment termination, and the remedies available for termination, in addition to the mandatory notice that must be provided prior to the termination of employment.

2. Termination of Work-Based and Time-Based Employment

2.1 Time-Based Employment

The termination takes place subsequent to the time period specified in the employment agreement having elapsed. The employment will not terminate until the extended period concludes for labour engaged in project-based employment, even if the period is extended or the time required to complete the work is prolonged based on the nature of the task.

2.2 Employee-Based Employment

Termination occurs when the work specified in the employment contract has been fully executed. In project-based labour, however, additional tasks are introduced or the completion period is extended as a result of the nature of the work; the employment continues until the additional work is finished, in a manner analogous to time-based employment.

2.3 Temporary Employment

The termination of a labourer in a casual employment may be initiated by either the employer or the employee.

3. Voluntary Termination of Employment

A voluntary resignation in writing to the employer may be submitted by an employee in order to terminate their employment. The employer is obligated to accept the resignation within fifteen days of receipt and provide the employee with notification of the acceptance. In the event that the employer fails to acknowledge the resignation within the designated fifteen-day period, the resignation shall be automatically considered accepted the day following the expiration of the time limit.

A cancellation of the resignation is possible by mutual agreement between the employee and the employer. The resignation shall be declared null and void if the employee continues to work for the same enterprise after the resignation has been accepted and is effective.

4. Employment Termination on the ground of Incompetence

The employer has the right to terminate an employee’s employment if, after three or more consecutive years of performance evaluation, the employee’s performance is determined to be unsatisfactory or inadequate. The work performance evaluation must be carried out in accordance with the provisions specified in the applicable laws, rules, and bye-laws prior to termination based on incompetence. The employer (of an enterprise employing ten or more labours) is obligated to grant the affected labour a minimum of seven days’ notice before terminating their employment on the grounds of incompetence.

5. Termination of Employment on the Basis of Health

The employer may terminate the employment based on the advice of a medical professional if a labourer is rendered incapable of performing their duties due to severe physical or mental impairment, severe injury, or injury, or if the work is adversely affected by the extended duration of medical treatment. The employment of a labourer receiving treatment in a hospital for an occupational disease or accident sustained while performing work as specified by the employer may not be terminated during the treatment period or for a period of one year following the date treatment at home begins.

Unless the labourer is eligible for remuneration from the Social Security Fund, full compensation should be provided during this time. The employment of a labourer who is unable to report for duty on account of medical treatment may remain unterminated for a period of six months. However, in the event that a medical professional advises against the laborer’s ability to resume work prior to this specified time frame, the employer may opt to terminate the service. The employer is obligated to assign suitable work to a labourer who is physically incapable or has suffered severe injuries or wounds but is still capable of performing such work due to their health condition.

6. Notice required prior to employment termination

The prescribed notice period that must elapse prior to employment termination is as follows:

  • In the case of employment with a maximum duration of four weeks, a minimum of one day’s notice is required.
  • A minimum of seven days’ notice is necessary for employment durations ranging from four weeks to one year. • In the case of employment exceeding one year, a notice period of thirty days is mandatory.

The employer is obligated to pay the amount equal to the remuneration for the period requiring notice to the affected labour if the employment is terminated without providing the required notice. The employer may deduct from the remuneration payable to the affected labour the amount equal to the remuneration for the period requiring notice in the event that the labour terminates employment without providing the required notice.

7. Retrenchment to be Made

Retrenchment can transpire in various circumstances, including but not limited to financial difficulties, redundancy resulting from the merger of multiple enterprises, or the necessity to partially or entirely cease operations. The employer must provide a notice of at least thirty days prior to reducing labour. The notice should state the rationale behind the retrenchment, the potential date of the retrenchment, and the estimated quantity of employees who will be laid off.

Notify the Office and, if applicable, the authorised trade union of the enterprise of the notice. If no such union exists, the labour relations committee or any active trade union within the enterprise should receive the notice. The employer is obligated to engage in dialogue with the relevant labour relations committee or trade union subsequent to providing the requested notice.

Alternatives to retrenchment, as well as the grounds and conditions for selecting labour for retrenchment, should be discussed. Based on the agreement that was reached during the discussion, it is possible for labour to be laid off. The employer may proceed with workforce reductions after notifying the Office if the trade union or labour relations committee opts not to conduct a discussion or if no agreement is reached.

8. Remedy and Procedure for Employment Termination in Nepal

When it comes to employment termination in Nepal, aggrieved parties have access to two primary avenues for seeking redress: the Labour Court and the Labour Office for Compensation. One potential course of action is to contact the Labour Office, where an employee may request reimbursement equal to ten months’ worth of their remuneration, calculated according to the rate in effect during their final year of employment. Conversely, in certain circumstances, the employer might be obligated to readjust the terminated employee to their prior role.

When the aggrieved party chooses the Labour Court as the second option, they are obligated to adhere to a structured procedure in order to pursue a resolution. Commencing with the submission of a petition to the Labour Court, which delineates the specifics of the termination and the rationale for challenging it, the procedure is initiated. Following this, proceedings are arranged by the court, providing an opportunity for both parties to present their respective cases. Amid these proceedings, the court conducts a comprehensive evaluation of the merits of the case, during which arguments and evidence are presented.

In light of the evidence and legal arguments presented during the hearings, the Labour Court deliberates prior to rendering a decision. Subsequently, the affected parties are notified of the decision, which serves as a definitive resolution to the disagreement.

9. Conclusion

The regulation of employment termination in Nepal is codified in the Labour Act, 2017 (2074), which delineates significant provisions pertaining to a multitude of employment termination categories. Time based employment comes to an end at the end of the designated period, but in project-based situations, it continues until the task is finished. Work-based employment concludes with the conclusion of the project, unless further obligations or prolonged durations are stipulated.

In a casual employment, either party may request termination. Additionally, workers may resign voluntarily; the employer must accept within fifteen days. Termination on the grounds of health concerns or incompetence is permissible under certain circumstances. Retrenchment is allowed under certain financial or operational conditions, subject to prior notice and discussions with pertinent parties, and notice periods are determined based on employment duration.

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