Termination of Employment under Labour laws of Nepal

The prevailing labour laws of Nepal set out the grounds of termination of employment. This article briefly covers the matters related to termination grounds, notice period and remedies for termination of employment relationship.

  1. Governing laws

Labour Act, 2017 and Labour Regulations, 2018 are the primary laws governing the matters related to termination of employment in Nepal.

  1. Termination of time-based, work-based and casual employment

2.1 Time-Based Employment

The time-based employment can be terminated upon the end of the term stated in the employment agreement. For project-based employment, such employment will continue in case of extension of project duration or completion timeline due to nature of work.

2.2 Work-Based Employment

The employment of an employee engaged on a work-based employment is terminated upon the completion of the work specified in the employment agreement. For project-based employment, if project work increases due to nature of the work, the employment cannot be terminated until the completion of the work.

2.3 Casual Employment

In case of casual employment, the employment can be terminated at the will of the employer or employee.

  1. Voluntary termination of employment

An employee can submit a written notice of voluntary resignation to their employer for termination of the employment relationship.

The employer must acknowledge the employee’s resignation within 15 (fifteen) days. If the employer fails to acknowledge it within the specified time, the resignation will be deemed accepted from the day following the end of the given time.

The resignation can be cancelled on mutual consent between the employee and the employer. Further, the resignation is deemed cancelled if the employee continues to work for the same enterprise even after the resignation has been accepted.

  1. Termination of employment on the ground of incompetence

The employer can terminate the employment relationship if the employee’s work performance is found to be unsatisfactory or poor for 3 (three) or more consecutive work performance evaluation.

In case of an enterprise employing 10 (ten) or more employees, the employer must provide time period of at least 7 (seven) days to submit clarification in relation to their work performance prior to such termination.

  1. Termination of employment on the ground of health

The employer can terminate the employment on the ground of health if any employee becomes incapable to work as a result of physical or mental incapacitation or grievous hurt or injury; or if an employee requires prolonged medical treatment that affects their work performance.

The employer cannot terminate the employment of an employee undergoing treatment for an accident or occupational disease suffered while performing their work until the following time period:

  • In case of treatment at hospital, employment cannot be terminated for the entire period of treatment; or
  • In case of treatment at home, employment cannot be terminated till one year from the start of treatment.

Such employees are entitled to full remuneration till the aforementioned time period unless the employee receives remuneration from the Social Security Fund for such period.

  1. Termination of employment on the ground of misconduct

The employer can terminate an employment of an employee in case such employee is engaged in following misconduct:

  • engaged in physical assault or causing physical harm to any person related to the employer or customer or workplace;
  • engaged in use of any form of weapon or causing vandalism in the employer’s office premises;
  • engaged in receiving or granting bribery;
  • committed theft against any person in the workplace;
  • remained absent from the work for more than 30 (thirty) consecutive days without having leave sanctioned;
  • damaged employer’s property maliciously;
  • embezzled the employer’s finances;
  • engaged in any activity with an intention to breach the employer’s confidentiality regarding its product, technology or formulae;
  • engaged in the business activities with employer’s competing businesses or starting your own competing business or providing confidential information of the employer;
  • submitted any fake educational certificate and other certificate for the purpose of appointment;
  • consumed narcotic substance or liquor during the working hours or come to the workplace upon consuming the same;
  • been convicted by the court of any criminal offense involving moral turpitude during the period of employment;
  • committed any misconduct where the prevailing law provides for the dismissal from service;
  • punished for more than 2 (two) times for misconduct resulting in either a reprimand, a deduction of 1 (one) day’s remuneration, or withholding of a promotion or a salary increment for 1 (one) year, within 3 (three) years pursuant to labor laws .

Prior to terminating an employee on the ground of misconduct, the employer must provide a time period of 7 (seven) days to submit clarification on the matter.

  1. Notice period for termination of employment

Prior to termination of an employment for any reason other than misconduct, both the employer and the employee must provide prior written notice to the other party as follows:

Period of employment   Notice period
Up to 4 (four) weeks 1 (one) day
4 (four) weeks to 1 (one) year 7 (seven) days
More than 1(one) year 30 (thirty) days

If the employer fails to comply with the notice period requirement, the employer must pay an amount equal to the remuneration of the applicable notice period to the concerned employee. Similarly, if an employee terminates their employment without issuance of the prior notice, the employer can deduct an amount equivalent to the resignation notice period from the employee’s remuneration.

  1. Retrenchment

An enterprise may retrench its employees in the following circumstances:

  • Where an enterprise faces financial problems in its operation; or
  • Where the number of employees increases due to merger of more than 1 (one) enterprises; or
  • Where the enterprise needs to be closed down partially or completely because of any other reasons.

In case of retrenchment, the employer must pay compensation at the rate of 1 (one) month’s basic remuneration for each year of service for employees engaged for more than a year. Similarly, for employees employed for less than a year, such compensation must be paid proportionately. However, the employees entitled to the unemployment allowance under the prevailing social security laws is not entitled to compensation for retrenchment.

Where, for any reason, the retrenchment has been made but the entity resumes its operation within 2 (two) years or needs to supply additional employees, the entity must give preference for employment to the retrenched employees.

However, this provision of retrenchment is not applicable to enterprises employing 10 (ten) or less than 10 (ten) employees.

  1. Compulsory retirement

Employees in regular employment are subject to compulsory retirement upon reaching the age of 58 (fifty-eight) years. However, if the entity has to provide compulsory retirement before 58 (fifty-eight) years due to the nature of work, such provisions can be included in its bye-laws upon obtaining approval of the Central Labour Advisory Council.

  1. Post-termination obligations of employer

Upon termination of employment due to misconduct or any other reason, the employer must make payments of remuneration, benefits and entitlements to the employees within 15 (fifteen) days of such termination. If the employer cannot make such payments within the stipulated time period, they must continue to pay the employee’s remuneration as if they were still employed until all dues are settled.

Further, the employer must provide certificate of work experience stating period of service and post of such employees.

  1. Remedies available on termination of employment

In case any employee is not satisfied with the decision of the employer regarding termination of employment, such employee can file an appeal in the Labour Court against such decision.

 Disclaimer: This article is for informational purposes only and shall not be construed as legal advice, advertisement, personal communication, solicitation or inducement of any sort from the firm or its members. The firm shall not be liable for consequences arising out of actions undertaken by any person relying on the information provided herein.

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