Termination Under Labour Act 2017: Employee Rights & Employer Duties

Losing a job is never easy, and terminating an employee is rarely a simple decision. Both employees and employers in Nepal must navigate a structured legal framework when it comes to ending employment. Understanding the grounds for termination under Nepal’s Labour Act 2017 is crucial to ensuring fairness, compliance, and protection of rights.

Whether you’re an employee wondering about job security or an employer seeking to understand the legal grounds for termination, this comprehensive guide will explain the lawful reasons for termination, employees’ rights, and employer responsibilities.

Understanding Employment Termination Under Labour Act 2017

The Labour Act 2017 defines employment termination as the legal process of ending an employer-employee relationship. Unlike arbitrary dismissal, the law ensures termination is justified, follows due process, and protects both parties from unfair treatment.

Types of Employment Termination

The Act categorizes termination into different grounds, including:

• Mutual Agreement
• Expiry of Contract
• Retirement
• Resignation
• Dismissal (Employer-Initiated Termination)
• Redundancy (Business Restructuring)

Each type of termination follows specific legal requirements, notice periods, and compensation rules to protect employee rights while maintaining employer flexibility.

1. Mutual Consent: A Lawful & Harmonious Exit

One of the easiest and least contentious ways to terminate employment is through mutual agreement between the employer and the employee.

Key Features:

• No disputes—both parties agree to end the contract amicably.
• A written agreement is required as legal proof of termination.
• The employee is entitled to all outstanding payments and benefits.
• Employers avoid wrongful termination claims.

For employees, this means they can leave without penalty and receive dues such as bonuses, pending salaries, and provident fund contributions. For employers, mutual agreement allows business flexibility without legal risks.

2. Expiry of Contract: When Time Runs Out

If an employee is hired under a fixed-term contract, the employment automatically ends upon contract expiry.

Key Provisions:

• If an employee continues working after the contract expires, without a renewal agreement, the contract automatically converts to an indefinite-term contract.
• Employers must provide notice before the expiration date.
• Employees cannot be kept on continuous short-term contracts to avoid legal obligations.

For businesses, this means ensuring clarity in contract renewals and documenting employment terms properly to avoid legal disputes.

3. Retirement: Planning for the Future

Retirement is a natural conclusion to an employee’s career. Under Nepal’s Labour Act, the mandatory retirement age is 58 years, unless otherwise specified by the employer.

Key Rules:

• Employers must provide a 3-month notice before the retirement date.
• Retired employees are entitled to pension, gratuity, and provident fund benefits.
• Employees should ensure their retirement funds and social security benefits are in place.

Planning ahead ensures a smooth transition for employees and business continuity for employers.

4. Resignation: Employees’ Right to Exit

Resignation is one of the most common ways employment ends, allowing employees to voluntarily leave a job.

Resignation Rules Under Labour Act 2017:

• Employees must submit a resignation notice at least 30 days in advance.
• Employers must clear all pending payments (salary, bonuses, leave encashment) within 7 days of resignation.
• If an employer delays payment, employees can file a legal complaint with the Labour Office.

Best Practice: Employees should ensure their dues and final settlements are clear before submitting a resignation letter.

5. Dismissal: Employer-Initiated Termination

Employers cannot terminate employees arbitrarily—termination must be legally justified. The Labour Act 2017 allows dismissal on specific grounds, ensuring fairness for both parties.

5.1 Incompetence or Lack of Qualification

• If an employee fails to meet performance expectations, the employer must first provide an opportunity for improvement.
• Employers should document performance issues and offer support or training before dismissal.

5.2 Misconduct & Violation of Workplace Policies

• Dismissal for serious misconduct is allowed if an employee is found guilty of:
• Fraud, theft, or dishonesty in the workplace.
• Violence, harassment, or disruptive behavior.
• Breach of confidentiality or leaking sensitive business information.

Legal Requirement: Employers must conduct an investigation and allow the employee a chance to defend themselves before termination.

5.3 Physical Incapacity Due to Illness or Injury

• If an employee suffers a long-term disability that makes them unfit for work, the employer can dismiss them.
• The employer must obtain a medical certificate proving incapacity.
• Employees must receive fair compensation and any pending benefits.

5.4 Redundancy: Layoffs Due to Business Downsizing

• Businesses can terminate employees if operations shut down, merge, or restructure.
• Employers must give a 30-day notice and provide one month’s salary per year of service as severance pay.

Best Practice: Employers should explore alternatives like job transfers before termination.

What to Do If You’re Facing Unfair Termination?

If an employee believes their termination is unfair, they have legal options to challenge it:

Step 1: Review Your Employment Contract

• Check if the termination violates the contract or labour laws.

Step 2: Consult HR or Internal Grievance Mechanisms

• Many organizations have an HR department or dispute resolution panel.

Step 3: File a Complaint with the Labour Office

• If an issue remains unresolved, employees can file a complaint at the Labour Office within 30 days.

Step 4: Take Legal Action

• If necessary, employees can take the case to the Labour Court.
• The Labour Court must resolve disputes within 90 days.

Employer Compliance: Employers should document all termination procedures to avoid wrongful dismissal lawsuits.

Final Thoughts: A Legal Roadmap for Employers & Employees

Employment termination is a sensitive and complex process, but Nepal’s Labour Act 2017 ensures fairness by balancing employee rights with employer obligations. Whether you’re resigning, retiring, or facing dismissal, understanding your rights and responsibilities is crucial.

For employers, the law provides clear guidelines to follow, ensuring termination is legal, justified, and transparent. For employees, it offers legal protection against arbitrary dismissal and access to remedies in case of wrongful termination.

By following due process, maintaining transparency, and respecting employment laws, both employers and employees can navigate terminations professionally and lawfully.

Need legal assistance for employment disputes? Visit Notary Nepal.