Termination of Employment in Nepal

Introduction

Termination of employment in Nepal is regulated under Chapter 21 of the Labor Act, 2017 (2074). This chapter outlines the conditions and grounds under which employment can lawfully end, ensuring compliance with labor laws.

Governing Laws for Employment Termination

• Labor Act, 2017 (2074) of Nepal
• Labor Rules, 2075 of Nepal

Types of Employment Termination in Nepal

1. Termination Based on Expiry of Employment Term

• Time-Based Employment: Employment is terminated automatically when the contract's specified duration expires.
• Work-Based Employment: Termination occurs after completing the assigned task outlined in the employment agreement.
• Casual Employment: Casual employment can be ended at the employer's discretion.

Note: For project-based employment, the contract remains valid if the timeline is extended or additional tasks are included.

2. Other Grounds for Employment Termination

• Termination Due to Poor Performance: Consistently poor performance for three or more consecutive years may lead to termination. A 7-day notice is mandatory for organizations with 10 or more employees.
• Termination Due to Misconduct: Examples include fraud, bribery, absenteeism, and criminal offenses.
• Termination Due to Health Reasons: Long-term illness or serious injuries may result in termination if supported by a medical recommendation.
• Voluntary Termination: Employees may resign by submitting a written notice.
• Compulsory Retirement: Employees must retire at the age of 58 unless otherwise approved.
• End of Probation Period: Termination may occur if the employee's performance during the 6-month probation is unsatisfactory.

Notice Requirements for Employment Termination

Employers must give notice before termination, except in cases of misconduct:

• 1 day: For employment lasting up to 4 weeks.
• 7 days: For employment lasting 4 weeks to 1 year.
• 30 days: For employment lasting more than 1 year.

Compensation for Lack of Notice: Employers must pay the employee for the notice period if proper notice is not given.

Retrenchment: Workforce Reduction Under Nepalese Labor Laws

Retrenchment refers to reducing employees due to financial challenges, business restructuring, or organizational changes.

Retrenchment Process

1. A 30-day notice must be given to the labor office or authorized trade union, specifying reasons, dates, and the number of affected workers.
2. Employers and trade unions discuss alternatives to retrenchment and selection criteria.
3. Agreements are made, and retrenchment is carried out accordingly.
4. If no agreement is reached, the employer may proceed with retrenchment by notifying the relevant authorities.

Retrenchment Order

• Foreign workers are retrenched first.
• Employees with past misconduct or lower performance are retrenched next.
• Most recently hired employees are retrenched last.

Retrenchment Compensation

• One month's salary for every year of service is paid as compensation.
• Employees entitled to unemployment benefits under social security laws are not eligible for retrenchment compensation.
• Companies with fewer than 10 employees are exempt from retrenchment rules.

Conclusion

The Labor Act of Nepal provides clear guidelines for terminating employment, ensuring fairness for both employers and employees. Proper adherence to these laws prevents disputes and maintains compliance with Nepalese labor standards.

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Disclaimer

This article is for educational purposes only and should not be considered legal advice. FinLex Associates holds exclusive rights to this content.