Termination Of Employees – Need For Amendments In Our Employment Statute

Termination Of Employees – Need For Amendments In Our Employment Statute

One area in which private companies are likely to get into trouble is the “termination” of employees. Clearly our employment laws are inefficient. Whenever proposals for reform of employment law have been put forward by the government, an interesting debate is ignited.

Termination of employment relationships has always remained one of the central issues of labour law. Special attention is given to the termination of employment at the initiative of the employer, against the will of the employee. In such a case there is need for special legal protection of a dependent and economically weaker contractual party, the worker.

The issue of termination of the employment relationship, is a matter of conflicting interest. Legal regulation has to provide a balance between the need for protection of employment and the need for flexibility, according to the given circumstances and the desired outcome. Adequate level of workers’ protection in relation to termination of employment presents a sensitive legal, political as well as an economic issue.

The main statute governing termination of employment in Pakistan is the Industrial and Commercial Employment (Standing Orders) 1968. Other relevant legislation includes Industrial Relations Act 2012, Provincial Industrial Relations Acts, and Shops and Establishments Ordinance 1969.

The grounds on which an employer can terminate a contract of employment are given below:

Standing Orders Ordinance requires a written termination letter explicitly stating the reasons for termination. This is applicable to both termination simpliciter (under S.O. 12) and dismissal on the ground of misconduct (under S.O. 15).

Although the above law requires the employer to state reasons for termination, it does not prescribe any reasons for which the employment relationship may be rightfully terminated (fair grounds for dismissal). Case law has established some acceptable and valid reasons for employment termination (other than misconduct). These reasons include “serious illness, inefficiency to perform the job, financial and economic needs of establishment”.

Serious misconduct, provided that the employee is given an opportunity to respond to the charges leveled against him, is sufficient enough reason for dismissal. However, not every conduct deserves the punishment of dismissal.

In accordance with the provisions of Standing Orders Ordinance, a worker whose employment has been terminated for any reason other than misconduct is entitled to a “severance pay or gratuity” which is equivalent to 30 days’ salary. An employer may substitute a provident fund for gratuity.

‘Just cause’ dismissal is deemed as the “capital punishment” of employment law. The burden of proof is on the employer to prove that there are reasonable grounds to terminate the employee without notice or compensation.

Extremely serious misconduct will be considered under the umbrella of  just cause such as theft, fraud, assault, sexual harassment, excessive unexplained absences and serious insubordination.

Initially, the burden is on the employee to establish that there was a contract of employment and that he or she was dismissed. The burden then shifts to the employer to prove, that there was just cause for the employee’s dismissal. However, if fraud or theft is alleged, a “higher degree of probability” will be required. There is no well-defined threshold as to what constitutes cause. The conduct must be serious, and it depends on the nature and circumstances of employment and misconduct. The test is objective. “The fault must be something which a reasonable man could not be expected to overlook, regard being had to the nature and circumstances of the employment”.

The warning should be clear and in written form. It must state the conduct which is unacceptable and possible ways to avoid it. The burden is on the employer to ensure that the employee understands  the consequences of his or her conduct. The employer should also provide the employee with reasonable opportunity to improve.

In common law, there is no duty on the employer to give reasons for dismissal at the time of dismissal. In fact, the employer is entitled to rely on the grounds discovered after the employee has been terminated. The employer is free of any obligation to grant an employee a hearing before making a decision to dismiss.

Traditionally, employers had no duty of fairness in dismissing an employee. The rules of natural justice have been held not to apply to employers. At common law, the only exception is an employment relationship where the employee can only be terminated for cause, in which case there is a duty to act fairly. Clearly, the common law obligations or lack of obligations can be varied by contract

The law relating to termination of employment in Pakistan does not conform to a uniform standard. In some instances, legislation has been enacted which attempts to intervene in the relationship between the employer and employee on this issue, abolishing or affecting common law presumptions of employment at will and dismissal without the need to prove cause. However, workers falling outside this legislation remain covered by common law legal principles.

Standing Order 15 (2) gives punishment for misconduct and Standing Order 15(3) states different types of misconduct.

The category of dishonesty includes misconduct that indicates an employee’s disregard for the employer’s inherent trust in the employee. For example where an employee repeatedly lies about leaving during a work shift and only admits to it after being caught on surveillance camera.

Insubordination is a kind of misconduct whereby the employee refuses to recognize and submit to the authority of the employer, and refuses to comply with the employer’s clear instructions, policies and procedures without reasonable excuse. Usually, the courts will not allow an employer to fire an employee for a single, minor incident of insubordination, unless it was of some significance.

An employer would, in most cases, be expected to formally warn an employee before proceeding with outright dismissal, under the ground of absenteeism. An employer could not justify firing an employee who was late on one occasion only. On the other hand, persistent lateness and absenteeism may justify dismissal if the employee was given adequate warnings and failed to correct his behaviour.

The category of incompetence encompasses an inability to perform basic work functions as required by the employer. The level of incompetence must “fall below an objective standard of reasonable competence”. 

A lack of adequate skill by an employee who is doing his or her best does not typically permit dismissal. However, an employer will likely be justified in dismissing an employee if, after several warnings, the employee remains incompetent. Where the level of incompetence is extreme, an employer may abruptly dismiss the employee without providing notice or payment.

The conversation has consequently reached a stalemate, with scholars debating the merits of a just cause system versus a pure and largely at will regime.


The views expressed in this article are those of the author and do not necessarily represent the views of CourtingTheLaw.com or any other organization with which she might be associated.

Zaineb Aumir

Author: Zaineb Aumir

The writer has done her Masters in International Commercial Law and is currently specializing in corporate law. She has worked with major international law firms in UAE.