Overview
In recent days, many start-ups have been grabbing headlines concerning lay-offs of the employees and surprisingly, this is not just about India. Loans mortgage USA-based start-up, Better.com, Nestle, Unilever, Renault, etc. Further, unicorn start-ups like Meesho, Zomato, Unacademy, Furlenco, OkCredit, Trell, etc. have laid- off more than 1700 start-up employees within the first quarter of the year 2022. This makes us wonder what may be the reason for such mass layoffs. While this may be an example of cost-cutting while ensuring better utilization of costs for the growth of the start-up.
Normally there are two ways that lead to termination of an employee’s services from a startup – either through voluntary resignation of the employee from his job or him being forced to leave the job by his employer due to some reason. Since there is a lot of uncertainty in the world of business, balanced by two forces where the employers try to figure out ways to manage their employee costs and the employees on the other hand try to comprehend the aspects associated with termination & resignation.
But, what is the difference between the two? Well, there are certain differences in their definitions and impacts on the concerned parties (employer & employee), which is necessary to be understood for various reasons such as the difference between resignation and termination might help you and your next employer to realize the reason behind you looking for a new job and perhaps you to explain your decision to leave your previous job.
In this article, we have defined and explained the concept of termination and resignation, and listed their differences and their post-employment effects for your convenience.
Termination – Meaning & Definition
The term termination of employment could be defined as the end of the employment of an employee with the start-up/business that leads to the end of the employee’s association with the start-up as an employee. There could be one or more reasons for the termination of the employment and different types of termination of a job of the employee.
Kinds of Employee Termination
i. Voluntary Termination
In this type of termination, the employee decides to leave the business organization on his own, which could be the result of any personal or professional reasons on his part. For instance, there may be an ongoing toxic environment in the workplace, lack of growth opportunities, or any other personal problem forcing him to make such a decision. If the reason for voluntary termination is due to professional reasons, it could be a wake-up call for the employer indicating the risk of migration of talented manpower from his organization to the other.
ii. Involuntary Termination
Involuntary termination refers to the event under which an employer terminates the services of an employee. The reason could be anywhere from the low performance of the employee, employee behavior, violation of company rules, moral conduct, etc. as a result of an employee disciplinary action. An involuntary termination could be further classified based on the grounds for termination-
a. Lay-off – It is the most common form of involuntary termination under which a start-up decides to remove employees due to the unfortunate economic turndown of the start-up. It is usually done for better cost utilization and cost-cutting and has very little to do with the performance of an employee.
Since lay-offs are basically for economic reasons they have nothing to do with the performance of the employees and they don’t risk the chances of getting a job as an employee. For instance, an employee be laid off in case a start-up struggles to obtain funding for the business and has insufficient funds for payment of salaries, thus needs to downsize the business operations or restructure the business altogether. Employers may either do selective lay-offs by removing a single employee or a group of employees altogether.
b. Fired- An employer generally fires his employees due to poor work performance, breach of conduct, or any moral misconduct committed by the employee which is against the policies of the start-up. In such situations, the employer may terminate the employment either with immediate effect or from a later date (such as at the end of the month or completion of any task or assignment) for the start-up
In addition to these two key kinds of termination, there are a few other kinds of termination to be mentioned here-
i. Furlough– Furlough refers to the temporary unpaid leave from work. Though a furlough doesn’t exactly mean termination from employment, it is necessary to understand that a furlough may lead to termination of employment. There is some expectation involved for the employee to return to work after a while to the job. Still, there are chances that the employer might decide to terminate the employment at the end of the period of furlough.
ii. Wrongful termination- An employee is said to have been wrongfully terminated when the employer ends his employment with the start-up either without valid reasons or with illegal reasons. Employers hold the right to terminate employees from their jobs due to right reasons, there are instances where they misuse their position by wrongfully terminating the employment of their employees. Discrimination based on age or race or whistle-blower retaliation, etc. are some of the instances of illegal termination.
iii. Employment at Will
This category of employee termination refers to a situation where the employer can fire any employee without any valid reasons or explanation to either the start-up or the employee so terminated. However, employers must document the key reason for such termination or prohibit any kind of discrimination.
iv. Mutual Termination
It refers to the decision of termination of employment of the employee through mutual agreement between the employer & himself after they conclude that they are not a good fit. Such kind of termination is generally lesser messy due to mutual decision.
Causes of Termination of Employees- As said before, there could be various reasons for the termination of employment of an employee from the viewpoint of each party i.e. employer & employee that has been provided below-
From the viewpoint of the Employer-
- Poor /Low work performance or incompetence to complete the job
- Violation of the Company’s code of conduct
- Disciplinary Action.
- Any sort of abuse or harassment to any colleague/staff or seniors (sexual, physical, mental, or emotional.
- Lack of commitment and cooperation
- Leaking information to rivals/business competitors etc.
From the viewpoint of the Employee-
- Lack of growth opportunities or training facilities
- Better opportunities elsewhere
- Lack of interest in the job.
- Studies/Business/Retirement Plans or relocation
- Issues with seniors/colleagues or any other personal problems/issues.
Resignation- Meaning & Definition
Commonly referred to as quitting, resignation implies the act of an employee who willingly ends his employment and submits a letter to the HR personnel or his employer intimating his desire to leave the job either immediately or after the notice period(which is two weeks or more) before the last day of the employment. Though the term resignation bears the will of the employee to leave his job voluntarily, sometimes an employee may face a forced resignation. With this type of resignation, an employer gives their employee an ultimatum to either resign by himself or be fired.
Generally, employees may consider resigning from their jobs most of the time due to the following reasons including-
- Personal Reasons such as further study, relocation, and family issues,
- To get better career and growth opportunities
- Due to the toxicity and stressful working environment in the business organization;
- Not feeling to be cut out for the job.
Difference between Termination and Resignation of Employee
While both termination and resignation finally cause an employee to leave his job in the company, these two terms have many differences that have been provided below-
I. Initiation of the separation process
The primary difference between the termination and resignation of an employee lies in the fact who initiated the process of severance of employment. While an employee could decide to end his employment by his own decision by putting his resignation, whereas, in termination, it is the employer who decides to end the employment.
II.Serving Notice period
A key difference between resignation and termination is the requirement of notice before leaving his office. Though the terms related to advance are generally provided in the employment contract, generally the time frame of notice is between at least two to four weeks from the date of intimation to resign and the employer will also be required to give the same amount of notice when dismissing an employee. However, sometimes termination from poor job performance or misconduct may lead to immediate termination.
III. Compensation or Severance Pay
When the employee resigns, the employer pays the employee till the last day of the job of the employee. However, if the employee is terminated (in case of lay-offs) the employer may be obligated to pay compensation for severance of the employee from his job namely, severance pay. Though there are no fixed criteria for deciding the compensation, it generally depends on the decision of the employer and often, the reason for your termination.
The purpose behind providing such compensation is to allow the employee to manage his expenses for a certain period until he finds a suitable job for himself. However, such severance pay is not available in case the employee resigns from his job.
IV. Post-Employment Effects
Leaving a job and searching for a new one could be a bigger change for any employee and might affect differently regardless of it being termination or voluntary resignation on the part of the employee. Typically, the post-employment effects incurred from the termination could be more severe depending on the situation.
Provided below are some of the post-employment effects an employee could be encountered as a result of resignation or termination from the job-
i. Future Plans
In case of termination of an employee, he may not have enough time to prepare for the steps to be taken or to create a future plan to be followed for his next employment or studies until after you’re terminated. Whereas, in case of resignation, the employee has an ample amount of time to think about his next step for transition. During his notice period, he could look for a new job while securing finances before the last day of his work. Therefore, employees who resign normally have an advantage over the employees so terminated.
ii. Emotional/Psychological effects
Since resignation from a job is a voluntary decision of the employee for his career growth or betterment, which means that there would be lesser chances of adverse feelings towards the previous start-up company or job, whereas a termination might affect adversely including the employee feeling rejected or unwanted or even ending up being doubtful about his strengths and skills. Additionally, the employees who resign from their jobs tend to be on good terms with their co-workers and managers, which is usually not in case of termination.
iii. Future employment
As termination might lower the confidence of the employee himself, he might also have a harder time finding his next job prospect. He should focus on his strengths and positives rather than being fixated on the fact that he got terminated to avoid the typical criticism that comes from such dismissals. For instance, if the hiring manager gets to know that the employee has been terminated from his previous job, he may want to know the reasons for such termination. And, if the employee is honest, it could help to create respectful and open communication with your prospective employer.
However, in case of resignation, it could be easier for the employee to present the reasons for leaving the previous employment due to the will of the employee included.
iv. Employment references
Naturally, it could be difficult for the employees who get terminated from their previous employer to be on good terms and have positive references from their previous employers. On the other hand, employees who resign from their previous jobs might end on good terms with the employee having greater chances of receiving a positive reference from that former employer.
What are the compliances that should be followed after the termination/ resignation of an employee?
Though there could be various reasons behind the termination or resignation of any employee, it is to be noted that any employer could not simply fire any employee without any appropriate reasons. In case they do so, the reputation of the start-up might be at stake including legal consequences that follow. To avoid such a situation, the policies and procedures related to the start-up’s lay off policies in the employment contract of the employee including a provision to claim redundancy pay. Also, the fact that lay-offs happen due to the economic downturn of the start-up and have nothing to do with the incompetence of the employee (‘Last in First Out’ policy).
Further, there must be some post-termination compliances that must be followed by the parties to abide by when terminating an employee’s service that including-
- At least one month’s notice should be provided by the employee to the employer in the notice;
- The employer must be paid compensation equal to at least fifteen days’ average pay for every completed year of service in the start-up.
- An employee should not be fired without stating proper reasons for the termination or any unworthy reasons such as sickness or health issues, pregnancy or maternity leave, etc.
- An employee could not be fired without mutual consent between the employee and the employer.
Rights & Obligation of Employees in case of Termination
In terms of the employee termination, there are some rights & obligations of the employee in pursuance of the employment contract that contains all the terms and conditions regarding their job before hiring an employee.
1. First of all, the employee should not be denied the request to take leave in case of genuine reasons for which there are four types of leaves-
- Casual leave (leaves for unexpected reasons such as emergencies).
- Sick leave (Accidents, sickness, or other health-related issues).
- Paid leave (Periodic paid holidays that could be opted at any time).
- Other leaves (unpaid leaves that could be deducted from salaries)
For instance, the Maternity Benefit Act states that women employees should be provided at least 26 weeks of the minimum paid maternity leave. In cases where the employee is facing sexual harassment or exploitation, the employee must be assured of protection against sexual harassment and appropriate legal action would be taken in case the employee faces harassment.
2. Various Indian legislations provide for the protection of rights of the employees. Some of the legislation that provide for the protection of the rights of the employee include-
- Industrial Employment (Standing Order) Act (1946)
- Industrial Disputes Act (1947)
- Payment of Gratuity Act (1972)
- Maternity benefit Act (1961)
- Provident Fund Act (1952), etc.
3. In cases the employee believes that he has been wrongfully terminated from his job, it is the right of the employee to conduct an inquiry against the unjust treatment and if required can send a legal notice to the employer in case of such unjust termination.
4. In case no relief is provided by the employer, the employee may move the Labor Court with all documentation and credible evidence at hand, for dealing with any false allegation.
Conclusion
Therefore, there could be various reasons for the decision taken by the employer and the employee to end their relationship. While some may decide to leave their jobs voluntarily while others may fire their employees due to misconduct, poor performance, or another reason. But, this does not mean that the rights of the leaving employee or his employer vanish with such termination. The employee has a right to get severance pay in case of his termination or lay-off and the right to bring a cause of action against the employer in case of illegal termination.
In case of wrongful termination, the employee should maintain all necessary documents, any communications between you and your employer regarding your performance, as well as your employment file. And, if required he could also consult an employment lawyer to take cases for appropriate legal reasons having validity.
