Termination of employment is a critical aspect regulated under the Labour Act, 2017 and Labour Regulations, 2018 in Nepal. These laws outline the legal grounds, procedural requirements, notice periods, and available remedies concerning the termination of employment relationships. This article provides an overview of the legal framework governing the termination of employment in Nepal, with a focus on different types of employment, employer obligations, and employee rights.
Governing Legal Framework
The Labour Act, 2017 (2074) and the Labour Regulations, 2018 (2075) serve as the primary legislative instruments regulating matters related to employment and its termination in Nepal.
Types of Employment
1. Time-Based Employment
Employment based on a fixed term shall automatically terminate upon the expiration of the term specified in the employment contract. In the case of project-based employment, if the duration of the project is extended due to the nature of the work, the employment shall continue accordingly.
2. Work-Based Employment
Work-based employment is deemed terminated upon the completion of the assigned task or project as per the employment agreement. If the scope of the work increases due to its nature, the employer cannot terminate the employee until the entire work is completed.
3. Casual Employment
Casual employment may be terminated at the discretion of either the employer or the employee, without any specific procedural requirement.
Ground for Termination of Employment
Voluntary Resignation by Employee
An employee may voluntarily resign by submitting a written resignation notice to the employer. The employer must acknowledge the resignation within fifteen (15) days. If no response is provided within this period, the resignation shall be deemed accepted from the day following the end of the specified timeframe.
A resignation may be withdrawn through mutual consent between the parties. If the employee continues to work despite acceptance of the resignation, it shall be deemed automatically cancelled.
Termination on the Grounds of Incompetence
An employee may be terminated due to incompetence if their work performance is found to be unsatisfactory for three or more consecutive evaluations.
For enterprises employing ten (10) or more employees, the employer must provide the employee a minimum of seven (7) days to submit a clarification before taking any termination decision on this ground.
Termination of Employment on Health Grounds
Employment may be terminated if an employee is rendered unfit to work due to physical or mental incapacity, serious injury, or prolonged medical treatment that adversely affects performance.
However, employment cannot be terminated under the following circumstances:
- If the employee is undergoing hospital treatment, termination is prohibited for the full duration of treatment.
- If treatment is carried out at home, termination is restricted for one year from the start of such treatment.
Employees are entitled to receive full remuneration during this period, unless such benefits are already being provided under the Social Security Fund.
Termination on the Grounds of Misconduct
An employer may terminate an employee with immediate effect in the event of any of the following acts of misconduct:
- Physical assault or infliction of harm on any person related to the employer, client, or workplace;
- Use of weapons or vandalism within office premises;
- Acceptance or offering of bribes;
- Theft within the workplace;
- Unauthorized absence exceeding thirty (30) consecutive days;
- Willful damage to the employer’s property;
- Embezzlement of company funds;
- Breach of confidentiality regarding the employer’s trade secrets, formulas, or technology;
- Engagement in competing businesses or disclosure of confidential information;
- Submission of fraudulent educational or professional documents;
- Consumption of narcotics or alcohol during working hours;
- Criminal conviction involving moral turpitude;
- Repeated misconduct with disciplinary action exceeding two (2) times within three (3) years.
Prior to dismissal for misconduct, the employer is legally obliged to provide a seven (7) day period for the employee to submit a written explanation.
Notice Period Requirements
In cases of termination other than for misconduct, both employer and employee are required to serve a written notice in accordance with the following schedule:
| Duration of Employment | Minimum Notice Period |
|---|---|
| Up to 4 weeks | 1 day |
| 4 weeks to 1 year | 7 days |
| More than 1 year | 30 days |
If the employer fails to provide the required notice, an equivalent amount of remuneration in lieu of notice must be paid. Conversely, if the employee fails to serve the notice, the employer is entitled to deduct an amount equal to the notice period from the employee’s remuneration.
Retrenchment and Downsizing
An enterprise may retrench employees under the following conditions:
- Financial difficulty in operations;
- Redundancy arising from merger or amalgamation of entities;
- Partial or complete closure of business.
In such cases, employees engaged for more than one year are entitled to one month’s basic remuneration per year of service as compensation. Employees with less than one year of service are entitled to pro-rated compensation.
However, this compensation does not apply to employees who qualify for unemployment allowance under existing social security laws.
If the enterprise resumes operations or requires additional manpower within two (2) years, priority for re-employment must be given to retrenched employees.
This provision is not applicable to enterprises employing ten (10) or fewer employees.
Compulsory Retirement
Employees under regular employment are subject to mandatory retirement upon attaining the age of sixty (60) years.
However, enterprises requiring earlier retirement due to the nature of work may set such criteria in their internal by-laws, subject to prior approval from the Central Labour Advisory Council.
Employer’s Obligations Post-Termination
Following termination of employment for any reason, the employer must:
- Settle all dues, including remuneration, benefits, and entitlements within fifteen (15) days of termination.
- Continue to pay remuneration if dues remain unsettled beyond the stipulated time.
- Issue a certificate of work experience specifying the duration of service and the position held by the employee.
Remedies for Unlawful Termination
If an employee is dissatisfied with the termination decision, they may:
- File an appeal before the Labour Court as per the provisions of the Labour Act, 2017.
- Seek reinstatement, compensation, or other remedies as determined by the Labour Court based on the merits of the case.
Conclusion
The termination of employment in Nepal is governed by a well-structured legal regime that balances the rights and obligations of both employers and employees. Compliance with the provisions of the Labour Act, 2017 and Labour Regulations, 2018 is essential to ensure fair, lawful, and dispute-free termination practices.
For professional assistance with employment termination, legal compliance, or labour litigation, you may contact Onesphere Law Associates, a leading corporate law firm in Nepal.