Industrial Relations Management

Assignment # 04
Reviewed and submitted by: Mansoor Ali Seelro (BBA VIII)


Employment Termination & Severance Pay in Pakistan

Termination of employment occurs when an employee's contract of employment ends with an
employer. This can happen due to resignation, dismissal or redundancy.

What are the relevant laws regarding employment termination in Pakistan?

The main statute governing termination of employment in Pakistan is Industrial and
Commercial Employment (tanding !rders", #$%&. !ther relevant legislation in the field
includes Industrial 'elations (ct, )*#) and hops and Esta+lishments !rdinance, #$%$.

Who can terminate an employment contract?

In accordance with tanding !rder #) of the ICE!, #$%&, either party may terminate an
employment contract after giving one,month notice prior to contract termination. If one,month
notice is not served, a worker must +e paid one,month wages in lieu of notice. It is important to
remem+er that only permanent workers are re-uired to give (and +e served notice" +efore
terminating employment contract. Temporary workers, +adlis (alternate employee working in
place of an a+sent permanent worker or pro+ationer" and pro+ationers are not entitled to any
notice (or in pay in lieu thereof" if their services are to +e terminated. imilarly, they are not
re-uired to serve a notice +efore leaving employer.

What are the different types of contract termination?

Termination of an employment contract may +e either termination simpliciter, which is
termination on grounds other than misconduct after a notice (.!. #)" or termination on
account of misconduct (.!. #.". /otice of termination, for termination simpliciter, is
mandatory for permanent employees. ( notice of one month must +e served +efore severing
the employment relationship or payment of one month0s wages in lieu of notice may +e
provided (ection #).#".



Industrial Relations Management
Assignment # 04
Reviewed and submitted by: Mansoor Ali Seelro (BBA VIII)

Termination can also +e categori1ed in the following three categories. The first type is
2automatic termination3 where an employment contract is terminated automatically in
circumstances such as death of an employee or completion of the pro4ect5end of contract for
which a worker was hired. econd is termination of employment +y the employee through
resignation. (n employee may resign from employment to avail some +etter work opportunity
or when the work circumstances are not supportive and there is material +reach of contract on
the part of employer. Third is the termination initiated +y an employer, which may +e +ased on
fair or unfair grounds.

On what grounds can an employer terminate a contract of employment?

tanding !rders !rdinance re-uires a written employment termination letter stating e6plicitly
reasons for termination. This is applica+le to +oth termination simpliciter (under .!. #)" and
dismissal on the ground of misconduct (under .!. #.". (lthough a+ove law re-uires employer
to state reasons for termination, it dos not prescri+e any reasons for which employment
relationship may +e rightfully terminated (fair grounds for dismissal". Case law has esta+lished
some accepta+le and valid reasons for employment termination (other than misconduct", which
include 2serious illness, inefficiency to perform the 4o+, financial and economic needs of
esta+lishment3.

erious misconduct, provided that the employee is given an opportunity to respond to the
charges leveled against him, is sufficient enough reason for dismissal. 7owever, not every
conduct deserves the dismissal punishment. tanding !rder #. provides a range of
punishments (fines" availa+le to an employer depending on severity of omissions. Instances of
misconduct include 2ha+itual +reach of law, a+sence without permission, willful diso+edience,
damage to employer0s property, theft, fraud, illegal strike, go,slow, etc.

Is severance pay provided under the labor laws in Pakistan?

In accordance with the provisions of tanding !rders !rdinance, a worker whose employment
has +een terminated for any reason other than misconduct is entitled to a 2severance pay or
gratuity3 which is e-uivalent to 8* days0 wages for every completed year of service or any part
thereof in e6cess of % months (e.g., five years and & months is counted as % years". (n employer
may su+stitute a provident fund (type of pension" for gratuity.