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Employment Termination 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 (Standing Orders), 1968. Other relevant legislation in the field includes Industrial Relations Act, 2012, Provincial Industrial Relations Acts, and Shops and Establishments Ordinance, 1969.

To which establishments is Standing Orders Ordinance, 1968 applicable?

Standing Orders Ordinance is applicable to all industrial and commercial establishments employing 20 or more workers now or on any day during the preceding 12 months. This ordinance may be extended to other classes of establishments (employing even less than 20 workers) by provincial governments through notification. An exemption to the above rule is granted in the case of smaller industrial establishments (employing between 20-49 workers) in the following four provisions.

Exceptions to small industrial establishments from some provisions of ICEO

 

 

Minimum worker requirements

Relevant Standing Order

Provisions

Commercial establishments

Industrial establishments

10-B

Compulsory group insurance

 

 

 

 

20 or more workers

 

 

 

 

50 or more workers

11

Work stoppage and lay-off

12(6) and (8)

Payment of gratuity to worker and dependents (in case of worker’s death)

15

Punishment for misconduct, enquiry procedure, disciplinary action (fine, removal, dismissal, etc.)

How is worker/workman defined under the above ordinance?

Persons doing skilled or unskilled, manual or clerical work are covered under the ordinance. However, those engaged in supervisory and managerial capacity are usually excluded from its scope. To decide whether a worker is covered under the ordinance, it is the nature of work (i.e., manual or clerical) and not designation or pay that is essential in determining the status of an employee. It is the nature of work and not the job category that makes a worker covered under the ordinance. For example, a teacher is not considered a workman under the law as a teacher’s job requires more of mental power and capacity (quite opposite to manual or clerical worker). Some limited manual (writing on blackboard, making lecture notes) and clerical (checking students’ notebooks) work is incidental to a teacher’s job however it never forms a substantial part of his job, so he/she is not a workman under the act. Some employers also (in order to keep workers from unionizing and defeat the spirit of law) award many of the employees a supervisory status, however if a supervisor’s job is of manual or clerical nature (and without any hire/fire authority), he is still a workman under the act.

Who can terminate an employment contract?

In accordance with Standing Order 12 of the ICEO, 1968, 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 be paid one-month wages in lieu of notice. It is important to remember that only permanent workers are required to give (and be served notice) before terminating employment contract. Temporary workers, badlis (alternate employee working in place of an absent permanent worker or probationer) and probationers are not entitled to any notice (or in pay in lieu thereof) if their services are to be terminated. Similarly, they are not required to serve a notice before leaving employer.

What are the different types of contract termination?

Termination of an employment contract may be either termination simpliciter, which is termination on grounds other than misconduct after a notice (S.O. 12) or termination on account of misconduct (S.O. 15). Notice of termination, for termination simpliciter, is mandatory for permanent employees. A notice of one month must be served before severing the employment relationship or payment of one month’s wages in lieu of notice may be provided (Section 12.1).

Termination can also be categorized in the following three categories. The first type is “automatic termination” where an employment contract is terminated automatically in circumstances such as death of an employee or completion of the project/end of contract for which a worker was hired. Second is termination of employment by the employee through resignation. An employee may resign from employment to avail some better work opportunity or when the work circumstances are not supportive and there is material breach of contract on the part of employer. Third is the termination initiated by an employer, which may be based on fair or unfair grounds.

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

Standing Orders Ordinance requires a written employment termination letter stating explicitly 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 above law requires employer to state reasons for termination, it dos not prescribe any reasons for which 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), which 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 dismissal punishment. Standing Order 15 provides a range of punishments (fines) available to an employer depending on severity of omissions. Instances of misconduct include “habitual breach of law, absence without permission, willful disobedience, damage to employer’s property, theft, fraud, illegal strike, go-slow, etc.

Is severance pay provided under the labor laws in Pakistan?

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’ wages for every completed year of service or any part thereof in excess of 6 months (e.g., five years and 8 months is counted as 6 years). An employer may substitute a provident fund (type of pension) for gratuity.

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