8/11/2019 Severance Pay in Pakistan

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Industrial Relations Management

Assignment # 04Reviewed 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 onemonth notice prior to contract termination. If onemonth

notice is not served, a worker must +e paid onemonth 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 #).#".

8/11/2019 Severance Pay in Pakistan

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Industrial Relations Management

Assignment # 04Reviewed 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 istermination 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 onfair 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, goslow, 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.