Severance Packages and Clueless Indians: What You Don’t Know (Until It’s Too Late)

Every week, Indian professionals share stories of being blindsided by job loss. Some are asked to resign on the spot. Others are handed a full and final settlement without explanation.

From mass layoffs in tech to quiet exits in BFSI, the confusion remains the same. Legal websites like Vakilsearch and LiveLaw, media reports from Economic Times and The Hindu BusinessLine, and employee stories on platforms like LinkedIn and Reddit all highlight a worrying trend.

Most professionals do not know what the law allows, what HR is bluffing, and where they can push back. This newsletter breaks it all down.

1. What Actually Counts as Severance in India?

There is no blanket law that guarantees a severance package for all private-sector employees in India. What people call "severance" is a combination of statutory and contractual components:

• Notice Pay: Usually one to three months, depending on your contract.

• Gratuity: Applicable only after five years of continuous service (Payment of Gratuity Act, 1972).

• Leave Encashment: Paid out for unused earned leave.

• Variable Pay: Either prorated or withheld entirely, depending on company policy.

• Retrenchment Pay: Only applies to industrial establishments under the Industrial Disputes Act.

Legal advisors at IndiaFilings and Vakilsearch confirm that unless you are being formally retrenched, there is no legal requirement for a special severance payout.

2. “They Forced Me to Resign.” Is That Legal?

One of the most common tactics in Indian workplaces is forcing an employee to resign rather than issue a formal termination. This is usually done to avoid compliance and documentation.

According to Punjab & Sind Bank vs. Sakattar Singh, if a resignation is obtained under coercion, it is not valid. Courts have repeatedly held that resignation must be voluntary and informed.

Bar & Bench and LiveLaw have covered multiple cases where employees challenged such exits and won reinstatement or compensation. However, the burden of proof lies entirely with the employee. You must show evidence that you were pressured to resign.

Employees who have posted on LinkedIn and Reddit often regret not documenting these interactions when they happened. HR may insist on “resignation for smooth exit,” but if it is not your choice, it is worth pushing back and delaying to gather proof.

3. Are Employment Bonds Legal?

Yes, but only within limits.

For a bond to be enforceable in India, it must:

• Clearly define the company’s actual investment in training.

• Have a reasonable time period (typically not more than 2 years).

• Include a fair and proportionate penalty in case of breach.

In Satyam Computers vs. Leela Ravichander, the Andhra Pradesh High Court ruled that companies must prove actual loss due to the early exit of an employee. If the penalty is arbitrary, the bond becomes unenforceable.

Legal resources like Vakilsearch and articles in The Hindu BusinessLine highlight that most companies avoid taking bond violations to court. The legal cost, difficulty of enforcement, and negative publicity are major deterrents. Still, many employees comply out of fear, unaware that the threat is often a bluff.

4. Layoffs, Retrenchment, and What the Law Says

Retrenchment is a formal process defined under the Industrial Disputes Act. It applies if:

• The organisation has 100 or more workers (in factories or notified industries).

• The layoffs are not performance-based.

• The company seeks prior government approval and follows due process.

In such cases, the employer must pay compensation equal to 15 days of average pay for every completed year of service.

However, most IT companies, startups, and BFSI firms do not fall under this definition. That is why they are not required to seek permission for mass layoffs and can ask people to resign or serve notice instead.

PRS Legislative Research, LiveLaw, and Economic Times reports confirm that white-collar workers in modern workplaces are largely outside the protection of formal retrenchment law.

5. Frequently Asked Questions

1. Can I negotiate severance?

Yes. Especially in cases of role redundancy, PIP exits, or long tenure. Employers offer more to avoid legal complications and negative attention.

2. Should I sign the full and final settlement immediately?

No. Ask for time to review it. Signing without understanding the terms may waive your right to contest any part of the process later.

3. Can a company stop me from joining a competitor?

No. Non-compete clauses after employment ends are not enforceable in India. Courts have repeatedly ruled in favor of the employee (e.g., Percept D’Mark vs. Zaheer Khan).

4. Can HR withhold my relieving letter if I do not resign?

They may try to delay it, but legally they cannot withhold documents once full and final settlement is completed. You can escalate this to the Labour Commissioner.

5. Can I sue for harassment and mental pressure during exit?

Yes, but the process is time-consuming. You will need detailed documentation. In extreme cases, courts have awarded compensation, but most cases settle through labour authorities or legal notices.

6. What You Can Do

• Document everything: Send follow-up emails after calls and HR meetings.

• Do not resign on the spot: Say you need time to review and consult.

• Use legal helplines: Nyaaya, LegalDesk, and Vakilsearch offer free and low-cost guidance.

• Escalate if needed: Approach the Labour Commissioner if final dues and letters are being withheld.

Sources and References

• LiveLaw.in

• Bar & Bench

• Vakilsearch.com

• IndiaFilings.com

• PRS Legislative Research

• The Hindu BusinessLine

• Economic Times

• LinkedIn posts and discussions

• Reddit: r/legaladviceindia and r/india

• Court rulings: Punjab & Sind Bank vs. Sakattar Singh, Satyam Computers vs. Leela Ravichander, Percept D’Mark vs. Zaheer Khan