What could be an optimum severance package for terminated employees?

Most employees are not prepared for an abrupt break in their careers. Any decision by a business to shut shop or tone down their business considering various issues can be detrimental to employees.

People in business organizations are often told to leave due to several reasons which may not always be attributed to their performance, or any wrongdoing on their part. Such instances may be the result of an economic slowdown, failure of a business, failure of promoters to get additional funds, or some regulatory issues that bring the business to a halt or forces its shutdown or downsizing. Looking at some recent happenings in India, we have seen shut down of a number of telecom operators, tech start-ups, airlines, leading to thousands of job losses.

Most employees are not prepared for an abrupt break in their careers. Any decision by a business to shut shop or tone down their business considering various issues can be detrimental to employees. The employees who are forced to exit, suddenly realize that they are unable to pay their EMI’s, mortgage, their rentals and some may also find it a challenge to fund their kids’ education. Apart from the stigma that comes with a job loss, the financial problems take its toll on the emotional well being of the affected employees. Added to this are the uncertainties prevailing in the job market. One never knows, when they are able to land up their next assignment.

The worst part of all of this is the realization that it was never their fault. They had to face the ax even though they probably did their best, and contributed to the business as per expectations. They have to face problems on multiple ends for the things that were never in their control.

It hurts right?

Employees suddenly find themselves stuck in a position where they need to tone down their lifestyle, they need to borrow to pay for the essentials, and for some, even bread and butter becomes an expensive commodity. Added to this is the loss of health insurance coverage and the psychological impact of the job loss.

Although a number of companies work out severance packages for their employees in case of any abrupt exit, most such cases are decided based on the terms in their employment contract. In most scenarios, it is limited to a notice period pay of 1-3 months, which may be quite limiting when the overall business environment is uncertain, and the time taken to land up another job may take a bit longer. In one of the recent examples related to abrupt job cuts – the leading hospitality start-up OYO decided to shed thousands of jobs. According to the company statements in media, they tried to be generous with their severance package and related support – and offered an extra month’s salary as severance pay, extended medical cover for employees and their immediate families for some additional time, and outplacement support and counseling to axed employees. However, even an extra month (total of 3 months) severance pay could be limiting to many considering the state of the Indian economy and job market these days.

In such scenarios, what could be an optimum severance package for terminated employees?

Understanding the plight of such employees, a Member of Parliament in Rajya Sabha has tabled a private bill which seeks to provide a minimum of nine months salary in cases of termination of employees due to economic slowdown, employer filing for bankruptcy or change in technology among others.

The Terminated Employees (Welfare) Bill 2020, was recently introduced in the Upper House by Bhartiya Janta Party MP Rakesh Sinha in the first phase of Parliament’s Budget session.

The bill proposes that if an employee gets terminated due to economic slowdown, change in technology, court order, the employer becomes insolvent, owner unable to carry business and change of government, then he is entitled to unemployment benefits.

The terminated employee shall be entitled to unemployment compensation health insurance benefits or any other benefits as may be prescribed by the Central government, if such benefits are not part of the employee-employer agreement, for nine months or till the time he gets employed elsewhere, whichever is earlier, the bill reads.

In the bill’s statement of objects and reasons, Sinha said, “At present, there is no law to ensure that the employers provide terminal benefits in time and which makes provision for education, medical facilities, etc., to the families of employees who have been terminated. The bill seeks to achieve the above objective.”

“After employment, a person often takes a few loans to meet his needs, gets their children admitted at a certain level of school. All this cannot come to a halt without any of his faults. The family of the employee should not suffer because of such events,” he said.

Therefore, the bill provides for a minimum nine months’ time with assured income to the terminated employees which will give them enough time to reassign themselves to new employment without disturbing the existing set up of their family, the BJP MP added.

Our take on the proposed bill:

While this bill proposes the welfare of the employees, several people are wondering about the feasibility of such bills. The bill completely is biased towards employees giving no consideration to employers who are running low on cash to survive the business and can’t even promise regular salaries to their employees. The bill, as of now, faces many issues and is being debated by HR experts and business analysts.

Also, this isn’t the first time such an employee-friendly private bill has been tabled in the parliament. In 2018, Nationalist Congress Party MP in Lok Sabha Supriya Sule had also tabled the much-hyped “Right To Disconnect Bill.” The bill sought to permit employees to skip work-related calls and emails after working hours without incurring any fine or deduction in salaries. The bill was later also incorporated in the 2019 Maharashtra General Assembly Elections’s manifesto by Congress and NCP.

Both the bill is yet to be discussed in the parliament. The odds, however, are stacked against the bill’s discussion. According to research from PRS Legislative published in 2015, the 13th Lok Sabha discussed barely 5% of private bills, the 14th Lok Sabha discussed 3%, while the 16th Lok Sabha discussed only 2.85% of private bills. According to Parliamentary rules, a private bill has an expectancy of 6 years to be discussed, before lapse.

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