Is it legal for an employer to forthright terminate the employment or services of an employee if the employer has found evidence that the employee has indulged in an act of misconduct?  For instance, if the employer has received evidence that a senior employee has been sanctioning procurement of goods and/or services from vendors at a rate which is higher than the market rate for such goods and/or services, and the selection of such vendors has not been above board, is it appropriate for the employer to terminate the services of such senior employee forthwith for wilfully causing loss to the employer? The right to terminate an employee for misconduct, particularly senior level employees, is often misunderstood as the employer believes that a senior level employee is not a protected employee, and, thus termination including termination for misconduct is a right which can be exercised by the employer without an enquiry into the allegation of misconduct.

Irrespective of the seniority of the employee concerned, whenever the termination of an employee from services is on account of an allegation of misconduct, it is imperative that the principles of natural justice, i.e. giving an opportunity to the delinquent employee, are followed. The aforesaid requirement does not flow from any statute, but from the principle that no person can be held guilty of any wrongdoing unless the person has been afforded sufficient and adequate opportunity to put forth his defence. Prior to dealing with the aspect of appropriate procedure for enquiry into an act of misconduct, it may be useful to understand the meaning and scope of the term ‘misconduct’.

The scope of the term ‘misconduct’ has been explained State of Punjab vs. Ram Singh Ex. Constable AIR 1992 SC 2188 wherein, the Hon’ble Supreme Court has held that “the word 'misconduct' though not capable of precise definition, its reflection receives its connotation from the context, the delinquency in its performance and its effect on the discipline and the nature of the duty. It may involve moral turpitude, it must be improper or wrong behaviour; unlawful behaviour, wilful in character; forbidden act, a transgression of established and definite rule of action or code of conduct but not mere error of judgment, carelessness or negligence in performance of the duty”. Therefore, an unintentional act or a mere error of judgement may not be an act of misconduct. Misconduct has to include an intentional act of moral turpitude or improper or unlawful act.

The procedure for initiating an internal enquiry against a professional misconduct by an employee at workplace is not defined under any statute, but has evolved through legal precedents in India. The Hon’ble Supreme Court in the case of Sur Enamel and Stamping Works (P) Ltd. v. Their Workmen AIR 1963 SC 1914 held that “If an industrial employee's services are terminated after a proper domestic enquiry held in  accordance with  the  rules  of natural  justice  and  the conclusions reached as the inquiry are not perverse, the Industrial Tribunal is not entitled to consider the propriety or the correctness of the said conclusions, but, whereas in the present case,  there was no proper inquiry,  the Tribunal  was  justified  in ignoring the findings of the domestic tribunal.” Therefore, conducting a proper domestic/internal enquiry in consonance with the principles of natural justice is a pre-requisite before taking any action against an employee for misconduct. The Court laid down the following essentials of a proper domestic enquiry

“An enquiry cannot be said to have been properly held unless: -

1. the employee proceeded against has been informed clearly of the charges levelled against him,

2. the witnesses are examined-ordinarily  in the  presence of the employee in respect of the charges,

3. the employee is given a fair opportunity to cross-examine witnesses,

4. he is given a fair opportunity to examine witnesses including himself  in his defence if he so wishes on any relevant matter, and       

5. the enquiry officer records his findings with reasons for the same in his report.”

In other words, a company may follow the following procedure for professional misconduct by an employee:

1. Upon receiving a written complaint, an enquiry officer may be appointed to carry out a preliminary enquiry to ascertain whether a prima facie case of misconduct is made out against the concerned employee.

2. In the event that the enquiry officer is satisfied that an act of misconduct appears to have been committed, the enquiry officer or if a committee is formed, may issue a charge-sheet to the concerned employee against whom the enquiry is being carried out. The said charge-sheet must clearly mention: (i) the charges against the concerned employee; (ii) the date and time of the commission of misconduct; (iii) the time within which he/she should submit a written reply to the charges; and (iv) the relevant section of the Standing Orders/Law or Company Policy under which the misconduct falls.

3. Pursuant to issuing the charge-sheet, the enquiry officer/committee may carry out an enquiry wherein an opportunity be given to the delinquent employee to present his/her version (both oral and in writing), provide any evidence (oral or documentary) in support of his/her version (including witnesses, if any) and submit any documents in support of his/her version. While conducting the enquiry, the enquiry officer may also allow examination-in-chief, cross‑examination and re-examination of witnesses, if any.
 

4. The enquiry officer/committee, after perusing the documents and/or the evidence should prepare a report containing the enquiry findings and submit the same to the employer.

5. If the report holds the concerned employee guilty of misconduct, the employer may thereafter issue a show-cause notice to the delinquent employee asking him/her to show cause as to why the proposed action should not be implemented against him/her. The employer should request the delinquent employee for his/her comments on the report.

6. In the event that the employer is not satisfied with this reply to the show cause notice, and decides to terminate the employment of the delinquent employee or take any other action commensurate with the ‘misconduct’ of which the employee has been found guilty, it may issue a letter terminating the services of the delinquent employee or any other appropriate action to the delinquent employee.

The aforesaid procedure is suggestive in nature based upon judicial precedents and various resources. Employers may adopt different procedure as long as the principles of natural justice are being followed and the ingredients mentioned in Sur Enamel and Stamping Works (P) Ltd. v. Their Workmen are fulfilled.

However, it needs to be pointed out that termination of the services of an employee who does not have protection under the Industrial Disputes Act, 1947 or any other appropriate statute, without having followed the principles of natural justice may not entitle such employee to seek reinstatement on account of wrongful termination, but such employee may be entitled to damages not only for the wrongful termination, but also, in appropriate cases, for loss of opportunity for re-employment due to termination on account of misconduct.