Termination of employment refers to the lawful end of the employment relationship between an employer and an employee. As per Section 139 of Labour Act, 2074 (2017), the employment of an employee must be terminated only on the grounds as provided under the labour laws. The employee must be provided with a proper and sufficient reason when terminating the employment.
Under Nepalese labour law, termination can occur on various grounds including expiry of the term, resignation, retirement, non-performance, misconduct, or retrenchment.
This article provides a general overview on the grounds of termination as per Labour Act, 2074 (2017) and Labour Regulations, 2075 (2018).
I. Grounds for termination of employment
The grounds of termination of employment in Nepal pursuant to the prevailing labour laws are provided below:
1. Termination upon expiry of the term of employment
| Type of Employment | Condition for Termination | Exception |
| Time-based Employment | Terminates upon expiry of the duration specified in the employment agreement. | If the employment is project-based and the duration is extended due to the nature of work, termination will be deferred accordingly. |
| Work-based Employment | Terminates upon completion of the specific work mentioned in the employment agreement. | If the employment is project-based and the work is added or extended based on its nature, employment continues until completion. |
| Casual Employment | Can be terminated at the discretion of either the employer or the employee. | N/A |
2. Voluntary Resignation by the Employee
An employee can resign by submitting a written resignation to the employer. The employer is required to formally accept the resignation within 15 days. If no response is provided within this period, the resignation is deemed accepted automatically from the following day.
However, the resignation may be withdrawn through mutual consent between the employer and the employee.
3. Termination on the Ground of Incompetence
An employer can terminate an employee if their work performance is found to be unsatisfactory or poor for 3 (three) or more consecutive years, based on evaluations conducted in accordance with the labour laws or enterprise by-laws.
In case the enterprise employs 10 (ten) or more employees, the employer must allow the employee at least 7 (seven) days to submit a clarification before proceeding with such termination.
4. Termination on the Ground of Health
Employment can be terminated if an employee becomes incapable of performing their duties due to physical or mental incapacity, serious injury, or prolonged medical treatment, based on a medical doctor’s recommendation.
However, the law protects employees undergoing treatment for workplace accidents or occupational diseases, prohibiting termination during hospital treatment or within 1(one) year of home treatment. For other medical conditions, termination is not permitted within 6 (six) months, unless there is a medical recommendation for earlier termination. If the employee is still able to work in a different capacity, the employer must offer suitable alternative work instead of terminating the employment.
5. Termination on the Ground of Misconduct
An employer can terminate an employment of an employee in case such employee is engaged in following misconduct:
| S.N. | Misconducts |
| 1. | Engaging in physical assault or causing physical harm to any person related to the employer, customer, or workplace. |
| 2. | Using any form of weapon or committing vandalism within the employer’s office premises. |
| 3. | Receiving or granting a bribe. |
| 4. | Committing theft against any person within the workplace. |
| 5. | Remaining absent from work for more than 30 consecutive days without approved leave. |
| 6. | Intentionally damaging the employer’s property. |
| 7. | Embezzling the employer’s finances. |
| 8. | Breaching the employer’s confidentiality, including with respect to products, technology, or formulae. |
| 9. | Engaging in business activities with a competing enterprise, starting a competing business, or disclosing confidential information. |
| 10. | Submitting fake educational or other certificates for the purpose of appointment. |
| 11. | Consuming narcotic substances or liquor during working hours or coming to work under their influence. |
| 12. | Being convicted by a court of a criminal offense involving moral turpitude during employment. |
| 13. | Committing any act of misconduct for which dismissal is prescribed by law. |
| 14. | Being punished more than twice within three years for misconduct resulting in reprimand, one-day pay deduction, or withholding of promotion/salary increment for one year. |
6. Compulsory Retirement
Employees in regular employment must retire upon reaching the age of 60. However, for specific types of work, an earlier age of retirement can be prescribed in the enterprise’s by-laws, subject to prior approval from the Central Labour Advisory Council.
7. Retrenchment
An employer can retrench employees in situations where the enterprise faces financial difficulties, undergoes merger or restructuring, or requires partial or complete closure for any valid reason.
Procedure for Retrenchment
Before carrying out retrenchment, the employer must provide at least 30 (thirty) days’ advance notice to the Labour and Employment Office and to the authorized trade union (or labour relation committee, if no union exists), detailing the grounds, timeline, and number of employees likely to be affected.
The employer is then required to engage in consultations with the union or labour relation committee to explore alternatives to retrenchment and to agree on the selection criteria. If no agreement is reached or the union declines to engage, the employer can proceed by notifying the Labour and Employment Office.
Order of retrenchment
The general order of retrenchment is as follows:
- Foreign workers,
- Employees with a history of disciplinary action,
- Employees with consistently weak performance, and
- Last hired among employees performing the same type of work.
Eligible employees who have served for at least 1 (one) year are entitled to compensation equal to 1 (one) month’s basic remuneration for each year of service, proportionately adjusted for service under 1 (one) year. This compensation is not applicable if the employee receives unemployment allowance under applicable social security laws.
Inapplicability of retrenchment provisions
These retrenchment provisions do not apply to:
- Employers with 10 or fewer employees,
- Retrenchments pursuant to a Government of Nepal or Labour Court order,
- Enterprises located in Special Economic Zones where separate retrenchment provisions apply.
II. Notice Period
Except in cases where employment is terminated due to serious misconduct, both the employer and the employee are required to provide prior notice before ending the employment relationship.
The notice period depends on the duration of employment:
| S.N. | Duration of Employment | Minimum Notice Period |
| 1. | Up to 4 weeks | At least 1 day |
| 2. | More than 4 weeks and up to 1 year | At least 7 days |
| 3. | More than 1 year | At least 30 days |
If the employer fails to provide the required notice, they must compensate the employee with an amount equal to the remuneration for the notice period. Conversely, if an employee resigns without giving proper notice, the employer is entitled to deduct the equivalent amount from any remuneration due to the employee.
III. Payment of Benefits
Upon termination of employment, whether due to misconduct or any other reason, the employer is legally required to settle all outstanding dues and benefits of the employee. The key provisions are as follows:
a) Timeline for Payment
The employer must pay all remuneration and benefits due to the employee within 15 (fifteen) days of the date of termination.
b) Assistance with External Claims
The employer must also assist the employee in claiming any benefits payable from third parties such as the Social Security Fund, insurance providers, or other relevant institutions.
c) Penalty for Delay in Payment
If the employer fails to pay the due amount or extend the required assistance within the prescribed time, the employee is entitled to continue receiving remuneration as if still in service, until such payment is made.
d) Non-appearance of Employee
If the employee does not appear to collect their payment, the employer can either transfer the payment to the employee’s bank account or deposit it with the Labour and Employment Office.
Disclaimer: This article is for general informational purposes only and does not constitute legal advice, advertisement, personal communication, solicitation or inducement. No attorney-client relationship is created through this content. Gandhi & Associates assumes no liability for any consequences resulting from actions taken based on information contained herein.
For quick legal assistance:
Phone/Viber/WhatsApp: +977 9709035477
For specific legal advice regarding termination and related procedural matters in Nepal, please contact our office to schedule a consultation with our experts.