Terminating an Employee Lawfully: Termination, Retrenchment, Discharge, Dismissal, Lay-off, Resignation and Retirement under the Labour Act, with the Notice and the Money for Each

In this guide: The seven exits side by side · Termination simpliciter (s.26): the clean exit and its limits · Dismissal for misconduct (s.23) and the s.24 enquiry · Retrenchment, discharge, lay-off and stoppage · Resignation, retirement, death and the final settlement · The paper, and the s.33 challenge

The short answer

Pick the section before you write the letter. You simply want to part ways: s.26, 120 days’ notice or pay, 30 days’ basic per year or gratuity, no reason stated, and it cannot be challenged except as colourable (a disguised dismissal or victimisation). The post is going: s.20 retrenchment, which costs the same money but requires reasons, the DIFE and union copies, last-in-first-out within the category and an offer of re-employment if the post returns within a year. The worker is medically unfit: s.22 discharge on a doctor’s certificate. The worker did something in s.23(4) (theft, fraud, insubordination, ten days’ unauthorised absence, habitual late attendance, riotous conduct, falsifying records): s.23 dismissal, but only after the s.24 procedure in full, and the Labour Courts reinstate for a defective enquiry far more often than for a weak charge. Work has stopped temporarily: s.16 lay-off at half pay, not termination. The worker is leaving: s.27, and the employer’s only job is to pay the graduated benefit and the dues within 30 working days. The worker is 60: s.28. Use the calculator for the money, then our checklist in the last section for the paper; the employer’s guide to the Act has the amended thresholds in one table.

The seven exits side by side

“Wages” for the compensation and gratuity means the last drawn basic and dearness allowance; a part year above six months counts as a full year; and “whichever is higher” means the employer compares the 30-day figure with the gratuity (30 days per year, 45 after ten years) and pays the larger, not both. Continuous service is counted under s.14: 240 days in the preceding twelve months count as a year.

Termination simpliciter (s.26): the clean exit and its limits

Section 26 is the employer’s right to end a permanent worker’s employment without assigning a reason, on 120 days’ notice (60 for a worker not monthly rated) or wages in lieu, with compensation of 30 days’ wages for each completed year or gratuity, whichever is higher, in addition to any other benefit. For temporary workers the notice is 30 days (monthly rated) or 14. The section was not touched by the 2025 Ordinance or the 2026 Act, despite press reports to the contrary. Its attraction is that the Labour Court will not inquire into the reason; its limits are three. First, the money must be right and paid: a s.26 letter with a cheque for one month is not a s.26 termination, it is an unlawful dismissal, and the court will order reinstatement with back wages or the full dues with interest. Second, it may not be used as a disguise: where the real reason is misconduct the court treats it as a dismissal without enquiry, and where the real reason is union activity, a grievance, a maternity claim or a complaint, it is an unfair labour practice under s.195 and, since the Ordinance, something the Director of Labour can act on directly under s.196A. Third, s.26 is for workers; for staff outside the Act the contract governs, and the civil court measures damages by the agreed notice. A termination letter should state the section, the date of effect, the notice or pay in lieu, the compensation computed, the leave encashment, the provident fund position, the date of payment and the certificate of service, and should be served by hand with an acknowledgement and by registered post.

Dismissal for misconduct (s.23) and the s.24 enquiry

Dismissal without notice or compensation is lawful only for conviction of a criminal offence or for misconduct proved in a domestic enquiry. Section 23(4) lists the misconduct: wilful insubordination to a lawful and reasonable order; theft, fraud or dishonesty in connection with the employer’s business or property; taking or giving bribes; habitual absence without leave or absence for more than ten days without leave; habitual late attendance; habitual breach of any law or rule applicable to the establishment; riotous or disorderly behaviour, or any act subversive of discipline; habitual negligence; frequent repetition of a breach of the service rules; and falsifying, tampering with or causing loss of the employer’s records. Section 23(2) gives the lesser punishments: removal, demotion, stoppage of promotion for up to a year, withholding of increment for up to a year, fine, suspension without pay or subsistence allowance for up to seven days, and censure. Section 24 is the procedure, and it is mandatory: (a) the allegations recorded in writing; (b) a copy given to the worker with at least seven days to explain; (c) an opportunity of being heard; (d) an enquiry by a committee with equal numbers of employer’s and workers’ representatives, completed within 60 days; (e) the order of punishment approved by the employer or the manager; (f) the worker may be suspended pending enquiry for no more than 60 days, on a subsistence allowance of half of basic plus dearness and ad hoc allowance, and the suspension must be in writing with effect from delivery; (g) if not found guilty, the worker is paid in full for the suspension period; and s.25 requires the punishment to take account of the record and lets the worker be accompanied by a co-worker. The Labour Courts and the Appellate Tribunal set aside dismissals where the charge-sheet was vague, the seven days were not given, the enquiry officer was the complainant, the worker was refused a representative, the enquiry ran past 60 days without reason, or the order gave no reasons; reinstatement with full back wages follows. A worker with more than a year’s service who is dismissed is reported under the 2026 Act to receive 15 days’ wages per year (previously the Act gave this only on “removal” under s.23(2)); we treat the figure as reported until the gazette is read.

Retrenchment, discharge, lay-off and stoppage

Retrenchment (s.20) is termination for redundancy: surplus workers after a reorganisation, loss of a line, closure of a department. The conditions are one year’s continuous service; one month’s written notice stating the reasons, or wages in lieu; a copy of the notice to the Inspector General and to the collective bargaining agent; compensation of 30 days’ wages per completed year or gratuity, whichever is higher; last in, first out within the category of workers unless the employer records reasons otherwise (s.20(3)); and under s.21 a preference in re-employment if the employer takes on workers in that category within a year, with notice to the retrenched workers. Retrenchment of workers laid off for 45 days or more in a year may follow under s.16(7) with the lay-off period counting as service. Discharge (s.22) is for incapacity: physical or mental, or continued ill-health, certified by a registered medical practitioner; with a year’s service the worker receives 30 days per year or gratuity; it is not a punishment and cannot be used for poor performance. Lay-off (ss.12, 16 to 18) is the temporary inability to give work for want of power, raw material, accumulation of stock, breakdown or any other cause beyond the employer’s control; the worker is on the muster roll and presents for work; compensation is half of basic plus dearness and ad hoc wages and the full housing allowance, after three months’ service (the Ordinance lowered it from one year), for up to 45 days in a calendar year; thereafter, for lay-offs of 15 days or more, one quarter of those components (reported raised; verify) unless the employer retrenches. Badli and casual workers are excluded. A stoppage of work under s.12 for fire, catastrophe, breakdown, power failure, epidemic or civil commotion becomes a lay-off after three working days; workers detained for more than an hour are paid for the detention.

Resignation, retirement, death and the final settlement

Resignation (s.27): a permanent worker gives 60 days’ notice, a temporary worker 30 or 14; a worker who leaves without notice forfeits pay in lieu, which the employer may deduct from dues, and nothing else. The benefit on resignation was 14 days per year from five years and 30 from ten; the 2025 Ordinance made it graduated at 7, 15 and 30 days per year, with sources dividing on whether the 7-day band starts at one year or three; gratuity applies if higher. A worker absent without notice for ten days is served a show-cause with ten days to respond, and if there is no satisfactory explanation is treated as having resigned from the date of absence (s.27(3A)), which is the only lawful route for abandonment. Retirement (s.28) is automatic at 60 with the s.26(4) benefit or the service rules’ benefit, whichever is better; re-employment after retirement is permitted (s.28A) on a fresh contract. Death in service (s.19): after one year’s service (the Ordinance cut this from two), the nominee or dependant receives 30 days’ wages per year, 45 if death occurred at the establishment or from a work accident, or gratuity if higher, in addition to Chapter XII compensation (Tk 2,00,000 for death under the Fifth Schedule as last amended), group insurance under s.99 where the establishment has a hundred workers, and the provident fund balance. The final settlement in every case: wages to the last day, encashment of unused annual leave (s.11), notice pay or recovery, the statutory compensation or benefit, gratuity where a scheme exists, the provident fund balance with the employer’s contribution, any festival bonus due, less lawful deductions; paid within 30 working days of separation (s.123(2)) against a signed receipt, with the certificate of service under s.31 and the service book closed and handed over. Unpaid dues are recoverable in the Labour Court under s.132 within twelve months, and the Court may add compensation.

The paper, and the s.33 challenge

The worker’s route is s.33: a written grievance to the employer within 30 days of the cause, an employer’s decision within 30 days after hearing, and if none or dissatisfied, a complaint to the Labour Court within 30 days, which can order reinstatement with or without back wages or compensation; appeal lies to the Tribunal within 30 days. An employer defending a complaint produces the file above; an employer without it settles. Since the Ordinance the Director of Labour may also act directly against a termination that is an unfair labour practice (ss.196A–B), and the new ADR Authority (s.348C) offers conciliation. Our courts and unions guide covers the procedure; this is the file.