Legal Guide

Everything About the Notice Period Buyout

by Bhavya Choudhary · 3 min read

Notice period buyout

Introduction

The transactions and negotiations that happen between companies are called buyouts. It means an urgent requirement where the company buys out its employees before the notice period expires. It is dealt with in various ways as the employer makes decisions regarding the notice period buyout.

The hiring company provides the employee with full details of any final settlements from the previous organization to settle reimbursements. The company may also pay restitution to employees as an advance or bonus for a buyout paid to the former employer. In this blog, we will discuss the notice period buyout.

What is a notice period buyout?

  • When an individual is hired by a company/firm as a full-time employee, the HR executive gives a contract to be signed by the employee and the executive. In that contract, there are several clauses, and one of those clauses is the notice period.
  • In simple words, the notice period is the extent of days an employee would continue their work after they officially inform the intent to resign from the company.
  • Similarly, the employee cannot terminate a contract instantly. They provide a notice to the employee which states the Duration they have to continue working for the organisation, after which they can discontinue.
  • It is to be noted that even if a company states a notice period buyout for an employee, they still have every authority to fire the employee on the spot if evidence of misconduct is seen, or damage to confidentiality is found that may jeopardise the company’s interests.
  • Notice period buyouts are calculated on the gross salary that an employee receives for some time. The notice period is decided by the company.
  • They can choose if the employee can resign immediately or they have to provide service till the notice period. A period of 90 days can be the buffer for an employee after which he has no obligations to work for the company. This Duration is mentioned in the notice period buyout.
  • The HR department handles and regulates the notice period buyout of the company. The employer has full authority over competition and notice period buyout. 
  • The period of 1 month can also be sufficient for contract termination for an employee.

What is the purpose of a notice period?

  • A company cannot function without the workers and employees who provide service and commitment to different departments of an organisation. The HR team manages the employees for various scales and business types.
  • Employees are always joining and resigning from the firm after a few months of experience for some better upgrade in another company. The HR department makes sure that due to this continuous cycle, the company doesn’t get affected and runs smoothly and efficiently
  • To successfully handle this process, the notice period buyout is used to enable the company to find a proper replacement for the former employee.
  • The buyout time is when the employee also participates in guiding the new replacement about work duties so that the functionality and business operation doesn’t get affected.

Legal Action if the Notice Period Buyout is provided

  • Some notorious companies may hire employees without providing them with any prior notice or information.
  • As per law, the company must provide a sufficient notice period to an employee before cancelling the employment contract.
  • If the employer fires an employee without any possible reason or explanation, the employee can approach and file a lawsuit in a court of law.
  • The option to complete a notice period is not provided in some cases and the employee can take legal consultation to prepare every documentation and protect their rights as an employee.
  • Justice is in favour of the employee if proven that they are not involved in any conspiracy against the organisation.

The salary

An organization or the employer should pay the salary as before. The employee is entitled to receive their remuneration till the last day they work.

Long notice period buyout in banking and IT sectors.

  • These sectors are infamous in India for having long notice period services. They serve for longer durations that depend on their working experience and skill set.
  • Some organisational giants such as TATA consultancy services, WIPRO, IBM, and HCL have longer notice period buyouts as their employee policy while signing an employment contract. 
  • This ensures that the damage incurred due to the resignation of an employee can be approached broadly with extra opportunities.

Duration of the notice period

  • Several factors affect the length of the notice period buyout. The Ministry of Labour has a maximum 3-month notice period buyout allowance.
  • The maximum permissible notice period buyout is three months, and the rule of thumb applies that the number of years the employee served is counted as a week for their notice period.
  • Where for each year, a week of service is required.
  • The junior or fresher level employees serve fewer durations in notice period buyouts. It ranges between a week and a month.
  • The senior and more experienced employees have one month to 3 months of the notice period buyout as finding their replacement is a time-consuming procedure.
  • In cases where the employee fails to provide service for the total buyout period. They have to pay the remaining time salary to the employer as compensation.

Conclusion

The blog discusses the notice period buyout. Various laws and regulations are involved in the hiring process, where the employer and the employee form a mutual agreement and sign a contract to finalize the terms.

The policies and clauses should be acceptable and thoroughly reviewed before joining any organization. The individual can take legal consultation if they are unable to understand the next step or any clauses.

Taking professional help from a lawyer will help settle any misunderstanding that may have occurred during the employment. The notice period is a critical clause and should be stated early in the contract with simple and clear terms and conditions.

Bhavya Choudhary

Written by

Bhavya Choudhary

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