JSA Newsletter | Employment | June 2026 Edition

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In this edition of the JSA Employment Newsletter, we examine the legal framework, permissibility, and practical implications of notice period buyouts under Indian law, exploring whether such buyout constitutes an enforceable right available to employees or remains a matter of employer discretion. The newsletter also provides a brief roundup of some key regulatory and legislative developments in the Indian employment law regime for the month of June 2026 including the labour codes and discusses some recent judicial precedents across employment legislations.

Notice period buyout: contractual right or employer discretion?

In India’s corporate landscape, lengthy contractual notice periods appear to have become the norm in employment relationships, often serving as the final point of negotiation when an employee decides to part ways with the employer. What appears, at first glance, to be a straightforward commercial arrangement, a payment in lieu of notice, commonly known as a notice period buyout, is frequently perceived by employees as a convenient mechanism to fast-track their departure and seamlessly transition to a new role. Yet beneath this seemingly routine human resource practice lies a far more intricate legal question, one that sits at the crossroads of contractual freedom, employer control, and judicial interpretation.

The debate comes into focus when an employee offers to compensate the employer for unserved portion of notice period, but the employer refuses to accept payment and insists on continued service. In such circumstances, a critical legal issue emerges: whether the right to buyout a notice period a vested contractual right available to the employee, or merely a discretionary option that an employer may choose to grant or withhold? Resolution of this question turns on the precise wording of the employment contract, underlying principles of contract law, and a growing body of judicial decisions that have sought to define the limits of an employee’s right to exit and an employer’s right to enforce notice obligations.

Statutory and contractual landscape surrounding notice period buy out

While notice period buyouts are routinely discussed as though they were an established employee entitlement, there is no standalone statutory right that permits an employee to unilaterally ‘buyout’ a notice period, nor is there any corresponding legal obligation requiring an employer to accept payment in lieu of service.

The legislative framework governing employment separation is notably silent on employee-initiated exits. The Industrial Disputes Act, 1947, now subsumed under the Industrial Relations Code, 2020 (“IR Code”), addresses notice requirements and wages in lieu primarily in the context of employer-driven terminations, leaving resignations largely to the realm of private contract. As a result, principles governing rights and obligations associated with notice periods is shaped less by statute and more by the terms of the appointment letter, read alongside principles of the Indian Contract Act, 1872 (“Contract Act”) and the Specific Relief Act, 1963 (“SRA”).

That is not to say that legislations are entirely absent from the conversation. Certain State-specific shops and establishments laws do prescribe minimum notice obligations even where an employee voluntarily resigns. For instance, the Punjab Shops and Commercial Establishments Act, 1958 requires employees who have completed 3 (three) months of continuous service to provide notice, or wages in lieu thereof, before exiting employment. A similar approach is reflected in the Delhi Shops and Establishments Act, 1954, which mandates 1 (one) months’ notice, or equivalent payment, from employees who have completed at least 3 (three) months of service. These statutory provisions, however, remain exceptions rather than the rule, and do not create a universal right to compel an employer to accept a buyout.

The SRA expressly limits specific performance of contracts where monetary compensation constitutes an adequate remedy, or where performance depends on personal volition and qualifications of parties. Employment contracts fall squarely within this category. Courts have recognised that employment relationships are founded on personal service and mutual confidence, making it unsuitable for compulsory enforcement. This principle was reaffirmed in Hewitt Associates India Private Limited vs. Naveen Goyal[1], where the court held that a contract of employment, being personal in nature, cannot ordinarily be specifically enforced.

An employer may insist that an employee serves the contractual notice period, but it cannot secure a judicial order compelling the employee to continue rendering the services against one’s will. Accordingly, where an employee departs without serving the stipulated notice period, an employer’s remedy ordinarily lies in a claim for damages, typically quantified as the salary attributable to the unserved portion of the notice period, rather than in forcing continued employment.

It is against this backdrop that the debate over ‘right versus discretion’ must be examined. If notice periods derive their force primarily from contract, and damages remain the principal remedy for breach, the legal character of a notice period buyout ultimately turns on contractual drafting. A buyout is, at its core, a contractual mechanism that substitutes service with payment. Whether that mechanism operates as a unilateral right exercisable by the employee or as an option contingent upon an employer’s approval depends entirely on the language chosen by the parties.

Resignation, autonomy, and the buyout debate: right or employer prerogative?

The strongest case for treating a notice period buyout as an employee’s enforceable right stems from a fundamental principle of employment law: resignation, which, at its core, is a voluntary act. An employee cannot ordinarily be compelled to remain in an employment relationship that they have unequivocally chosen to end, a position recognised by courts, including in Sanjay Jain vs. National Aviation Co. of India Limited[2]. Viewed through this lens, a notice period is not a barrier to resignation, but a contractual construct designed to regulate the manner of exit, balancing an employee’s freedom to leave with employer’s legitimate need for transition time and operational continuity.

Judicial decisions have repeatedly underscored that the legal effect of resignation depends upon the framework governing employment relationship. In some cases, resignation becomes effective automatically upon the completion of prescribed notice period; in others, applicable rules require formal acceptance before separation can take effect. Where the governing contract, policy, or service rules do not make acceptance a condition precedent, an employee’s compliance with notice requirement is ordinarily sufficient to bring the relationship to an end. In such circumstances, the law does not contemplate compelling continued service after the employee has fulfilled obligations required for departure.

This distinction assumes significance where an employment contract expressly permits termination by either ‘notice’ or ‘payment in lieu of notice’. Such clauses recognise 2 (two) alternative modes of performing the same contractual obligation. On this interpretation, an employee who tenders contractually prescribed amount in lieu of serving notice period may be regarded as having discharged the obligation through one of the very mechanisms contemplated by the parties. An employer’s acceptance, therefore, may be viewed as an administrative or procedural step rather than a determinative condition capable of overriding an otherwise valid exercise of a contractual right.

If the notice period exists, at least in part, to preserve an employee’s autonomy while ensuring an orderly transition, an employer’s refusal to accept payment in lieu and insistence on continued service risks transforming a mutually protective arrangement into a one-sided restriction on mobility. Such an outcome sits uncomfortably alongside principles embodied in Section 27 of the Contract Act, which invalidates agreements that operate as restraints on trade. Under this approach, the buyout is not an exceptional concession granted at an employer’s discretion; rather, it functions as the monetary equivalent of a right an employee already possesses, the right to exit employment relationship. An employer’s role is consequently limited to receiving the contractual payment and giving effect to the separation, rather than determining whether the employee may leave at all.

Buyout as a matter of employer discretion

While much of the debate surrounding notice period buyouts centres on employee mobility and the right to resign, the legal position is far less straightforward when employment contracts expressly vest control over the buyout mechanism in the employer. At its heart, a notice period buyout is a contractual construct, and parties remain free to define circumstances in which payment in lieu of notice may be exercised. Where a contract stipulates that such payment is subject to an employer’s approval, courts have generally been reluctant to dilute or reinterpret that bargain by reading in rights that parties themselves did not provide for.

Importantly, recognising employer discretion does not translate into enforcing continued employment. As employment contracts are contracts of personal service, an employer’s refusal to permit a buyout does not empower it to compel employees to remain in service against their will. An employee is still free to resign and leave. The distinction lies in the consequences of that departure. Where a contractual buyout option is conditional upon employer approval, an employee who exits without serving the stipulated notice period may expose themselves to a claim for damages arising from contractual breach.

Viewed this way, employer approval is not a procedural formality but a substantive contractual condition. An employer may legitimately decline a request for buyout where business exigencies warrant continued service, for instance, to facilitate an orderly handover, preserve operational continuity, protect client relationships, or safeguard confidential and proprietary information. In such cases, an employer’s acceptance of the buyout becomes critical, and payment in lieu cannot be unilaterally imposed by an employee.

Ultimately, whether a notice period buyout functions as an employee right or remains subject to employer discretion is principally a question of contractual drafting. A clause that permits termination through “notice or payment in lieu” may suggest a unilateral option available to the employee. By contrast, language that expressly conditions a buyout upon an employer’s consent strongly indicates that the option lies within the employer’s discretion. The common thread running through the jurisprudence is the courts’ willingness to hold parties to contractual language they have consciously chosen. Until legislative intervention brings greater clarity to the issue, drafting of buyout clauses could remain the decisive factor in determining parties’ respective rights and obligations, underscoring importance of precision, foresight, and careful negotiation at the contract formation stage.

Labour codes updates

Andhra Pradesh notifies final rules under IR Code

The Government of Andhra Pradesh vide notification dated June 12, 2026[3] has notified the Industrial Relations (Andhra Pradesh) Rules, 2026 (“Andhra Pradesh IR Rules”), giving effect to the IR Code in the State and replacing the erstwhile Andhra Pradesh Industrial Disputes Rules, 1958, Trade Unions Regulations, 1927, and Industrial Employment (Standing Orders) Rules, 1953. The Andhra Pradesh IR Rules establish the procedural framework for inter alia recognition of negotiating unions and negotiating councils, grievance redressal committees, standing orders, industrial dispute resolution, strikes and lockouts, lay-offs, retrenchment, closures, and worker re-skilling obligations.

A key feature of the Andhra Pradesh IR Rules is the emphasis on digital administration and compliance, including electronic filings, notices, records, and communications with labour authorities. The notification marks a significant step towards operationalising industrial relations framework envisaged under the labour codes in Andhra Pradesh.

Lakshadweep notifies final rules under the Code on Wages, 2019

The Government of the Union Territory of Lakshadweep vide notification dated June 15, 2026[4], has notified the Code on Wages (Lakshadweep) Rules, 2025 (“Lakshadweep Wage Rules”), establishing the procedural framework for implementation of the Code on Wages, 2019 (“Wage Code”) within the Union Territory. The Lakshadweep Wage Rules govern key aspects relating to minimum wages, payment of wages, bonus, claims and recovery proceedings, maintenance of registers and wage slips, inspections, and other employer compliance obligations.

It prescribes inter alia detailed framework for wage administration, including criteria for fixation of minimum wages, based on standard living norms, categorization of occupations by skill level, periodic revision of dearness allowance, and regulation of working hours, weekly rest days, and wage deductions. It also sets out detailed requirements relating to working hours, inspection mechanisms, procedures for claims and appeals, weekly rest days, wage deductions, record-keeping, and wage slip issuance. The notification aligns Lakshadweep’s wage administration framework with the Wage Code and advances a more uniform and structured wage compliance regime.

Ministry of Labour and Employment notifies new new social security schemes under the Code on Social Security, 2020

On June 29, 2026, the Ministry of Labour and Employment notified the Employees’ Provident Funds Scheme, 2026 (“EPF Scheme”)[5], Employees’ Pension Scheme, 2026 (“EPS Scheme”)[6] and Employees’ Deposit Linked Insurance Scheme, 2026 (“EDLI Scheme”)[7] under the Code on Social Security, 2020 (“Security Code”), replacing the corresponding schemes issued under the erstwhile Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.

Broadly, the new EPF Scheme, EPS Scheme and EDLI Scheme retain several key features of the erstwhile legal framework, including contribution rates, Universal Account Number (UAN)-based administration, membership principles, pension formula, employer and government contribution structures, while giving greater emphasis on digital compliance through electronic record-keeping and digital claims processing, tighter scrutiny for exempted establishments operating their own provident fund trusts and revised provisions relating to pension processing and fund administration.

Other regulatory and legislative updates

Ministry of Labour and Employment mandates onboarding of aggregators on eShram portal

The Ministry of Labour and Employment, vide circular[8] dated June 1, 2026 (“Circular“), has directed all online aggregators to complete their onboarding and Application Programming Interface (“API“) integration on the eShram portal by June 21, 2026. The Circular is issued pursuant to implementation of the Security Code as on November 21, 2025, under which, gig and platform workers have been recognised as a distinct category entitled to social security protection, for the first time.

For context, pursuant to Rule 48(2) of the Social Security (Central) Rules, 2026, notified on May 8, 2026, every aggregator is required to share details of gig and platform workers engaged through them on the designated Central Government portal, via API or other electronic means, within 45 (forty-five) days of commencement of such rules. To facilitate the onboarding process, the Circular sets out suggested general terms of onboarding, a standard operating procedure for online registration, and details to be submitted by aggregators. Non-compliance with requirements under the Circular may attract penal provisions under Section 133 of the Security Code.

For a detailed analysis, please refer to the JSA Prism of June 17, 2026.

Governor of Bihar repeals the Bihar Shops and Establishments (Regulation of Employment and Conditions of Service) Act, 2025

On June 1, 2026, the Governor of Bihar promulgated the Bihar Shops and Establishments (Regulation of Employment and Conditions of Service) (Repeal) Ordinance, 2026[9] (“Ordinance”), repealing the Bihar Shops and Establishments (Regulation of Employment and Conditions of Service) Act, 2025 (“Bihar S&E Act”). The repeal is primarily driven by concerns surrounding overlap between provisions under the Bihar S&E Act and the Occupational Safety, Health and Working Conditions Code, 2020 (“OSH Code”), which came into force on November 21, 2025. The Ordinance aims to simplify the regulatory framework in Bihar to attract new industrial investment in the State. A savings clause ensures that proceedings already initiated under the Bihar S&E Act will continue as if the statute had not been repealed.

For a detailed analysis, please refer to JSA Prism of June 16, 2026.

Rajasthan Labour Commissioner directs intensified enforcement of registration requirements under the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996

The Office of Labour Commissioner, Labour Department, Rajasthan, vide circular dated June 9, 2026[10] (“BOCW Circular”), has directed all labour inspectors within the State to intensify inspections and ensure maximum registration of building and other construction establishments under Section 7 of the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996[11] (“BOCW Act”), read with Rules 17 and 18 of the Rajasthan Building and Other Construction Workers Rules, 2009. The BOCW Circular notes that the number of registrations under the BOCW Act in the State is negligible compared to the volume of construction works approved by local bodies. Labour inspectors have been directed to ensure registration of all establishments employing 10 (ten) or more workers, including those registered with Real Estate Regulatory Authority, and to initiate penal action under Section 50 of the BOCW Act against non-compliant employers.

Central Government authorises officers for verification of negotiating unions and councils

The Central Government vide notification dated June 11, 2026[12], has authorised officers of the rank of Joint Secretaries in the Ministry of Labour and Employment to appoint verification officers for recognising negotiating unions or negotiating councils under Section 14 of the IR Code, in establishments for whom the Central Government is the appropriate government.

Gujarat issues draft rules on employment of women in night shifts

The Government of Gujarat vide notification dated June 11, 2026[13], has issued the Draft Gujarat Shops and Establishments (Regulation of Employment and Conditions of Service) (Amendment) Rules, 2025 (“Draft Amendment”), proposing revised conditions for the employment of women during night shifts (9:00 p.m. to 6:00 a.m.) in establishments covered under the Gujarat Shops and Establishment (Regulation of Employment and Conditions of Service) Act, 2019. The Draft Amendment mandates written consent from women employees, a minimum presence of 3 (three) women employees during night shift, GPS-enabled transportation facilities, police verification of drivers, and adequate workplace infrastructure and safety measures, including CCTV surveillance, lighting, drinking water, and washroom facilities. Employers are also required to ensure compliance with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (“POSH Act”).

The Draft Amendment introduces Form-J1, which serves as a mandatory self-declaration, for employers engaging women employees during night, to be submitted to the concerned inspector. Its purpose is to enable employers to formally certify that the prescribed safety, security, welfare, and transportation measures for women employees engaged in night shifts have been duly implemented. The Draft Amendment is currently open for public consultation and has not yet been brought into force, providing employers and industry bodies a 30 (thirty) day period to submit objections or suggestions.

NCW issues advisory for stronger POSH compliance and mandatory workplace audits

The National Commission for Women (“NCW”), vide press release dated June 19, 2026, has issued an advisory to all States and Union Territories for strengthening implementation of the POSH Act. Among other things, the advisory calls for: (a) constitution of State-level POSH monitoring cells or digital compliance dashboards; (b) notification of district officers who will serve as nodal authority for implementation, monitoring, awareness generation and grievance redressal at the district level; (c) constitution and proper functioning of internal committees (“IC”) and local committees, and public disclosure of committee details and complaint mechanisms.

Notably, it also recommends mandatory annual POSH audits for establishments employing 10 (ten) or more persons, covering inter alia statutory compliance, functioning of ICs, complaint handling, confidentiality safeguards, awareness initiatives, and use of the SHe-Box platform. Employers have also been urged to ensure timely inquiry and disposal of complaints, protect complainants and witnesses from retaliation, conduct awareness programs, and implement committee recommendations in a time-bound manner.

While the advisory appears to be recommendatory in nature, it signals increased regulatory focus on POSH compliance and may inform enforcement expectations at the State and district levels.

Draft Employees’ State Insurance (General) Regulations, 2026

The Employees’ State Insurance Corporation (“ESIC”) has released the draft Employees’ State Insurance (General) Regulations, 2026 (“Draft ESI Regulations 2026”), which seek to consolidate and replace the existing Employees’ State Insurance (“ESI”) regulatory framework under the Security Code. In substance, the draft regulations are about modernising ESI administration, the transitioning of registrations, employee declarations, contribution filings, challans, payments, claims and related processes into online, system-based workflows. The accompanying comparison with the ESI (General) Regulations, 1950 also assist in tracking what has been retained, omitted, rationalised or shifted to Draft ESI Regulations, 2026.

Case law ratios

Managing disciplinary actions: Supreme Court of India’s guidance for employers on process, penalty and suspension

The Hon’ble Supreme Court of India (“Supreme Court”), in Surekha Domaji Bele vs. Executive Engineer, Testing Division, MSEDCL[14] examined key issues relating to disciplinary proceedings, including: (a) the requirement of a fresh show‑cause notice after de novo adjudication; (b) proportionality of punishment; (c) entitlement to subsistence allowance during prolonged suspension; and (d) the permissibility of treating suspension as a punishment in addition to dismissal.

The judgment clarifies that even where misconduct is ultimately established through proceedings before a Labour Court after a defective domestic enquiry, the disciplinary authority must independently comply with the procedural requirements governing the imposition of punishment. It further underscores that disciplinary authorities are required to undertake a meaningful assessment of proportionality before imposing the severest penalty of dismissal.

The ruling provides important guidance for employers on the conduct of disciplinary proceedings and reinforces that procedural compliance, independent application of mind, and proportionality of punishment are essential components of a valid disciplinary process. It also clarifies that prolonged suspension cannot be used to deprive employees of subsistence allowance without compliance with prescribed review mechanisms and that multiple penalties cannot be combined.

For a detailed analysis, please refer to the JSA Prism of June 30, 2026

Delhi High Court rules that employee claims on deferred compensation must be supported by clear contractual documentation to create enforceable rights

In Sanjay Verma vs. Aithent Technologies Pvt. Ltd.[15], the Hon’ble High Court of Delhi (“Delhi HC”) discussed the validity of employee claims on compensation payments defaults, specifically in the absence of clear contractual documentation. The appellant, a senior employee of the respondent company, filed a civil suit against the company, seeking recovery of approximately INR 16,50,000 (Indian Rupees sixteen lakh fifty thousand) towards alleged deferred salary, compensation bonus, transfer allowance and gratuity following his resignation in March 2005. The claim was primarily based on the assertion that during the financial year 2002–2003, the respondent had deferred a portion of employee salaries due to financial constraints, with an assurance that the withheld amounts and an additional bonus would be repaid at a later date. The respondent, however, contended that this was not a deferment but a restructuring of salaries without any obligation to repay the reduced portion. The trial court dismissed the suit while holding that no enforceable promise had been established in the absence of any documentation, precipitating the present appeal.

The appellant argued that the salary reduction was temporary and undertaken on the basis of management assurances, including oral representations and internal communications, that the deferred component would be repaid along with the bonus. He further contended that the trial court had erred in rejecting his claim for gratuity and failing to appreciate documentary evidence indicating continuous service since 1992. The respondent company, however, maintained that the reduction in salary was part of a restructuring exercise necessitated by financial constraints, and not a deferment giving rise to any enforceable right. It also argued that the alleged bonus was only a non-binding incentive and that claims such as transfer allowance were unsupported by admissible evidence and barred by limitation.

The Delhi HC substantially upheld the trial court’s findings and dismissed the appeal in respect of claims for deferred salary, compensation bonus and transfer allowance. It held that mere internal discussions or references to ‘deferred salary’ in communications are insufficient to establish a legally enforceable obligation in the absence of clear documentation such as an agreement, policy decision, or Board approval. The Delhi HC emphasised that where the employee fails to produce contemporaneous evidence demonstrating a binding commitment to repay salary, the arrangement is more likely to be treated as a restructuring rather than deferment. The Delhi HC also relied on the employee’s conduct, particularly the absence of any demand for such deferred payments during employment, to reinforce the non-existence of any enforceable right. On the issue of gratuity, however, the Delhi HC adopted a nuanced view. While it disagreed with the trial court’s conclusion that the employee had failed to establish continuous service, it declined to adjudicate the claim within the current proceedings. Instead, it held that entitlement to gratuity must be determined under the statutory framework of the Payment of Gratuity Act, 1972, and granted the employee liberty to pursue remedies before the appropriate authority thereunder.

Bombay High Court excludes independent public commute from the definition of ‘workplace’ under the POSH Act

In Siddhesh Pradeep Satpute vs. State Bank of India and Ors.[16], the Hon’ble High Court of Bombay (“Bombay HC”) examined the scope of the term ‘workplace’ under the POSH Act and the jurisdiction of the IC to inquire into complaints of sexual harassment arising during an employee’s commute to the workplace. The Bombay HC held that an employee’s routine commute on independently arranged public transport does not constitute a ‘workplace’ under the POSH Act, unless the transportation has been provided or arranged by the employer.

By confirming that an employee’s routine commute on independently arranged public transport does not constitute a ‘workplace’ under the POSH Act, unless the transportation is provided or arranged by the employer, the judgment provides much-needed guidance on the circumstances in which an IC can inquire into complaints, and the importance of conducting a threshold jurisdictional assessment before initiating an inquiry.

For a detailed analysis, please refer to the JSA Prism of July 3, 2026.

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