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Labour welfare legislations in India broadly protect only specific vulnerable groups such as workmen. Other employees are, generally, subject to the contractual terms of their employment.

The recent decision of attempts to draw a balance between the contractual autonomy of an employment relationship and the individual’s right to protect their professional reputation. In Mishra, an employee was terminated on the grounds of “malicious conduct” and “loss of trust and confidence”. He claimed that he was wrongfully terminated in violation of his employment contract and for defamation through the unsubstantiated allegations set out under the termination letter.

On the issue of wrongful termination, the court observed that despite procedural irregularities in the termination of private employment, specific performance or reinstatement is not possible where both parties hold an unqualified right to terminate without cause, and compensation limited to notice pay is the only remedy. Although the contract provided only for termination without cause, it did not prohibit the employer from citing reasons. However, this did not expand the scope of remedies available to the employee.

For defamation to be established, a false statement needs to have been made with an effect of lowering the reputation of an individual in the eyes of reasonable members of society. Adverse remarks about employee conduct or performance in termination letters are generally seen as stigmatic and, as the court noted, inherently defamatory. The employee sufficiently established by records that, contrary to the employer’s claims, he consistently received positive feedback. The lack of any prior warnings or disciplinary actions against him put the truth of the statements in doubt.

Publication of a defamatory statement to a third party is a sine qua non for the tort to be proven. Although the employer did not unnecessarily circulate the termination letter, the court relied on the doctrine of foreseeability to affirm that where the originator of a defamatory statement could have reasonably foreseen undue access to the statement as a consequence of the originator’s actions, publication would be deemed to be made.

The court used the doctrine of compelled self-publication as a corollary to this.

Drawing on US precedents such as McKinney v County of Santa Clara and Lewis v Equitable Life Assurance Society, the court held that the tort hinges on causative responsibility. The employer is liable for defamation if it triggers a foreseeable chain of events that forces the employee to disclose the defamatory material for subsequent employment.

Employers cannot rely on confidentiality alone to avoid liability when their actions set such a chain of causation in motion. The letter’s tenor indicated the intent to carry out a character assassination under the guise of administrative formality. The court granted general damages and directed the employer to issue a fresh termination letter without the defamatory content.

Several judgments under the Industrial Disputes Act, 1947 and state-wise shops and establishments acts support the view that where a domestic enquiry is required by law and an employee is terminated for misconduct or other reasonable cause without conducting such enquiry, the employer is entitled to prove the cause by leading evidence before the relevant authority.

Mishra behoves employers to reevaluate their approach towards managing disciplinary concerns, misconduct and whistleblower complaints. They must maintain transparent and evidence-based records before making any decisions on an employee separation. Although the court took a pragmatic approach to protect employee rights, the implications for protections usually available for employment records, performance evaluations, employer’s feedback and disclosures in background checks remain unclear.

Employers should either terminate the services of an employee for convenience, if such right is available, or terminate for cause after an enquiry. If an employer chooses to terminate for cause without holding an enquiry, it must examine if sufficient evidence is available to justify the termination before a court. If not, it risks an adverse decision as in Mishra.

Chandrashekhar Mulherkar is a partner, Agrima Awasthi is counsel and Shivanshu Sharma is a senior associate at Wadhwa Law Offices.