Provision on Retrenchment of the Employee under Nepal’s Labor Act, 2017

Where an enterprise faces financial problems or the employee becomes redundant because of the merger of more than one enterprise or the enterprise needs to be closed down partially or completely, the employer may retrench the number of employees.

labor act 2017 in Nepal

Procedure for retrenchment:

  1. The employer shall give prior notice of at least thirty days before the date for retrenchment, stating the reason, possible date for retrenchment and probable number of employees to be retrenched to the Labor Office and the authorized trade union (if any) of the enterprise, or the employee relation committee;
  2. Upon this, the employer shall conduct discussion with the concerned trade union (if any) or the employee relation committee in relation to the alternatives to the retrenchment of employees and the grounds and conditions of the selection of the employees for retrenchment, and the employees may be retrenched as per the agreement reached; and
  3. If the trade union (if any) or the employee relation committee does not want to discuss or no agreement is reached, the employer may retrench the employee by giving information of that matter to the Labor Office.

Kindly note, the above procedure on retrenchment is not applicable to entities in Special Economic Zones or to entities partially or fully closed by the order of the Government of Nepal or the Labor Court.

Retrenchment order:

Retrenchment shall be made generally in the following order:

  1. foreign employees,
  2. employees who have been awarded more punishments comparatively for misconduct,
  3. employees whose standard of work performance is rather weak,
  4. Employees who were appointed last among those performing the same type of work should be retrenched first. However, if it becomes necessary to retrench workers appointed earlier instead, this may be done by clearly stating the reasons.

Payment while retrenching the employee:

The employer shall pay a lump sum amount to be set by calculating at the rate of one month’s basic remuneration for each year of his or her service as compensation to employee who has completed the service period of at least one year.

If the service period is less than one year, employee shall be entitled to compensation. However, the law is not clear about the ways to calculate the compensation amount.

Note:

The provision of retrenchment is not applicable to entities with less than ten employees.

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