Labor Law 2074 Guide: Firing, Severance & Employee Rights in Nepal

“You’re Fired!” – Is it that simple?

In the old days, Nepali employers could hire and fire at will. Today, under the Labor Act 2074 (2017), firing an employee is a complex legal process. If your employer cuts corners, they could end up paying you massive compensation in the Labour Court.

Whether you are an HR Manager or an employee, here are the rules of the game for 2025.

---

1. Termination: When Can You Be Fired?

You cannot be fired just because the boss “doesn’t like you.” The law specifies valid grounds:

A. Performance (Incompetence)

If your work is consistently bad.

• The Process: The employer must conduct Performance Appraisals. You must be given a chance to improve. If you fail 3 evaluations, they can terminate you.
• Notice: Must give 7 days to submit an explanation.

B. Misconduct (The “Red Card”)

Theft, violence, sexual harassment, or drinking on duty.

• The Process: You can be fired immediately (after a chance to explain).
• No Perks: You lose severance pay (but usually keep your accumulated Provident Fund/Gratuity).

C. Retrenchment (Layoffs)

If the company is bankrupt or closing a department.

• The Rule: “Last In, First Out” (Newest employees go first).
• Compensation: This is the expensive part for companies (see Section 3).

---

2. Notice Period Rules

Unless it is for “Gross Misconduct,” the employer MUST give you advance notice before firing. You also must give notice before resigning.

Your Service Duration	Required Notice Period
Less than 4 Weeks	1 Day
1 Month to 1 Year	7 Days
More than 1 Year	30 Days

Pay in Lieu: If the boss wants you gone today, they must pay you the salary for the notice period (e.g., 1 month’s full salary) instantly.

---

3. The Golden Handshake: Severance & Gratuity

If you are retrenched (laid off) or retire, you leave with a package.

A. Severance Pay (Retrenchment Compensation)

• Rate: 1 Month’s Basic Salary for every 1 year of service.
• Example: If you worked for 5 years and earn 50k/month, you get 2.5 Lakhs as severance.

B. Gratuity (The 8.33% Rule)

Gratuity is no longer a “gift” at the end. It is a monthly right.

• The Rule: Employers must deposit 8.33% of your basic salary into the Social Security Fund (SSF) every month.
• Vesting: You get this money when you leave, regardless of how you leave (even if fired).

---

4. The “Probation” Trap

• Duration: The maximum probation period is 6 Months.
• Rights: During probation, you can be fired with standard notice if unfit.
• Automatic Confirmation: If you work 6 months + 1 day and get no letter, the law assumes you are Permanent.

---

5. Unfair Dismissal: How to Fight Back

If you were fired verbally, without a letter, or without a valid reason:

1. Do NOT Resign: Never sign a forced resignation letter. It destroys your case.
2. Internal Complaint: Email HR asking for the reason in writing.
3. Labour Office: File a complaint at the Department of Labor (Teku/District Office). Mediation usually solves it here.
4. Labour Court: If mediation fails, sue in the Labour Court (Anamnagar).
   • The Prize: If you win, the court orders Reinstatement (you get your job back) + Back Wages (pay for the months you sat home).

Conclusion

The Labor Act 2074 is pro-employee. But rights only exist if you have evidence.

• Always get an Appointment Letter.
• Ensure your SSF is being deposited.
• If fired, ask for the “Termination Letter” citing the specific section of the law.

Disclaimer: Labor disputes are fact-specific. Consult a labor lawyer for tribunal representation.