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Termination and Severance Policies

Learn about the legal processes for employee termination and severance in Bhutan

Notice period

In Bhutan, the Labour Act of 2007 establishes the minimum notice periods required for employment termination.

Minimum Notice Period

The Act mandates a minimum of one month's notice for either the employer or the employee intending to terminate the contract.


For educators, such as lecturers and teachers, a longer notice period of three months applies.

Notice Period in Employment Contracts

The Act allows employment contracts to specify a notice period. However, this period cannot be less than the one-month minimum mandated by law. If the employment contract is unwritten or silent on the notice period, the one-month minimum automatically applies.

Consequences of Failing to Provide Notice

A party failing to provide the required notice period is liable to compensate the other party with their basic pay for the unserved notice period.

Severance pay

In Bhutan, severance pay typically falls under the category of gratuity benefits. An employee becomes eligible for these benefits under certain conditions as detailed in the Labour and Employment Act of Bhutan 2007.

Eligibility Criteria

Employees become entitled to gratuity payments upon retirement on superannuation, which is reaching retirement age. Additionally, employees who resign after a minimum of 5 years of continuous service also qualify for gratuity payments.

Gratuity Calculation

The calculation of gratuity in Bhutan is based on the following formula: Last Basic Pay x Completed Years of Service. For every completed year of service, the employee is entitled to one month's worth of their last basic pay.


For instance, an employee with 10 years of service and a final basic pay of BTN 20,000 would receive a gratuity of 20,000 (basic pay) x 10 (years of service) = BTN 200,000.

Important Notes

It's important to note that gratuity payments are distinct from any other benefits such as provident fund or pension schemes. Also, employers cannot withhold gratuity payment beyond one month of termination.

Termination process

Employee termination can be categorized into several types:

  • Voluntary Resignation: This is when the employee initiates the termination by providing notice as per their contract or relevant regulations.
  • Termination by Mutual Agreement: This is when both the employer and employee agree to end the employment relationship.
  • Termination for Cause: This is when the employer terminates the employee due to reasons such as misconduct, poor performance, or violation of company policies.
  • Termination Due to Redundancy: This is when the employee's position is eliminated due to economic reasons or restructuring.

Guidelines for Termination

The Labour and Employment Act of Bhutan 2007 provides guidelines for employers to follow when terminating employment.

Termination for Cause

  • Serious Misconduct: An employer may terminate an employment contract without notice or payment for serious misconduct as outlined in section 87 of the Labour and Employment Act. This includes fraud, theft, habitual absences, etc. The employer must conduct a thorough investigation to establish the misconduct.
  • Other Justifiable Reasons: Termination can occur for other valid reasons (poor performance, etc.). Employers must follow a fair process:
    • Documented warnings and opportunities for improvement
    • An opportunity for the employee to defend themselves

Termination Procedure

  1. Documentation: Prepare a formal termination letter outlining the reason for termination, effective date, details of notice period/payment in lieu, and instructions for the return of company property.
  2. Meeting with Employee: Conduct a private meeting to deliver the termination news. Explain clearly and respectfully, and allow the employee to ask questions.
  3. Final Paperwork: Complete necessary paperwork, including final pay calculations, release forms, and any relevant documentation required by law.

Important Considerations

  • Company Policies: Adhere to any specific termination procedures outlined in your company's internal policies.
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