In today’s Finshots, we discuss lengthy notice periods, their economic impact and the regulations around them.

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The Story

Akasa Air is in the news for all the wrong reasons. Nearly a tenth of its pilots put down their papers and bid their goodbyes to the airline without serving their mandatory notice periods. Now you probably know what a notice period is.  You let your employer know you’re leaving when you put in your resignation papers and you serve for a bit of time before leaving for good. And during this time you help the company transition.

At Akasa however, employees seemingly put in their resignation papers and simply walked away without serving any additional time whatsoever. This led to a sudden staff crunch, resulting in temporary cancellations of over 600 flights. And it’s not a good look for a company that just took off about a year ago.

Now, why did the pilots resign without serving their notice periods? Well, it’s not entirely certain why this happened. But seemingly, these pilots received better offers from competing airlines and they didn’t want to wait. The problem however, is that Akasa claims that pilots are not just breaching their contract but also DGCA regulations (Director General of Civil Aviation).

Because the thing is, according to government rules, pilots are expected to serve notice periods ranging between 6 to 12 months. The government believes this is fair because it takes 8-9 months to train a new pilot to operate an aircraft. So they wanted to offer airlines more breathing room and prevent customers from paying the price i.e. cancellations. But, an association of pilots challenged this rule in the Delhi High Court and the matter hasn’t been settled yet.

So as things stand, Akasa is terribly upset with how the pilots quit. And they’ve asked Indian courts to direct DGCA to enforce its regulations and take coercive action against pilots who’ve quit.

This begs the question “Why do companies even have notice periods?”

Look, when you formally break the news of your intention to quit, your company might not always be ready for it. It needs to hire someone capable enough to fill the vacancy you created. And it could take them days or even months to do that.

On the other hand, if it allows you to leave immediately, it could lose a lot of money from the temporary work suspension in your absence. That’s exactly why you are expected to compensate your employer if you decide to leave without serving your notice period.

So, notice periods aren’t meant to penalise anybody. In fact, their objective is to protect employees too, as it gives them time to look for new opportunities. Unfortunately, notice periods have been painted in a bad light. And seem to be the centre of a cold war between employers and employees universally.

For instance, the average notice period for the Indian IT sector is 90 days. And that can be a very long time, especially if you have a job offer in hand. Your new employer might want you to join immediately, while you’re stuck serving a notice period that feels like an eternity.

And according to Gaurav Chattur, co-founder of Catenon ― a talent consulting firm, there’s logic behind this. Employers believe that they can control their employee retention rate when they hold you on the job longer. A long wait time can discourage others from recruiting you. That way you are also likely to change your mind and withdraw your resignation.

But funnily, this could backfire. An employee who’s leaving might not be as committed to their responsibilities. They could also distract peers with their shiny new job offer which could encourage others to follow suit. Now, a lot of employees quit their jobs every year. The attrition rate has drastically risen from 6% in 2020 to 20% in 2022. This includes companies asking employees to leave too. But the end result is that long notice periods could translate to economic costs worth over $5 billion for the employer itself. Courtesy, lost productivity linked to long notice periods.

But that doesn’t deter employers from playing fast and loose with notice periods. They might choose what they think best suits them. And they have the liberty to do it because there isn’t really a law or regulation that governs notice periods in India.

The Industrial Disputes Act, for example, doesn’t define a notice period. It refers to a termination as retrenchment. In that case, an employer must give a workman at least a month’s notice before being asked to leave. Indian states also have their respective State’s Shops and Establishment Act. And most states stick to a one-month notice period again, whether it is an employee quitting voluntarily or the other way around.

So, your employer can actually ask you to stay for a month or even longer before you quit. You cannot sue them because no law prevents them from holding you for 3 months, 6 months or even a year. And if you think that lengthy notice periods are only an Indian problem, here’s what you should know.

Yes, the US has a short notice period of about 2 weeks that isn’t etched in law. But there are other developed economies that have long notice periods. The UK has a regulation that mandates a notice period of at least a week before you leave. But that’s just the minimum. In case an employer terminates your work contract, they have to give you notice of anything between 1-12 weeks depending on how long you’ve worked. So if an employee has an advantage when they’re fired, the employer could use the law to their advantage too.

Something similar happens in Portugal and the Netherlands as well. Notice periods can be as short as one month in both countries, but longer depending on an employee’s history with the company.

That might be enough proof to say that even a uniform regulation may not help shorten notice periods. In some cases, a notice period may be warranted because different companies spend different amounts of time training their employees. And they spend a lot of money on these sessions. However, it gets deeply problematic when employers use it as a tool to prevent employees from pursuing better opportunities.

So what’s the solution, you ask?

Well, you could choose to sit and talk with your prospective employer if you think that your employment contract demands an unfairly long notice period. Or you could read through your employee agreement when you decide to take up an offer. If your company values you, they will definitely be willing to negotiate on this front.

So yeah ultimately notice periods will likely remain a contentious contractual obligation between the employer and the employee and it doesn’t look like it will change anytime soon.

Until next time…

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