How do you terminate an employee in Bangladesh in 2026?

Valid grounds for cause-based dismissal under the Labour Act include:

• Misconduct proven through a formal domestic inquiry (section 23): theft, fraud, breach of discipline, habitual absence, insubordination, violence
• Conviction by a criminal court for an offence involving moral turpitude
• Wilful damage to employer property

Misconduct dismissal requires the employer to: issue a charge sheet, allow a written explanation, hold an inquiry with an officer not below the rank of the charged employee, give the employee opportunity to cross-examine witnesses, and issue a reasoned decision in writing. No severance is owed for proven cause-based dismissal, but the inquiry must be genuine, not a formality.

Termination without cause ("retrenchment" or "discharge" in the Act's terminology) is lawful but triggers the notice and severance obligations set out below. The employer does not need to establish a reason; the cost is the point.

Protected categories

The Labour Act and subsequent amendments protect against dismissal on grounds of trade union membership or activity, pregnancy (section 46 and the 2023 maternity amendment), and filing a complaint with the Labour Court. Dismissing an employee for any of these reasons is unlawful regardless of whether notice or severance is paid.

1. Classify the termination route

   Decide whether you are terminating for cause (requiring a formal misconduct inquiry) or without cause (requiring notice or pay-in-lieu plus statutory severance). The route determines the entire subsequent procedure.

2. Run the misconduct inquiry if needed

   For cause-based dismissal, issue a charge sheet, allow a written response, hold a formal inquiry with qualified personnel, and issue a reasoned written decision. Skipping this converts the dismissal to a without-cause termination and triggers full severance liability.

3. Issue written notice or pay in lieu

   Serve the statutory notice in writing, specifying the last working day, or confirm pay-in-lieu in writing on the same day. The notice period depends on worker classification: monthly-rated permanent workers require the longer window.

4. Compute the full departure package

   Calculate severance at the statutory daily-wage rate per completed year of service, add gratuity if the employee has reached the qualifying service threshold, and include accrued annual leave and any provident fund balance.

5. Settle final pay within the statutory window

   Transfer all outstanding payments within the working-day deadline set by section 29 of the Labour Act. Late payment of severance or wages is a separate offence and can found a Labour Court claim independent of the dismissal itself.

These are the statutory minimums under section 26 of the Labour Act 2006. Contractual notice can be longer; employers may not give shorter notice than the statute requires. For tech and professional roles, employment contracts commonly extend notice to 30 or 60 days beyond the statutory minimum; whatever is written in the contract governs provided it meets the floor.

Probation periods

Probation caps at 3 months for manual workers and 6 months for clerical and non-manual workers under section 4 of the Labour Act. Either party may end the relationship with 7 days during probation, with no severance obligation.

There is no statutory cap on the number of years that count toward the severance calculation. Every completed year of service adds 30 days of wages. For a ten-year employee, the basic severance entitlement is 300 days of wages before gratuity is considered.

Gratuity: the long-service escalator

Gratuity is a separate payment from statutory severance, owed to any employee who has completed at least 5 years of continuous service. The rate escalates with tenure:

Gratuity and statutory severance are computed on the same daily-wage basis. For a twelve-year employee terminated without cause, the total departure cost includes both the severance entitlement and the gratuity at the 45 days-per-year rate, plus accrued leave and the notice period or pay-in-lieu. Plan for this full stack in exit budgeting, not just the headline severance figure.

Final pay settlement

Under section 29 of the Labour Act, all outstanding wages, severance, gratuity, and accrued leave must be settled within 30 days of the termination date. The statute specifies working days, so build in additional calendar days when planning payroll cut-off dates around public holidays.

The Labour Act does not specify a minimum headcount threshold for collective procedures in the way that many European jurisdictions do. The retrenchment rules apply equally to a single retrenchment and a large-scale workforce reduction. For RMG-sector or other factory employers, separate sector-specific gazette notifications may impose additional steps; verify against the relevant industry rules.

Priority re-engagement right

An employee retrenched under the Labour Act has a statutory right to be considered for re-engagement if the employer recruits for the same or equivalent role within one year of the retrenchment date. This right is not waivable by contract. Document retrenchment selections carefully: if a role is backfilled without offering the right to the retrenched worker, the employer faces Labour Court exposure.

Bangladesh does not have a formal equivalent to the UK settlement agreement or the French rupture conventionnelle. The closest analogue is a mutual separation letter (sometimes called a "mutual exit deed") signed by both parties, recording the agreed terms. To be effective as a release of Labour Court claims, legal practitioners in Bangladesh generally recommend that the agreement be witnessed or recorded before a Labour Inspector or Labour Court officer. A bare private-law contract does not extinguish a worker's right to bring a claim before the Labour Court.

Key elements in a Bangladesh mutual separation deed:

• Final calculation statement: notice pay or pay-in-lieu, statutory severance, gratuity (if applicable), accrued annual leave, any provident fund balance
• Payment on the last working day or within the 30 days working-day window under section 29
• Return of property: access credentials, equipment, any employer-issued assets
• Reference commitment: agreed wording for future employment verification requests
• Non-disparagement: mutual, not one-sided

Restrictive covenants (non-compete, non-solicitation) are enforceable in Bangladesh courts if reasonable in scope and duration, but have not been widely tested at the Labour Court level for blue-collar workers. They carry more weight for professional and managerial hires with confidential information exposure.

Real HR and legal experts manage your Bangladesh hires from day one through offboarding. An actual person coordinates the departure process, not a ticketing queue. There is no setup fee and no exit fee, and employer cost passes through at cost, itemised on every invoice including the severance and gratuity stack.

The split of responsibilities for Bangladesh terminations under EOR:

Bangladesh's severance accrual from year one means exit cost is a day-one planning question, not a surprise. Run the Employer Cost Calculator to see the full loaded cost including severance accrual for your Bangladesh hire, or the Crossover Calculator to see when your own Bangladesh entity makes more sense than EOR. EOR is the right model for a first Bangladesh hire, until it isn't. Payroll, contractor onboarding, and entity setup all live on one platform, so the record travels when an employee graduates from EOR to your own entity without a system switch. Start from the Bangladesh hiring overview for the full picture.