Gratuity Forfeiture in India: Is It Always Lost After Dismissal or Disciplinary Issues?

Understanding Gratuity Forfeiture in India

As per the Gratuity law in India governed by The Payment of Gratuity Act, 1972, gratuity is a lump sum payment made to an employee on (a) resignation, (b) termination on account of death or disablement due to accident or disease, (c) retirement, or (d) death. I just wanted to know what procedure should be followed in the situation of dismissal or disciplinary issues.

Is the gratuity forfeited on a case-by-case basis or for all dismissal and disciplinary issues?

Regards,
Ina

Forfeiture of Gratuity

The gratuity of an employee whose service has been terminated for any act of willful omission or negligence causing any damage or loss to or destruction of property belonging to the employer shall be forfeited to the extent of the damage or loss caused. The right of forfeiture is limited to the extent of the damage. The gratuity payable to an employee shall be wholly forfeited if:

1. The services of such employee have been terminated for riotous or disorderly conduct or any other act of violence on his part, or
2. The service of such employee has been terminated for any act which constitutes an offense involving moral turpitude, provided that such offense is committed by him in the course of his employment.

Please let me know if you need any further assistance.

Dear Ina, While Kathik has shared with you the relevant clauses regarding the forfeiture of gratuity, do remember that following the principles of natural justice is a must. Also, all such "reasons" for termination will need to be supported by records of investigation and conclusions by a competent authority. Mere notes in company records regarding "indiscipline" will not suffice.

Common Reasons for Employee Termination

Most common reasons for the termination of an employee—even under disciplinary issues—do not fall under these categories. Hence, the forfeiture of any statutory dues is very much a "case-to-case" situation. Non-payment or delayed payment of gratuity can harm the employer far more than the employee. These are statutory benefits, and the onus is on the company to adhere to very straightforward laws.

Gratuity has been discussed in depth by many experts in various threads in this forum. I would urge you to do a basic search on citeHR and go through some of those.

Thanks,
Regards

Dear Ina, M/S Karthik and Executor have answered your questions well. However, my experience as Controlling Authority and Appellate Authority under the Payment of Gratuity Act, 1972 shows that most employers do not show adequate interest in understanding the provisions relating to the forfeiture of gratuity and land themselves in unnecessary legal trouble. Therefore, let me elaborate on the answer further.

Why should there be a specific provision enabling the employer to forfeit the gratuity of a dismissed employee?

Gratuity is a lump sum terminal benefit payable based on a certain length of blemish-less service. If the termination of employment of an employee is due to dismissal arising out of proven misconduct, their eligibility for gratuity automatically becomes questionable due to the inherent stigma attached to their ignominious exit. Indiscipline is always the root cause for the extreme punishment of dismissal. Allowing a dismissed employee to simply walk away with their gratuity would amount to rewarding indiscipline. Hence, the specific provision under section 4(6) of the Act enabling forfeiture.

Does dismissal per se warrant forfeiture of gratuity?

No. Only in the case of termination of employment by way of dismissal on account of any one or all of the misconducts enumerated in clauses (a) or (b) of section 4.

Would it not amount to double punishment?

Certainly not. As mentioned earlier, blemish-less service is one of the essential qualifications for entitlement to gratuity on termination of employment.

Would forfeiture be automatic along with the orders of dismissal?

No. That's the wrong impression most employers have from a cursory reading of the relevant section. The Act contemplates two types of forfeiture - partial and total. Partial forfeiture should be proportionate to the loss or damage caused to the employer's property, whereas total forfeiture could be resorted to only in the case of misconducts mentioned in items (i) and (ii) of clause (b) of section 4. Therefore, the employer should make an independent decision regarding the forfeiture of gratuity after issuing the orders of dismissal and in line with the principles of Natural Justice, issue a notice of the decision to forfeit gratuity to the dismissed employee and consider any replies received in this regard.

The Hon'ble High Court of Karnataka held in Surjikars' Tile Works v. Union of India [(1979) 54 FJR 281] that section 4(6) covers all major misconducts, though not all misconducts, and Parliament, in its wisdom, has considered that minor acts of misconduct should not disentitle the employee to gratuity. Therefore, forfeiture, as rightly pointed out by Executor, has to be decided on a case-by-case basis.

Regards

I appreciate the detailed clarifications provided by Mr. Umakanthan. I may add, the appropriate authority while ordering the forfeiture or the competent authority who orders for dismissal should clearly, in unambiguous terms, record the reasons, whether or not the gratuity is to be forfeited. If the relevant orders simply say "dismissed" or "terminated," it doesn't mean automatic forfeiture. In other words, only as a result of specific orders should the forfeiture take place, and it should mention whether partial (e.g., specify 10%, 20%, 50%) or in full. Such action should be well supported by documentary evidence, proven or undergone conciliation procedures, etc.

Ensure that such actions are foolproof so that there is no risk in the payment of gratuity with interest when the aggrieved party gains after appeals.

Dear friends, Needy may go through some more discussions that took place in this link: https://www.citehr.com/272088-termin...ese-cases.html

For ready information, I also attach a few excerpts from the Supreme Court judgment and guidance notes on the subject.

Regards,

Employee Misconduct and Gratuity Forfeiture

The views shared by the members are awesome. In the case of an employee who has been involved in misconduct and is caught red-handed, before conducting the procedures outlined in the Industrial Disputes Act of 1947, the employee voluntarily submits their resignation. They also provide an undertaking stating their involvement in the act of omission/commission and, consequently, voluntarily surrender their gratuity to cover the loss sustained by the employer. Should the employer adjust the gratuity payable to the employee directly towards the loss, as undertaken by the employee, by issuing a notice of forfeiture? Please clarify.

Regards,
Sasikumar R (rsksesp)

Gratuity Forfeiture Conditions

Gratuity can be forfeited if:

(a) The gratuity of an employee, whose services have been terminated for any act, willful omission, or negligence causing any damage or loss to, or destruction of, property belonging to the employer, shall be forfeited to the extent of the damage or loss caused.

(b) The gratuity payable to an employee may be wholly or partially forfeited:

(i) if the services of such employee have been terminated for riotous or disorderly conduct or any other act of violence on his part, or

(ii) if the services of such employee have been terminated for any act which constitutes an offense involving moral turpitude, provided that such offense is committed by him in the course of his employment.

As held in the case of Hindustan Times v Workmen, gratuity cannot be totally taken away, but only such portion is taken that corresponds to the loss caused by the employee’s willful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer.

See this for more Indian Labour Laws & Shram Suvidha Simplified.