Is a Resigned Employee Eligible for Ex-gratia Payment? Seeking Legal Insights

Hello,

I have a query - one of our employees has resigned from the company, and he will be relieved next month. This month, we are paying all the other employees Ex-gratia. Is he also eligible for it? We haven't mentioned it as a part of CTC; only the appointment letter says, 'The Company may pay on an annual basis a special merit ex-gratia.'

Experts, please provide your comments as well as any legal implications.

Thanks & Regards,
Mousmi

Well, he also should be paid ex gratia along with other elements of full and final settlement. I don't think ex gratia is included in CTC anyway.

Ex gratia is a voluntary payment by the company, and it cannot be insisted upon as a matter of right.

Dear Nathrao,

On one side, you are saying it's a voluntary payment. On the other side, you are saying that payment should be made ex gratia. Clearly, it's a voluntary payment, so employees do not have any legal right to this; it's at the discretion of the employer whether to pay or not. I think the discussion should be closed here.

Dear Mahesh Sharma,

My comment about it being basically a voluntary payment in the case posted by the querist - it should be paid - was based on the fact that the querist had stated all other employees were being paid ex gratia. Keeping that fact in mind, advice was tendered that though it is voluntary in this case, it should be paid.

I hope this clears things.

The employee is still on the payroll of the company. An ex-gratia payment may be made to the employee, which will demonstrate the moral value of the employer.

Understanding Ex Gratia Payments

Ex gratia is completely voluntary and does not give employees the right to enforce it unless it was part of a wage accord or any contract of employment where it is specifically included.

Purpose of Ex Gratia

Ex gratia is a bonus. It's intended to reward someone who contributed to the success of the business. It is also essentially intended for the retention of employees.

In view of the above, it is the decision of the management as to what they wish to do. If it is that he had a serious contribution, then it would be fair, especially if they intend to keep a good rapport for the future.

If not, then what's the use of giving a bonus to someone who has already decided his future is not with you?

If the said employee is covered as a workman within the definition of the Industrial Disputes Act, then the denial of ex-gratia payment to him, if he is eligible for it, will amount to unfair labor practice by exercising partiality or favoritism when it is being paid to all other employees.

Thanks,

Sushil

Ex-gratia is practiced to give favor to an employee or to help them by providing an additional amount. Employees do not have the right to request ex-gratia, but they can only request it. However, if you are downsizing, you can provide ex-gratia to your employees and may receive blessings from them if they were loyal, honest, hardworking, and performed well during their employment period.

Thank you!

If your organization has been paying outgoing employees and the practice has precedence, ex-gratia should also be considered.

Ex-gratia, as Saswata Banerjee pointed out, is another form of bonus. From what you mentioned, it looks like it's not the employee who is asking for it but the company seems to be in two minds about whether to pay or not—please confirm this aspect.

Any ex-gratia/bonus is paid for past performance—1 year in your case. This employee has been on the rolls, attending the office, and performing during the past year. You also mentioned that the ex-gratia is being paid this month and this employee is being relieved next month. So, on the day the ex-gratia is being paid, he will still be on the permanent rolls of the company. It goes without saying that he deserves to be paid.

If you wish to avoid paying the ex-gratia just because he has resigned, there may not be any legal issues, but what you would surely be conveying to the other employees is that "this company can just use you."

As other members pointed out, ex-gratia is both for good performance in the recent past as well as a retention tool for the future—not just for the individual but as a company-wide tool.

Regards,
TS