Can Gratuity Be Denied for Governance Termination Without Financial Misuse?

One of my friends has been terminated from her previous organization due to data leakage. She was charged with sending some customer data to her personal email address, and a show cause notice was served on her last working day after office hours. She tried to defend herself, but a month later, after joining a new organization, a termination letter was issued to her citing a breach of the company's code of conduct. When she approached the organization for her gratuity dues after 9 years of service, she was denied, citing ineligibility on the grounds of governance termination. Is there any clause in the gratuity act where, if there is no financial misutilization, gratuity can be forfeited?

Dear Eronie7, you have asked for advice from the seniors; nevertheless, we need a little more information. Did your friend work in India? We need to know as Indian labor laws are applicable to companies that have offices in India.

Secondly, the show cause notice was issued to your friend on the last working day, and that too after working hours. In that case, did the company send her communication stating that her letter of resignation is held in abeyance and she has been suspended pending the inquiry?

An employee forfeits the gratuity claim if he/she is terminated. However, termination is a punishment of the highest order. A domestic inquiry should precede before awarding punishment of any kind. However, did her previous company conduct the domestic inquiry on account of a breach of security? Any termination should be preceded by the inquiry. This is what the principles of natural justice say.

Thirdly, this is beyond the labor laws. What was the performance of your friend or how were her relations with her seniors? Were her seniors looking for opportunities to show her the door, and did the transmission of some information to her personal e-mail ID come in handy for them?

There are a few questions associated with your post. Please clarify.

Thanks,

Dinesh Divekar

Gratuity Forfeiture Conditions in India

Presuming that your friend was working in India, the rule for withholding gratuity is as follows:

The gratuity payable to an employee shall be wholly forfeited:

(i) If the services of such an employee have been terminated for riotous or disorderly conduct or any other act of violence on their part; or

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

In order to forfeit the gratuity of an employee, there must be a termination order containing the charges as established to the effect that the employee was guilty of any of the aforesaid misconducts. In one case, it has been held that in the absence of a termination order containing any of the above allegations, the gratuity of an employee cannot be forfeited.

Reference: Bombay Gas Public Company Ltd. vs. Shri Papa Akbar & others, 1990 (1) CLR 102 (Bom.HC); 1990 LLR 118.

Please check what the termination order quotes about the reason for termination. Secondly, did the company conduct a domestic inquiry where she had access to information for defending herself?

As the learned member above has already written, more information is required for correct advice.

Mr. Dinesh Divekar, thank you for your reply. My friend's show cause notice was issued after business hours on the Last Working Day (LWD), mentioning that her resignation acceptance was kept on hold. There were a couple of email exchanges for clarification, wherein my friend denied sending any confidential data to her personal email ID except for her salary slips. Yes, this is in India only. After her final response to the show cause notice, the management conducted an internal inquiry of their own and suddenly informed her of termination without any compensation. The company threatened to take legal action in the future if deemed necessary. There was no mention of the forfeiture of gratuity in her termination letter, nor was there any mention of any financial damages caused by her actions.

Regards,
Ronie S

From what you have written, it is seen that your friend did not have an opportunity to defend herself. After all, if the employee had transferred company data to her account, some cyber trail would have been seen. Not giving your friend a chance to refute the charge shows a lack of natural justice, which is bad in law (as can be inferred from what you write). Take legal advice and complain to the Labour officer of the area about the denial of gratuity. It appears that the company's action of denying gratuity is unjust.

Thank you, Dinesh and NATHRAO, for your replies. My friend used to work in India only. She was served a show-cause notice on her Last Working Day (LWD) after business hours. As far as her performance is concerned, she received a good performance appraisal and had been a top performer throughout her time in the organization. Initially, she requested an early release through an email, but the HR team and her Reporting Manager requested her to stay for an additional month, to which she agreed.

Later, when her resignation was accepted, a show-cause notice was issued on the LWD, stating that her resignation was put on hold pending an investigation by the governance team for data leakage. She tried to defend herself through email exchanges with the governance team and HR, but one day she received her termination letter, stating that she was terminated without further notice or compensation, and her resignation acceptance was revoked. An internal inquiry was conducted by the organization among themselves, with no mention of the forfeiture of her gratuity in the termination letter or any financial damage caused to the organization due to her alleged actions. It was also mentioned that the company might pursue legal action in the future if deemed necessary.

When she inquired about her gratuity claim, HR informed her that she was not eligible, though the word "forfeited" was not explicitly mentioned.

Regards,
Ronie S

This is in addition to what Mr. Nathrao has said in his second post. That your friend's company did not conduct a proper inquiry is a different matter. However, for sending the salary slips to one's personal email ID, I doubt whether your company terminated your friend. There is something more than meets the eye.

Assuming that your friend compromised cybersecurity, even then, the company should have conducted a proper domestic inquiry. What is the designation of your friend? How many people reported to her, directly and indirectly? We need this information to check whether the provisions of the Industrial Disputes Act, 1947, can be applied in this case.

As suggested by Mr. Nathrao, your friend may approach the Labour Officer (LO) of her area. However, LO involvement is provided if the provisions of the ID Act, 1947 become applicable. Occasionally, they do involve even for higher designations also. However, it depends on the psychology and mood of the LO.

Thanks,

Regards, Dinesh Divekar

Thank you, Dinesh and Nathrao. She used to head a profit center office of an MNC and had 12 direct reports. She claims that she only transferred her salary slips to her personal email ID. However, from what I could see in her termination letter, she has been accused of sharing confidential customer data outside the official domain. When she spoke to HR about not being given an opportunity to speak to the governance team, she was told that, in such cases, as per their company rule, the governance team doesn't speak or discuss. They made the decision on their own without involving her in any discussion, except for demanding clarification and sending a show cause notice through email.

Thank you very much, Dineshji. She used to head a profit center office of an MNC and had 12 direct reports. She claims that she only transferred her salary slips to her personal email ID. However, based on what I could see in her termination letter, she has been accused of sharing confidential customer data outside the official domain.

When she spoke to HR about not being given an opportunity to address the governance team, she was informed that according to their company rules, the governance team does not engage in discussions in such cases. The decision was made independently without involving her in any discussion, except for requesting clarification and sending a show-cause notice via email.

I would like to state the following:

a) Unless the company has material evidence of a breach of security, they will never take the drastic step of termination. The process of termination could be unlawful; nevertheless, they must have some incontrovertible or irrefutable evidence. The company may terminate an employee even without conducting a domestic inquiry. However, if the employee approaches the court, then it becomes the company's responsibility to justify the termination without conducting a domestic inquiry. In your friend's case, the circumstances were not compelling enough to bypass the process of law. However, this is a different matter altogether.

b) Your friend might have withheld some information from you. We do not know whether she has shared the entire information with you.

c) Whether your friend has breached security or not, she may send a lawyer's notice for her illegal termination. If the company does not relent or even respond, then she may file a suit for illegal termination. However, this will be a civil suit, and civil suits can drag on for years. Therefore, it could be a decade-long legal battle. Is she prepared for that?

d) Breaches of security during notice periods are common. Therefore, those who are under the notice period are kept under special surveillance. After spending nine years in the organization, how come your friend did not know this?

e) Did the company issue her a "Relieving-cum-Experience Letter"? If yes, then what remarks have they put for "Reasons for Separation"? If there are negative remarks, then she has to approach a lawyer. However, if the experience letter is neutral, she might forego gratuity and move on.

Thanks,

Dinesh Divekar

There is no need for the organization to wait for "Financial Misutilization" in cases of data leakage incidents. Termination can still occur on account of 'breaching the company's code of conduct.'

Your friend has worked for 9 years for that organization. She must be aware of the organization's policies in this regard. What position did she hold? The higher the position, the greater the moral responsibility towards the organization. In such cases, dismissals are often more discrete and abrupt.

Even though the show cause notice was served on her last working day 'after office hours,' it does not matter much, as it must still be a 'last work day' dated letter.

If the termination letter was issued a month later, then why was 'her last working day' earlier? Had she already resigned when the show cause notice was issued? In such a case, the question would be whether the termination was biased after her resignation or if it held valid proof. Did she respond to the show cause notice within a month through a written letter to the company?

Most importantly, is it true that she had mailed some company data to her personal ID "on/near her last working day"?

I understand this is not a domestic inquiry, just an anonymous blog entry, and there is no compulsion to answer the above questions. However, when she is seeking legal advice to check the legality of the other party's actions, she must also be conscious of the legal validity of her own actions.

The last working day is quite an emotional period for anyone, especially with a long association like 9 years. Some mistakes may happen due to a false sense of ownership. But it is we employees who try to bring professionalism into our HR by constant expectations, so if the personal touch is lost and such rules are strictly followed by HR, then we should be ready to accept it as well.

Best Regards,
Amod.

Dear Pasupathi,

Citing case law on the termination of an employee on the grounds of underperformance is out of context. Termination due to a security breach and underperformance are unrelated to each other.

Thanks,
Dinesh Divekar

Dear Pasupathi sir,

By mentioning the news, do you mean to say that the employee in this case can also be termed as a workman, and she can challenge the company in court since the company has not followed a proper domestic inquiry and has denied her gratuity?

Please correct me, sir, if I made a mistake in understanding your point since I am new to the HR field.

Thanks and Regards,

Gokul

Dear Amod,

She had already resigned and was serving the notice period. In fact, she had handed over all her office equipment like a laptop and other items that were in her custody and obtained attestation from her Reporting Manager on the exit form. The first show-cause notice was served on her last working day after business hours, mentioning that her accepted resignation is on hold.

Regards,
Ronie S

The grounds for termination may be debatable. Your friend may or may not have transferred confidential data to her email account. It appears that you yourself, and obviously we at Cite HR, are not sure about it. However, what struck me as odd is that there is no mention in the termination letter about the denial of gratuity and the reasons thereof. It appears that management is not sure whether they can actually deny the gratuity benefit and justify it in a court of law if required. Their threat to take legal action in the future may be a tactic to stop her from going to court by scaring her off!

30th Sep '15 was her Last Working Day (LWD), and a show-cause notice was served at 6:45 p.m. on the same day, even though office business hours end at 5:30 p.m. Her termination letter was dated 6th Nov '15 and mentioned the effective date of termination as 30th Sep '15, which was originally her LWD.

Regards,
Ronie S

Adding on to Mr. Nath's information, first of all, how can you conclude it was her last working day without a proper resignation? A show cause notice is served to an employee to explain the reason within 48 hours, and then the termination order is served if found guilty upon inquiry. Proper documentation must be made to terminate an employee and not on fictitious grounds. Gratuity can never be forfeited since it falls under the purview of statutory regulations, and the employee can take the matter to a court of law. If the company has incurred any monetary loss, there must be proven evidence. I suggest letting the employee file a case through an advocate for an explanation, and if not resolved, proceed to the labor court.

Dear Sathish,

Her resignation was already accepted by the Reporting Manager, and she was serving the notice period. The show cause was served on her last working day after business hours.

Regards,
Eronie

Forfeiture of Gratuity

Forfeiture of gratuity is allowed only when the service of the employee is terminated. For the purpose of termination of service, a show-cause notice is to be issued, followed by conducting a domestic inquiry giving the employee an opportunity based on the principles of natural justice, and then terminating the service. If the service is not terminated following this method, then such termination becomes illegal, and on the basis of such illegal termination, gratuity cannot be forfeited.

It is better to claim gratuity now using FORM I before the employer, and if not paid, then proceed with FORM N before the Controlling Authority. Please check www.labourlawhub.com for more information.

As I mentioned in the trail, she was served a show cause notice on her last working day after business hours. She had a couple of email exchanges after the first show cause notice wherein she denied transferring any confidential customer data. However, there was no physical or phone discussion with management and her. After her last response to the show cause notice, there was no news for a couple of days, and suddenly one day, they forwarded an email informing her of termination without any compensation.

Regards,
Ronie

@Eronie7 - She has been given a show cause, and there was no inquiry held, but she was terminated from service. If the termination letter mentions such misconduct, then obviously such termination will be bad in law. She can challenge such illegal termination and can claim reinstatement with full back wages. Please consult a lawyer with all documents at the earliest.

My labor law blog: www.labourlawhub.com

Gratuity Forfeiture Under the Payment of Gratuity Act, 1972

Here, the ultimate question is whether the gratuity of the employee can be forfeited by the employer as they please. The answer is no, with reference to the provisions of the forfeiture of gratuity laid down in Section 4(6) of the Payment of Gratuity Act, 1972.

Accepted Resignation and Subsequent Actions

First, this is a case of an accepted resignation that was subsequently put on hold on the last working day of the notice period, even after the employee's relief. In such a situation, the management should have either continued her services by placing her under suspension or called her back to work after rescinding her relief based on the resignation.

Termination Order and Its Effective Date

Secondly, the order of termination was issued on a later date, taking effect from an earlier date. Termination cannot take place with retrospective effect but only from the date of the issue of such orders.

Formal Notice Requirement for Gratuity Forfeiture

Thirdly, for argument's sake, if the termination is accepted as proper, the forfeiture of gratuity requires a simultaneous formal notice under Section 4(6) and not just an informal intimation, especially following a claim from the employee.

Statutory Right to Gratuity

Fourth and finally, gratuity, being a statutory right of the employee, can only be forfeited to the extent prescribed in clause (a) or (b) of Section 4(6) of the Act, depending on the gravity of the proven misconduct.

Therefore, the employee has a valid claim for gratuity against the employer, along with interest, and she can approach the Controlling Authority under the Act, as suggested by Mr. Ritesh.