It depends on the role of the employee. If he has been working with you as a worker category employee who is expected to bear lesser responsibilities , then you can settle the issue by making whatever is payable to him without delay. This is because, a worker is always protected by law. Moreover, the work of such an employee is not subjected to higher level assessment and if it is done, it will be assessed as a performance indicator of his supervisor only. Therefore, if after relieving the worker, you have found that something is not okay, you can take action against the supervisor to whom this worker was reporting or the supervisor who had initially okayed the work but you cannot initiate a proceeding against the worker. Again, the full and final settlement would include the unpaid salary, leave encashment and even the gratuity payable. Holding these statutory dues would invite a lot of consequences.
Coming to the a different situation that the employee was not a worker but has been working with managerial or supervisory role, then you can insist the person to compensate the loss to the company and hold the F&F till then. Supervisory power may include giving instructions to workers, sanctioning leaves of the workers, initiating disciplinary actions against workers or assessing the performance of the workers. In such cases, his intention of filing case in Labour Court will not materialise because such an employee's case will not be entertained in Labour Courts.
Madhu.T.K