Gratuity and Rule Violations: Can Breaking Rules Cost You Your Gratuity?

Hi,

I worked in an educational institution as an HR, and I want to clarify the payment of gratuity. If an employee violates the rules and regulations of the educational institution, would they forfeit their gratuity as compensation? Please refer to the case laws.

V. Selvakkumar

Understanding Gratuity Forfeiture

Gratuity is a lump sum terminal benefit based on the length of service and the last drawn wages of the concerned employee. Among the various kinds of termination of employment, dismissal is also one. Dismissal in relation to the payment of gratuity implies the dismissal for certain proven misconducts only, as per Section 4(6) of the Payment of Gratuity Act, 1972. Clause (a) of Section 4(6) contemplates proportionate forfeiture of gratuity, and Clause (b) deals with total and partial forfeiture.

Essentials for Proportionate Forfeiture of Gratuity

(A) The essentials for proportionate forfeiture of gratuity of an employee are: (i) there should be the occasion of his dismissal, (ii) that should be for certain misconduct of willful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer, and (iii) the forfeiture should be strictly to the extent of the damage or loss so caused only.

Total/Partial Forfeiture at Employer's Discretion

(B) Regarding total/partial forfeiture at the discretion of the employer, the dismissal must be for riotous or disorderly conduct or for any other act of violence or the commission of any offense involving moral turpitude in the course of his/her employment.

What you've simply mentioned is that the employee had violated the rules and regulations of the institution only. It would not be sufficient for the forfeiture of gratuity in the absence of the events aforementioned.

Regards

You can forfeit gratuity only if the service of the employee is terminated for misconduct related to moral turpitude/misappropriation of funds after conducting a proper domestic inquiry giving him a chance to defend himself as per the principles of natural justice.

Before forfeiting gratuity, you as an employer should issue a show cause notice to the employee asking him to "show cause" why his gratuity should not be forfeited for the reported misconduct. Based on his reply and after applying all parameters as suggested by Mr. Umakanthan, you have to make a decision.

Sir, various ALC, RLC, and high courts have decided that gratuity should be paid even if one has been compulsorily retired as punishment. Furthermore, no capital punishment under major penalty should be inflicted when an inquiry is being conducted after the superannuation of an employee. Termination is different from compulsory retirement.

G.P. Agarwal, Lucknow