Can My Cousin Claim Gratuity After Being Fired for Theft? Legal Insights Needed

Dear All, my cousin worked in an organization for 8 years. During his service, he stole some goods from the company, sold them, and took commissions from some vendors. When the organization discovered this, they terminated his services and settled the issue for XXX lacs. The organization provided a 100 Rs stamp letter to him stating, "Mr. X was working in our organization and stole goods from the company and took commissions from vendors. Now Mr. X will pay XXX Rs. to the organization by cheque, and after this, there will be no dues towards Mr. X." The letter was signed by the employer, employee, and witnesses.

The next day, the entire amount was paid to the company by cheque. Now, he is claiming his gratuity, but the company is not paying it.

Can he legally claim for Gratuity?

Can the company deny his Gratuity?

Please suggest...

Understanding Gratuity and Its Forfeiture

Gratuity is a terminal benefit of employment payable to an employee for the blemishless service rendered by them in the same establishment. The termination of employment, as contemplated under Section 4(1) of the Payment of Gratuity Act, 1972, can normally be due to superannuation, retirement, resignation, death, or disablement due to an accident or disease of the employee concerned. However, the Act also contemplates termination of employment at the instance of the employer by way of dismissal due to certain misconducts enumerated in clauses (a) and (b) of Section 6 of Section 4, and provides for the forfeiture of gratuity proportionately, wholly, or partially notwithstanding the provision of Section 4(1). Certainly, theft and illicit receipt of commission from vendors are serious misconducts on the part of an employee warranting their dismissal from service, resulting in the forfeiture of their gratuity if so decided by the employer.

Employer's Action and Employee's Claim

What one can finally deduce from your post is that after the theft and illegal gratification committed by the employee came to the knowledge of the employer, the employer seems to have been more interested in the recovery of the losses sustained by them from the employee, though the employee was terminated, hence the settlement to the tune of XXX lakhs. It is absolutely clear that no notice of forfeiture of gratuity was given by the employer. Therefore, under these circumstances, the employer cannot deny the gratuity. The employee can file a claim for gratuity under Section 7(4)(b) of the PG Act, 1972.

Since there was no formal charge sheet, inquiry, and finding by the Enquiry Officer that the employee has stolen goods or made quantifiable loss to the company, the employer cannot forfeit gratuity. In order to forfeit gratuity, the employee should have been dismissed for an act causing damage or loss to the company. Obviously, dismissal without an inquiry is illegal. Moreover, the employer was compensated for the loss suffered by him. Now legally there is no due payable by the employee, and the employer having accepted the cheque for the sum demanded as the value of goods misappropriated, the matter is over.

Now it is the turn of the employee to claim gratuity. He can claim it in full, and the employer cannot open the old story of theft.

I feel the employer can deny the gratuity due to severe misconduct like theft. As the employee was caught red-handed and later acknowledged the same on stamp paper, the employer can directly terminate the service without conducting an inquiry. We are also not sure whether this misconduct was done for the first time or if it was done earlier but went unnoticed. It is good that the employer did not lodge a police complaint.

Further, as per the Gratuity Act, the payable amount may be wholly or partially forfeited due to:

1. His riotous or disorderly conduct or any other violent act.
2. Committing an offense involving moral turpitude.

Understanding Gratuity Forfeiture in Misconduct Cases

The above are the clauses as per section 4(6)(b), and the issue falls under section 4(6)(a).

There is no defense for misconduct. But once the employer has been compensated for the loss, there is no meaning in forfeiting the gratuity. The Act states that the employer can forfeit the gratuity to the extent of the loss caused to him. Now, having compensated, the loss is zero. There is no quantifiable loss remaining. Only in the case of dismissal for misconduct involving moral turpitude, the forfeiture is maintainable, though the loss is not quantifiable. For that also, the misconduct of moral turpitude should happen during the course of employment.

Remember one case in which the employee who was charged with an offense of kidnapping a girl was denied gratuity, stating that he was involved in serious misconduct. However, the court observed that the misconduct (act of kidnapping) did not occur during employment, and therefore, the discharged employee should be paid his gratuity.