Is It Ethical to Terminate Senior Employees to Avoid Gratuity Payments? Seeking Advice on Legal and Moral Grounds

Dear professional, I want your guidance on how to terminate some non-performing senior employees who have worked for more than 4.5 years and are almost eligible for gratuity. Management wants to terminate them to save on the gratuity amount. They are pressuring me to terminate these employees for reasons of non-performance. Is it ethical and legal to terminate senior employees before they complete 4 years and 240 days, which is the eligibility criteria according to the Gratuity Act? I seek your advice on the following:

Is it ethical to terminate senior employees just to save on gratuity payments?

1) Is it ethical to terminate senior employees just to save on gratuity payments?

Eligibility for gratuity upon termination

2) Will they still be eligible for gratuity if the company terminates them when they are almost reaching the eligibility criteria?

Termination based on non-performance

3) Can we terminate them based on non-performance reasons?

Procedure for termination and notice period

4) What is the procedure for termination, and how many days of warning notice should I send them?

Please advise.

Dear Dinesh,

Discussion of Performance Issues

Have performance issues or grey areas been discussed with the employee already? Have any verbal or written warnings been issued?

Opportunities for Improvement

What opportunities have been provided to the employee to improve their performance? While termination due to non-performance is acceptable, termination solely for the purpose of saving gratuity is not right.

Gratuity Eligibility

Gratuity will be applicable only if the employee completes 5 years of continuous service with the organization. Termination on the grounds of non-performance is acceptable, but it must be properly justified. The immediate supervisor should have already discussed the areas for improvement. Proper documentary evidence should be available to support this. If this termination is unplanned, then in all fairness, provide the employee with one month's notice or one month's pay in lieu of notice.

Dear sir, We have not sent them any warning notice to improve their performance. How many days' time frame should we allow them to improve their performance? If they do not improve within the given time frame mentioned in the warning letter, can we terminate them without giving one month's notice? Please advise.

It is felt that your management's decision to terminate an employee who has already put in 4.5 years of service with you, abruptly and without giving an opportunity to improve his performance, is not justifiable. Even for a probationer's termination, an opportunity is given to him by extending his/her probation period by 3/6 months. If the management feels that the employee is a non-performer or not capable of delivering the goods, you should have put him under a PIP for 3 more months, and his performance should have been reviewed/evaluated.

Moreover, management did not communicate with him about the performance issue either verbally or in writing. In such a scenario, do you think the action is fair and justified on the part of management?

Hi, there is no specific time frame for this. The bottom line is that the employee should be aware that their performance is not up to the expected level, and an opportunity should have been provided to improve. Keep the employee on a Performance Improvement Plan (PIP), set deadlines, and make it clear that if he/she doesn't improve within the stipulated time frame, the result would be an exit without any further notice.

However, PIP should not be used solely to avoid the gratuity burden of the employer.

Thank you all for your valuable guidance. As an HR professional, I will share these points with management. Even though I don't agree with them, management forces me to comply just to save on the gratuity amount.