Employment Law Update: Forfeiture of Gratuity

This is an update about a recent judgement of the Supreme Court pertaining to forfeiture of gratuity under the Payment of Gratuity Act, 1972 (Gratuity Act).  The Apex Court, in Union Bank of India vs C.G. Ajay Babu and others, has held that forfeiture of gratuity upon termination of employment for an act constituting an offence involving moral turpitude is permissible only if the employee is convicted for the offence by a court of competent jurisdiction.

As per the Gratuity Act, gratuity is payable to employees who have been in continuous employment with the employer for at least five years (beneficially interpreted as four years and two hundred and forty days for those having a six day work week and four years and one hundred and ninety days for those who have a five day work week) at the time of cessation of employment.  Gratuity is calculated at the rate of fifteen days’ wages for each year of completed service, subject to a maximum of INR 2,000,000 (~USD 28,500).

As per the statute, gratuity may be forfeited upon termination of employment of the employee:

a. for any act, willful omission or negligence causing any damage or loss to, or destruction of, property belonging to the employer, to the extent of the damage or loss so caused;

b. for riotous or disorderly conduct or any other act of violence; or

c. for any act which constitutes an offence involving moral turpitude, provided that such offence is committed in the course of employment.

With respect to forfeiture of gratuity for offences involving moral turpitude, the Supreme Court in the said judgement, has observed that the requirement of the statute is not for an employer to merely prove that the misconduct involved moral turpitude, but also that a court of law duly establishes that the said act is an offence involving moral turpitude under applicable law.

Date:August 2018