Your Employer Can Deny Gratuity Payment Under This Condition: Check Supreme Court Ruling

The Supreme Court of India recently delivered a judgment observing that employers can now forfeit an employee's gratuity if they are terminated for an offence of 'moral turpitude', without waiting for court's conviction. The top court delivered this verdict on February 17, 2025, which is a shift from a 2018 verdict that previously demanded legal conviction before any such forfeiture.

What was the case?

The court was hearing a case where an employee of a Public Sector Undertaking (PSU) was dismissed after 22 years of service for allegedly submitting a false date of birth at his time of appointment. The PSU’s disciplinary committee called this a ‘moral turpitude’ and found it to be an act of fraud.

Moral turpitude in legal terms is an act that contradicts justice and is referred to as the behaviour of unethical or unjust practice.

The PSU, in this case, forfeited the employee’s gratuity, even though no criminal case was pursued against him. The employee argued that his employer could not deny his gratuity unless a court of law convicted him. The eventually reached the apex court which recently ruled in the PSU's favour stating that the company’s internal inquiry is sufficient to determine misconduct and justify forfeiture.

What did the SC ruling say?

The Payment of Gratuity Act, 1972 permits employers to withhold gratuity in case an employee is dismissed for any 'misconduct' or moral turpitude in legal terms.

The definition of 'moral turpitude' has been frequently debated in previous judicial cases.

Prior to this ruling, an employer had to prove misconduct in a court of law before withholding the gratuity of any employee. As per this new judgment, a company’s internal disciplinary committee decision is now sufficient to justify forfeiture.

Let’s pinpoint how this judgment affects employees

When Can You Lose Your Gratuity: The first key takeaway of this judgment is to note that if you are found guilty of an act involving moral turpitude by your employer’s disciplinary committee, you may lose your gratuity.

Notice To Employees Necessary: SC has also emphasised that employers must issue a notice to the employee which will give them a chance to defend themselves before forfeiting gratuity.

What are the chances of partial or full forfeiture? Per the judgment, an employer has the discretion to decide whether gratuity should be denied completely or partially, depending on the severity of the misconduct.

What should Employees Keep In Mind Going Forward?

• You should know that providing false information, committing fraud, or engaging in any unethical practices can result in both termination of your employment as well as the loss of your gratuity.

• You must also be informed about the policies of the company by learning about its disciplinary procedures like how it defines 'moral turpitude' in its employment contracts.

• If you think your gratuity has been withheld by your employer unjustly, you may appeal its decision in court.

This ruling by the apex court gives more authority to employers who can now forfeit the gratuity of an employee if they are found to be involved in any serious misconduct. However, it also mandates due process to ensure that this ruling is not misused wherein employers need to ensure fairness.

Though this judgment strengthens employers’ position, it also means employees must be extra cautious about their professional conduct.