Gratuity of staff who damage employer’s property may be forfeited

As per the Delhi High Court, an employer may forfeit the gratuity of an employee who is terminated for causing damage to employer property, but the forfeiture cannot exceed the loss incurred


It has been observed by the Delhi High Court that employers may forfeit the gratuity of employees who have been fired for causing damage or loss to employer property by way of negligence or any other act. However, such forfeiture should not exceed the damage or loss incurred by the employer.

As per the Court, Sec. 4 of Payment of Gratuity Act states that gratuity would be payable to employees on termination employment if they have served the establishment continuously for at least five years at the time of superannuation or resignation or in case they meet with an accident, are rendered disabled or lose their life. And as per 4(6)(a) of the Act, this gratuity may be forfeited by the employer if the employee has been terminated for “any act or omission or negligence causing any damage or loss to the property belonging to the employer. The forfeiture can only be to the extent of the damage or loss caused.”

The observation was made when the Court was handling two petitions related to disputes between employee and the Union Bank of India. As per one petition, the employee had been accused of issuing loans by accommodating certain parties. In the other petition, the employee was accused of issuing loans without completing the set formalities, in violation of the Bank’s procedures. The employee had also allegedly issued high loan amounts to people whose earlier loans were either overdue or were non-performing assets. In both cases, the Bank had incurred losses.

The employer has to issue proper notice of forfeiture to the employee. This notice has to clearly quantify the loss caused due to the conscious “omission or negligence” of the employee and the employee should be given a chance to speak and be heard.

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