Navigating Full and Final Settlement: Can Outstanding Dues Be Adjusted from Gratuity?

Understanding Full and Final Settlement Issues

One of my friends worked in a company for approximately six years. He was somewhat irregular for the past three months and was on leave for a week before leaving the company. After his leave expired, he did not rejoin and suddenly tendered his resignation without giving a notice period. He had also taken more than 20 leaves during the current calendar year. In this situation, the employer is not clearing his full and final settlement. The employer is requesting the submission of the outstanding amount (such as the notice period, excess leaves availed, etc.).

Questions Regarding Settlement

Could you please assist me in understanding if it is possible to adjust the outstanding amount from his earned gratuity payment, etc.? Should my friend settle the company dues before receiving his settlement? Can the employer legally withhold the settlement for this reason?

Dear RD,

As per the protection provided under Section 13 of the Payment of Gratuity Act, 1972, no deductions or adjustments towards any dues to the employer could be made from the amount of gratuity payable to an employee under the Act. However, I faintly remember that the Kolkata High Court took a departure and possibly ruled that some outstanding dues to the Employees' Co-op Society can be adjusted from the amount of gratuity payable to an employee—I am not sure. The dues mentioned in your post are compensatory in nature due to the non-fulfillment or breach of the contract of employment by the employee. Therefore, no adjustment could be made against such dues from his gratuity, even if the employee is willing to do so by compulsion.

Employee can authorize in writing to the company to recover the dues from gratuity if it is being paid directly by the company. Where there is a gratuity trust, then dues cannot be recovered from the gratuity amount. The employee will be required to clear the dues first as the trust is legally a separate entity.

Warm Regards,

Bharat Gera
HR Consultant

Gratuity and Deductions Under Labor Laws

Under the Gratuity Act or any existing labor laws, the employer has no right to deduct any amounts for not following the notice period before leaving the company. When it comes to the usage of excess leaves, it can be managed by providing a medical doctor's report, as employees have the right to use sick leave.

Deductions and Court Judgments

The only deductions allowed are for cooperative society bank loans, which can be made with easy installments. There are several court judgments stating that no amounts can be deducted from the total gratuity payment. If the employee is interested, they can first take the total gratuity and then repay any dues. If the employer is not convinced, any nearby court authority will likely rule favorably for the worker.

I think you are aware that the gratuity limit has now been extended up to 10 lacs. Recently, all the best, my friend.