In this day and age of hire and fire, employers usually assume
that statutory dues of a managerial employee terminated for
misconduct can be legitimately forfeited. This assumption may be
far from the established principles of applicable laws. Some of the
post termination entitlements of a managerial employee dismissed
for misconduct are discussed below:
Salary: Post termination obligations and
rights of managerial employees are governed by their contracts and
the applicable state's shops and establishment enactment. While
in most states employees occupying positions of confidential,
managerial or supervisory character are excluded from the purview
of the shops and establishment legislations ('S&E
Act'), there are a few states such as Punjab and Haryana that
do not afford a similar exemption and therefore, employees working
in managerial or supervisory capacity in these states fall within
the purview of the S&E Act. Consequently, the wages of an
employee in these states are liable to be paid within 2 working
days of termination without any deductions.
With respect to the other states where the employees working in
managerial or supervisory capacity are not protected by the S&E
enactments, payment of the unpaid salary is governed by their
respective contracts (which usually provide for deduction of salary
against losses and damages caused to the employer).
Leave Encashment: Under the provisions of the
S&E Act as applicable to the state of Haryana, the dismissed
employee is entitled to wage in lieu of un-availed earned leave up
to a total accumulation of 30 days, if any, of previous financial
With respect to other states which do not cover the managerial
employees under the S&E enactments, employees would be entitled
to payment for the accumulated earned leaves subject to the
contractual provisions and company polices related to
Provident Fund: In terms of the Employees'
Provident Funds Scheme, 1952 ("Scheme"),
at the time a member of Scheme (in this case, the terminated
employee) leaves the services, the employer is required to forward
a duly filled and attested form to the jurisdictional Provident
In view thereof, a copy of the aforementioned application (Form
19) should be provided to the terminated employee, to be filled by
him for onward submission to the jurisdictional Provident Fund
Gratuity: In terms of the Payment of Gratuity
Act, 1972 ("PGA"), if the termination of
the employment agreement/dismissal of services is, inter
alia resultant of acts, wilful omission or negligence causing
substantial damages to the company, the entitlement of gratuity is
liable to forfeited to the extent of the damages/losses so caused
to the company.
However while effecting the aforementioned right of forfeiture
of the gratuity entitlement of the terminated employee, the extent
of damages/losses caused to the company would need to
substantiated/proved if challenged by the concerned employee. If
the company fails to prove such loss the aforementioned forfeiture
may be held untenable by the courts (refer the judgment of the High
Court of Madhya Pradesh in the case of Permali Wallance
Ltd. vs. State of M.P., 1996 MPLJ 262).
In view thereof if the claim for gratuity of an employee is
being rejected by the company, then the company would need to issue
a notice specifying the reasons why the claim for gratuity is not
considered admissible. Further, a copy of this notice has to be
forwarded to the 'Controlling Authority' notified under the
PGA. The terminated employee would be entitled to apply to the
Controlling Authority for issuing a direction to the company for
payment of the amount of gratuity, within 90 days on receipt of
such rejection of his claim. After conducting hearings in the
matter, if the Controlling Authority is of the opinion that the
gratuity is payable to the employee, then it can issue directions
specifying the amount payable and directing payment thereof to the
employee under intimation to the Controlling Authority, within 30
days from the date of the receipt of the notice by the company.
In view thereof the terminated employee may challenge the
company's decision of forfeiting his gratuity and it will be
for the company to prove to the contrary.
In nutshell, the Company would need to release the salary and
compensation for the earned leaves to the terminated employee
subject to deductions wherever applicable and the gratuity payment
can be rejected subject to following the above procedure, which may
be subject to challenge by the terminated employee.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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On 31 December 2015 the President gave his assent to certain amendments to the Payment of Bonus Act, 1965. The amendments have increased the wage threshold for determining applicability of the Act from INR 10,000 to INR 21,000 per month.
The Payment of Bonus Act, 1965 provides for the payment of statutory bonus to eligible employees. The bonus payable is to be determined on the basis of profits or on the basis of production or productivity of the establishment.
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