The Gratuity Grey Zone: When ‘Moral Turpitude’ Blurs the Lines Between Employer Rights and Employee Protection

Gratuity, in its literal sense, refers to a lump-sum amount paid to employees as a token of gratitude for their long-term service. Legally, gratuity is intended to support employees after retirement on superannuation, death, physical incapacity, disability, or otherwise. The object of providing gratuity is to provide a retirement benefit to employees who have rendered long and unblemished service to the employer, thereby contributing to the prosperity of the employer.

In India, gratuity is governed by the Payment of Gratuity Act, 1972 (‘Act’) and Chapter V of the Social Security Code, 2020. Under these legislations, gratuity can be forfeited (wholly or partially) by an employer under two conditions, firstly, if the services of an employee had been terminated if he acted in a riotous or disorderly conduct or an act of violence; and secondly, if an employee’s services have been terminated because of any offence which comes under the ambit of moral turpitude.

With regard to the second condition, it is important to note that the term ‘moral turpitude’ has not been explicitly defined in the Payment of Gratuity Act, 1972.  In the landmark judgment of Union Bank of India and Ors. v. C.G. Ajay Babu, the Supreme Court attempted to reduce ambiguity by ruling that gratuity could only be forfeited on the ground of moral turpitude if the misconduct was proven in a court of law. However, this safeguard was recently overturned by the Apex Court in Western Coal Fields Ltd. v. Manohar Govinda Fulzele, where it held that an employer could forfeit gratuity if the employee’s misconduct amounted to moral turpitude, even without a criminal conviction.

This raises serious concerns about the lack of checks on the power of the employer to forfeit gratuities based on the ambiguous ground of moral turpitude, without having to prove it in a court of law. This piece will aim to explore the implications of the recent judgment and the legal ambiguity surrounding moral turpitude and find a way forward to balance employees’ protection alongside employers’ rights.

Ambiguity of ‘Moral Turpitude’

Under Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972, and the corresponding Section 53(6)(b)(ii) of the Social Security Code, 2020, an employee’s gratuity may be forfeited for committing an offence involving moral turpitude as per the employer’s discretion. However, neither legislation provides a definite explanation of the term moral turpitude, leaving it up to varied interpretations. Without a definite list of acts that constitute moral turpitude, it provides a leeway to the employer to misuse this provision to protect their interests, potentially infringing on employees’ protection in the workplace.

Moral turpitude includes offences such as fraud or breach of trust contrary to justice, honesty, or morality.¹ The court, in the case of Pawan Kumar v. State of Haryana & Anr., attempted to give guidance by observing that ‘moral turpitude' is an expression to describe conduct which is inherently base, vile, depraved, or having any connection showing depravity.

Despite the judicial elaboration, ambiguity surrounding the term creates power imbalance between the employer and employee.  The only safeguard available to the employee is the issuance of a show cause notice, as held in Siyaram Basanti v. Chhattisgarh Rajya Gramin Bank & Ors., which presents an opportunity for the employee to defend himself before the forfeiture. Nonetheless, the final decision rests with the employer, reinforcing power imbalance. Therefore, the lack of clarity on moral turpitude gives rise to the possibility of the employer misusing their power to forfeit the gratuity of an employee.

Analysis and Implications of the Recent Judgment

The Supreme Court’s ruling in Western Coal Fields marks a decisive shift in how misconduct involving ‘moral turpitude’ is treated under gratuity law. By holding that a court conviction is not necessary for forfeiture, the Court has effectively authorised employers to make unilateral determinations of serious misconduct.

In a 2018 case, the Court had previously held that the Act does not require proof of misconduct involving moral turpitude; rather, it requires that the acts constitute an ‘offence’ involving moral turpitude, and that such an offence must be duly established in a court of law.

This provided a blanket of protection to the employee from the potential arbitrary use of an employer’s power to forfeit gratuity. While criminal conviction might not be essential in the legislation, the judicial decision acted as a safeguard against abuse of power. However, the 2025 judgment has the potential to have far-reaching consequences, namely, unchecked powers to forfeit the gratuity under the ambiguous ambit of moral turpitude.

Although the employee has the safeguard of being mandatorily issued a notice to present their defence, this becomes the sole protection. The recent judgment raises the probability of arbitrary decisions,  as the final  authority rests with  the employer. Without establishing the misconduct of the employee as an offence of moral turpitude in a court of law, his gratuity rights are not protected. The decision also has the potential to hamper collective bargaining by trade unions  as they may struggle to negotiate fair gratuity policies with employers  possessing unilateral power.

The ruling also raises concerns under constitutional law and the principles of natural justice. It potentially violates Article 14 by allowing unequal treatment and implementation based on personal and societal bias, which could discourage whistleblowing for fear of retaliation. Moreover, Article 21 is violated, as depriving employees of their rightful retirement benefits undermines their right to livelihood. Although a notice is issued, the lack of an impartial adjudicator violates the natural justice principle of ‘audi alteram partem’ or the right to be heard, as established in A.K. Kraipak v. Union of India. In essence, the decision tips the power balance heavily in favour of the employer, paving way for misuse and exploitation, without meaningful legal oversight. 

Comparative Global Approaches

A comparative legal analysis reveals that India’s broad and ambiguous treatment of moral turpitude stands in contrast to the more structured frameworks adopted in other common law jurisdictions. For instance, the United Kingdom deals with a concept of ‘gross misconduct’, which, though not codified in a single statute, is guided by the ACAS Code of Practice and is interpreted by employment tribunals. Accordingly, the employer has to prove fundamental breach of contract, and even then, a fair disciplinary procedure is conducted, after which the best outcome is arrived at.

Similarly, in South Africa, the employer-employee relationship, particularly in matters of dismissal, is governed by the Labour Relations Act, 1995, and the Code of Good Practice. The concept of ‘misconduct’ and ‘serious misconduct’, though not codified, is recognised. These legislations provide procedural and substantive safeguards, based on which an employee shall be dismissed fairly. This emphasis on due process ensures a balance of power between the employer and employee, limiting arbitrary action.

This global outlook reveals that while misconduct-based forfeiture or dismissal exists across jurisdictions, the underlying frameworks prioritise clearly defined standards, independent scrutiny, and procedural fairness. In contrast, India’s reliance on the ambiguous and judge-created standard of ‘moral turpitude’ places employees at a distinct disadvantage. Drawing from these global practices, India must now reconsider its gratuity framework to embed fairness, clarity, and accountability, especially in light of the 2025 judgment.

Way Forward to Rebuild the Balance for a Fair Gratuity System

The potential challenges that come with the 2025 judgment call for a change in the gratuity framework to balance employee protection with employer rights. The first step in this direction is the development of guidelines that clearly define and illustrate actions constituting moral turpitude. These guidelines need not be exhaustive, but should provide sufficient clarity to prevent arbitrary interpretations and ensure consistency. Such guidelines can be notified as rules by the ‘appropriate government’ under Section 15 of the Payment of Gratuity Act, 1972, and by the Central Government under Section 155 of the Social Security Code, 2020.  This will give the concept a concrete basis, drawing from practice under the ACAS Code of Practice and the Code of Good Practice of the United Kingdom and South Africa.

The second step is the establishment of independent review boards composed of industry experts and neutral stakeholders to review cases on gratuity forfeiture on grounds of moral turpitude. These boards would act as advisory or quasi-judicial bodies, to provide impartial assessments before arriving at the final decision. As opposed to an internal disciplinary authority, which may be influenced by bias, these boards would lead to a reduction of arbitrary decisions by employers and lessen the power imbalance. Additionally, these boards could be entrusted with conducting regular independent gratuity audits to ensure compliance with legal and ethical requirements.

Lastly, a Gratuity Transparency Index can be developed to rate companies based on the clarity and transparency of gratuity policies and forfeiture procedures. Such indexes could be developed by independent private firms or think tanks for a more objective and less biased perspective. Alternatively, the State could mandate reporting standards linked to this index. This mechanism will encourage compliance and ethical decision-making by the employers.

These measures aim to pave a path towards balancing the power between the employers and employees and protecting their rights and interests.

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[1]  Bryan A Garner (ed), Black’s Law Dictionary (8th edn, Thomson Reuters 2024).

This article has been authored by K Danitta and Swastika Saha Chowdhury, Associate Editors at RSRR. It is part of the RSRR Editor’s Column Series.