Can employers deny gratuity if an employee refuses to vacate company accommodation? SC decides

If an employee refuses to vacate company accommodation even after the permissible post-retirement period, the employer can not only deduct a penalty from the employee's gratuity but also deny interest on the withheld amount.

Read on for details of the case:

Case background

Several employees of SAIL failed to vacate and surrender their company-issued staff quarters upon retirement. Instead of vacating the quarters, the former employees made representations to management between 2007 and 2010, requesting that the quarters be retained beyond the permissible period. However, the SAIL management rejected these requests and issued eviction notices.

The management also withheld the employees' gratuity based on the SAIL Gratuity Rules, 1978, and company retention policies.

The non-payment of gratuity led to a long legal battle, reaching the High Court of Jharkhand as well as the Supreme Court of India.

The Jharkhand High Court accepted the writ petitions of employees and ruled in their favour. The HC relied on a 2017 order in Ram Naresh Singh v. Bokaro Steel Limited, where the apex court had directed the company to release withheld gratuity with 6% interest while only allowing the company to charge normal rent for the overstayed period.

In 2020, a three-judge bench of the apex court ruled on a related issue where it clarified that charging penal rent was the "natural consequence" if an employee overstays in a company quarter, and employers were entitled to adjust this penal rent against payable dues, including gratuity.

The 2017 Ram Naresh Singh order was merely a concession based on specific facts of the individual case, and it was not meant to be a binding legal precedent.

In the current judgment, the Supreme Court observed that handing over vacant possession of the staff quarter and the payment of the balance gratuity were "mutual and reciprocal obligations".

According to the judgment, an employee cannot enforce the payment of their gratuity in isolation while simultaneously refusing to vacate the company's property.

Yes. Charging penal rent is the "natural consequence" if an employee occupies a company quarter beyond the permissible period, according to the judgment.

In this case, the apex court fixed a reasonable penal rent. However, it said that this should be seen as a precedent. "This fixation is, however, confined strictly to the present batch and shall not be treated as a precedent."

Further, the management is legally entitled to adjust this accrued penal rent directly against the withheld gratuity amount. The final balance is only paid after these permissible deductions are made.

Not always.

Interest on gratuity is not payable under Sail Gratuity Rules in case of unauthorised accommodation. According to the top court, awarding interest in such cases would effectively reward the unauthorized occupation of public premises.

"An employee cannot be permitted to approbate and reprobate. Having availed of the benefit of retaining the staff quarters by offering the gratuity amount as security, the employee cannot simultaneously claim that withholding the said amount entitles the Ex-Employees to interest on the withheld gratuity/security amount. To award interest in such circumstances would effectively reward unauthorised occupation of public premises," SC said.