Supreme Court Confirms: Gratuity Must Be Paid to Employees Resigning After 5 Years of Service
Judgment Ensures Fair Treatment for Workers Under Payment of Gratuity Act, 1972
Resignation or Voluntary Retirement Does Not Cancel Gratuity Entitlement
By Our Legal Reporter
New Delhi: December 10, 2025:
In a landmark ruling, the Supreme Court of India has held that employees who resign or opt for voluntary retirement after completing five years of continuous service are entitled to gratuity under the Payment of Gratuity Act, 1972. The judgment, delivered on December 9, 2025, provides clarity on a long-debated issue and strengthens the rights of millions of workers across India.
Also Read: CCPA Fines Meesho ₹10 Lakh for Selling Uncertified Walkie-Talkies Without Mandatory Disclosures
The case involved the Delhi Transport Corporation (DTC), which had denied gratuity to an employee who resigned after nearly 30 years of service. The Supreme Court directed DTC to pay gratuity to the employee’s legal heirs, reinforcing that resignation does not nullify gratuity entitlement.
Background of the Case
- The employee had served about 30 years with DTC before resigning due to family reasons.
- Despite his long service, DTC denied him gratuity, pension, and leave encashment.
- The High Court upheld denial of pension, citing Rule 26 of the Central Civil Services (Pension) Rules, 1972, which treats resignation as forfeiture of past service.
- However, the matter of gratuity was escalated to the Supreme Court.
The bench of Justice Rajesh Bindal and Justice Manmohan clarified that gratuity is governed by a separate statutory scheme under the Payment of Gratuity Act, 1972, and resignation does not affect entitlement.
Supreme Court’s Key Findings
- Gratuity is Independent of Pension: Pension and gratuity operate under different statutory frameworks. While resignation may affect pension eligibility, gratuity remains payable if service exceeds five years.
- Resignation Does Not Cancel Gratuity: Employees who resign after five years of continuous service are entitled to gratuity.
- Legal Heirs Entitled: In this case, the employee had passed away, and the Court directed gratuity payment to his family.
- Section 4 of the Payment of Gratuity Act: The Court emphasized that gratuity is a statutory right once the five-year condition is met.
Also Read: Supreme Court: Compromise Cannot Erase Corruption, Restores ₹52.5 Crore Loan Fraud Case
Legal Significance
This ruling has far-reaching implications:
- Clarifies Ambiguity: Many employers argued that resignation forfeits gratuity. The Supreme Court has now settled the issue.
- Strengthens Worker Rights: Employees who resign for personal or family reasons will not lose gratuity benefits.
- Separates Pension and Gratuity: The judgment distinguishes between pension rules and gratuity law, preventing misuse of pension forfeiture clauses.
Wider Context: Gratuity in India
Gratuity is a lump-sum benefit paid to employees as a token of appreciation for long service. Key points under the Payment of Gratuity Act, 1972:
- Applicable to establishments with 10 or more employees.
- Payable after five years of continuous service.
- Exceptions: In cases of death or disability, gratuity is payable even before five years.
- Maximum tax-free gratuity limit: ₹20 lakh (as per 2018 amendment).
Recent labour reforms in 2025 have also expanded gratuity coverage to fixed term and contract workers, making the benefit more inclusive.
Impact on Employees and Employers
- Employees: Greater security and assurance that resignation will not deprive them of gratuity.
- Employers: Need to comply strictly with gratuity provisions, regardless of resignation.
- Legal Clarity: Reduces litigation by clearly separating pension forfeiture from gratuity entitlement.
Reactions from Legal Experts
Legal experts have welcomed the ruling, noting that it aligns with the spirit of social welfare legislation. The Payment of Gratuity Act was designed to protect workers, and this judgment ensures that technicalities like resignation do not undermine its purpose.
Also Read: Noida Accountant Arrested in ₹11 Crore Fake GST Invoice Scam
Conclusion
The Supreme Court’s ruling is a milestone in labour law. By confirming that employees who resign or retire after five years of service are entitled to gratuity, the Court has upheld fairness and justice for workers.
This decision will benefit millions of employees across India, ensuring that their years of service are recognized and rewarded, even if they leave employment voluntarily. Employers must now ensure compliance with gratuity laws, reinforcing India’s commitment to worker welfare.
Suggested Keywords for Faster Searches
- Supreme Court gratuity ruling India 2025
- Gratuity entitlement resignation after 5 years
- Payment of Gratuity Act Supreme Court judgment
- Delhi Transport Corporation gratuity case
- Supreme Court gratuity vs pension rules
- Employee rights gratuity resignation retirement
- Gratuity law India Supreme Court decision
- Section 4 Payment of Gratuity Act ruling
- Supreme Court gratuity legal heirs’ entitlement
- Labour law gratuity Supreme Court India