In 2025, a series of judicial pronouncements brought significant clarity to various aspects of Indian labour and employment law. Courts clarified the conditions under which gratuity may be forfeited, examined the enforceability of employment bonds, defined the limits of an employer’s obligations toward contract workers, and even scrutinised the potential for civil defamation arising from the language used in termination letters. Collectively, these rulings have offered critical guidance to both employers and employees. This article analyses select key judgments that are set to influence the practice of labour and employment law in India.
On Withholding of Gratuity
The Supreme Court, in Western Coal Fields Ltd v. Manohar Govinda Fulzele, clarified that under Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972, an employer may withhold gratuity if an employee is dismissed for an act of moral turpitude, provided the misconduct is duly established through departmental proceedings. Importantly, a criminal conviction by a competent court is not a prerequisite.
Ambiguity in this position had arisen from conflicting decisions of the Supreme Court. While in Jorsingh Govind Vanjari v. Maharashtra, the Supreme Court had held that for forfeiture of gratuity, termination on grounds of an offence constituting moral turpitude established through departmental proceedings sufficed. In a later judgment, Union Bank of India v. C.G. Ajay Babu, the Supreme Court ruled that, in addition to the departmental enquiry, criminal conviction by a competent court was also necessary before an employer could forfeit gratuity. In the Western Coalfields judgment, the division bench of the Supreme Court opined that the interpretation of law used in the C.G. Ajay Babu judgment was not aligned with the legislation and has finally cleared the air on the issue.
Legitimacy of Employment Bonds
In Vijaya Bank v. Prashant B. Narnaware, the Supreme Court has reaffirmed the established legal position that reasonable employment bonds do not contravene Section 27 of the Indian Contract Act, 1872, so long as the restriction is not punitive in nature and is necessary to protect the employer’s interests.
The case dealt with the legitimacy of an indemnity bond signed by an employee of a public sector bank, which required the employee to pay INR 2,00,000, if he resigned before completing three years of employment. The employee resigned within two years, paid the bond amount under protest and joined a rival bank. The employee then challenged the validity of the indemnity bond under Section 27 of the Indian Contract Act, 1872, for being in restraint of trade. While the High Court of Karnataka held that the indemnity bond was indeed in restraint of trade, upon appeal, the Supreme Court adjudged that the indemnity bond in question was reasonable and proportionate to the expenses incurred by the public sector bank in providing training to the employee and finding a suitable replacement.
Contract Workers or Employees?
In Joint Secretary, Central Board of Secondary Education v. Raj Kumar Mishra, the Supreme Court clarified that a principal employer’s supervisory or jurisdictional control over contract workers does not, by itself, create an employer–employee relationship in the absence of employment documents expressly establishing such a relationship.
The case involved the termination of a contract worker, whom the principal employer had engaged through a contractor. When the employment of the contract worker was terminated, he claimed retrenchment compensation from the principal employer under Section 25F of the Industrial Disputes Act, 1947 (IDA). The principal employer argued that the claim was not maintainable as there existed no employer-employee relationship between them. Therefore, the contract worker was not eligible for retrenchment compensation under Section 25F of the IDA.
The contract worker then presented documents indicating internal transfers across different offices of the principal employer to establish an employer-employee relationship with the principal employer. The apex court adjudged that to claim employment with any organisation, a direct employer-employee relationship must be based on paper with proper documentation, and that a worker merely being transferred internally across different offices was not sufficient for this purpose.
The Contract Labour (Regulation and Abolition) Act, 1970 imposes the responsibility on the principal employers to provide amenities like canteens, rest-rooms and drinking water facilities to contract workers in situations where the contractor fails to provide the same. The judicial precedents hitherto, including in Air India Charters Ltd v. Tanja Glusica and United India Assurance Co Ltd v. Sureshkumar Parasnath Singh, held the principal employer liable for payment of compensation to contract workers who lost their lives in performing obligations for the principal employers. The Central Board of Secondary Education judgment, however, has clarified that the principal employer’s obligations would not extend to notice requirements or severance pay.
Defamatory Termination Letter
In Abhijeet Mishra v. Wipro Limited through the Executive Chairman, the Delhi High Court held that adverse remarks in a termination letter issued to an employee without evidentiary proof can amount to civil defamation, entitling the employee to compensation.
To establish civil defamation, four elements must be satisfied: (i) a false statement that lowers the reputation of the aggrieved party; (ii) publication of that statement to at least one other person; (iii) clear reference to the aggrieved party; and (iv) absence of a valid defence such as justification or truth.
In this case, the employer argued that the termination letter had not been circulated to any third party and therefore the requirement of publication was not met. The Delhi High Court, however, rejected this defence by invoking the American doctrine of compelled self-publication. This doctrine holds that where a person is reasonably compelled to disclose a defamatory statement to others, the author of the statement cannot deny publication.
The Court observed that in routine matters such as job applications, background verifications, or reference checks, an employee would inevitably be required to share copy of the termination letter with prospective employers. On this basis, the Court held that the termination letter was defamatory and ordered the employer to pay the employee general compensatory damages of INR 2,00,000.
Key Takeaways for Employers
Recent judgments underscore several key principles for employers. Any forfeiture of gratuity on grounds of moral turpitude must be backed by clear documentation arising from a robust departmental inquiry. Employment bonds should be limited to recovering genuine costs, such as training expenses, and must not operate as punitive or overly restrictive measures. Contract workers are not entitled to retrenchment benefits merely because the principal employer exercises supervisory control or transfers them internally across offices. Further, termination letters must be factual and supported by documentary evidence to withstand future legal scrutiny.
Taken together, these rulings serve as a timely reminder for organisations to review their internal policies, contracts, and disciplinary procedures to ensure alignment with evolving legal standards governing employer–employee relationships.