Hr Head With Pmi
Human Resource Professional
Nadeeka Botheju
Hr Executive
+3 Others

Dear Sir,
This has reference to Gratuity act provision ,I want to know about Fixed term contract
Employee for gratuity act provision, if any employee worked in
Our organization more than 5 year under yearly fixed term contract .that is after completion of every one year we provide them 5 days break after that we are also doing full & final the same after break we stated new contract for one more year like this
Employees worked for the 5 years .
Can anybody provide me the information of Gratuity act applicable for fixed term employee .
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In my view, he is not eligible, if you are terminating the contarct in writing and settling his F&F and employing him afresh under a new contract after a afive day break.
HR &Labour Law Advisor
Dear Mr.Vishal

In State Bank of India vs N.Sundaramoney, the Honourable Supreme Court of India had held that the termination of employment of an individual worker due to automatic extinguishment of service by virtue of a pre emptive provision to terminate in the appointment order itself would amount to retrenchment. Subsequent to this judgment, the Industrial Disputes Act 1947 was amended and section 2(oo)(bb) was introduced. According to section 2(oo)(bb), the termination of the service of the workman as a result of the non renewal of the contract of employment between the employer and the workman concerned on its expiry or of such contract being terminated under a stipulation contained therein, does not amount to retrenchment. In other words, the interpretation placed on the definition of the term “retrenchment” in Sundaramney’s case was overcome with the introduction of section 2(oo)(bb). In other words, the termination of the services of a workman on the expiry of the term fixed in the appointment order does not amount to retrenchment as defined under section 2(oo) of the Industrial Disputes Act.Therefore it is very clear that the concept of “fixed term employment” was introduced with reference to the provisions of "retrenchment" under the provisions of the Industrial Disputes Act.

The question posed by you is whether the breaks in service given by you to the fixed term employee followed by full and final settlement could be regarded as breaks in service under the Payment of Gratuity Act to disentitle the fixed term employee from claiming/getting gratuity from the employer. As far as my knowledge goes there are no decided cases on this point.

The term "continuous service" has been defined in section 2A of the Payment of Gratuity Act. Section 2A(1) of thePayment of Gratuity Act indicates what are the days of service that have to be reckoned for calculating the "continuous service". Section 2A(2) of the Payment of Gratuity Act prescribes the method to be adopted for determining whether an employee was in “continuous service” in case where an employee is not in “continuous service” as defined in section 2A(1). Section 2A(2) starts with this phrase “(2) Where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (1), for any period of one year or six months he shall be deemed to be in continuous service under the employer-----“. Therefore Section 2A(2) could be invoked if section 2A(1) is not applicable to the case , that is when the employee is not in uninterrupted service, excluding the interruptions permitted under Section 2A(1). Section 2A(1) of the Payment of Gratuity Act and section 2A(2) of the Payment of Gratuity Act are mutually exclusive. In the case of the fixed term employee cited by you in this thread, if he is not covered by section 2A(1) he would definitely be covered by section 2A(2).

A comparison could be made of section 25B(2) of the Industrial Disputes Act and section 2A(2) of the Payment of Gratuity Act. While section 25B(2) of the Industrial Disputes Act is silent about employees working in establishments working for less than six days in a week, section 2A(2) of the Payment of Gratuity Act covers those employees also. In other words the coverage of section 2A(2) of the Payment of Gratuity Act is wider than the coverage of section 25B(2) of the Industrial Disputes Act. You would also notice that the explanation in Section 2A(2) of the Payment of Gratuity Act is a verbatim reproduction of the explanation to Section 25B(2) of the Industrial Disputes Act(Section 25B of the Industrial Disputes Act was introduced in 1964 with effect from 19-12-1964 whereas section 2A of the Payment of Gratuity Act was introduced in the year 1984 with effect from 11-2-1981.). In Mohan Lal vs.Management of Bharat Electronics Limited,[1981 ] Lab.I.C. page 806 at page 814 (Supreme Court) Justice Desai held that “sub-section (2) of the Industrial Disputes Act provides for a fiction to treat a workman in continuous service for a period of one year despite the fact that he has not rendered uninterrupted service for a period of one year but he has rendered service for a period of 240 days during the period of 12 calendar months…. “

As the wording of section 25(2) of the Industrial Disputes Act is similar to the wording of section 2A(2) of the Payment of Gratuity Act, the above decision of the Honourable Supreme Court could be followed in interpreting section 2A(2) of the Payment of Gratuity Act.

Section2A(2) of the Payment of Gratuity Act is applicable in the case of workmen/employees who have not put in uninterrupted service as contemplated in section 2A(1) of the Payment of Gratuity Act. One example would be those employees who are not employed on a continuous basis but are employed with breaks in their service in between. In such cases, even if the workmen/employees are not employed continuously for any specific period and are given “breaks”or “disengaged” in other words where the employer terminates the employer-employee relationship for a specified period and engages the very same person later after a gap of days/weeks/months/years then section 2A(2) has to be applied to assess the length of “continuous service” rendered by the employee. If this principle is applied even fixed term employees will be entitled to gratuity under the Payment of Gratuity Act if they put in five years of continuous service as defined in section 2A of the Payment of Gratuity Act.

It might be argued that the method or mode of termination of the services of a fixed term employee is not indicated in section 4(1) of the Payment of Gratuity Act. I would like to draw your attention to section 4(6) of the Payment of Gratuity Act. According to this section even if the employee is terminated for any misconducts specified therein he is entitled to gratuity subject to the conditions specified in section 4(6). When an employee whose services are terminated for a misconduct could get gratuity why not a fixed term employee, whose services come to an end by efflux of time, get gratuity.

The next argument will be that the fixed term employee had settled his accounts fully and finally. It is a fundamental principle of law that there cannot be a contract or agreement contrary to the provisions of any law and the full and final settlement if effected without paying gratuity and contrary to the provisions of the Payment of Gratuity Act will be void ab intio and cannot be relied upon by the employer to deny gratuity if the other conditions are fulfilled.

With regards
Dear Mr.V.Harikrishnan, Thanks you giving me valuable information about Gratuity act provision for Fixed tern employee, Again Thanks a lot…. Regards, Vishal saxena
For eg - if employees are recruited on an x company and after two years they are put into y company by resigning in x company and joining the y company. will they still be entitled for gratuity . As they would be completing 7 yrs if we include both x and y companies if not it is 5 yrs in y industry .
The services rendered with different employers cannot be reckoned for calculating the eligibility for gratuity or the amount payable as gratuity to an employee With regards
mr harikrishnan,
what if the arrangement is a sham ?
an employer may float 10 companies and shunt people across at predetermined intervals.
and this is a reality in certain sectors
when u engage a person for 5 years, this implies the position is permanent...
this position exists in europe/ middle east but not here...
Dear Mr.Rana

Whether the arrangement is a sham or not is a question of fact and this issue has to be decided based on evidence that might be let in by the parties to the claim petition. If there is clinching evidence that the arrangement is a sham then the employee could file a claim before the Authority and get relief. However, the whole issue is that the as the question whether the whole arrangement is a sham or not is a factual question, and if the Controlling Authority and the Appellate Authority decide it either way(that is either in favour of the employee or the employer), then it will not be easily set aside by a higher judicial forum like the High Court unless the finding of the Authorities below are patently perverse or unless the findings of the Authorities are not based on any evidence all. The implication is that the employer/employee should be ready for a long drawn out legal contest. The employer with his resources may be able to fight it out. Can an ordinary worker with limited financial resources afford it?

With regrads
I just want to know, is there any number of minimum staff has to worked in the company to pay gratuity? (15 employees has to worked) or else do we need to pay gratuity those who are completed 5 years.
Dear learned members,
I shall be thankful if you could clarify whether a teacher in the school is entitled to payment of Gratuity in accordance with Gratuity Act or under any other scheme that the school has been adopting even before amendment to Gratuity Act 1972 sometime in the year 2009. The conditions/application of formula for calculating found to have been more beneficial than that of existing scheme adopted by the school. Please also let me know whether the school management is within their rights to deprive gratuity when the teacher worked for more than six years on a temporary service lasting for 59 days with a break of service by 1 or 2 days. No termination order was served in between and each time a fresh order appointment letter is served fixing her as temporary teacher for 59 days. I once again request the HR fraternity to give their considerate opinion as is required to take up the issue on behalf of my wife who is superannuating.
with regards,
Ramakrishna Pantula

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