Umakanthan53
Labour Law & Hr Consultant
Saswatabanerjee
Partner - Risk Management
V.B.Patil
Hr Professional

Thread Started by #V.B.Patil

I have one query regarding the payment of gratuity to the contract employees. I know that an employee who has completed continuous five years of service is eligible for gratuity.
Does that include the employees hired on contract?
My question is about contract employees who are employed on contract of 1 year or 2 years. Upon expiry of the contracts the same have been renewed many times. So the employees are now associated with establishment for more than 5 years now. Does the period between the date of expiry and date of renewal of contract is considered as break of service? Do such employees are to be considered into service uninterrupted and are eligible for gratuity?
Your help in this regard will be highly appreciated.
11th August 2016 From India, Kolhapur
Dear Patil,
Though one's employment under another for hire or reward is basically a contract, when it becomes a mere contract for service or an adhoc arrangement falling short of a contract of service, it is just called an engagement for service. This is what is intended in the case of Fixed Term Contract of employment which in reality is a misnomer. The reasons are very simple and obvious. The presence of the elements of continuous supervision and control of the employer, fixed working hours etc., make it a contract of service or employment despite its fixed tenure.Therefore, no advantage other than free exit or termination of the contract arises out of this indirect form of employment if it is renewed every time. But, the duration of the time gap or interregnum between the expiry and renewal of the contract matters much in the case of payment of gratuity which is based on the factors of blemishlessness of the service and continuity of service.
11th August 2016 From India, Salem
Umakanthan Sir,
The post has raised an interesting point, does the gap between expiry of contract and renewal (I am assuming the person didnt work during that time) constitute a break in service under the gratuity act ? If so, how many days difference will actually constitute a gap ? I would like to know your feedback on this matter.
12th August 2016 From India, Mumbai
Dear Saswata Banerjee,

In the first place, we have to recognize the fact that the bilateral employment relationship of employer and employee remains intact in the case of fixed term contract employment also. So the benefits of normal employment flowing within the time-frame of the contract automatically accrues to such employees. All employers are well-aware of this situation and that's why no fixed term contract exceeds a duration of two years, though it is renewable at the option of the employer and in fact renewed only year after year without any gap or with a neglible gap only to show that the contract is a fresh one. The actual case of specific projects which requires the adhoc engagement of people with special skill sets is distinguishable from these normal FTCs. So, a fixed term employment that is renewable from time to time on apparent requirements of the employer is, in fact, a precarious employment only.

Having said so, let me please muse over the impact of the "gap" between the end of a fixed term contract and its renewal on the service condition of gratuity in the back drop of the Payment of Gratuity Act,1972. Strictly speaking, section 2A of the PG Act creates a fiction only in respect of "break in service" and not break in the employment relationship. When the renewal or extension of the initial contract is effected because of bonafide requirements of the work, the gap becomes insignificant and the employee has a substantial stake for gratuity on the completion of five years of continuous service. On the contrary, the employer intelligently makes a fresh contract every time and the employee accepts it, the claim for gratuity is subject to Judicial interpretation as in the case of a sham contract under the Contract Labour (R&A) Act,1970 only.
12th August 2016 From India, Salem
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