If a contract worker leaves one contractor and joins another contractor in the same work location and works for more than 5 years, is he eligible for gratuity? Will it be treated as continuity of service?
From India, Gurgaon
Labour Laws & Ir
Doctor Siva Global Hr
Ceo-usd Hr Solutions
Hr Freelancer
Management Consultancy


Dear Member,
Continuous working for five years is required for getting gratuity from the contractor/employer. In your case you have not worked continuously with any of the contractors & hence you are not eligible to have gratuity at this stage.

From India, Delhi

Dear Colleague,
The objective of Gratuity Act is arranged in such a manner that the Employer demonstrating his gratitude to his employees who had served at least 5 years of service with him by paying gratuity.

If you look at Section 7 who is determining gratuity it is the Employer who determines the gratuity and pays it to the employee. In the given case, the Contract Worker should have worked for 5 years under one single contractor to claim his gratuity.

If you left before such minimum service, he is not eligible to claim his gratuity. Each Contractor is a separate Employer and the establishments are different establishments. May be in the same location which is not a matter. Who is the employer is the matter. Hence in the case given, if the contract worker works for 5 years under one contract continuously he can claim his gratuity from his employer contractor for such period only.

Section: 7
Determination of the amount of gratuity.
(1) A person who is eligible for payment of gratuity under this Act or any person authorised, in writing, to act on his behalf shall send a written application to the employer, within such time and in such form, as may be prescribed, for payment of such gratuity.
(2) As soon as gratuity becomes payable, the employer shall, whether an application referred to in sub-section (1) has been made or not, determine the amount of gratuity and give notice in writing to the person to whom the gratuity is payable and also to the controlling authority specifying the
amount gratuity so determined.
(3) The employer shall arrange to pay the amount of gratuity within thirty days from the date it becomes payable to the person to whom the gratuity is payable

From India, Chennai

The question whether the Principal Employer is liable to pay gratuity for the contract labour has not so far been decided by the Supreme Court, so the final word is yet to be said, as of now. But there are a number of judgements of High Court on this point and the views of the Madras High Court are putting the onus on the PE.
Reference is invited to the following cases:
1.Madras Fertilizers Ltd vs The Regional Labour Commissioner decided on 29 October, 2010
2.The Superintending Engineer vs Appellate Authority decided on 23 June, 2011
3.J.Kasithangam vs The Tamilnadu Electricity Board decided on 9 September, 2014
4. Manager,Chattisgarh State Cooperative vs Ram Swaroop Sahu decided on 6 August, 2021 decided by the Chattisgarh High Court.
The judgement in Superintending Engineer V/s Appellate Authority, Hon'ble High Court of Madras held that though the initial responsibility lies on the contractor to make payment of gratuity in view of section 21(4) of CLRA Act, however if the contractor fails to pay gratuity to the contract labour, the principle employer is liable to pay gratuity which in turn can be recovered from contractor. This ratio has been followed in other cases.
The Kerala High Court held the opposite view in Cominco Binani Zinc Ltd. vs Pappachan decided on 28 December, 1988, ((1989) ILLJ 452 Ker) and held that, “The principal-employer’s liability to pay wages is recognised in Section 21(4) of the Contract Labour (Regulation and-Abolition) Act, 1970 as well. If the contractor fails to pay the wages the petitioner will be bound to pay the same. The wages due to the workmen does not include bonus or gratuity. This is made clear by the definition of wages in the Industrial Disputes Act and Payment of Wages Act. While defining the term “wages”, the above mentioned Acts specifically excludes bonus and gratuity from its purview”.
Based on the aforesaid judgements the point of law as it stands is that:
1. As regards Contract Labour is concerned, though the Payment of Gratuity Act 1972 is not directly casting the responsibility on the Principal Employer but on an interpretation of the term wages as provided in the Contract Labour (Regulation & Abolition) Act 1970, claim can lie on the employer for both its on-roll and outsourced employees.
2. The Principal Employer can claim or recover the gratuity amount paid to the contract labour from the Contractor.

From India, Mumbai

U/s 3, the Payment of Gratuity Act 1972 applies to every factory and any shop or establishment where 10 persons are employed.

“employee” as defined in section 2(e) means any person employed for wages, ………., in any kind of work, ….. in or in connection with the work of a factory, shop or other establishment to which the Act applies.

“employer” as defined in section 2(f) means the person who has the ultimate control over the affairs of the establishment, factory or shop.

Section 4 of the Payment of Gratuity Act 1972 entitles an “employee” on termination of his employment on his superannuation, retirement or resignation or death. Since the ultimate control over the affairs of the establishment / factory / shop in whose work or in connection of whose work the employee was employed, is of the principal employer and since the employee has left the earlier contractor only because his contract with the principal employer was terminated, hence the employee did not superannuate, nor retired, nor resigned, hence the liability for payment would be fastened upon the principal employer to pay gratuity to such an employee.

- S. K. Mittal

From India, Faridabad

Here I wish to differ a little from the above. There is no clarity whether the workman completed 5 years under any contractor. It seems he cumulatively completed (assumption only), but not under single contractor. In such case he can not be eligible. Though he may be working at same location or organization, unless he works for a continuous period of 5 years, the workman is not eligible for gratuity. If the workman works continuously for 5 years and if the contractor fails, the liability may arise and Principal Employer will come into picture. When there is no eligibility at all, who is to pay may not arise.
From India, Hyderabad

The most weaker section of the employees in relation to any organization are contractual labor. PE and its HR representatives are always finding loop holes in law to avoid certain statutory payment e.g Gratuity, Leave pay etc. Non payment of gratuity to contractual labor in the plea of not completing 5 years continuous service is one of such example. All over India, there are organizations where PE is asking contractor to change their employees within 3 years to avoid gratuity payment( I have faced this with renowned MNC). There are employers who are changing contractors without changing contract labor again to avoid payment of gratuity. This is classic exploitation of contractual labor by the PE.

There are cases pending at the Apex Court in this regard. My personal feel the award will be in favor of the contractual labor in future. There are contractual labor who worked under one PE for years together through different contractors but deprived of gratuity as in each case it is less than 5 years continuous service.

In this regard I can share one story ( may be fact ) where one organization had huge problems with employees and unions. The organization employed one champion IR/HR person in permanent position who was assigned to bring down the manpower and set the organization properly. The said guy was also declared as Welfare Officer under Factories Act. The concerned guy by his acumen, faculty, intelligence etc. and with very hard work within 3 years bring down the manpower from 800 to 300 and the organization was running peacefully.

Now the owner of the organization called the Welfare Officer and told him that thank you very much for your effort and result. I am not well conversant with labor laws but I know one thing that if the number of employees are below 500, there would not be required for any Welfare Officer. You please left the organization and as you have worked for only 3 years, therefore you are not eligible for gratuity.

I know few organizations who are taking care about contractual workers very sincerely and settled their gratuity even the worker has not completed 5 years continuous service with any single contractor.

My personal feeling is that going beyond the interpretation of law and with proper mind set under the back drop of PNJ (principle of natural justice) , every employer may consider each case by its merit to pay gratuity to the contractual workers if the total working years with the same PE ( may be under different contractors) 5 years or more continuous service.

S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
+91 98310 81531

From India, New Delhi

The workman in the captioned matter is not eligible for gratuity. The reason is simple because he had not performed 5 years working under one contractor rather the period is sum total several contractors/paymaster. The workman would have been eligible, if had put 5 years of work under one contractor.
From India, Mumbai

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