Gratuity for Long-term Casual Workers: Are We Responsible if Contractors Don't Pay?

Hi Folks,

I need your suggestions on this issue.

We are in the construction line, and the nature of operation requires working on Sundays as well. We have employed more than 1000 casual employees (employed through a contractor).

The Issue

Case One

The casual laborer worked with us through a contractor for almost 4.5 years. Whether he is eligible for gratuity, and in case the contractor fails to pay the gratuity, whether we need to pay the same as the principal employer. Throughout these years, he had worked for us under the same contractor.

Case Two

The casual laborer worked with us through two contractors, with the first contractor for 2.5 years and with the second for almost 2.5 years. Whether he is eligible for gratuity, and in case the contractor fails to pay the gratuity, whether we need to pay the same as the principal employer. Throughout these years, he had worked for us as a casual laborer.

In both cases, as the nature of work requires, both employees have worked for 240 days every year.

Your valuable views, please.

Regards, R. Sudhakar

Dear Sudhakar,

Case 1

It is not clear whether the employee has worked for 4 years, 4.5 years, or 5 years.

For initial eligibility, he must have completed 5 years.

If an employee has completed 240 days of work in all five years, he is eligible. We need to examine the facts carefully. To simplify, I would advise you to check if all these employees have completed 4 years and 6 months of service. Organizations with 5 days of work, 4 years, and 6 months will make an employee eligible.

If it is 4 years, then the employee will not be eligible to receive gratuity. If it is more than 4 years and six months, then examine the facts carefully.

The contractor is liable to pay. However, if he fails to make the payment, the Principal employer needs to make the payment and take necessary steps to recover from the contractor.

Refer Madras Fertilisers vs. Controlling Authority under Payment of Gratuity and others 2003(I) LLJ 854 (Madras High Court).

Case 2

Working under two different contractors will have to be examined. Please check whether there has been any break in service in terms of the nature of the job, your terms with the contractor, etc. For example, if you have specified to the new contractor that they shall engage these workmen, then there is definite continuity of service. If the contract has expired, and a new contract has been awarded, then there is no continuity of service. Again, I am not very clear about them being engaged as casual labor with you all through. These two employments are different; a casual worker is your direct employee, but a contract workman is not your direct employee. If they are engaged as a casual worker and you are using the contractor for namesake, and if it is proved in court, then you need to make the payment, and you will not have the right to claim it from the contractor.

I have given broad guidelines, and to provide an exact and foolproof legal opinion, more facts need to be examined.

In a nutshell:

1. If a contract workman has completed 4 years and 6 months, he may be eligible for gratuity.

2. If he does not receive the payment from the contractor, then as the Principal employer, you are liable to make the payment.

3. After making the payment, you have the right to claim from the contractor.

4. Employment under two different contractors needs to be examined carefully with reference to continuous service or break in service.

Sivasankaran

Hi Team, I need your suggestion on this issue. An employee worked on a daily wage for 3 to 4 years of his service before being regularized. He was retrenched from service after fifteen years since the company is in a loss condition. Management paid retrenchment compensation, gratuity, and other terminal benefits to him from the date of regularization of his service. He filed a case stating that the management has not paid retrenchment compensation from his date of joining and only paid from the date of regularization. Management argues that since he worked on a daily wage and did not work 240 working days in a year, he is not entitled to retrenchment compensation for the daily wage period. The burden of proof lies with the workman. In this situation, can the labor court direct the management that the retrenchment is illegal and pay compensation for the daily wage period? Furthermore, the workman withdrew the compensation amount, applied for the settlement of the provident fund, and for reduced pension. What should the management follow in this regard? Please guide with your valuable suggestions.

Thanks & Regards, G.B. Anjaneya Reddy