Are Employees Forced to Resign After 4 Years Entitled to Gratuity? Seeking Advice on Layoff Compensation

Query Regarding Gratuity and Compensation in Lay-offs

I have a query regarding gratuity and compensation in relation to a lay-off. An employee has completed 4 years and has entered the 5th year. The employer advises leaving the job just after the 4th year is completed. The reason cited is that the SBU is making a loss, so quite a few of the employees have to be reduced, and they have to resign. The employees are not being terminated officially as the employer wants it to appear that these people have resigned from the job to avoid any legal issues. Are such employees eligible for gratuity?

Looking forward to your suggestions.

Regards

The employees are not entitled to gratuity as they have not completed five years of continuous service.

With regards,

No, even if they have worked for 4 years, 11 months, and 20 days, they are not eligible for Gratuity. You must complete your 5 years; only then do you become eligible for Gratuity. I hope this might help you.

There is a judgment of the Madras High Court on this issue. It is available in this forum.

With regards,

In fact, I had misquoted here. This situation cannot be a LAY-OFF. This is basically a silent RETRENCHMENT. I suppose it can officially be called a Retrenchment only if the employer had posted a NOTICE OF RETRENCHMENT. Since the employer wishes not to compensate rightfully, he tells these people to look for a job elsewhere in a month's time WITHOUT GIVING ANY NOTICE from his side. It is clearly a Retrenchment minus the employer's notice.

In this regard, I look forward to your suggestions:

1. Since these employees have to be released, what should be done to make it a Retrenchment?
2. Is Retrenchment and its benefits applicable for executives?
3. What are the applicable retrenchment benefits?
4. How does the Retrenchment process begin?
5. Will it be wise to prefer a Retrenchment, or simply resign serving 1 month's notice from the Employee's side to the Employer?

Please guide...

Dear Mr. Shan,

If the employee resigns, then it cannot be called retrenchment because retrenchment is the termination of the services of a workman for any reason except the exceptions mentioned in section 2(oo) of the Industrial Disputes Act. If the workmen are released without a resignation letter from them, the action of the employer becomes retrenchment.

The Industrial Disputes Act defines the term "workmen." All workmen are entitled to retrenchment compensation if they are retrenched. The designation given to an individual worker does not determine whether he is a worker as defined under the Industrial Disputes Act. The nature of work done by him determines whether he is a worker as defined under the Industrial Disputes Act or not.

If a worker is retrenched, he is entitled to one month's notice or wages for one month in lieu of notice and retrenchment compensation at 15 days' average pay for every completed year of service.

From the employer's point of view, resignation is ideal. From the worker's point of view, if he is retrenched, he will receive monetary compensation at the rates specified.

With regards,

Gratuity Eligibility and Court Judgments

There is a judgment from the Madras High Court where it agrees to pay gratuity if someone has completed 240 days in the fifth year. However, that judgment is applicable to that particular case only, and our primary reference is the Gratuity Act, which clearly states that you should have five years of service to become eligible for gratuity. So, I feel Vandana is right.

Even when we insure our gratuity through LIC, they also do not pay gratuity if someone has not completed 5 years.

I request you to go through the judgment of the Madras High Court in the Mettur Beardsells case thoroughly. LIC of India has to act according to the provisions of the Payment of Gratuity Act and the interpretations placed on that Act by the various High Courts and the Supreme Court. LIC of India cannot interpret the law.

Regards,