Am I Eligible for Gratuity After Extended Leave Due to Maternity and Medical Issues?

I wish for you to guide me regarding the gratuity payment. I joined the organization on 01/01/2007 and have since resigned. I will be serving the notice period, and my last day of work will be 31/03/2012.

Leave Details and ESIC Benefit

I would also like to mention that I was on leave last year, from 15/01/2010 to 31/12/2010, due to my pregnancy and other medical problems. I received the ESIC Benefit (maternity benefit for 84 days) for the same because I rejoined the office for 1 day on 01/07/2010 (maternity leave was from 7th April 2010 to 30/06/2010) to avail the ESIC Benefit. Following that, from 02/07/2010 to 31/12/2010, I was on leave. These leaves were without salary but permitted by the management. I would like to know if I am eligible for gratuity under these conditions.

Regards,
Vijayita.

You are eligible for gratuity as you have already completed 5 years of employment. As you have mentioned leave days, it will not affect the eligibility criteria given under the Gratuity Act.

Regards,
Anuj Trivedi

Thank you for raising your question. Actually, it is a statutory requirement for the employer to give gratuity to employees as per the Gratuity Act. Disqualification of an employee may occur if he/she has committed misconduct as mentioned under the model Standing Orders, but there is no such issue currently. If you have any questions or problems, feel free to call me directly or raise them here. Please mention all relevant details.

[Phone Number Removed For Privacy Reasons]

Regards.

No, you are not eligible for gratuity benefits as per the Gratuity Act 1972 Rules. It is clear from your briefing that you have not completed the 5-year working period in the organization. Additionally, for one complete year (January 2010 to December 2010), you were on leave.

Regards,
Abhay Raj
National Head-HR & Legal
RH Group, Mumbai

Dear Sir,

Mrs. Vijayita's service continued. She completed 5 years of service, so I hope she is eligible for gratuity, and she will receive 4 years of gratuity payment. I am waiting for your valuable reply.

With Warm Regards,
Shobana

No, you are not eligible for gratuity.

Eligibility for Gratuity

In the 5th year, you have worked approximately 100 days (15 days in January, 84 days for maternity, 1 day in July). Even if you had APL/PL/CL/EL, which may constitute a maximum of 60 days (20 days/year), you would have received a salary for 150 - 180 days. The remaining days would be considered as a loss of pay.

This total is less than 240 days in the 5th year. Each year, you are required to work for a minimum of 240 days.

Dear Shri Abhay Raj Ji,

Please review your assertion once again. Even if the leave is without pay, if it is on medical grounds duly supported with a proper medical certificate and the competent authority has accepted it for the grant of leave (any kind of leave), it is considered as a qualified service period and is eligible for the computation of gratuity. I do not see any difficulty in Smt. Vijayita Ji receiving gratuity for the entire period of her services.

Thanks and regards,

As there is no break in the services of Vijayita ji and she was on authorized leave (possibly with or without leave) on medical grounds, she is eligible for gratuity.

Regards,
Anuj

She has to work for 240 days. Leave without Pay (LOP) is not counted as a working day, even if it is authorized.

The following is the worksheet for calculating the number of years of continuous service rendered by you with your management. This is based on the information furnished by you in this thread.

Service Details

Date of leaving (Proposed): 2012-03-31
Date of joining: 2007-01-01
Total length of service: 5 years, 2 months, and 30 days

Leave Details for 2010

During the year 2010, you availed leave as follows:
- Leave without salary permitted by the management from: 15-01-2010 to 06-04-2010
- Maternity leave from: 07-04-2010 to 30-06-2010
- Duty on: 01-07-2010
- Leave without salary permitted by the management from: 02-07-2010 to 31-12-2010

During 2010, you availed maternity leave under ESI. This period must be considered when computing the years of continuous service. The other spells of leave taken in 2010 were all without pay but permitted by the management. Section 2A of the Payment of Gratuity Act defines "continuous service" for eligibility for gratuity. Please refer to Section 2A of the Payment of Gratuity Act for a detailed understanding.

In your case, the periods of absence in 2010 were authorized by the management. Even in the case of unauthorized absence, as per Section 2A of the Payment of Gratuity Act, the employer must issue a written order informing the employee of the break in service. However, since your absence was authorized, there is no break in service. Therefore, the authorized leave taken in 2010 counts towards calculating your continuous service.

If the Payment of Gratuity Act applies to your establishment and to you, you are eligible for gratuity as you have completed more than five years of continuous service.

My views are based on the information you provided in this thread.

Regards,

You have explained my point of view more elaborately in the clearest terms. Thanks. Smt. Vijayita Ji may file her claim for gratuity and post her success story in this forum for reference in the future.

Regards

Dear Harikrishnan Sir,

You have provided the clause of continuous service under Section 2A(1) only, but the explanation of clause 2 states that the female employee is eligible only for twelve weeks.

Section: 2A

Continuous Service

For the purposes of this Act:

(1) An employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service which may be interrupted on account of sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order treating the absence as a break in service has been passed in accordance with the standing order, rules, or regulations governing the employees of the establishment), layoff, strike, or a lockout or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.

(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 for the said period of one year if the employee during the period of twelve calendar months preceding the date with reference to which calculation is to be made, has actually worked under the employer for not less than:

(i) one hundred and ninety days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than six days in a week; and

(ii) two hundred and forty days, in any other case;

For the said period of six months, if the employee during the period of six calendar months preceding the date with reference to which the calculation is to be made, has actually worked under the employer for not less than:

(i) ninety-five days, in the case of an employee employed below the ground in a mine or in an establishment which works for less than six days in a week; and

(ii) one hundred and twenty days, in any other case;

Explanation: For the purpose of clause (2), the number of days on which an employee has actually worked under an employer shall include the days on which:

(i) he has been laid-off under an agreement or as permitted by standing orders made under the Industrial Employment (Standing Orders) Act, 1946 (20 of 1946), or under the Industrial Disputes Act, 1947 (14 of 1947), or under any other law applicable to the establishment;

(ii) he has been on leave with full wages, earned in the previous year;

(iii) he has been absent due to temporary disablement caused by an accident arising out of and in the course of his employment; and

(iv) in the case of a female, she has been on maternity leave; so, however, that the total period of such maternity leave does not exceed twelve weeks.

(3) Where 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 for such period if he has actually worked for not less than seventy-five percent of the number of days on which the establishment was in operation during such period.

Kindly explain how we can go about this.

Regards

Understanding the Payment of Gratuity Act

Firstly, all the clauses of Section 2A of the Payment of Gratuity Act must be read together, and no single clause of that section should be read in isolation. Please see Section 2A(2). This section starts with the 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 only 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) and Section 2A(2) of the Payment of Gratuity Act are mutually exclusive. In the case of Ms. Vijayita Nair, she had been in uninterrupted service from 01-01-2007 till 31-03-2012. The issue, therefore, is whether the interruptions in her service are allowed under Section 2A(1). Section 2A(2) would come into operation only if Ms. Vijayita Nair was not in continuous service within the meaning of Section 2A(1).

If you compare Section 2A(1) of the Payment of Gratuity Act with Section 25B(1) of the Industrial Disputes Act, you would notice that Section 2A(1) of the Payment of Gratuity Act has the clause underlined in addition to what is contained in Section 25B(1) of the Industrial Disputes Act.

Section 2A(1) of the Payment of Gratuity Act

An employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service which may be interrupted on account of sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order treating the absence as a break in service has been passed in accordance with the standing orders, rules, or regulations governing the employees of the establishment), lay-off, strike, or a lock-out or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.

Section 25B(1) of the Industrial Disputes Act

For the purposes of this Chapter, a workman shall be said to be in continuous service for a period if he is, for that period, in uninterrupted service, including service which may be interrupted on account of sickness or authorized leave or an accident or a strike which is not illegal or a lock-out or a cessation of work which is not due to any fault on the part of the workman.

The same 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 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...". The real import of this decision is that Section 25B(2) would come into play only if Section 25B(1) is not complied with, satisfied, or is not applicable.

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.

Section 2A(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 Section 2A(2) were not there in the Payment of Gratuity Act, then employees/workmen whose services are interrupted for reasons not specified in Section 2A(1) could not get any gratuity at all. The explanation is applicable to Section 2A(2) only and not to Section 2A(1).

Regards

So, it means any person who is on the rolls/service for 4 years and 240 days is eligible for gratuity, whether they have worked or not for 240 days in each year. However, the Dalmia Magnesite Corporation vs. The Regional Labour Commissioner, Madras High Court judgment is different, where it states that 240 days of working are a must for every year, even if the employee is in continuous service. Kindly help me in this regard.

Clarification on Gratuity Payment and Continuous Service

Please see my previous postings. Section 2A of the Payment of Gratuity Act was inserted into the Payment of Gratuity Act in the year 1984 with effect from 11-2-1981. I have pointed this out in my previous post. The Payment of Gratuity Act was enacted in the year 1972, and it contained Section 2(c), which defined the term "continuous service." This definition of continuous service was amended in the year 1984 by the Amendment Act of 1984. This amendment came into force with retrospective effect from 11-2-1981.

This amendment was consequent to a judgment of the Honourable Supreme Court in Lalappa Lingappa vs. Lakshmi Vishnu Textile Mills, Sholapur 1981(1) LLJ 308, in which the Honourable Supreme Court held, interpreting Section 2(c) (as it stood before the Amendment Act of 1984) of the Payment of Gratuity Act, that even permanent workmen were not entitled to gratuity for the years they remained absent without leave and had actually worked for less than 240 days in a year. It was represented by several workmen and organizations of workmen that this interpretation had given rise to a situation where workmen were denied gratuity on the ground that they had not physically worked for 240 days in a year. Acting on these representations, the Government of India introduced an amendment to Section 2(c) of the Payment of Gratuity Act in the year 1984.

The amendment reads as follows (in the Amendment Act of 1984):

"3. Amendment of section 2.- In section 2 of the principal Act, for clause (c) and the Explanation thereto, the following clause shall be substituted, namely:-
'(c) "continuous service" means continuous service as defined in section 2A;'

4. Insertion of new section 2A.- In the principal Act, after section 2, the following section shall be inserted, namely:-
"2A. Continuous Service.- {For the contents of Section 2A please refer to the Act. I am not typing it here as it is very long}

The judgment referred to by you interpreted section 2(c) of the Payment of Gratuity Act as it stood prior to the Amendment Act of 1984. As section 2(c) of the Payment of Gratuity Act has been amended subsequent to the judgment referred to by you, that judgment cannot be considered as an authority for the interpretation of section 2(c) as it stands today and which is applicable to the case of Ms. Vijayita Nair.

Even the judgment in the Mettur Beardsell case, which is often referred to in this forum, was delivered subsequent to the Amendment Act of 1984.

Therefore, your presumption that the employee should have worked physically for 240 days in a year to claim gratuity under the Payment of Gratuity Act is not correct, as it is based on a judgment which has not interpreted section 2(c) of the Payment of Gratuity Act as it stands today.

With regards,

It is now clear that 240 days are not a requirement for each year. Only the service is counted for gratuity, whether the employee has worked or not. Therefore, any person who has served in the organization for a period of 4 years and 240 days is eligible for gratuity. Thank you for your detailed and valuable information.

Understanding Continuous Service for Gratuity Payment

It cannot be said that 240 days is not a must for each year. If, in a given case, Section 2A(2) is applicable, then 240/190 days become relevant. What the PG Act says is that the employee should have put in "continuous service" for five years. What is "continuous service" is defined under Section 2(c) read with Section 2A of the Payment of Gratuity Act.

The question of whether an employee has put in "continuous service" for five years or not is a question of fact depending on the facts of each case. Similarly, whether Section 2A(1) will apply or Section 2A(2) will apply depends on the facts of each case. It cannot also be said that "only the service is counted for gratuity whether the employee has worked or not." What the PG Act says is that the service has to be uninterrupted and also enumerates the circumstances under which interruptions in service could be reckoned for calculating the uninterrupted service.

With regards,

Gratuity Eligibility Concerns for Vijayita

In the case of Vijayita, how will the company agree to pay gratuity when she has not worked more than 100 paid days in the 4th year? No company will easily provide the money or benefit unless the employee has served the company according to the policy. Even if she has served for 5 years, she is not eligible for gratuity because she has not completed 240 days in the 4th year.

Despite the judgment from the Honorable Supreme Court, every company has established its policy for gratuity for 5 years. Unless an amendment is made in the Payment of Gratuity (POG) Act, the company will not adhere to this unless taken to court or legal proceedings. Moreover, the company or employer will also fight for justice from their side if taken to court.

Even the insurance company providing a group gratuity scheme does not release the gratuity amount unless the employee has served for less than 5 years.

Dear Mr. Shenbagaraman,

In your last post, you stated, "we have the judgment from the Honourable Supreme Court." Could you please provide the cause title of the case, the date of judgment, and the Honourable Judges who delivered the judgment? If this judgment has been reported, kindly include the citation as well. This information would be immensely useful to all.

The liability to pay gratuity lies with the employer and not with the insurance company. The insurance company's refusal to provide gratuity under the group gratuity scheme is not a valid legal defense for denying gratuity under the Payment of Gratuity Act.

Regardless of the company's policy on gratuity payments under the Payment of Gratuity Act, that policy must not be less favorable than the Act's provisions, nor should it contradict the provisions of the Act. I urge you to review the provisions of Section 14 of the Payment of Gratuity Act.

With regards,

I stated the judgment of 4 years and 240 days. Still, today, many companies are following only 5 years for gratuity, and 240 days of working are a must in a year.