Legal Interpretation of Fixed-Term Employment and Gratuity
In the case of State Bank of India vs. N. Sundaramoney, the Honourable Supreme Court of India held that the termination of employment of an individual worker due to automatic extinguishment of service by virtue of a preemptive provision to terminate in the appointment order itself would amount to retrenchment. Subsequent to this judgment, the Industrial Disputes Act 1947 was amended, and section 2(oo)(bb) was introduced. According to section 2(oo)(bb), the termination of the service of the workman as a result of the non-renewal of the contract of employment between the employer and the workman concerned on its expiry, or of such contract being terminated under a stipulation contained therein, does not amount to retrenchment. In other words, the interpretation placed on the definition of the term "retrenchment" in Sundaramoney's case was overcome with the introduction of section 2(oo)(bb). Therefore, the termination of the services of a workman on the expiry of the term fixed in the appointment order does not amount to retrenchment as defined under section 2(oo) of the Industrial Disputes Act. It is very clear that the concept of "fixed-term employment" was introduced with reference to the provisions of "retrenchment" under the provisions of the Industrial Disputes Act.
Breaks in Service and Gratuity Entitlement
The question posed by you is whether the breaks in service given by you to the fixed-term employee, followed by full and final settlement, could be regarded as breaks in service under the Payment of Gratuity Act to disentitle the fixed-term employee from claiming/getting gratuity from the employer. As far as my knowledge goes, there are no decided cases on this point.
Understanding "Continuous Service" Under the Payment of Gratuity Act
The term "continuous service" has been defined in section 2A of the Payment of Gratuity Act. Section 2A(1) of the Payment of Gratuity Act indicates what are the days of service that have to be reckoned for calculating the "continuous service." Section 2A(2) of the Payment of Gratuity Act prescribes the method to be adopted for determining whether an employee was in "continuous service" in cases where an employee is not in "continuous service" as defined in section 2A(1). Section 2A(2) starts with this 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 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 the fixed-term employee cited by you in this thread, if he is not covered by section 2A(1), he would definitely be covered by section 2A(2).
Comparison with the Industrial Disputes Act
A 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 in 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…."
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.
Application of Section 2A(2) for Fixed-Term Employees
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 this principle is applied, even fixed-term employees will be entitled to gratuity under the Payment of Gratuity Act if they put in five years of continuous service as defined in section 2A of the Payment of Gratuity Act.
Gratuity Entitlement Despite Termination Mode
It might be argued that the method or mode of termination of the services of a fixed-term employee is not indicated in section 4(1) of the Payment of Gratuity Act. I would like to draw your attention to section 4(6) of the Payment of Gratuity Act. According to this section, even if the employee is terminated for any misconduct specified therein, he is entitled to gratuity subject to the conditions specified in section 4(6). When an employee whose services are terminated for misconduct could get gratuity, why not a fixed-term employee, whose services come to an end by efflux of time, get gratuity?
The next argument will be that the fixed-term employee had settled his accounts fully and finally. It is a fundamental principle of law that there cannot be a contract or agreement contrary to the provisions of any law, and the full and final settlement, if effected without paying gratuity and contrary to the provisions of the Payment of Gratuity Act, will be void ab initio and cannot be relied upon by the employer to deny gratuity if the other conditions are fulfilled.
Regards