Am I Eligible for Gratuity After Company Transitioned from Proprietor to Private Limited?

I would like to know whether I am eligible to receive gratuity from the company, which was initially operating as a proprietor firm for 3 years and then started operating as a private limited company. I have completed more than 5 years, considering the working days of both companies. I also withdrew my PF from the proprietorship firm, and now my PF account, code number, etc., are separate in the private limited company. Will my service be accounted for in continuity? The employer is saying that my service is discounted due to the withdrawal of PF and that I am not eligible for gratuity. Please guide me.

From your post, I understand that you have been working in a firm for over 5 years and now wish to claim gratuity benefits. The firm operated as a proprietorship for 3 years and has since been functioning as a Pvt. Ltd. Co.

Questions Regarding Employment Duration

1. What was your employment duration in the firm when it was under proprietorship?
2. What was your employment duration in the firm as a Pvt. Ltd. Co.?
3. The company must have undergone certain changes like getting registered, etc. As a result, have they changed their name (minorly or majorly)?
4. During the transition, were you given a new offer letter from the Pvt. Ltd. Co.? Or were you given any letter which mentions that your previous employment will be considered?

Important Considerations for Others

Kindly note that whenever a company changes its name, expands to a Ltd. Co., or gets merged or acquired with another firm, it is our duty to ask about our future with HR. You must ask if your previous employment will be continued or if a fresh employment will be considered. In either case, we need to ask for such things in writing to produce it as proof.

Ideally, in such a scenario, HR produces a new offer letter and mentions that now you are an employee of the new firm, stating that you have been previously working for the firm since a certain period, and that will be considered for all the benefits to be given in the future during separation (resignation/termination/retirement).

Regards

Ensuring Compliance with Section 25FF of the Industrial Disputes Act

The basic requirement when making changes in the management or constitution of a company is to ensure compliance with Section 25FF of the Industrial Disputes Act. This section states that no employee shall be transferred to a new company without receiving retrenchment compensation as prescribed under Section 25F of the Act. However, if the service conditions remain unchanged and the wages and other service benefits are more favorable than those of the previous company, there is no need to pay compensation, and the employees' services shall continue without any break.

Unless otherwise settled, and in the absence of any option given to the employees regarding whether they would like to join the new company, and in the absence of any payment given to those who decide not to join the newly formed company as retrenchment compensation, all employees are deemed to have joined the company on the date they joined the former company.

Handling Provident Fund (PF) Transfers

The second issue is that when employees from the partnership firm were transferred to the company, the PF accounts were closed, and employees were allowed to withdraw their PF, starting new PF accounts for them. While it is acceptable for the newly formed company to have a new PF number, the old PF accounts of each employee should have been transferred to the new ones using transfer forms, such as Form 13. This was a managerial adjustment, and workers cannot be blamed for this oversight.

Eligibility for Gratuity

In view of the above, I find that those who have completed 5 years of service from the date of joining the partnership establishment will be eligible for gratuity.

Regards,
Madhu.T.K

You are eligible for gratuity since it seems the partnership firm was converted into a private limited company; hence, the continuation of the organization.

My view is different here. According to me, section 25FF is not applicable in this case. Section 25FF is applicable when there is a transfer of undertaking, when there is a transfer of ownership or management of the undertaking.

In the given case, the querist has worked with the proprietor for 3 years and then with a Private Limited Company for 2 years. Both of these undertakings, i.e., the Proprietary Firm and the Private Limited Company, are separate entities. The ownership of the first one was with the sole proprietor and of the other one with the board of directors. The entity of the second one is created by registering a company with ROC, and its commencement of business starts from the date of its incorporation as mentioned in the certificate issued by ROC.

Under these circumstances, it cannot be said that there is a transfer of undertaking or transfer of ownership or management.

Moreover, it seems there is a settlement of dues of the querist by his proprietor in full and final. PF is also settled. He has no grounds to say that his service was transferred from one company to another one with some understandings.

According to me, there is no chance for the querist to claim gratuity by law.

Hope you will agree with my contention.

Dear Sir/Madam,

Can we claim gratuity under proprietorship?

Dear Sir/Madam,

Can we claim gratuity under proprietorship?

Are you eligible for gratuity under proprietorship?

If you have worked for the minimum qualifying period of service required, you will get it irrespective of whether the establishment is a proprietorship or company. The only thing to be noted is that if your establishment is not a factory, plantation, or mine, there should be at least ten employees in your establishment for coverage of the Act.