Even in the hypothetical case later presented, the eligibility for gratuity of the employee on a/c of his resignation on 02-01-2014 is not in dispute as he was on the rolls of employment of the employer ever since his joining on 01-01-2009 i.e for 5 years. Now, the pertinent question, therefore is whether he is ENTITLED to gratuity for all these 5 years or only for the first consecutive 4 years since the no of days he actually worked in the 5th is only170 days due to Leave without pay. Will the Questioner be kind enough to read once again in its entirety of Section 2-A of the Payment of Gratuity Act,1972 which defines "continuous service" for the purposes of the Act? For the purpose of entitlement of an employee to gratuity for a period, sub-section (1) of Section 2A creates a legal fiction in respect of the meaning of the term "continuous service" comprehended commonly out of the actual meaning the phrase conveys and sub-section (2) explains the fiction thus created. The fiction created by the Statute u/s.s(1) of S.2A is " Uninterrupted Service" inclusive of "certain interruptions" viz.,(1)sickness(2)accident(3)leave(4) authorised absence from duty without leave as per standing orders, rules or regulations in force (5) lay-off and (6)strike or a lock-out or cessation of work not due to any fault of the employee. Sub-section (2) of S.2A explains the fiction with reference to the no of days the employee concerned actually worked in the contingent of impossibility of notional reckoning of continuous service as stated previously. Here again, by the explanatory note to the ss, the absence of the employee due to permissible lay-off, authorised leave with full wages, temporary disablement caused by any employment accident and in the case of female permissible maternity leave are to be notionally included in the actual no of days worked.
Seems a bit confusing?
Actually not so, if one makes an isolated reading of the ss(1) at first for the purpose of determining continuous service for gratuity and then only proceeds further conjunctively with ss(2) only in the case of impossibility. In other words, in a period, if the employee's service remains uninterrupted inclusive of the specific interruptions mentioned therein ss(1) of sec.2A, he is straight away entitled for gratuity irrespective of the days he actually worked. Otherwise, you have to be on the look out for the minimum number of days actually he worked in the light of the explanation to ss.(2) of sec.2A to determine his entitlement.
Coming to your question, if the Leave Without Pay is permitted in the rules/regulations/standing orders of your establishment, he is entitled for gratuity for the 5th year though his actual no of working days is only 170. Otherwise, he is not entitled for gratuity only in respect of that year.