The Payment of Gratuity Act 1972 defines an ‘employee’ in clause (e) of section 2 as a person other than an apprentice who is employed for wages ………………………… in any kind of work, manual or otherwise, in or in connection with the work of a factory ……………….. to which this Act applies. The term ‘employer’ is defined in clause (f) of section 2. It also nowhere indicates that the principal employer shall be the employer in respect of the workers engaged by the contractors engaged by them. Section 4 provides that an employee shall be paid gratuity on termination of his employment. It also does not refer to the employees of the contractors.
In the aforesaid judgment of Karnataka High Court reported in 1989 (58) FLR Page 528, It was held that the gratuity will not be payable by the principal employer to the workers of the contractors. The Calcutta High Court in a case reported in 2010 Labour Law Reporter 1970 has held that the contractor is the person who is liable for payment of gratuity to the employees, since he has also undertaken in the contract to meet statutory liabilities. The Calcutta High Court has held in para 16 that the contractor was employing more than 10 persons and he was carrying on business as a sole proprietor, therefore, he fulfills all the pre-requisites for the applicability of the Payment of Gratuity Act u/s 1 of the Payment of Gratuity Act 1972. However, Madras High Court in a case reported in 2013 (136) FLR Page 50 held that if the contractor, who employs the workers, does not pay gratuity to them, then the principal employer shall be liable to pay the gratuity by virtue of section 21 (4) of the Contract Labour (Regulation & Abolition) Act 1970. However, I most respectfully do not agree with this view of the Hon’ble Madras High Court. Section 21 (4) of the Contract Labour (Regulation & Abolition) Act 1970 talks of payment of wages by the principal employer in case the same are not paid by the contractor.
The term ‘wage’ has been defined in clause (h) of section 2 of the Contract Labour (Regulation & Abolition) Act 1970 as the same as defined in clause (vi) of section 2 of the Payment of Wages Act 1936. The definition of wage in the Payment of Wages Act 1936 clearly excludes in sub-section (6) of section 2, any gratuity payable on the termination of the employment in cases other than those specified in sub-clause (d). Sub-clause (d) of clause (vi) of section 2 Payment of Wages Act states that any sum which by reason of the termination of employment of the person employed is payable under any law, contract or instrument which provides for the payment of such sum, whether with or without deductions, but does not provide for the time within which the payment is to be made. Sub-section (3) of section 7 of the Payment of Gratuity Act 1972 provides that the employer shall arrange to pay the amount of gratuity within thirty days from the date it becomes payable to the person to whom the gratuity is payable.
Gratuity becomes payable to an employee in accordance with section 4 on the termination of his employment if he has rendered continuous service for not less than 5 years, on his superannuation or retirement or resignation or his death or disablement due to accident or disease. Therefore, since a time limit has been provided in law for payment of gratuity, it will not be covered under sub-clause (d) of clause (6) of section 2 of the Payment of Wages Act 1936 and the exclusion in sub-clause (vi) would be applicable and the gratuity will not be treated as ‘wages’ under the Payment of Wages Act 1936 and under Payment of Gratuity Act 1972 also.
Therefore, on the basis of the above analysis, it becomes clear that firstly, even under the Contract Labour (Regulation & Abolition) Act 1970 (section 21(4), the contractor is the person responsible for making the payment of gratuity. The principal employer becomes liable to pay only wages if the contractor does not pay. But, since gratuity is also not wages under the Contract Labour (Regulation & Abolition) Act 1970, the principal employer cannot be held liable for payment of gratuity even in case the contractor does not pay gratuity.
Thanks,
Ubaid Raheman.