Am I Eligible for Gratuity After Nearly 5 Years on a Renewed Contract?

Hello, I am working in a reputed private organization on a contractual basis for 4 years and 8 months. Each year, the contract of employment gets renewed. Also, within the entire period of employment, the contractor was changed twice by the PE. All other statutory deductions, such as PF/ESI, are being deducted from my earnings.

In these circumstances, I request your valuable suggestions on whether I am entitled to receive Gratuity benefits or not.

Thanks

Gratuity Eligibility Under Changing Contractors

Legally, you were employed by the contractor, and this contractor is your employer. One should complete five years of service with the employer. The principal employer (PE) has changed the contractor twice. This means you have become an employee of three different contractors and hence would not have completed five years of service. Technically, all your employers have no liability to pay gratuity.

Is the Principal Employer Liable to Pay Gratuity?

This requires a closer examination of facts.

1. Were you doing the same job?
2. Were different contractors under whom you were employed assigned the same assignment?
3. Are you the only person who was taken over from one contractor to another?

More such questions need to be addressed. If it could be proved that the PE has been changing the contractors to subvert the law, then you can get gratuity. However, if you happen to be one such person who has switched jobs from one contractor to another on your own, then you will not be eligible for gratuity.

Thank you so much for your prompt and clear response!

Referencing your queries, in these years, only the names of contractors and pay structures have changed. Everything else remains the same, and this transition happens as per the company policy for the entire outsourced population (around 3000).

Now, when I submitted my resignation, the payroll entity (PE) has clearly denied paying the Gratuity amount, stating, "Please talk to your payroll company." However, my payroll company is saying, "If we receive the amount from PE, we will contact you."

I am unsure how to describe my current situation. Please guide.

Regards

Approaching the Gratuity Authority

If you want to get justice, you can approach the Gratuity authority in your area and engage an advocate to represent your case.

Caution for White-Collared Employees

I always advise individual white-collared employees to be cautious before approaching courts for small amounts. Once you start the litigation process, your employer may provide certain feedback to your current employer, and generally, employers do not appreciate such litigations.

Litigation Considerations

If there are 3,000 such employees, the amount involved will be huge for the PE, and surely they will fight it out. In all such litigations, the chances of winning are only 50%.

Choosing Litigation or Business

If you are not looking for a job and opt to be in business, then you can choose litigation.

Sending Legal Notices

However, after joining your new company, you can choose to send a legal notice. The PE may not respond to the notice. Keep sending two or three notices. Wait for three to four months but send at least three notices. Based on the response, you can choose to file a plaint before the Gratuity Authority of your area, which will be in the Labour Department.

Thanks

Contractual Employment and Statutory Compliance

Every principal employer is taking precautionary measures while awarding contracts to ensure that all liabilities towards PF, ESI, Gratuity, Employees' Compensation, Insurance, wages, Bonus, etc., are borne by the contractor only. The contractors' statutory compliance is carried out by a third party where all the original documents are verified to meet compliance, and only then are the bills released for payment.

The principal employer ensures that all contractor employees are provided with appointment letters, payslips, leave wages, etc., by the contractor. Once the employee accepts the offer from the new contractor, their employment ceases with the earlier one, and therefore, the question of paying gratuity does not arise, regardless of the employee's tenure in the principal employer company premises, even if it exceeds 10 years.

Contracts are generally awarded for a maximum period of three years, nowadays often for two years. For gratuity eligibility, one must serve in an organization for more than five years. PF and ESI deductions are statutory requirements, so the contractor is bound to deduct them.

These days, it is mandatory for every contractor to have PF and ESI registration numbers (Code numbers) for pre-qualifying to bid for tenders.

Regards,
Suresh

Approach the Gratuity Controlling Authority with copies of all documents. Implead both contractors and the principal employer as necessary parties to the claim. You are eligible for gratuity provided there was no break in service, even if you worked with different contractors supplying manpower for the same principal employer.

After reading the facts of your case, it appears that you are employed through a contractor in a permanent job, which is illegal on the part of the principal employer. The frequent changing of contractors indicates that the principal employer is your real employer, and the contractors are merely lending their names. By employing such tactics, your principal employer is engaging in unfair labor practices.

As advised, you should approach the gratuity authority of the area and present your case to them. You can also raise an industrial dispute before a conciliation officer if you are a worker claiming permanent employee status with the principal employer. This process may take a long time, but based on the facts you have provided, you have a very strong case.

Working with Subcontractors

I have been working with subcontractors. I have no direct or indirect connection with the Principal Employer because I was never called by the PE for any interview nor offered any job during my direct employment. Therefore, I cannot claim to be an employee of the PE.

Legal Requirements for Contractors

Secondly, the contractors are awarded specialized jobs to carry out on the Client's premises, for which they have to approach the Assistant Labour Commissioner (Licensing Authority) for the issuance of a license to carry out the respective jobs. Legally, the contractors can commence the job only after obtaining the Labor License. The Licensing Authority verifies the license application along with Form V issued by the PE and then only issues the license.

Advising on Regularizing Services

We are all advising the user to approach the Authority for regularizing his services with the PE. Which Authority should we recommend—the one who issued the license? This means the authority is permitting the contractor to carry out the job without verifying the facts and blindly.

As you are all aware, in India, lakhs of contract laborers are working in Public Sectors like ONGC, BPCL, HPCL, IOCL, Mazgaon Docks, etc., and neither the Government nor any court is thinking of regularizing their services. If it were so easy, everyone would have become a permanent employee in this country. In view of the above, I personally feel that we should not give advice that is not going to help the person seeking opinions from the members.

Thanks & Regards,

Suresh

Dear Mr. Suresh, Labour License should be corrected as "Contract License," applicable if the contractor is supplying more than 20 employees to the establishment. The pertinent question here is whether the contract employee is working in connection with the work of the establishment, either directly or indirectly. Whether the principal employer has interviewed the contract employee is immaterial. The initial query of the employee was only for gratuity. Mr. Bharat Gera has advised him to make another claim for permanent employment, which is just and fair. The authority concerned has to adjudicate the matter based on facts. The final decision to raise a dispute rests with the employee concerned.