How Should Companies Handle Gratuity Claims for Long-term Temporary Workers?

HR FEDERATION OF INDIA (HRFI)

QUERY - PAYMENT OF GRATUITY ACT

Dear All, we have received a query from one of our members pertaining to the Payment of Gratuity Act.

BACKGROUND

The company has been manufacturing textile products since 1950 and is situated in a remote place in Karnataka. Most of the activities are manual in nature. The company has the following manpower strength:
Permanent - 6670
Temporary - 3500

The temporary workers have been working for a long time. Some of them have worked for 8-10 years and have recently been absorbed onto the permanent roll of the company.

Mr. Vikram joined the company on 10th January 2007 as a temporary workman. Prior to that, he had worked through various contractors. The company absorbed him onto the permanent roll on 1st January 2016. He retired on 31st August 2017 as he had completed 58 years of age. The company has settled his full and final settlement.

After receiving his full and final settlement, Vikram raised a query with the HR Manager that he had not received the gratuity payment. The HR Manager informed him that he was not eligible for gratuity payment as he had not worked for 5 years. Vikram approached the Authority under the Payment of Gratuity Act and lodged a written complaint.

The Authority called the company officials and requested an explanation. The HR Manager submitted an explanation stating that Vikram was not eligible for gratuity as he had not completed 5 years of service. After a week's time, the company received an order from the Authority directing the company to pay the gratuity to Vikram considering his service during the temporary period.

MANAGEMENT CONCERN

If the company decides to pay the gratuity for the temporary period, then another 3500 temporary workers may also claim for gratuity.

QUERIES

1. Whether the company needs to consider the service during the temporary period?
2. Whether the company can challenge the order in a higher court?
3. What preventive measures should the company take to mitigate the risk?
4. Are there any case laws related to such cases?

All members are requested to kindly provide their views on the above queries.

Part 2: Such types of case studies are included in the selection process of some companies. Try to solve them.

Whether the company needs to consider the service of a temporary period?

No, as and when an employee gets absorbed or joins a new employer, it is the duty of the new employer to obtain the experience and relieving letter from the previous employment.

Whether the company can challenge the order in a higher court?

How can an authority issue an order without hearing the other party? It's a purely theoretical question. I am sure this never happens with government authorities.

What preventive measures should the company take to mitigate the risk?

The principal employer should ensure the full and final settlement of an employee before assigning them to a new contractor. Unless and until talent is scarce in the market, long-served contract employees should not be hired.

Any case laws on such cases?

If you are a student, you can find and provide us with the information. Thanks.

Dear Aniket Palve, while appreciating your natural desire, perhaps as a student of HR or Law, for finding answers to some legal questions relating to any service condition, I would like to advise you that it is better first to understand the particular service condition, its evolution as such, and go through the relevant law in force to govern it. Of course, there is no harm in taking a real-life situation as a case study. However, trying to write a case based on your imagination has its pitfalls due to your lack of knowledge. A storyteller needs thorough knowledge about the characters, situations involved in the story, and their impact as per the existing social values. It is better to avoid pseudonyms and half-baked stories; instead, post your queries after going through the relevant Acts and Rules.

Coming to your queries:

(1) The Payment of Gratuity Act, 1972 does not distinguish between temporary and permanent service/employees. Under the Act, the eligibility for gratuity arises from rendering not less than five years of continuous service under the same employer, and the entitlement to gratuity for every year of service arises by completing 240 days of service in the establishment. Your hypothetical scenario of thousands of workmen being allowed to be temporary employees for 8 to 10 years at a stretch by the management is an act of unfair labor practice, and neither the workmen nor their unions would peacefully tolerate it. Even if the settlement or orders of absorption take prospective effect relating to their service, if such workmen prove that they have been on the temporary rolls for so many years, they are entitled to gratuity for the entire service, including temporary service.

(2) The Controlling Authority appointed under section 3 of the Act to hear and dispose of claims relating to gratuity is vested with the powers of a Civil Court, and the inquiry conducted by him is a judicial proceeding under sections 7(5) and (6) respectively. Therefore, the disposal you narrated is only a figment of your imagination. However, there is a provision for appeal to the next higher Authority.

Regarding all other questions raised and hidden in your mind, study the Industrial Employment (Standing Orders) Act, 1946, Industrial Disputes Act, 1947, and the Contract Labor (Regulation and Abolition) Act, 1970, in addition to popular Labor Law Journals.

Dear Aniket Palve,

Please reply to the following:

The company absorbed him on a permanent role on 1st January 2016. When the employee was taken on the rolls of the company, his age was about 57 years. He retired on 31st August 2017 since he had completed 58 years of age.

After a week's time, the company received an order from the Authority directing the company to pay gratuity to Vikram considering his service in the temporary period. Please upload the order for perusal.