Whether a fixed term contract employees is eligible for gratuity?

Mr. X worked in a private sector company (A & Co Pvt Ltd) for 30 years and finally retired from service on 30.06.2000 upon attaining the age of superannuation (i.e., 58 years). He received his terminal statutory dues like PF and gratuity in good time, with a gratuity amount of Rs 9 Lakhs.

Mr. X then approached another private sector company (B & Co Pvt Ltd) post-retirement from A & Co Pvt Ltd, requesting a job. B & Co Pvt Ltd accepted his request and offered him employment on a fixed-term basis as detailed below:

Mr. X was appointed on a fixed-term contract basis for one year from 01.01.2001 to 31.12.2001, with a consolidated salary of Rs 1,00,000 per month. Subsequently, he received renewal letters for one-year periods until 31.12.2006, all with the same salary terms.

On 31.12.2007, Mr. X was relieved from the services of B & Co Pvt Ltd, marking the end of the contract period as the company decided not to offer any further extensions.

Throughout the seven-year period with B & Co Pvt Ltd, there were no breaks in service, as evidenced by the issuance of seven standalone appointment letters.

The following questions arise for consideration:

1. Is Mr. X eligible for gratuity from B & Co Pvt Ltd as per the Payment of Gratuity Act, 1972?
2. Does the age and gratuity settlement from the previous company (A & Co Pvt Ltd) hinder Mr. X's claim for gratuity at B & Co Pvt Ltd?
3. If Mr. X is entitled to gratuity from B & Co Pvt Ltd, the calculated amount would be Rs 4,03,846.15 based on the gratuity formula.

Considering Mr. X already received a gratuity amount of Rs 9,00,00 from A & Co Pvt Ltd, the question arises whether he can receive the full gratuity amount from B & Co Pvt Ltd, potentially exceeding the statutory ceiling of 10 Lakhs.

Lastly, is there a deadline for making a belated gratuity claim from B & Co Pvt Ltd after a gap of nine years? Please provide clarification on this matter.

Thank you and regards,
Senprithvib6

The whole question of the gratuity entitlement of Mr. X depends on the definition of the term 'continuous service'.

Continuous service.- For the purposes of this Act, an employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service. This includes service that may be interrupted due to sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order treating the absence as a break in service has been passed in accordance with the standing orders, rules, or regulations governing the employees of the establishment), lay-off, strike, or a lock-out, or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.

Now the question is, can it be considered a 'break in service'? A fixed tenure appointment has a built-in termination of service, and it has been observed every year continuously for six years. Each appointment can be viewed as separate and independent of the previous one. That means every year there is fresh service without consideration of past service. The fact that the appointment was on a fixed pay of Rs. 1,00,000/- every time corroborates this point. So the conclusion can be drawn that there was no continuous service, and accordingly, the gratuity eligibility is not there.

The rest of the questions are academic, but the position is clarified as follows: The age and gratuity already settled, consequent upon retirement in the previous company, is not a restraint for claiming gratuity in B & Co Pvt Ltd. Though Mr. X had already received a gratuity amount of Rs 9,00,00 (Rupees Nine Lakhs only) from A & Co Pvt Ltd, yet Mr. X could get the full gratuity (i.e., Rs 4,03,846) from B & Co Pvt Ltd, although X would be receiving a combined gratuity of Rs 13,03,846, which exceeds the ceiling of 10 Lakhs fixed under the statute. Mr. X could make a belated claim for gratuity from B & Co Pvt Ltd even after a gap of 9 years. There is no deadline set for making a gratuity claim as the PGA casts responsibility on the employer to pay gratuity irrespective of whether gratuity is claimed by the employee or not.

Dear Senprithvi,

Gratuity is a statutory terminal benefit in the form of a one-time lump sum payment to be given by an employer of an industrial establishment to which the Payment of Gratuity Act, 1972 applies to his employee on termination of his/her employment on account of the reasons of resignation, retirement on reaching the age of superannuation fixed in the contract of employment, retrenchment, dismissal after rendering continuous service of 5 years under the same employer, or on account of death, disablement due to accident or disease without reference to any minimum length of service. The Payment of Gratuity Act, 1972, is the complete Code in itself in this regard.

What is important is the length of continuous service under the same employer and not the nature of service like permanent, temporary, contractual, casual, etc. Since gratuity is tied up to the particular spell of continuous service rendered by the employee under the same employer, the instance of gratuity received from another employer or the same employer in respect of a spell of previous service by the employee or likely to be received in respect of any later service under another employer or the same employer under a fresh contract of employment would not have any bearing, including the ceiling on the amount of gratuity receivable for every such independent spell of service.

Though there is a statutory minimum age for employment, there is no statutory restriction on the maximum age. Normally, the employer has to arrange to pay the amount of gratuity within 30 days from the date of termination or if it is disputed by the employee, he has to deposit the amount with the Controlling Authority. Similarly, if the amount is not paid within the time limit above, the employee has to file a claim before the C.A within 90 days. However, his belated claim can be accepted by the C.A after condoning such a delay upon showing acceptable reasons. Since the employer has the statutory liability to pay the gratuity within 30 days it becomes payable or deposit the same with the C.A in case of failure to receive by the employee or of a dispute in this regard, any claim by the employee for gratuity cannot be extinguished on the ground of delay alone.