Gratuity Eligibility After Termination for Misconduct: Does 4 Years and 7 Months Count?

If an employee is working in a private institution and has signed a bond and agreement with the company, having completed 4 years, 7 months, and 15 days, and is terminated for denied duties and misconduct (as per the termination clause in the appointment letter), the probation period clause is mentioned in the appointment letter. It is clearly stated that in the absence of written confirmation, the employee will be deemed to be on probation.

The question is whether he will be entitled to gratuity as the Gratuity Act specifies that 240 days should be completed.

Probation period: If not renewed nor confirmed in writing, the employee is deemed to have been confirmed, in my opinion.

If the employee has completed (4 years, 7 months, and 15 days) - 6 months above without any uninterrupted service, he is eligible for Gratuity as per the Gratuity Act. If not paid, raise a claim before the Payment of Gratuity Authority.

No employee can be on probation for 4 years. My knowledge indicates this is the legal position. Hope I have clarified.

As per the Gratuity Act, an employee who has rendered at least five years of service becomes entitled to the said benefit. The prerequisite of completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement to the extent that the person is literally unable to provide the required services.

Dear Dipti,

Your post indicates that the employee is concerned only with gratuity based on the actual service rendered as a probationer.

As per the prevailing practice followed on the basis of the ratio decidendi of case laws, the employee would be eligible for gratuity only if he/she has completed 240 days of continuous service in the 5th year. No "rounding off" principle can be permitted in this calculation. Therefore, when an employee's service in the 5th year falls short of this, he/she automatically goes out of the eligibility criterion.

If the termination is questioned as illegal and the employee gets a favorable order from the court, then gratuity would become an attendant benefit. Before that, answers are required from you for the following vital questions:

Questions Regarding Probation and Termination

How can an employee be kept in probation continuously for a period of more than 4 years? How could such an absence of confirmation in writing for such a long period possibly lead to the presumption that the incumbent is still a probationer? When the actual reason for termination was alleged misconduct, how could the employee be simply discharged as a probationer? What was his/her position of employment - workman or above? Why is the employee not prepared to contest the termination of his/her employment?

Thank you.

Thank you very much for your kind response. However, the Surendra Verma case citation is not applicable unless the employee has completed 240 days. How can an employee be kept on probation continuously for more than 4 years? Every year, he has been signing a one-year contract from April 2013 to October 2017. How could the absence of written confirmation for such a long period lead to the presumption that the incumbent is still a probationer? In reality, this is not feasible.

When the alleged reason for termination was misconduct, how could the employee simply be dismissed as a probationer? What was his/her position of employment - a workman or above? The job was on a contract basis. Why is the employee not willing to challenge the termination of his/her employment? Perhaps he only seeks gratuity.

It is clearly stated in the Appointment Letter (termination clause) that the company can terminate with or without notice at any time.

Please help!

Dear Friends,

As far as I understand, the Gratuity Act does not consider the status of an employee, whether permanent, temporary, casual, badli, probationer, confirmed, or not confirmed. It only speaks about continuous service for 5 years for eligibility (which is now considered as 4 years and 240 days).

Warm Regards,
Bharat Gera
HR Consultant
9322404765

Dear Uma, From this query, it appears that the individual in question has been working as an employee under yearly contracts for over four years. However, he has not completed 240 days in the fifth year. It raises the question of how probation comes into play when the employee is essentially under a yearly contract. It is mentioned that the employee has been signing a one-year contract every year from April 2013 to October 2017. It is not clear whether there have been any breaks between these contracts, even for a day.

Based on this understanding of the situation, it can be concluded that the employee is not eligible for gratuity.

Thank you.

I appreciate your immediate reply explaining the vital facts. I understand that this is an arrangement of a fixed-term contract of employment between the employer and employee concerned, initially for a period of one year with a specific clause for further renewal. Therefore, in the first place, the questions of probation or confirmation after a certain specified period do not arise at all.

Secondly, had the Fixed Term Contract commenced on 01-04-2013 initially, it would have been in force, of course with renewals thereof, during the 5 consecutive years: 2013-14, 2014-15, 2015-16, 2016-17, and 2017-18. However, for obvious reasons, the employer chose to foreclose the contract in the middle of the 5th year.

Now, the pertinent questions at this point are whether there was any minimum notice in the unilateral termination clause of the contract and whether the employer complied with it. If it were so, the terminated employee has a genuine case for successfully complaining against a breach of contract and claiming for damages in a Civil Court. When I say so, I take into account the appointment orders you mentioned. But the contract is the basic document in the case.

Appointment date: March 2013

Contract period:
- 30.3.2013 to 31.3.2014
- 1.4.2014 to 31.03.2015
- 1.11.2015 to 31.10.2016
- 01.01.2017 to 31.12.2017 (terminated in Nov 17)

Contract has run for 3 years with a break of 2 months in 2016 (1/11/16-31/12/16) and another break in an earlier period. How did the question of gratuity arise?

Exactly. An employee is writing an email for gratuity and threatening legal action as he received salary for two months in 2016. Is there any court ruling regarding this? Please guide.

Understanding Gratuity Eligibility

You need not mix up the probation period and the fixed-term contract with the right of an employee to receive gratuity. Both the period during which the employee was on probation and the period served under a fixed-term contract will be considered as service for the purpose of eligibility for gratuity.

In the present case, the employee has not worked for 4 years plus 240 days in the fifth year. You need not take years in compartments but take the date of his leaving service (the date on which he was formally relieved) and count the pay days backwards. You need not take the days physically present but the days for which salary was paid because the weekly off days, the employee was on leave with pay, holidays, etc., will be counted as days worked for the purpose of gratuity calculation. Check whether each year has 240 pay days and accordingly see whether he has worked for 5 years. I don't think that he has such a number of pay days. If not, reject the application for gratuity. If he has worked for 5 years with each year qualifying with 240 days of work, then give him the amount and settle the issue.

Concerns About Fixed-Term Contracts

Now supporting the comments made by Shri Umakanthan Sir, I would say that although fixed-term appointments are permitted, engaging an employee on an FTC for such a long period is not a good practice and is one of the unfair practices under the ID Act.

How should Leave Without Pay (LWP) be considered in this case? Should gratuity be calculated accordingly? I mean, should LWP be included in the calculation?

LOP period is included for calculating gratuity as it comes within the continuous service as defined under Section 2A of the Payment of Gratuity Act 1973.

From what you have described, the employee has not completed the eligibility period of 4 years & 240 days, particularly with the 2-month break in service, and so is ineligible. If the employee has stated anything to the contrary in the notice, please share so that we can consider the matter further.

LOP, which is not regularized, will be considered a break in service. There are a few gaps in between the FTCs; these are unpaid days and are not counted towards continuous service.

One should have 5 years of continuous service to be eligible for gratuity. The period of probation cannot be separated from the length of service. The calendar year calculation is not justified. The following observations were set and decided by the apex court to determine one's eligibility.

One must have actually worked for 240 days, and the relationship of master and servant must have existed for the same period. If an employee has been absent for any number of days only due to sickness, accident, leave, lay-off, strike, lock-out, or cessation of work not caused by any fault of the employee, then their service will be considered uninterrupted and continuous, regardless of the number of days absent in that year.

However, if the employee has been absent for any other reason not mentioned in the main part of the definition, their service will not be considered uninterrupted and, therefore, not continuous.

When this law was framed, it gave priority to both the employer and the employee, and continuous service was defined as actual 240 days of work or presence in service. This allowed the employer to have more working days in the factory for increased production and to contribute to the employee's gratuity. Even after 46 years since the enactment of the Act/rules/laws, understanding the eligibility criteria has become complex due to several court decisions.

Please let me know if you need further assistance.

Dear Dipti,

Time and again, it is quite unfortunate that many questioners ignore the repeated requests of some of the resource persons of this forum to present all the relevant details relating to their disputed questions of facts in full as well as with clarity of presentation at a stretch. But, they are coming forth in installments only, that too after many, many follow-up questions by the respondents.

Very well, this can be culled out of your first post yesterday and the second post today. The employee was in your service as a Fixed-Term Annual Contract Employee for 4 years only, and excepting the first two, the contracts are not consecutive in nature, and therefore, there is no possibility of counting the breaks for the purpose of continuity of service for computing the minimum qualifying service for gratuity as per Section 2-A of the Payment of Gratuity Act, 1972. There is no break in the service of the employee between the first two annual contracts, i.e., 30-03-2013 to 31-03-2014 and 01-04-2014 to 31-03-2015. However, there is a break of 7 months before the commencement of the third contract, i.e., 01-11-2015 to 31-10-2016. Again, between the third and fourth contracts, there is a break of 2 months. Since the breaks are due to non-renewal of the contract, they cannot be simply treated as breaks on account of LOP.

Therefore, my considered opinion is that the employee is not eligible for gratuity as she has not completed the minimum qualifying continuous service of not less than 5 years.

The question of gratuity does not come up here at all. She has worked only 3+ years and that too with breaks.