Denied Gratuity After Years of Service: How to Handle Payroll Changes?

I was serving one of the organizations for more than 5 years and 6 months on an outsource basis. During my tenure, the company changed to three different outsource agencies because of their own issues. However, I served the company without a single day's break. Now, the company has rejected my gratuity application by saying that I have been on the payroll of the three different outsource agencies. My point is that it was done by the company, not me. Why should I be penalized for that reason? What should I do in this situation?

Contractor Changes and Gratuity Eligibility

The situation where a contractor is changing but contract labor remains the same may be viewed against the principal employer as it goes against the spirit of the act unless the shift of labor from one contractor to another is properly documented. This may lead to the declaration of a sham contract. The Supreme Court in the R.K. Panda case (1994 LLR 634) has held that workers working under different contractors for the last 10 years will be absorbed by the principal employer.

Based on the above information, since you mentioned that you attended work without any single-day break, you are eligible for gratuity. The Principal Employer is responsible for your gratuity. You should file an application before the Controlling Authority under the Payment of Gratuity Act.

Based on your service tenure of 5.6 years, you are entitled to receive gratuity from your employer. It is important to note that you have worked under different contractors (outsourced agencies) during these 5.6 years. In simpler terms, your service tenure under any contractor (outsourced agency) does not equate to 5 years. Therefore, you are not entitled to any gratuity.

To determine your eligibility, you must identify the agencies under which you were employed and verify whether they have obtained a license under the CL(R&A) Act. It is crucial to establish whether the principal employer would be liable if the agencies you worked for did not obtain a license under the CL(R&A) Act.

In this scenario, you should file a claim before the labor authority for resolution, as the nature of the complaint is complex. The determination of whether the contracts with outsourced agencies are genuine or a facade will need to be adjudicated by the court.

Please take the necessary steps to address this matter appropriately.

Thank you.

In the case of Madras Fertilizers Limited vs. Controlling Authority under Payment of Gratuity Act and Others (2003 LLR 244) held that 'gratuity' payable under the Payment of Gratuity Act, 1972, were wages for the purposes of the CLRA. Consequently, by virtue of section 21 (4) of the CLRA, the onus of payment of gratuity would lie on the principal employer in the event of a contractor's failure to pay.
Based on the above principle I feel his claim would the admitted!

Understanding Legal Obligations for Gratuity Payment

We need to understand two things, i.e., what the law and act state. Over the period, various judgments have been passed by different High Courts and the Supreme Court, but nothing has become a law or been amended into an act till now.

1. The workmen of a contractor cannot be treated as workmen of the Principal Employer if the contractor holds a license under the CL(R&A) Act.
2. If the contract worker cannot be treated as an employee of the Principal Employer, how is the Principal Employer liable to pay gratuity?

We need to refer to the case of M/s Cummins (I) Ltd vs. Industrial Cleaning Services & others 2017 for clarification. The Madras High Court has discussed this case and others.

Thank you.

Dear All,

The employee concerned has to submit his gratuity claim to his immediate employer and principal employer. If the claim is rejected, he has to approach the controlling authority for adjudication. The controlling authority will decide the matter based on records.