Gratuity Dilemma: Are You Eligible When Your Company Shuts Down After 4.5 Years?

Gratuity Eligibility in Case of Company Closure

I am looking for expert advice from all members regarding the undermentioned gratuity issue:

The company is shutting down its operations, and all employees are asked to leave the company. Please advise if an employee who has completed 4 years, 6 months, and 10 days will be eligible for gratuity. Gratuity rules are clear, but nowhere is it written what the liability of gratuity for the company will be when the company is closed.

If 4 years and 240 days are still required to make the company liable to pay gratuity, then all small unethical companies can stop operations every 4.5 years to avoid paying gratuity. Please advise, and if you have any supporting documents, please share the same.

It is sad that the company is closing down with so many employees rendered jobless. However, regarding the query you have raised, please refer to Section 4A of the Act -

Compulsory Insurance

(1) With effect from such date as may be notified by the appropriate Government in this behalf, every employer, other than an employer or an establishment belonging to, or under the control of, the Central Government or a State Government, shall, subject to the provisions of sub-section (2), obtain insurance in the manner prescribed for their liability for payment towards the gratuity under this Act from the Life Insurance Corporation of India established under the Life Insurance Corporation of India Act, 1956 (31 of 1956) or any other prescribed insurer.

If your company has complied with the above, employees can approach the insurance provider to claim their gratuity in the event of closure as indicated.

Government Notification for Compulsory Insurance

Please check whether the appropriate government authority has notified the scheme for compulsory insurance through LIC of India. The company is legally bound to clear all statutory dues while winding up. Gratuity is one such statutory due that must be cleared.

Notice of Opening, Change, Closing of Establishment

According to Rule 3 of the Payment of Gratuity Rules 1972, once the Payment of Gratuity Act becomes applicable to the establishment, a notice in Form 'A' must be given by the employer to the controlling authority within 30 days. A notice in Form 'B' is required within 30 days of any change in name, address, employer, or nature of business. If an employer proposes to close down or wind up the business, a notice in Form 'C' must be given to the concerned controlling authority at least 60 days before the intended closure.

Employees with less than 5 years of continuous service may not be eligible for gratuity anyway.

Dear friend,

The number of days for counting a year as per the Gratuity Act is 240. Hence, if you are completing 240 days in 365 days in a year, you are eligible for one year. According to this, a person is eligible for gratuity by completing 240 days x 5 years. Therefore, if a person completes 4 years and 240 days in the 5th year, they are eligible for gratuity.

I have attached the High Court Judgement as a reference.

Input received from Mr. Alphonse