Gratuity Dispute: Can This Employee Challenge His Employer's Denial Legally?

Gratuity Claim Issue

An employee working in a road infrastructure company completed 5 years of service, having joined in July 2013. Upon resignation, he requested his gratuity and an experience certificate for his tenure of more than 5 years. The company management denied his request, stating that he initially served 2 years in their subsidiary/SPV company before transferring to the parent company. They argued that his 5-year tenure was incomplete since he worked in two different companies, and he would receive two separate experience certificates—one from the SPV company and another from the parent company.

The employee challenged this statement by asserting:

1) He received an appointment letter on the parent company's letterhead. Therefore, they cannot place his name in the subsidiary company without his consent and notification. The company did so with fraudulent and deceitful intentions.

2) He was paid in cash on a combined employee sheet, without receiving a salary slip. His deducted PF was submitted under the subsidiary company's PF code, which he was unaware of, and no one informed him.

3) The registered addresses of the subsidiary and parent companies are the same, and the directors of both companies are identical. The parent company held 100% equity shares of the subsidiary company throughout its existence. They cannot deny that the ownership of both companies is the same.

4) The subsidiary company was dissolved into the parent company in November 2017 after completing its project. Any old liabilities in the name of the subsidiary company also transferred to the parent company.

Is the employee's claim valid, and if so, under which acts can he lodge a complaint against the company? Or is the company successful in manipulating the employee?

If the facts of the case presented in your post are true and correct, the employee can file a claim for gratuity against the Parent Company for the entire period of service he rendered, as per the directions and with its knowledge, under Section 7(4)(b) of the Payment of Gratuity Act, 1972, before the Controlling Authority appointed under the Act for the place where he worked last. Prior to that, he would have to issue a formal notice of claim to the employer. Therefore, it is better to engage the services of an advocate to handle the formalities and represent the employee before the C.A., who is a quasi-judicial authority.

Thank you for your valuable suggestions. All facts in the post are true. I studied section 7(4)(b) of the Payment of Gratuity Act, 1972, which states that in case of any dispute regarding gratuity, one can represent the matter to the Controlling Authority.

Finding the Controlling Authority

How can an individual find out about the Controlling Authority at their workplace and obtain their contact information? Additionally, I would like to inquire whether a case of fraud or cheating can be filed against an employer for not paying gratuity, and if so, under which act the employer can be penalized for harassing and cheating employees.

In my company, there are more than 50 cases where the employer is not fulfilling gratuity payments to employees by transferring them between subsidiary companies without the employees' knowledge of the rules and intentions behind the employer's actions.

Thank you.

Dear Mahesh, I can very well understand your anger, which cannot be undermined as unjustified or unnecessary. However, in such moments of anger caused by despair and dejection, one should focus attention towards the remedial measures readily available before him only and avoid an excess of enthusiasm dictated by emotions.

Employment disputes and labor jurisprudence

In general, employment disputes are a subject matter of Labor Jurisprudence only. In particular, any dispute relating to a service condition covered by an exclusive and special Labor Law should be resolved under such Law only. Gratuity is such a condition of employment covered by a special Law, namely the Payment of Gratuity Act, 1972, which is a complete code in itself regarding the gratuity of industrial employees.

Steps to take when gratuity is denied

When the gratuity payable to you is denied by the employer based on a contention that is untenable, you have to approach the forum designated for the purpose only. You cannot plead inability on the ground of difficulty in identifying the forum for redress. Go through the website of the State, and you will find the C.A under the P.G Act for the place where you worked last, or make a visit to any Labor Office in your area, and they will guide you.

Thank you.

Dear All,

Nowadays, most establishments are considering gratuity as part of CTC. However, when an employee leaves or resigns before completing five years, the employer is not paying out the gratuity. I believe that if it is included as part of the salary/CTC, at the very least, the deducted amount should be paid to the departing employee.

Please share your opinion.

To EKCLTD,

In my company, gratuity is not a part of CTC, but the rule of gratuity is very clear that an employee has to complete 5 years of regular service in a company. In my view, adding gratuity in CTC is not a good practice. It creates confusion regarding the deducted amount. However, if an employer is adding gratuity in the CTC, then he must properly guide the employee at the time of joining that it will be returned to him only after completion of 5 years, and the intimation responsibilities must be of the employer because you can't expect that every employee is aware of the rule of gratuity. If the employer intimates the employee and does not return the gratuity before 5 years, then he is right at his end.

Understanding C.T.C and Gratuity

You can find a lot of discussions in this forum regarding C.T.C. Of late, some of the very knowledgeable members seem to be leaning towards the idea of C.T.C forming part of the employment contract. As such, they hold the view that gratuity, if shown in the C.T.C, should be paid irrespective of the length of service of the employee in case of early termination. At the outset, I would accept this as a plausible argument for deep consideration.

At the same time, however, I am unable to accept such a contention because of the very nature of the concept of C.T.C. It could be a mere statement projecting the overall cost to the company per employee per year. As such, at most, C.T.C is a conceptual aid to assess the employer's overall financial commitment toward every hired position or job, including salary/wages and all other fringe benefits payable per year. If you break it down on a monthly basis, it is the sum of monthly gross salary/wages plus indirect benefits quantifiable in terms of money. Those indirect benefits, again, are statutory and non-statutory. Though such statutory benefits have to be incurred by the employer per employee, their final payments are certainly subject to the conditions imposed by the statutes only.

Therefore, since gratuity is just included in such a statement of presumptive assessment only for the guidance of the employer and employees concerned for deciding the overall acceptable compensation package, the employee cannot demand it when he has not fulfilled the statutory conditions attached to it.