Can an Employee Get Gratuity When Transferred Between Companies with Common Directors?

We are a group of companies under which we have 5 different companies. The directors are common to all 5 companies, and the registered office address is also the same. If we transfer an employee from Company A, where he has worked for 3.5 years, to another company B, where he has worked for 4.4 years, will he be eligible for gratuity? We have common directors.

Please advise.

Yes, his date of joining in the first company will be treated as the date of joining for all purposes, including continuous service.

This is a question of both law and facts and would depend on the working arrangement between the two establishments. According to the Companies Act of 2013, a company is distinct from its shareholders. Therefore, each company is separate and distinct; this is the legal position. Unless the facts demonstrate an integrality in the functioning, the claim is unlikely to be upheld. The outcome will depend on how the case is presented. The PGA 1972 does not include a provision for the clubbing of units.

I agree with Madhu T.K. At the time of transferring the employee from Organization A to B, it is essential to mention it as continuous service. If it is not mentioned as continuous service and if it is treated differently for not paying gratuity by finding loopholes in the law, then it is exploitation of the concerned employee and a wrong practice followed by the organization.

Regards, S K Bandyopadhyay (WB, Howrah) CEO - USD HR Solutions [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons] USD HR Solutions – To Strive towards excellence with effort and integrity

The transfer was done after completing the full and final settlement in the first company. Is gratuity still applicable?

Gratuity eligibility in inter-company transfers

This is a situation that requires the intervention of law enforcement officers. The objective behind such actions (it is not a transfer when there is a full and final settlement at Company A) should be carefully examined because prima facie evidence suggests that it was a deliberate act to avoid payment of gratuity.

When all five establishments belong to the same set of employers and there is financial integrality, transferring employees from one establishment to another as part of business exigencies is common. In such cases, there would not typically be a settlement, but only a transfer of responsibilities. If an employee is transferred from one unit, given a final settlement, and issued a fresh appointment letter to join another establishment under the same management, it could be seen as an attempt to deny gratuity.

When Mr. Madhu T K is mentioned, I would like to add that the strategy of the organization, along with the HR team, is to find loopholes in acts to deprive the employee by not paying Gratuity. The basic purpose of the PG Act is to pay gratuity if the employee continues in their job with one employer.

F & F with Organization A and then reappointment to Organization B will appear in the eyes of the law as exploitation. My personal feeling is that if the matter is placed before the controlling authority of the PG Act, it will be in favor of the employee. I have no knowledge about any case law regarding this matter.

I will only request the organization and HR team members to think positively and not exploit any employee.

Regards, S K Bandyopadhyay (Howrah, WB) CEO-USD HR Solutions [Phone Number Removed For Privacy-Reasons] [Email Removed For Privacy Reasons] USD HR Solutions – To strive towards excellence with effort and integrity www.usdhrs.in

I wish to add a little here. The query states that it is a transfer from A to B. If it is a transfer, then the employee is eligible as there is no break in service. If, as one colleague pointed out, it is movement from A to B after full and final settlement, then the employee is not eligible for continuity of service. However, the word "transfer" does not arise here.

In the eyes of the law and on complaint, the authorities may see it from a different angle, including mens rea. If the purpose is to avoid gratuity, actions will follow.

If you have transferred the employee from Company A to Company B, it will be counted as continuous service since the employee has not requested the transfer. Similarly, gratuity will also be transferred with the employee to Company B.

Transfer of Employees and Gratuity Eligibility

Actually, there is no question when the set of employers is the same in all five companies. If all five companies are operating as a group company, i.e., one parent company with the other four as subsidiaries declared by the company secretary, then the transfer of employees from one organization to another follows, along with the transfer of equity funds and gratuity funds.

An equity amount equivalent to 3.5 years can be transferred from Company A's gratuity fund to Company B's gratuity fund, where the employees' group joining date will be considered at the time of the transfer. The employee will be eligible for the total years of service at the time of his/her resignation.

If this is a transfer on the same pay, his/her leave balance and gratuity service have to be transferred.