Is an Employee Eligible for Gratuity After Suspension and Termination? Seeking Advice on Service Calculation

Dear Team Members, One of the workers joined our employment on 1.1.2018, and we confirmed his services on 1.7.2018. Due to misconduct, we suspended him and kept him under pending inquiry, effective from 11.10.2021. The inquiry was completed, and he was terminated from employment on 7.10.2022. Subsistence allowance was paid to him from 11.10.2021 to 6.7.2022. The total actual work performed service is 3 years, 9 months, and 1 week. The total service (including the suspended period) is 4 years, 9 months, and 6 days. Is he eligible for gratuity?

Regards, Snitu

Hi, As per the Gratuity Act, gratuity will be applicable if the member has completed a continuous service period of 5 years. Therefore, the individual is not eligible.

Dear Snitu, Suspension pending enquiry does not sever the employer-employee relationship. Therefore, the period of suspension should be taken into account for computing continuous service under the PG Act, 1972, unless it is treated as punitive as permitted in the service rules or the contract of employment. Consequently, the delinquent employee is eligible to claim gratuity as he had completed 4 years, 9 months, and 6 days of continuous service on the date of his dismissal. However, if the dismissal was on account of proven behavioral issues mentioned under section 4 (6) of the Act and a show-cause notice has been issued to that effect, his gratuity can be forfeited fully.

Noted with thanks, Sir. Even though a few clarifications are awaited, the delinquent employee is eligible to claim gratuity as he had completed 4 years, 9 months, and 6 days of continuous service on the date of his dismissal.

As per the ID Act 1947 Section 25B
For the purposes of clause (2), the number of days on which a workman has actually worked under an employer shall include the days on which:
1. He has been laid off under an agreement or as permitted by standing orders made under the Industrial Employment (Standing Orders) Act, 1946 (20 of 1946), or under this act or under any other law applicable to the industrial establishment.
2. He has been on leave with full wages earned in the previous years.
3. He has been absent due to temporary disablement caused by an accident arising out of and in the course of his employment.
4. In the case of a female, -------

Section 22 of the Gratuity Act 1972

According to Section 2A(2), an employee who is not in continuous service as per Section 2A(1) shall be deemed to be in continuous service for one year or six months if the said employee has actually worked for not less than 240 days or 120 days, respectively, and for this purpose, the following are to be included. Hence, considering the above sections of the ID Act & Gratuity Act, shall we consider his suspended days for calculations of 240 days?

Regards,
Snitu

Suspension does not end the employer-employee relationship; the suspended person continues to be an employee, and the employer, for certain reasons, is keeping the employee away from the work situation. Such an employee continues to be on the rolls and has various rights. So the period of suspension counts as continuous service, and the employee thus becomes eligible for gratuity. I fully endorse the opinion of the learned Umakanthan Sir to this effect.

Dear Snitu,

I think that the reply from Mr. KK!HR, which reiterates my point, will enhance your understanding of the concept of "continuous service" both under Section 25-B of the IDA, 1947, and under Section 2-A of the PGA, 1972.

Understanding "Actually Worked"

The phrase "actually worked" occurring in Section 2-A(1) of the Act should not be interpreted to merely mean physically working with a hammer or pen. On the contrary, it will also include the act of abstinence on the part of the employee from doing work at the instance of the employer. Suspension is the formal and discretionary act of the employer temporarily preventing the employee from attending to his work. Moreover, an order of dismissal cannot be retrospective. Therefore, the entire period of suspension undergone by the employee whose services are subsequently terminated should be treated as actually worked in view of the subsistence of the contract of employment.

Really, thanks to all for your input. I do agree with your suggestion. However, our CEO expects some citations regarding suspended days to be considered for 240 days. I am requesting you all, if you have the same, please do share with me.

Regards, Snitu

This employee is not eligible for gratuity.

In this particular case, the total service rendered is 4 years, 9 months, and 6 days, undisputedly for calculating the gratuity. Since he has not completed 5 years of continuous service, he is not eligible for gratuity. There is some diverse interpretation based on the Madras HC judgment, but that is a particular case and it does not mean that the normal practice of 5 years has deviated.

Regards, Dr. Kamlesh Agrawal
Mumbai

Sorry, Dr. Kamlesh, to differ with you on the interpretation of the applicability of the ratio decidendi of a particular High Court beyond its territorial jurisdiction in respect of a question of law and fact like "continuous service" under Section 2-A of the PG Act, 1972 not decided by any other High Court or the Supreme Court.

In my opinion, though generally such a decision rendered by the High Court of a particular State is not binding beyond its territorial jurisdiction, it has persuasive value in respect of the question decided in the absence of any contrary decision by any other High Court or the Supreme Court, particularly when the Act is a Central legislation and every High Court is also a Court of Record under Article 215 of the Constitution of India.

Supreme Court Observations

In this regard, I would like to quote the following observations of the Supreme Court while interpreting Section 25-B of the Industrial Disputes Act, 1947, which is in pari materia with Section 2-A of the Payment of Gratuity Act, 1972. As far as the method of calculating 240 days for the purpose of Section 25-B(2) is concerned, the Supreme Court, in the matter of MOHAN LAL Vs. BHARAT ELECTRONICS Ltd., (AIR 1981 SC 1253), has held: "... Section 25(B)(2) comprehends a situation where a workman is not in employment of 12 calendar months but has rendered service for a period of 240 days within the period of 12 calendar months commencing and counting backwards from the relevant date i.e., the date of retrenchment. If he has, he would be deemed to be in continuous Service for a period of one year for the purpose of Section 25-B and Chapter V-A."

Conformity with Madras High Court

Though not actually quoted, the ratio decidendi of the Madras High Court in METTUR BEARDSEL Ltd vs. REGIONAL LABOR COMMISSIONER (CENTRAL) (1998 LLR 372) is certainly in conformity with the law enunciated in the above case. However, the Honorable High Court relied on the judgment of the Supreme Court in SURENDRAKUMAR VERMA v. CENTRAL GOVERNMENT INDUSTRIAL TRIBUNAL-CUM- LABOR COURT, NEW DELHI (1980 -4- SCC - 433), wherein the Court has categorically stated that it is sufficient for the purpose of Section 25-B(2)(a)(ii) that the employee has actually worked for not less than 240 days and that it is no longer necessary for a workman to show that he has been in employment during a preceding period of 12 calendar months in order to qualify within the terms of Section 25-B.

Conclusion

Therefore, my considered opinion is that it is sufficient that if an employee works for not less than 190 days or 240 days as the case may be in the establishment in his fifth year of service, he shall be deemed to have completed not less than 5 years of continuous Service to claim gratuity under the Act.

Noted with thanks to all senior members of the forum. Actually, my question is, shall we consider subsistence allowance days of the concerned worker for gratuity?

Few highlights of the case:

1. DOJ 1.1.2018, confirmation 1.7.2018.
2. Suspension on 11.10.2021.
3. Enquiry report received on 13.09.2022.
4. Enquiry report sent to the concerned worker on 27.9.2022.
5. We submitted a cover on 27.9.2022.
6. He approached the Labour court under the appreciation of not terminating on 30.9.2022.
7. The Hon. Court has instructed the management to submit WS on 1.10.2022; failure to submit temporary injection can be passed.
8. On 06.10.2022, Hon. Court has rejected the U-2 Application.
9. We terminated the concerned worker on 07.10.2022.
10. Subsistence allowance paid to him from 11.10.2021 to 06.10.2022.

Total actual work performed service is 3 years, 9 months & 1 week. Total Service (including the suspended period) is 4 years, 9 months & 6 days.

My humble request to all our CEO expecting citation regarding the suspended period can be considered for the 5th-year service & for calculating 240 days.

Regards, Snitu