Can Gratuity service transfer from one contract to another contractor.

Hello Everyone, I request your view and any case study/legal order on my question, which is an ongoing issue in my organization.

Issues: One contractor, ABC, has been working with the company for 6-7 years with a deployment of 80 workmen (local workmen). Management has decided to change the contractor and deploy a new contractor, XYZ. Considering the IR issue, all the ABC contractor workforce shifted to the new contractor, XYZ. Now the workers are demanding to transfer our Gratuity service and balance leave to the new contractor, as we are local and continuously working with the company.

In this case, I need your view and any case study for reference or any court/legal order for the authority, which will support me in making a decision.

Thank you.

Legal Implications of Contractor Changes

First of all, there is a question of law, and the principal employer is answerable for that. The issue is that the principal employer can certainly terminate a contract with a contractor, in this case, ABC, but they can never ask the new contractor, XYZ, to absorb the employees of ABC.

Transfer of Benefits

Second, there is no transfer of gratuity, leave, or service from one contractor to another contractor. Certainly, if one establishment is liquidated, and another establishment is formed by taking over the other one, the service benefits of the employees can be transferred to the purchasing establishment. But that happens only when there is a transfer of undertaking. Here, there is no closure or transfer of undertaking.

Remedies for Workers

The remedy available to the workers is to collect gratuity and leave encashment from their employer, i.e., ABC. The workers can also demand retrenchment compensation, which will again be equal to the amount of gratuity. Though gratuity is payable only to such workers who have put in at least five years of continuous service, retrenchment compensation is to be paid to all workers who have worked at least 240 days in the preceding year. Then they can seek employment with XYZ as fresh employees and work under them. Obviously, since XYZ has taken the contract to deploy workmen in the plant, they can work under the new contractor.

Challenging the Contract Arrangement

Now, in a scenario where the principal employer is asking to transfer the workmen of ABC to XYZ, the workmen can even say that the arrangement of the contract is a sham and is a camouflage arrangement. They can say that all decisions affecting the workmen have been taken by the principal employer only. If that is the situation, the workmen can ask for regularization, and if it is proved that the contract is just a paper adjustment, all the workmen will get regularized, and it will then become the responsibility of the principal employer to pay the gratuity and other benefits of the workers of the contractor.