I would like to get one clarification from you: whether the contract labor is eligible for gratuity after the completion of 5 years of service. In case they are eligible, and if the subcontractor is not paying the gratuity to the contract employee, will the principal employer be held responsible? Your views, please.
Regards,
R. Sudhakar
From India, Bangalore
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3Regards,
R. Sudhakar
From India, Bangalore
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Gratuity Eligibility for Contract Labour
All employees are eligible for gratuity. The principal employer is liable for all statutory liabilities if the contractor does not pay. It is applicable for gratuity as well. However, the principal employer can recover from the concerned contractor if any money is due to the contractor.
From India, Chennai
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All employees are eligible for gratuity. The principal employer is liable for all statutory liabilities if the contractor does not pay. It is applicable for gratuity as well. However, the principal employer can recover from the concerned contractor if any money is due to the contractor.
From India, Chennai
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Generally, in practice, one doesn't come across such cases, as 5 years is a long time to keep someone continuously on contract. According to the CLA & R Act, such contract laborers would have sought regular employment with the principal employer.
Warm regards.
From India, Delhi
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Warm regards.
From India, Delhi
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Gratuity Payment Responsibility Under Contract Labour Act
Neither the Contract Labour Act nor the Gratuity Act provides any rules stating that gratuity must be paid by or reimbursed by the principal employer. This issue has been observed in many places. As per the law, the contractor is responsible for paying gratuity as the direct employer of the worker. However, they show no interest in fulfilling this obligation. The principal employer is also unwilling to make the payment as there are no regulations mandating it. Unfortunately, no employer seems keen on offering more than what is stipulated by law.
From India, Mumbai
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Neither the Contract Labour Act nor the Gratuity Act provides any rules stating that gratuity must be paid by or reimbursed by the principal employer. This issue has been observed in many places. As per the law, the contractor is responsible for paying gratuity as the direct employer of the worker. However, they show no interest in fulfilling this obligation. The principal employer is also unwilling to make the payment as there are no regulations mandating it. Unfortunately, no employer seems keen on offering more than what is stipulated by law.
From India, Mumbai
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An employee who has worked for 5 years continuously will be eligible for gratuity. In your case, if the contractor denies paying, the principal employer can't be held responsible.
Regards
From India, Delhi
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Regards
From India, Delhi
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Principal Employer's Responsibility for Gratuity Payment
The question "Can a Principal employer be held responsible for non-payment of Gratuity by his contractor?" is significant. A Principal employer simply cannot escape from the liability if the aggrieved workman/employee makes him a party to the dispute. There is a judgment, viz. 2003-I-LLJ-854 (MADRAS FERTILIZERS LTD VS CONTROLLING AUTHORITY UNDER PG ACT & OTHERS) by Justice V.S. SIRPURKAR, where it was held that it is the responsibility of the Principal Employer to pay the gratuity of a contract worker. This is subject to recovery from the contractor later if the workman/employee becomes eligible for payment of gratuity as per the Act.
Regards,
Shailsh Parikh
Vadodara, Gujarat
[Phone Number Removed For Privacy Reasons]
From India, Mumbai
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The question "Can a Principal employer be held responsible for non-payment of Gratuity by his contractor?" is significant. A Principal employer simply cannot escape from the liability if the aggrieved workman/employee makes him a party to the dispute. There is a judgment, viz. 2003-I-LLJ-854 (MADRAS FERTILIZERS LTD VS CONTROLLING AUTHORITY UNDER PG ACT & OTHERS) by Justice V.S. SIRPURKAR, where it was held that it is the responsibility of the Principal Employer to pay the gratuity of a contract worker. This is subject to recovery from the contractor later if the workman/employee becomes eligible for payment of gratuity as per the Act.
Regards,
Shailsh Parikh
Vadodara, Gujarat
[Phone Number Removed For Privacy Reasons]
From India, Mumbai
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I have a different opinion from what Swanswantbanejee has said. The Contract Labour Act is an Act to 'regulate and abolish' the engagement of contract labour. As such, the Act is intended to reduce the practice of engaging workmen through a contractor and thereby disallowing the benefits to be paid to workmen as per various labour laws in force. In the absence of a specific law, all employers will engage workmen through an intermediary and will say that the workmen who actually work for them are not their employees and that they have nothing to do with their statutory liabilities. This has been very categorically stated in a very recent judgment of our Apex Court in Bhilwara Dugdh Utpadak Sahakari S. Ltd. Vs. Vinod Kumar Sharma Dead by LRS & Ors, and the following sentences of the judgment are noteworthy.
“In order to avoid their liability under various labour statutes, employers are very often resorting to subterfuge by trying to show that their employees are, in fact, the employees of a contractor. It is high time that this subterfuge must come to an end. Labour statutes were meant to protect the employees/workmen because it was realized that the employers and the employees are not on an equal bargaining position.
Hence, protection of employees was required so that they may not be exploited. However, this new technique of subterfuge has been adopted by some employers in recent years in order to deny the rights of the workmen under various labour statutes by showing that the concerned workmen are not their employees but are the employees/workmen of a contractor, or that they are merely daily wage or short-term or casual employees when in fact they are doing the work of regular employees.” The judgment also hints that “globalization/liberalization in the name of growth cannot be at the human cost of exploitation of workers.”
The above judgment is expected to be a landmark judgment. Therefore, if the contractor is not paying the gratuity to his employee(s), the principal employer cannot escape from his liability. Please find the attached judgment also.
Regards,
Madhu.T.K
From India, Kannur
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“In order to avoid their liability under various labour statutes, employers are very often resorting to subterfuge by trying to show that their employees are, in fact, the employees of a contractor. It is high time that this subterfuge must come to an end. Labour statutes were meant to protect the employees/workmen because it was realized that the employers and the employees are not on an equal bargaining position.
Hence, protection of employees was required so that they may not be exploited. However, this new technique of subterfuge has been adopted by some employers in recent years in order to deny the rights of the workmen under various labour statutes by showing that the concerned workmen are not their employees but are the employees/workmen of a contractor, or that they are merely daily wage or short-term or casual employees when in fact they are doing the work of regular employees.” The judgment also hints that “globalization/liberalization in the name of growth cannot be at the human cost of exploitation of workers.”
The above judgment is expected to be a landmark judgment. Therefore, if the contractor is not paying the gratuity to his employee(s), the principal employer cannot escape from his liability. Please find the attached judgment also.
Regards,
Madhu.T.K
From India, Kannur
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Thank you for quoting the judgment. I read the 17-page attachment, and my head is spinning with the large amount of legal inputs
Interesting Observation
One interesting thing I noted: The judgment states that the Contract Labour Act specifies that the principal employer is liable for everything covered in the Payment of Wages Act. The Payment of Wages Act specifically excludes dues under gratuity (as also mentioned in the judgment). However, they have still decided that the principal employer has to pay. I wonder if there is any other judgment contrary to this one.
From India, Mumbai
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Interesting Observation
One interesting thing I noted: The judgment states that the Contract Labour Act specifies that the principal employer is liable for everything covered in the Payment of Wages Act. The Payment of Wages Act specifically excludes dues under gratuity (as also mentioned in the judgment). However, they have still decided that the principal employer has to pay. I wonder if there is any other judgment contrary to this one.
From India, Mumbai
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I have gone through the above discussion. I have a slightly different query or, I would say, need to discuss another point, i.e.:
Contractor Obligations and Principal Employer Responsibility
Say, there is one contractor who is providing services to different organizations/PE. The contracting business has been ongoing for more than 5 years. However, the contractual arrangements with the PEs are less than 5 years. In a scenario where employees of the contractor have completed 5 years of service with the contractor, and the contractor is unwilling to fulfill obligations such as Gratuity, etc., is the PE responsible for such dues? Especially considering that the PE may have entered into an arrangement with the contractor just a year or two before?
Regards,
Pramod Thakar
From India, Pune
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Contractor Obligations and Principal Employer Responsibility
Say, there is one contractor who is providing services to different organizations/PE. The contracting business has been ongoing for more than 5 years. However, the contractual arrangements with the PEs are less than 5 years. In a scenario where employees of the contractor have completed 5 years of service with the contractor, and the contractor is unwilling to fulfill obligations such as Gratuity, etc., is the PE responsible for such dues? Especially considering that the PE may have entered into an arrangement with the contractor just a year or two before?
Regards,
Pramod Thakar
From India, Pune
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Principal Employer's Liability for Gratuity
Banerjee's apprehension about the definition of wages as given in the Payment of Wages Act is correct, and the court also took that into consideration. However, the Contract Labour Act, which came into force later, provides more scope for the principal employer's liability. I do not believe there is another judgment that absolves the principal employer's liability.
In order for the principal employer to be liable to pay gratuity on behalf of the contractor, the employee in question should have worked for the principal employer. If the employee has only worked for two years, the issue of gratuity will not arise concerning employment in the principal employer's plant or organization. Any disputes will be solely between the employee and their actual employer, i.e., the contractor.
Typically, when a contract is awarded for manpower arrangement or outsourcing, there is an understanding that no single individual will work continuously. This understanding is in place to prevent such types of litigation in the future.
Regards,
Madhu.T.K
From India, Kannur
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Banerjee's apprehension about the definition of wages as given in the Payment of Wages Act is correct, and the court also took that into consideration. However, the Contract Labour Act, which came into force later, provides more scope for the principal employer's liability. I do not believe there is another judgment that absolves the principal employer's liability.
In order for the principal employer to be liable to pay gratuity on behalf of the contractor, the employee in question should have worked for the principal employer. If the employee has only worked for two years, the issue of gratuity will not arise concerning employment in the principal employer's plant or organization. Any disputes will be solely between the employee and their actual employer, i.e., the contractor.
Typically, when a contract is awarded for manpower arrangement or outsourcing, there is an understanding that no single individual will work continuously. This understanding is in place to prevent such types of litigation in the future.
Regards,
Madhu.T.K
From India, Kannur
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This is getting to an interesting but simple point. I write with the limitation of not having read either of the judgments and based only on my understanding of the law on the subject and the posts in this thread:
1. I contend that the Principal Employer (PE) is under no legal obligation to pay gratuity to an employee engaged through a contractor because no "employer-employee relationship" exists.
2. Section 22 of the CLRA does obligate and empower the PE to pay wages to the employee of the contractor if the contractor has failed to pay, and in such a case, only the PE may recover such amounts from the contractor. Since gratuity is not "wage" under any applicable law, the PE is not obliged to pay gratuity to employees of a contractor under any conditions.
Having said this, I raise a caution too. The way contract labor issues are handled in most organizations, it is fairly easy to prove such contracts to be a sham and claim a direct "employer-employee relationship" between the (so-called) contractor's employees and the PE. In such a case, yes, the PE will be held obliged to pay gratuity to such contractor's employees!
Further, it is interesting to note why the same logic will not work in the case of ESI or PF. The clue is that even the contractor's employees are "workers" under the Factories Act! Kindly ponder over this issue.
Regards,
Samvedan
From India, Pune
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1. I contend that the Principal Employer (PE) is under no legal obligation to pay gratuity to an employee engaged through a contractor because no "employer-employee relationship" exists.
2. Section 22 of the CLRA does obligate and empower the PE to pay wages to the employee of the contractor if the contractor has failed to pay, and in such a case, only the PE may recover such amounts from the contractor. Since gratuity is not "wage" under any applicable law, the PE is not obliged to pay gratuity to employees of a contractor under any conditions.
Having said this, I raise a caution too. The way contract labor issues are handled in most organizations, it is fairly easy to prove such contracts to be a sham and claim a direct "employer-employee relationship" between the (so-called) contractor's employees and the PE. In such a case, yes, the PE will be held obliged to pay gratuity to such contractor's employees!
Further, it is interesting to note why the same logic will not work in the case of ESI or PF. The clue is that even the contractor's employees are "workers" under the Factories Act! Kindly ponder over this issue.
Regards,
Samvedan
From India, Pune
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Let us ask these questions and answer them one by one.
1. Has the employee who is a contractor completed five years?
If yes, the employee is eligible to receive gratuity.
2. Has he worked all five years with the same Principal Employer?
If yes, there is no issue, and the Principal Employer is responsible.
3. Has the employee completed five years but under different contractors?
If yes, then for the purpose of gratuity, who is the Principal Employer?
This question is being discussed now, and Mr. Madhu's view is that the Principal Employer is not liable. I tend to disagree with this view. In the absence of any judgment on this, we need to rely on existing judgments and extrapolate the meaning while keeping in mind the purpose of the legislation.
The very purpose of the Gratuity Act is to provide a lump sum amount at the time of cessation of employment after a certain number of years of service to the employee. The purpose of the Contract Labour Act and the inclusion of the Principal Employer's liability to pay the dues in case the Contractor fails to do so is to ensure that benefits as envisioned in specific legislation reach the beneficiary.
The judgment quoted by Mr. Madhu is very clear that gratuity, though excluded in the Payment of Wages Act, is also included in the definition of wages. I am just reproducing the relevant portion of the definition:
"any sum which by reason of the termination of employment of the person employed is payable under any law, contract, or instrument which provides for the payment of such sum,"
In other words, any sum payable at the time of cessation of employment becomes a liability of the Principal Employer. The reason behind the inclusion of the liability clause in the Contract Labour Act is that "the contractor may disappear but the Principal employer may not."
The chances of the Principal Employer winding up the business or changing the name of the business will be less than the Contractor winding up or changing his business name. Hence, the employee must be given an option to claim the termination benefits from the last Principal Employer.
I am not getting into discussions as to who is "liable for the Payment." I am restricting my discussion to "who is liable to make the payment in case there is a default and a claim."
Regards,
T. Sivasankaran
From India, Chennai
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1. Has the employee who is a contractor completed five years?
If yes, the employee is eligible to receive gratuity.
2. Has he worked all five years with the same Principal Employer?
If yes, there is no issue, and the Principal Employer is responsible.
3. Has the employee completed five years but under different contractors?
If yes, then for the purpose of gratuity, who is the Principal Employer?
This question is being discussed now, and Mr. Madhu's view is that the Principal Employer is not liable. I tend to disagree with this view. In the absence of any judgment on this, we need to rely on existing judgments and extrapolate the meaning while keeping in mind the purpose of the legislation.
The very purpose of the Gratuity Act is to provide a lump sum amount at the time of cessation of employment after a certain number of years of service to the employee. The purpose of the Contract Labour Act and the inclusion of the Principal Employer's liability to pay the dues in case the Contractor fails to do so is to ensure that benefits as envisioned in specific legislation reach the beneficiary.
The judgment quoted by Mr. Madhu is very clear that gratuity, though excluded in the Payment of Wages Act, is also included in the definition of wages. I am just reproducing the relevant portion of the definition:
"any sum which by reason of the termination of employment of the person employed is payable under any law, contract, or instrument which provides for the payment of such sum,"
In other words, any sum payable at the time of cessation of employment becomes a liability of the Principal Employer. The reason behind the inclusion of the liability clause in the Contract Labour Act is that "the contractor may disappear but the Principal employer may not."
The chances of the Principal Employer winding up the business or changing the name of the business will be less than the Contractor winding up or changing his business name. Hence, the employee must be given an option to claim the termination benefits from the last Principal Employer.
I am not getting into discussions as to who is "liable for the Payment." I am restricting my discussion to "who is liable to make the payment in case there is a default and a claim."
Regards,
T. Sivasankaran
From India, Chennai
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I have gone through the judgment. The problem I see is this (perhaps I have not understood what the Hon. judges were trying to convey):
Yes, the definition of wages does include the amount payable at the time of termination. But it specifically excludes gratuity. The Contract Labour Act says the Principal Employer (PE) is liable for all payments covered under the Payment of Wages Act. After that, you can't come out and say the employer is still payable.
The judges have used a vague connection of beneficial legislation, etc. The doctrine of beneficial legislation cannot be extended to do the opposite of what is categorically stated in the act. Asking the PE to pay and recover from a contractor, who has stopped doing work for him, is as good as saying the PE has to pay. Further, there was also a point raised by the PE that the workers did not work for him for the entire term of 5 years, and it was not necessarily continuous employment. Still, they were made liable.
However, since the judgment was passed, the precedent made stands, and the employer will be considered liable.
From India, Mumbai
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Yes, the definition of wages does include the amount payable at the time of termination. But it specifically excludes gratuity. The Contract Labour Act says the Principal Employer (PE) is liable for all payments covered under the Payment of Wages Act. After that, you can't come out and say the employer is still payable.
The judges have used a vague connection of beneficial legislation, etc. The doctrine of beneficial legislation cannot be extended to do the opposite of what is categorically stated in the act. Asking the PE to pay and recover from a contractor, who has stopped doing work for him, is as good as saying the PE has to pay. Further, there was also a point raised by the PE that the workers did not work for him for the entire term of 5 years, and it was not necessarily continuous employment. Still, they were made liable.
However, since the judgment was passed, the precedent made stands, and the employer will be considered liable.
From India, Mumbai
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After serving in a PSU under DHI for a continuous 6 years on a contract basis directly under the principal employer, I was brought into the regular service of this PSU in 1990. For the calculation of gratuity, this PSU is not counting my contract period of 6 years, stating that as per the gratuity scheme of this PSU, contract/casual employees are not entitled to gratuity benefits.
Gratuity Scheme for PSUs
Is there a separate gratuity scheme for individual PSUs, or are all PSUs in India governed by the Payment of Gratuity Scheme 1972 and its subsequent amendments?
Addressing Grievances
If I am eligible, where should I address my grievance?
From India, Jaipur
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Gratuity Scheme for PSUs
Is there a separate gratuity scheme for individual PSUs, or are all PSUs in India governed by the Payment of Gratuity Scheme 1972 and its subsequent amendments?
Addressing Grievances
If I am eligible, where should I address my grievance?
From India, Jaipur
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Gratuity Calculation for Fixed-Term Contracts
The employment period of a fixed-term contract should be counted for gratuity calculation. This applies to Public Sector Undertakings (PSUs) as well. Certainly, certain PSUs (including private companies) have designed their own gratuity formula, but it should not be less favorable than what is stipulated in the Payment of Gratuity Act.
Madhu.T.K
From India, Kannur
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The employment period of a fixed-term contract should be counted for gratuity calculation. This applies to Public Sector Undertakings (PSUs) as well. Certainly, certain PSUs (including private companies) have designed their own gratuity formula, but it should not be less favorable than what is stipulated in the Payment of Gratuity Act.
Madhu.T.K
From India, Kannur
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No, the contract period will not count. You were not an employee of the PSU at that time. I understand you must have been employed with a contractor. You need to ask him for the gratuity. You should at least be happy you got made permanent and directly employed by the PSU. Why create a problem for yourself by complaining about the past and endangering your position in the company? The difference is only 3 months' salary. Which is more important—your old gratuity or continuing smooth employment?
From India, Mumbai
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From India, Mumbai
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Joseph has stated that he was directly under the employer, which means he was not under any contractor but was on a fixed-term contract, which is often misunderstood as contract employment. If he was even on daily wages or was engaged as a casual employee with payment directly made by the PSU employer, then his service should be included in the period of service for the purpose of payment or calculation of gratuity.
It is not a matter of three months' pay, but there should not be any foul play, and there should not be any misinterpretation of the law.
Madhu.T.K
From India, Kannur
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It is not a matter of three months' pay, but there should not be any foul play, and there should not be any misinterpretation of the law.
Madhu.T.K
From India, Kannur
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Sir, thank you very much for your quick response. I would like to clarify that I was initially appointed on a contract basis for one year. After its expiry, the contract period was extended continuously without any breaks until 1990 when I was offered a regular position in this PSU. I would also like to add that Provident Fund deductions were made from my consolidated pay throughout this period.
Regards,
From India, Jaipur
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Regards,
From India, Jaipur
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I am certain that you will get your gratuity. Do pursue the matter diligently. I have seen such cases in PSUs where recruitments are done for certain posts, especially for medical staff and doctors. During a particular period in the late nineties when there was an embargo on new recruitment for several years, many were hired on a contract basis. Subsequently, their services were regularized. Your situation is similar, and you are eligible for gratuity for that period as well.
Rest assured; in PSUs, they cannot commit any illegal actions as a PSU is an extension of "the State" (the government).
Warm regards.
From India, Delhi
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Rest assured; in PSUs, they cannot commit any illegal actions as a PSU is an extension of "the State" (the government).
Warm regards.
From India, Delhi
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SBT Vs Asst. Labour Commissioner- Gratuity dismissed employee-LTS.PD F
FORM I(Application for Gratuity by an employee).doc