Inquiry About Gratuity Act and Fixed-Term Contracts
This is in reference to the Gratuity Act provision. I would like to inquire about fixed-term contracts for employees concerning the Gratuity Act. If an employee has worked in our organization for more than 5 years under a yearly fixed-term contract, after completing each year, we grant them a 5-day break. Following the break, we also settle their full and final dues before initiating a new contract for another year. This cycle continues for employees who have worked for 5 years.
Could someone please provide me with information on the applicability of the Gratuity Act to fixed-term employees?
Regards,
Vishal
[Phone Number Removed For Privacy Reasons]
From India, Haldwani
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30This is in reference to the Gratuity Act provision. I would like to inquire about fixed-term contracts for employees concerning the Gratuity Act. If an employee has worked in our organization for more than 5 years under a yearly fixed-term contract, after completing each year, we grant them a 5-day break. Following the break, we also settle their full and final dues before initiating a new contract for another year. This cycle continues for employees who have worked for 5 years.
Could someone please provide me with information on the applicability of the Gratuity Act to fixed-term employees?
Regards,
Vishal
[Phone Number Removed For Privacy Reasons]
From India, Haldwani
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In my view, he is not eligible if you are terminating the contract in writing and settling his F&F and employing him afresh under a new contract after a five-day break.
Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai
From India, Mumbai
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Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai
From India, Mumbai
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Legal Interpretation of Fixed-Term Employment and Gratuity
In the case of State Bank of India vs. N. Sundaramoney, the Honourable Supreme Court of India held that the termination of employment of an individual worker due to automatic extinguishment of service by virtue of a preemptive provision to terminate in the appointment order itself would amount to retrenchment. Subsequent to this judgment, the Industrial Disputes Act 1947 was amended, and section 2(oo)(bb) was introduced. According to section 2(oo)(bb), the termination of the service of the workman as a result of the non-renewal of the contract of employment between the employer and the workman concerned on its expiry, or of such contract being terminated under a stipulation contained therein, does not amount to retrenchment. In other words, the interpretation placed on the definition of the term "retrenchment" in Sundaramoney's case was overcome with the introduction of section 2(oo)(bb). Therefore, the termination of the services of a workman on the expiry of the term fixed in the appointment order does not amount to retrenchment as defined under section 2(oo) of the Industrial Disputes Act. It is very clear that the concept of "fixed-term employment" was introduced with reference to the provisions of "retrenchment" under the provisions of the Industrial Disputes Act.
Breaks in Service and Gratuity Entitlement
The question posed by you is whether the breaks in service given by you to the fixed-term employee, followed by full and final settlement, could be regarded as breaks in service under the Payment of Gratuity Act to disentitle the fixed-term employee from claiming/getting gratuity from the employer. As far as my knowledge goes, there are no decided cases on this point.
Understanding "Continuous Service" Under the Payment of Gratuity Act
The term "continuous service" has been defined in section 2A of the Payment of Gratuity Act. Section 2A(1) of the Payment of Gratuity Act indicates what are the days of service that have to be reckoned for calculating the "continuous service." Section 2A(2) of the Payment of Gratuity Act prescribes the method to be adopted for determining whether an employee was in "continuous service" in cases where an employee is not in "continuous service" as defined in section 2A(1). Section 2A(2) starts with this phrase: "(2) Where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (1), for any period of one year or six months, he shall be deemed to be in continuous service under the employer—". Therefore, Section 2A(2) could be invoked if section 2A(1) is not applicable to the case, that is, when the employee is not in uninterrupted service, excluding the interruptions permitted under Section 2A(1). Section 2A(1) and section 2A(2) of the Payment of Gratuity Act are mutually exclusive. In the case of the fixed-term employee cited by you in this thread, if he is not covered by section 2A(1), he would definitely be covered by section 2A(2).
Comparison with the Industrial Disputes Act
A comparison could be made of section 25B(2) of the Industrial Disputes Act and section 2A(2) of the Payment of Gratuity Act. While section 25B(2) of the Industrial Disputes Act is silent about employees working in establishments working for less than six days in a week, section 2A(2) of the Payment of Gratuity Act covers those employees also. In other words, the coverage of section 2A(2) of the Payment of Gratuity Act is wider than the coverage of section 25B(2) of the Industrial Disputes Act. You would also notice that the explanation in Section 2A(2) of the Payment of Gratuity Act is a verbatim reproduction of the explanation to Section 25B(2) of the Industrial Disputes Act (Section 25B of the Industrial Disputes Act was introduced in 1964 with effect from 19-12-1964, whereas section 2A of the Payment of Gratuity Act was introduced in the year 1984 with effect from 11-2-1981). In Mohan Lal vs. Management of Bharat Electronics Limited, [1981] Lab.I.C. page 806 at page 814 (Supreme Court), Justice Desai held that "sub-section (2) of the Industrial Disputes Act provides for a fiction to treat a workman in continuous service for a period of one year despite the fact that he has not rendered uninterrupted service for a period of one year but he has rendered service for a period of 240 days during the period of 12 calendar months…."
As the wording of section 25(2) of the Industrial Disputes Act is similar to the wording of section 2A(2) of the Payment of Gratuity Act, the above decision of the Honourable Supreme Court could be followed in interpreting section 2A(2) of the Payment of Gratuity Act.
Application of Section 2A(2) for Fixed-Term Employees
Section 2A(2) of the Payment of Gratuity Act is applicable in the case of workmen/employees who have not put in uninterrupted service as contemplated in section 2A(1) of the Payment of Gratuity Act. One example would be those employees who are not employed on a continuous basis but are employed with breaks in their service in between. In such cases, even if the workmen/employees are not employed continuously for any specific period and are given "breaks" or "disengaged," in other words, where the employer terminates the employer-employee relationship for a specified period and engages the very same person later after a gap of days/weeks/months/years, then section 2A(2) has to be applied to assess the length of "continuous service" rendered by the employee. If this principle is applied, even fixed-term employees will be entitled to gratuity under the Payment of Gratuity Act if they put in five years of continuous service as defined in section 2A of the Payment of Gratuity Act.
Gratuity Entitlement Despite Termination Mode
It might be argued that the method or mode of termination of the services of a fixed-term employee is not indicated in section 4(1) of the Payment of Gratuity Act. I would like to draw your attention to section 4(6) of the Payment of Gratuity Act. According to this section, even if the employee is terminated for any misconduct specified therein, he is entitled to gratuity subject to the conditions specified in section 4(6). When an employee whose services are terminated for misconduct could get gratuity, why not a fixed-term employee, whose services come to an end by efflux of time, get gratuity?
The next argument will be that the fixed-term employee had settled his accounts fully and finally. It is a fundamental principle of law that there cannot be a contract or agreement contrary to the provisions of any law, and the full and final settlement, if effected without paying gratuity and contrary to the provisions of the Payment of Gratuity Act, will be void ab initio and cannot be relied upon by the employer to deny gratuity if the other conditions are fulfilled.
Regards
From India, Madras
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In the case of State Bank of India vs. N. Sundaramoney, the Honourable Supreme Court of India held that the termination of employment of an individual worker due to automatic extinguishment of service by virtue of a preemptive provision to terminate in the appointment order itself would amount to retrenchment. Subsequent to this judgment, the Industrial Disputes Act 1947 was amended, and section 2(oo)(bb) was introduced. According to section 2(oo)(bb), the termination of the service of the workman as a result of the non-renewal of the contract of employment between the employer and the workman concerned on its expiry, or of such contract being terminated under a stipulation contained therein, does not amount to retrenchment. In other words, the interpretation placed on the definition of the term "retrenchment" in Sundaramoney's case was overcome with the introduction of section 2(oo)(bb). Therefore, the termination of the services of a workman on the expiry of the term fixed in the appointment order does not amount to retrenchment as defined under section 2(oo) of the Industrial Disputes Act. It is very clear that the concept of "fixed-term employment" was introduced with reference to the provisions of "retrenchment" under the provisions of the Industrial Disputes Act.
Breaks in Service and Gratuity Entitlement
The question posed by you is whether the breaks in service given by you to the fixed-term employee, followed by full and final settlement, could be regarded as breaks in service under the Payment of Gratuity Act to disentitle the fixed-term employee from claiming/getting gratuity from the employer. As far as my knowledge goes, there are no decided cases on this point.
Understanding "Continuous Service" Under the Payment of Gratuity Act
The term "continuous service" has been defined in section 2A of the Payment of Gratuity Act. Section 2A(1) of the Payment of Gratuity Act indicates what are the days of service that have to be reckoned for calculating the "continuous service." Section 2A(2) of the Payment of Gratuity Act prescribes the method to be adopted for determining whether an employee was in "continuous service" in cases where an employee is not in "continuous service" as defined in section 2A(1). Section 2A(2) starts with this phrase: "(2) Where an employee (not being an employee employed in a seasonal establishment) is not in continuous service within the meaning of clause (1), for any period of one year or six months, he shall be deemed to be in continuous service under the employer—". Therefore, Section 2A(2) could be invoked if section 2A(1) is not applicable to the case, that is, when the employee is not in uninterrupted service, excluding the interruptions permitted under Section 2A(1). Section 2A(1) and section 2A(2) of the Payment of Gratuity Act are mutually exclusive. In the case of the fixed-term employee cited by you in this thread, if he is not covered by section 2A(1), he would definitely be covered by section 2A(2).
Comparison with the Industrial Disputes Act
A comparison could be made of section 25B(2) of the Industrial Disputes Act and section 2A(2) of the Payment of Gratuity Act. While section 25B(2) of the Industrial Disputes Act is silent about employees working in establishments working for less than six days in a week, section 2A(2) of the Payment of Gratuity Act covers those employees also. In other words, the coverage of section 2A(2) of the Payment of Gratuity Act is wider than the coverage of section 25B(2) of the Industrial Disputes Act. You would also notice that the explanation in Section 2A(2) of the Payment of Gratuity Act is a verbatim reproduction of the explanation to Section 25B(2) of the Industrial Disputes Act (Section 25B of the Industrial Disputes Act was introduced in 1964 with effect from 19-12-1964, whereas section 2A of the Payment of Gratuity Act was introduced in the year 1984 with effect from 11-2-1981). In Mohan Lal vs. Management of Bharat Electronics Limited, [1981] Lab.I.C. page 806 at page 814 (Supreme Court), Justice Desai held that "sub-section (2) of the Industrial Disputes Act provides for a fiction to treat a workman in continuous service for a period of one year despite the fact that he has not rendered uninterrupted service for a period of one year but he has rendered service for a period of 240 days during the period of 12 calendar months…."
As the wording of section 25(2) of the Industrial Disputes Act is similar to the wording of section 2A(2) of the Payment of Gratuity Act, the above decision of the Honourable Supreme Court could be followed in interpreting section 2A(2) of the Payment of Gratuity Act.
Application of Section 2A(2) for Fixed-Term Employees
Section 2A(2) of the Payment of Gratuity Act is applicable in the case of workmen/employees who have not put in uninterrupted service as contemplated in section 2A(1) of the Payment of Gratuity Act. One example would be those employees who are not employed on a continuous basis but are employed with breaks in their service in between. In such cases, even if the workmen/employees are not employed continuously for any specific period and are given "breaks" or "disengaged," in other words, where the employer terminates the employer-employee relationship for a specified period and engages the very same person later after a gap of days/weeks/months/years, then section 2A(2) has to be applied to assess the length of "continuous service" rendered by the employee. If this principle is applied, even fixed-term employees will be entitled to gratuity under the Payment of Gratuity Act if they put in five years of continuous service as defined in section 2A of the Payment of Gratuity Act.
Gratuity Entitlement Despite Termination Mode
It might be argued that the method or mode of termination of the services of a fixed-term employee is not indicated in section 4(1) of the Payment of Gratuity Act. I would like to draw your attention to section 4(6) of the Payment of Gratuity Act. According to this section, even if the employee is terminated for any misconduct specified therein, he is entitled to gratuity subject to the conditions specified in section 4(6). When an employee whose services are terminated for misconduct could get gratuity, why not a fixed-term employee, whose services come to an end by efflux of time, get gratuity?
The next argument will be that the fixed-term employee had settled his accounts fully and finally. It is a fundamental principle of law that there cannot be a contract or agreement contrary to the provisions of any law, and the full and final settlement, if effected without paying gratuity and contrary to the provisions of the Payment of Gratuity Act, will be void ab initio and cannot be relied upon by the employer to deny gratuity if the other conditions are fulfilled.
Regards
From India, Madras
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Dear Mr.V.Harikrishnan, Thanks you giving me valuable information about Gratuity act provision for Fixed tern employee, Again Thanks a lot…. Regards, Vishal saxena
From India, Haldwani
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From India, Haldwani
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Gratuity Eligibility for Transferred Employees
For example, if employees are recruited in Company X and after two years, they are transferred to Company Y by resigning from Company X and joining Company Y, will they still be entitled to gratuity? They would be completing 7 years if we consider the combined tenure in both Company X and Company Y; if not, it would be 5 years in the industry.
Thanks,
Regards
From India, Bangalore
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For example, if employees are recruited in Company X and after two years, they are transferred to Company Y by resigning from Company X and joining Company Y, will they still be entitled to gratuity? They would be completing 7 years if we consider the combined tenure in both Company X and Company Y; if not, it would be 5 years in the industry.
Thanks,
Regards
From India, Bangalore
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The services rendered with different employers cannot be reckoned for calculating the eligibility for gratuity or the amount payable as gratuity to an employee With regards
From India, Madras
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From India, Madras
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Sham Arrangements in Employment Contracts
What if the arrangement is a sham? An employer may float 10 companies and move people across them at predetermined intervals. This is a reality in certain sectors.
Permanent Positions in Different Regions
When you engage a person for 5 years, this implies the position is permanent. This type of position exists in Europe and the Middle East but not here.
Regards, Vishal
From India, Delhi
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What if the arrangement is a sham? An employer may float 10 companies and move people across them at predetermined intervals. This is a reality in certain sectors.
Permanent Positions in Different Regions
When you engage a person for 5 years, this implies the position is permanent. This type of position exists in Europe and the Middle East but not here.
Regards, Vishal
From India, Delhi
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Whether the arrangement is a sham or not is a question of fact, and this issue has to be decided based on evidence that might be presented by the parties to the claim petition. If there is clinching evidence that the arrangement is a sham, then the employee could file a claim before the Authority and seek relief. However, the main issue is that as the question of whether the entire arrangement is a sham or not is a factual one. If the Controlling Authority and the Appellate Authority decide it in favor of either the employee or the employer, then it will not be easily set aside by a higher judicial forum like the High Court unless the findings of the Authorities below are deemed patently perverse or not based on any evidence at all. The implication is that the employer or employee should be prepared for a protracted legal battle. The employer, with their resources, may be able to endure it. Can an ordinary worker with limited financial resources afford it?
Regards,
From India, Madras
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Regards,
From India, Madras
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I just want to know if there is a minimum number of staff that must work in the company to pay gratuity. Is it 15 employees that have to work, or do we need to pay gratuity to those who have completed 5 years?
From Sri Lanka
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From Sri Lanka
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Gratuity Entitlement for School Teachers
I would be grateful if you could clarify whether a teacher in the school is entitled to the payment of gratuity in accordance with the Gratuity Act or under any other scheme that the school has been adopting even before the amendment to the Gratuity Act 1972, sometime in the year 2009. The conditions/application of the formula for calculating gratuity are found to be more beneficial than that of the existing scheme adopted by the school.
Please also let me know whether the school management is within their rights to deprive gratuity when the teacher worked for more than six years on temporary service lasting for 59 days with a break of service by 1 or 2 days. No termination order was served in between, and each time a fresh appointment letter is served, fixing her as a temporary teacher for 59 days.
I once again request the HR fraternity to give their considerate opinion as it is required to take up the issue on behalf of my wife, who is superannuating.
With regards,
Ramakrishna Pantula
From India, Visakhapatnam
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I would be grateful if you could clarify whether a teacher in the school is entitled to the payment of gratuity in accordance with the Gratuity Act or under any other scheme that the school has been adopting even before the amendment to the Gratuity Act 1972, sometime in the year 2009. The conditions/application of the formula for calculating gratuity are found to be more beneficial than that of the existing scheme adopted by the school.
Please also let me know whether the school management is within their rights to deprive gratuity when the teacher worked for more than six years on temporary service lasting for 59 days with a break of service by 1 or 2 days. No termination order was served in between, and each time a fresh appointment letter is served, fixing her as a temporary teacher for 59 days.
I once again request the HR fraternity to give their considerate opinion as it is required to take up the issue on behalf of my wife, who is superannuating.
With regards,
Ramakrishna Pantula
From India, Visakhapatnam
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Fixed-Term Employment and Gratuity Concerns
I have gone through the discussion above. I have served as a Fixed-Term Employee in the Government of Gujarat for a total of 4 years, starting from 03.09.2013 to 29.09.2017. I was on a Fixed-Term Contract. However, on the last day of my contract expiry, i.e., 29.09.2017, I suddenly received an email from my RO stating that I would be relieved on that day after the working hours as my contract would not be renewed further. Subsequently, I have been relieved from the company.
The company is not even following the Model Standing Order. During my tenure, I have been getting a Bonus (Ex-Gratia) of 14% of my existing basic pay, i.e., 20,000.00 per month.
To date, I have not received the Bonus for 2016-17, 2017-18, nor Gratuity, even though I have written many letters and applications to the employer. Unfortunately, I have not received any communication from the company to date.
I kindly request advice or clarification on how to resolve this matter.
Thank you.
Yours sincerely,
[Your Name]
From India, Ahmedabad
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I have gone through the discussion above. I have served as a Fixed-Term Employee in the Government of Gujarat for a total of 4 years, starting from 03.09.2013 to 29.09.2017. I was on a Fixed-Term Contract. However, on the last day of my contract expiry, i.e., 29.09.2017, I suddenly received an email from my RO stating that I would be relieved on that day after the working hours as my contract would not be renewed further. Subsequently, I have been relieved from the company.
The company is not even following the Model Standing Order. During my tenure, I have been getting a Bonus (Ex-Gratia) of 14% of my existing basic pay, i.e., 20,000.00 per month.
To date, I have not received the Bonus for 2016-17, 2017-18, nor Gratuity, even though I have written many letters and applications to the employer. Unfortunately, I have not received any communication from the company to date.
I kindly request advice or clarification on how to resolve this matter.
Thank you.
Yours sincerely,
[Your Name]
From India, Ahmedabad
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Fixed Term Employment and Gratuity Issues
I have gone through the discussion above. I served under a Fixed Term Employment contract with the Government of Gujarat for a total of 4 years, from 03.09.2013 to 29.09.2017. On the last day of my contract, 29.09.2017, I received an email from my RO stating that I would be relieved after working hours as my contract would not be renewed. Subsequently, I was relieved from the company.
The company is not following the Model Standing Order. During my tenure, I received a Bonus (Ex-Gratia) of 14% of my basic pay, which was 20,000.00 per month. However, I have not received bonuses for 2016-17 and 2017-18, nor gratuity, despite writing many letters and applications to the employer. Unfortunately, I have not received any communication from the company to date.
It is requested to kindly advise or clarify how to resolve this issue.
Thanks & regards,
Rahul Gajjar, Ahmedabad, Gujarat.
From India, Ahmedabad
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I have gone through the discussion above. I served under a Fixed Term Employment contract with the Government of Gujarat for a total of 4 years, from 03.09.2013 to 29.09.2017. On the last day of my contract, 29.09.2017, I received an email from my RO stating that I would be relieved after working hours as my contract would not be renewed. Subsequently, I was relieved from the company.
The company is not following the Model Standing Order. During my tenure, I received a Bonus (Ex-Gratia) of 14% of my basic pay, which was 20,000.00 per month. However, I have not received bonuses for 2016-17 and 2017-18, nor gratuity, despite writing many letters and applications to the employer. Unfortunately, I have not received any communication from the company to date.
It is requested to kindly advise or clarify how to resolve this issue.
Thanks & regards,
Rahul Gajjar, Ahmedabad, Gujarat.
From India, Ahmedabad
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