Hello,
This is getting to an interesting but a simple point.
I write with the limitation of not having read either of the judgments and on the basis only of my understanding of the law on the subject and the posts in this thread:
1) I contend that the 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 take a note as to 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
January 16, 2013
From India, Pune
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335This is getting to an interesting but a simple point.
I write with the limitation of not having read either of the judgments and on the basis only of my understanding of the law on the subject and the posts in this thread:
1) I contend that the 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 take a note as to 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
January 16, 2013
From India, Pune
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Let us ask these questions and answer 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."
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."
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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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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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. 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?
If I am eligible, where should I address my grievance?
From India, Jaipur
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If I am eligible, where should I address my grievance?
From India, Jaipur
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Employment period of a fixed-term contract should be counted for gratuity calculation. This applies to 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 there in the Payment of Gratuity Act.
Madhu.T.K
From India, Kannur
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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.
From India, Jaipur
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From India, Jaipur
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Dear Joseph,
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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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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SBT Vs Asst. Labour Commissioner- Gratuity dismissed employee-LTS.PD F
FORM I(Application for Gratuity by an employee).doc