Query on Gratuity
Company "A" was taken over by Company "B," and the services of all the employees of Company "A" were transferred to Company "B" with a condition that the service conditions would not be less favorable. Company "A" had a provision for the payment of gratuity as per the Act, i.e., 15 days, while Company "B" has more favorable gratuity norms, i.e., 30 days' salary for each completed year of service.
The services of Mr. Ram were transferred to Company "B," and his remaining service was only two years at the time of the transfer of his services to Company "B." His total gratuity eligibility was for 26 years (24 years in Company "A" and 2 years in Company "B").
Company "B" calculated his gratuity for 24 years at 15 days as per the policy of Company "A" and at 30 days for 2 years. Mr. Ram has disputed the calculation of gratuity, demanding gratuity at 30 days for the entire service. Is Mr. Ram's demand legally tenable? Kindly cite some case laws also.
From India, Delhi
Acknowledge(0)
Amend(0)
20Company "A" was taken over by Company "B," and the services of all the employees of Company "A" were transferred to Company "B" with a condition that the service conditions would not be less favorable. Company "A" had a provision for the payment of gratuity as per the Act, i.e., 15 days, while Company "B" has more favorable gratuity norms, i.e., 30 days' salary for each completed year of service.
The services of Mr. Ram were transferred to Company "B," and his remaining service was only two years at the time of the transfer of his services to Company "B." His total gratuity eligibility was for 26 years (24 years in Company "A" and 2 years in Company "B").
Company "B" calculated his gratuity for 24 years at 15 days as per the policy of Company "A" and at 30 days for 2 years. Mr. Ram has disputed the calculation of gratuity, demanding gratuity at 30 days for the entire service. Is Mr. Ram's demand legally tenable? Kindly cite some case laws also.
From India, Delhi
Acknowledge(0)Amend(0)
Acquisition of one organization by the other is based on terms and conditions of the acquisition between two organizations, which include the employee-related issues as well. In my career, I had a scope for two acquisitions. In one case, it had been mentioned in a letter issued to the employees of the organization who had joined the new organization that all your service conditions would be governed by the rules and regulations of the new organization, which would not be in any way less favorable than your existing organization. All new employees were issued letters mentioning new remuneration and perks, along with recognition of past service for the purpose of Gratuity calculation. In the new organization, there was a gratuity scheme for the first 10 years based on 15 days, more than 10 years but less than 20 years based on 21 days, and 20 years or more service based on 26 days. Accordingly, gratuity was paid to employees based on the new organization's norms, considering past service. The new organization also had a 3-tier retirement benefit - PF, Gratuity, and Superannuation, which was not in the old organization, including both gratuity and superannuation.
In the other case, employees were asked to resign and join afresh the new organization. There were unions that agreed, as the terms and conditions of the new organization were much better than the existing ones.
In the instant case, it is mentioned that the service conditions in the new organization will not be less favorable. If it is not mentioned that past service gratuity will be taken care of by the new organization as per the terms and conditions of the new organization, then the new organization may pay a portion of gratuity based on the old organization's method (15 days for each completed year of service instead of 30 days as per the new organization). However, the gratuity payment for the period in the new organization will be based on the new organization's norms.
Whether the demand will be legally tenable or not will absolutely depend on the terms and conditions of the acquisition between the organizations, including employee-related matters.
S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531
USD HR Solutions – To Strive towards excellence with effort and integrity
From India, New Delhi
Acknowledge(0)Amend(0)
In the other case, employees were asked to resign and join afresh the new organization. There were unions that agreed, as the terms and conditions of the new organization were much better than the existing ones.
In the instant case, it is mentioned that the service conditions in the new organization will not be less favorable. If it is not mentioned that past service gratuity will be taken care of by the new organization as per the terms and conditions of the new organization, then the new organization may pay a portion of gratuity based on the old organization's method (15 days for each completed year of service instead of 30 days as per the new organization). However, the gratuity payment for the period in the new organization will be based on the new organization's norms.
Whether the demand will be legally tenable or not will absolutely depend on the terms and conditions of the acquisition between the organizations, including employee-related matters.
S K Bandyopadhyay (WB, Howrah) CEO-USD HR Solutions +91 98310 81531
From India, New Delhi
Acknowledge(0)Amend(0)
This looks like an assignment given to the students to answer, and instead of laboring for it, using this forum as a shortcut to elicit the answer.
The charging provision in Section 4(2) of the PG Act 1972 reads as follows:
(2) For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee. So what is protected as per the Act is the calculation formula of 15 days' wages for every completed year of service and at the rate of the last drawn wages. The calculation based on 30 days' wages for every completed year of service is rather unheard of, and such a claim cannot lie under the PG Act. Such a claim can lie under the Specific Relief Act 1963 and seek a declaratory decree to that effect.
From India, Mumbai
Acknowledge(0)Amend(0)
The charging provision in Section 4(2) of the PG Act 1972 reads as follows:
(2) For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee. So what is protected as per the Act is the calculation formula of 15 days' wages for every completed year of service and at the rate of the last drawn wages. The calculation based on 30 days' wages for every completed year of service is rather unheard of, and such a claim cannot lie under the PG Act. Such a claim can lie under the Specific Relief Act 1963 and seek a declaratory decree to that effect.
From India, Mumbai
Acknowledge(0)Amend(0)
In my opinion, the claim of Mr. Ram is legally maintainable on the following grounds:
1) On the transfer of the services of Mr. Ram from company A to company B, he has become a full member of company B, thus entitling him to all the service regulations in force in that establishment.
2) No establishment can have two sets of rules for the same employee as statutory gratuity is to be computed with reference to the date of termination of employment and the last drawn salary only.
3) The clause relating to parity of service conditions would cover aspects like salary, employment status, leave, holidays, and other applicable items on the date of transfer only. Once the transfer is effected, the future benefits have to be in sync with those of the existing employees of Company B. Superannuation of the transferred employees on a later date is a future event with reference to the date of transfer. Therefore, the combined reading of points (2) and (3) would shift the emphasis of the parity clause among all the employees of Company B when the necessity for payment of Gratuity arises on a later date only.
4) The doctrine of the transfer of an employee with continuity of service from one organization to another takes within its fold only the number of years of service rendered in the transferor organization for the purpose of terminal benefits subsequent to the transfer and not the method of their calculation.
5) Section 4(5) of the PG Act 1972 enables better terms of Gratuity under an award or an agreement.
From India, Salem
Acknowledge(0)Amend(0)
1) On the transfer of the services of Mr. Ram from company A to company B, he has become a full member of company B, thus entitling him to all the service regulations in force in that establishment.
2) No establishment can have two sets of rules for the same employee as statutory gratuity is to be computed with reference to the date of termination of employment and the last drawn salary only.
3) The clause relating to parity of service conditions would cover aspects like salary, employment status, leave, holidays, and other applicable items on the date of transfer only. Once the transfer is effected, the future benefits have to be in sync with those of the existing employees of Company B. Superannuation of the transferred employees on a later date is a future event with reference to the date of transfer. Therefore, the combined reading of points (2) and (3) would shift the emphasis of the parity clause among all the employees of Company B when the necessity for payment of Gratuity arises on a later date only.
4) The doctrine of the transfer of an employee with continuity of service from one organization to another takes within its fold only the number of years of service rendered in the transferor organization for the purpose of terminal benefits subsequent to the transfer and not the method of their calculation.
5) Section 4(5) of the PG Act 1972 enables better terms of Gratuity under an award or an agreement.
From India, Salem
Acknowledge(0)Amend(0)
When Ram was transferred to Company "B," he was governed by the rules and regulations of Company "B," and such rules, policies, and procedures shall be binding on Ram.
Hence, his contention that he should be paid gratuity, as per the rules and regulations of Company "B," is fully justified.
From India, Aizawl
Acknowledge(0)Amend(0)
Hence, his contention that he should be paid gratuity, as per the rules and regulations of Company "B," is fully justified.
From India, Aizawl
Acknowledge(0)Amend(0)
I do not appreciate the remarks of KK!HR. The replies posted by Mr. Umakanth and Mr. S. K. Bandyopadhyay are very relevant to the query, and the diverging opinions of both these subject matter experts themselves show the importance of this question. In mergers and acquisitions, a lot of such questions and practical difficulties arise, and we should search for the answers to such queries rather than discouraging the questioner, as it always gives a lot of insights to the readers on the subject.
Even if this issue goes to various courts and from the controlling Authority to the Supreme Court, we may expect diverging views of the Court.
Hence, the question is very interesting and debatable. I personally endorse the reply of Mr. Bandyopadhyay. Gratuity for the last two years can be calculated at 30 days as per the policy of the new Company.
For the information of KK!HR, many companies in India, depending upon the length of service, are paying a more favorable gratuity ranging from 21 days to 30 days.
Regards,
Dr. Kamlesh Agrawal
From India, Delhi
Acknowledge(0)Amend(0)
Even if this issue goes to various courts and from the controlling Authority to the Supreme Court, we may expect diverging views of the Court.
Hence, the question is very interesting and debatable. I personally endorse the reply of Mr. Bandyopadhyay. Gratuity for the last two years can be calculated at 30 days as per the policy of the new Company.
For the information of KK!HR, many companies in India, depending upon the length of service, are paying a more favorable gratuity ranging from 21 days to 30 days.
Regards,
Dr. Kamlesh Agrawal
From India, Delhi
Acknowledge(0)Amend(0)
Dr. Kamlesh,
Unfortunately, I agree with KKHR. This looks absolutely like an interview question or something that is given as homework in an HR MBA course. The moderators have also noted this trend. Whether to answer or not, of course, is left to individual members.
From India, Mumbai
Acknowledge(0)Amend(0)
Unfortunately, I agree with KKHR. This looks absolutely like an interview question or something that is given as homework in an HR MBA course. The moderators have also noted this trend. Whether to answer or not, of course, is left to individual members.
From India, Mumbai
Acknowledge(0)Amend(0)Engage with peers to discuss and resolve work and business challenges collaboratively. Our AI-powered platform, features real-time fact-checking, peer reviews, and an extensive historical knowledge base. - Register and Log In.
Gratuity form I claim.pdf