Introduction
The concept of gratuity has long served as a means of acknowledgement and appreciation for employees’ unwavering commitment to their employment and employers. In accordance with the applicable provisions of the Payment of Gratuity Act, 1972 (‘Gratuity Act’), establishments/businesses like factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments that have had at least 10 (ten) employees in the preceding 12 (twelve) months are required to give gratuity benefits to their employees. This is done to provide financial security and recognition for their loyal and dedicated service. Owing to this, the Gratuity Act is considered a beneficial statute.[1] Conversely, it is also well-established that just because a statute is beneficial in nature, it cannot be construed in favour of workmen when they are not entitled to the benefits thereof.[2]
A critical aspect of the Gratuity Act is the concept of “continuous service,” which determines an employer’s obligation to pay gratuity. Section 2A(1) of the Gratuity Act states that:
“An employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service which may be interrupted on account of sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order treating the absence as break in service has been passed in accordance with the standing order, rules or regulations governing the employees of the establishment), lay off, strike or a lock-out or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.”
This article discusses recent rulings from various High Courts providing insights into the interpretation of the term “continuous service”, particularly in cases wherein factual matrix involves employment transfers (including those due to deputation), post-retirement service, and interruptions in service caused by accidents. By examining these cases, we aim to provide a comprehensive understanding of the evolving jurisprudence and the subsequent implications on both employers and employees.
Continuous Service Across Transfers
The recent ruling of the Bombay High Court (‘BHC’) in the case of Mercedes Benz India Private Limited vs. Noshir Nani Desai[3]establishes that when an employee is transferred between 2 (two)organizations under the same management, it cannot culminate in the termination of his/her employment. Mr. Desai was an employee of Mercedes Benz India Pvt. Ltd. (‘Mercedes’) during the period 1996to 2004. Mercedes deployed him to work abroad at its subsidiary firm, Daimler AG, in Germany and consequently entered into an agreement of assignment of appointment, which resulted in his services being assigned to Daimler AG. Mr. Desai worked until June 25, 2012, when he was relieved by Daimler AG, consequent to his resignation on April05, 2012. The court observed that:
“It is also to be borne in mind that the ultimate management between both the companies is same, which possibly is the reason why Mr. Desai was ‘transferred’ to the host company. It is not a fresh recruitment with the host company. Mr. Desai never resigned from services of Mercedes Benz… Thus, mere transfer between two establishments owned by same management does not result in break in service and the services in the two spells remain continuous within the meaning of Section 2A of the Gratuity Act.”
The ruling emphasizes that when an employee is transferred to another company under the same management, the continuity of services is maintained for the payment of gratuity as per the provisions of the Gratuity Act.
Similar ruling has been given by the BHC in the case of Terna Polytechnic vs. Ravi Bhadrappa Randale[4].The employee i.e., Ravi Bhadrappa Randale had submitted an application for gratuity covering his whole tenure of employment in 2 (two) institutions i.e., Terna Polytechnic and Terna Engineering College which were overseen and owned by the same management. The BHC ruled that gratuity should be calculated based on the final wage received at the time of resignation, without being divided between multiple organizations. Section 2A of the Gratuity Act provides definition for “continuous service” which ensures that employment is considered uninterrupted. It further noted that there was no gap in the spells of service rendered, as immediately upon his relief from Terna Polytechnic, Mr. Ravi had joined Terna Engineering College. The court rejected the contention that the service periods should be treated as distinct because Terna Polytechnic and Terna Engineering College are distinct legal entities. More significantly, the employers failed to prove that Mr. Ravi was “freshly recruited” through a selection process and then offered an appointment.
In light of the above, it can be said that when employees are moved or transferred to different establishments under the same management, their continuity of service is maintained for the purpose of calculating gratuity.
Post-Retirement Service
In the case of Sk. Ekbal vs. The State of West Bengal and Ors.[5], the Calcutta High Court (‘CHC’) analyzed the factual matrix of post-retirement work and its consequences on uninterrupted service. The workman, who retired on July 7, 2006, continued working until July 15, 2012.
The CHC observed that the burden of proof for providing evidence of continuous service rests with the employee. It further stated that only when the employee discharges his primary burden, the burden of proof may shift on the employer. Nevertheless, the ruling of CHC pivoted in favour of the employee, as the management was unable to disprove “continuous service” of employment. The case was sent back to the Appellate Authority for the purpose of recalculating the gratuity amount along with interest, and the CHC categorically held that the petitioner will be entitled payment of gratuity even for the period of service rendered after retirement.
This ruling affirms the fact that the primary burden of proof for proving continuous service rests with the employee under the Gratuity Act while signifying that if post-retirement service remains uninterrupted, it can be qualified as a component of continuous service.
Accidents and Continuous Service
The court deliberated upon the issue of disruption in continuous service resulting from accidents in the judgment delivered by the CHC in the case of M/s. Dalhousie Jute Company vs. The State of West Bengal & Ors.[6].In this case, the employee started his service in 1992, however, he met with an accident on factory premises in 1998. Pursuant to the accident, the employee became disabled and could not work till the year 2000. The CHC observed that:
“In terms of the provisions of Section 2A an employee is in continuous service for a period if he has, for that period been in uninterrupted service by eliminating the interruption on account of accident. The respondent no.4 admittedly met with an accident on 15th March, 1998 at the factory premises of the petitioner which is not in dispute. So non-rendering of uninterrupted service due to such accident for that year or for a subsequent period will not amount to a break of service, if the workman is unable to attend the work due to such accident.”
As per the decision of the court, it was upheld that accidents leading to interruptions are not a break in service as contemplated under Section 2A of the Gratuity Act.
Parent Service and Deputation Service
In a judgment revolving around the issue of deputation service and quantum of gratuity payable, the Kerala High Court held that separate calculation of gratuity for parent service and deputation service is impermissible under the Gratuity Act.[7]
In this case, the petitioner i.e., the employee retired from the parent service after completing 22 (twenty-two) years of service. During the said term, he worked on deputation with 2 (two) other employers for a collective period of 13 (thirteen) years. For calculation of gratuity, the deputation employers calculated the gratuity on the basis of last drawn monthly salary payable in the deputation service. However, the case of the petitioner was that the deputation employers are liable to pay gratuity on the basis of last drawn monthly salary before retirement i.e., the salary last received by him at parent service.
The court held that the total gratuity payable to the employee has to be calculated on the monthly salary last drawn by employee immediately preceding the termination, irrespective of deputation service. It observed that “Once total gratuity payable to employee is calculated by the Parent employer based on the monthly salary last drawn by the employee immediately preceding his termination, the Parent Employer has every right to seek contributions from the employers with whom the employee had worked on deputation, for the period of deputation.”
To sum up, this judgment paves a way to safeguard interests of employers while upholding the purpose of a beneficial legislation such as the Gratuity Act.
Conclusion
There has been remarkable development in the Gratuity Act, ensuring fair wages for workers by recognizing gratuity privileges based on uninterrupted and continuous service as a key factor. Recent judicial precedents clearly establish that any interruption in providing continuous service for reasons such as transfer between different departments or organizations under the same management, post-retirement services rendered, and interruptions due to accidents do not adversely affect ‘continuous service’ for the purposes of Gratuity Act.
Nevertheless, it is crucial to remember that the beneficial provisions of the Gratuity Act cannot be applied indiscriminately where such rights do not genuinely accrue. Employers must exercise due diligence and maintain thorough records to ensure compliance without falling prey to unfounded claims.
Written By Nidhi Arora (Partner) and Manan Kapoor (Senior Associate)
[1] (2006) 8 SCC 514
[2] Supra at 1
[3] 2024 SCC OnLine Bom 199
[4] 2024 SCC OnLine Bom 144
[5] WPA 23514 of 2023
[6] WPA 8705 of 2024
[7] WP (C) No. 35362 of 2019
