All casual, ad hoc or part time employee are entitled to gratuity – Delhi HC
What do you mean by gratuity?
Gratuity is a monetary benefit given by the employer to his employee at the time of retirement. It is a defined benefit plan where no contributions are made by the employee. Gratuity payments in India are governed by the rules and requirements set out in the Payment of Gratuity Act, 1972. Gratuity is calculated on the basis of last drawn salary and years of service.
When is an individual eligible to receive gratuity?
An individual is eligible to receive the gratuity once he/she has completed five years of service with an employer. However, it can be paid before the completion of five years at the death of an employee or if he has become disabled due to an accident or disease.
How is Gratuity Calculated?
The formula for computing gratuity is based on the 15 days of last drawn salary for each completed year of service or part of thereof in excess of six months.
The formula is as follows:
(15 * last drawn salary * tenure of working) divided by 26
Last drawn salary means basic salary, dearness allowance and commission received on sales.
For instance A’s last drawn basic pay is Rs 50,000 per month and he has worked with XYZ Ltd for 15 years and 7 months. In this case, using the formula above, gratuity will be calculated as:
(15 X 50,000 X 16)/26 = Rs. 4.62 lakh.
In the above case, we have taken 16 years as tenure of service because A has worked for more than 6 months in year. If he worked for 15 years and 5 months, then 15 years of service would have been taken into account while calculating the gratuity amount.
Let us refer to the case of National Bal Bhawan vs Vandana where a petition was filed in the Delhi High Court by National Bal Bhawan (petitioner) against the order passed by the Assistant Labour Commissioner, Delhi. In the said order the 7 petitioners were granted gratuity of worth Rs. 13,00,000 in total along with simple interest @ 10% p.a.
Issue on the applicability of the Payment of Gratuity Act, 1972 is raised by the petitioner.
Submissions by the Petitioner
- The petitioner is entirely funded by the Ministry of Human Resource and Development and therefore, it falls within the definition of State under Article 12 of the Constitution.
- It is thus contended that the respondents are deemed to hold a post under the Central Government and thereby, excluded from the category of the employees to whom the Act applies.
- His submissions are founded on the definition of employee as provided under Section 2(e) of the Payment of Gratuity Act, 1972.
- According to Section 2(e) employee means any person (other than an apprentice) employed on wages, in any establishment, factory, mine, oilfield, plantation, port, railway company or shop to do any skilled, semi-skilled, or unskilled, manual, supervisory, technical or clerical work, whether the terms of such employment are express or implied, and whether or not such person is employed in a managerial or administrative capacity, but does not include any such person who holds a post under the Central Government or a State Government and is governed by any other Act or by any rules providing for payment of gratuity.
- Petitioner explains that the post held by the respondents can be construed to be a post under the Central Government.
Observations of HC
- The petitioner is a society registered under the Societies Registration Act, 1860 which is an autonomous body.
- Mere funding or assuming, entire funding for running the affairs of such society, cannot change the character or identity of the Society being an independent autonomous body.
- How come then, rendering of services to such autonomous body by the respondents be construed to be a post under the Central Government?
- Petitioner failed to provide explanation for the same.
- Therefore, the respondents cannot be said to be holding a post under the Central Government.
- They are also not shown to be governed by any other Act or by any Rules providing for payment of gratuity.
- In the given facts, the respondents cannot be excluded from the applicability of the Act adverting to the definition of ’employee’ as defined in Section 2(e).
Reference to an earlier case
- Petitioner had placed reliance upon the observations made in Ajay Hasia etc. vs. Khalid Mujib Sehravardi & Ors to contend that when the Central Government has control on the working of the society, it is merely a projection of the Government inasmuch as it is the voice of the State.
- According to the HC, there cannot be any dispute about the observation so made but the context in which it comes cannot be overlooked.
- The said observations were made in the context of a legal entity, to consider, as to whether such body was to be construed to be an instrumentality or an agency of the State as enshrined under Article 12 or not.
- There cannot be any difference of opinion in holding that the petitioner is an agency of the State, but, equally, it cannot be forgotten that the petitioner is an autonomous body registered under the Societies Registration Act.
- A Society or a Corporate Body, which is created by a Statute or wholly funded by the funds provided by the Union / State and / or its affairs are substantially to achieve the public functions, is to be treated to be an instrumentality or agency of the State for the purposes of maintaining an action under Article 226 of the Constitution of India and nothing beyond.
- The independent character of such Body or Society does not change otherwise. The contention raised to the contrary by the petitioner was thus misconceived and therefore rejected.
- Undisputedly, the respondents were offered appointment by the petitioner in its own rights.
- There is a relationship of employer and employee amongst the petitioner and the respondents is also not in question.
- Petitioner is an establishment under the Act, therefore, there is no reason as to why, the respondents would not be covered within the purview of the Act.
Observations of the HC on the contention that respondents were part time employees
- The petitioner had contended that the respondents were part time employees and therefore, the Act, was not applicable to the respondents.
- Petitioner failed to point out any statutory provision, rule or regulation, in support of such submissions.
- HC did not find merit even in the submission so made. An employee is an employee, whether on casual, ad-hoc or part time basis.
- The definition of employee in the Act does not speak of any specific categories of the employees for its applicability, be it, regular, ad- hoc, part time, casual etc.
- As for the payment of gratuity under the subject Act, to assess the quantum thereof, HC referred to the definition of wages in Section 2(s).
- According to Section 2(s), wages means all emoluments which are earned by an employee while on duty or on leave in accordance with the terms and conditions of his employment and which are paid or are payable to him in cash and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance.
- The combined reading of Section (2)(e) and Section (2)(s) leaves no doubt that the gratuity is payable to the employees defined under the Act and is to be assessed on the basis of the wages / emoluments, within the ceiling limit as provided there-under.
- During the course of hearing, petitioner also submitted that the respondents were paid only the consolidated wages besides conveyance.
- It would thus be seen, for few of the respondents, who are equally stated to be part-time employees, the petitioner had provided for the increments, apparently, on yearly basis.
- All of them had rendered their uninterrupted services for more than 5 years to be eligible for the gratuity under the Act.
- Most of them had rendered services for almost 30 years or more and they were declined the entitlement of gratuity, that too, by a Society, which was wholly funded by the Central Government.
- They are not entitled to pension as they are not the regular employees under the Central or the State Government nor the society on its part is shown to have any such scheme.
- Fact however remains that the payment of gratuity is a Statutory liability under the Act, 1972.
- Therefore, denial of gratuity to them is to leave them unsteady, when they superannuated.
Denial of gratuity was considered as a reflection of total insensitivity by the petitioner by ignoring the genesis of the beneficial legislation of the Payment of Gratuity Act, 1972. For the foregoing reasons, the respondents were granted gratuity and the writ petitions were dismissed with costs of Rs. 20,000/- each, i.e Rs. 1,40,000/- to be deposited with The Blind Relief Association.