Gratuity is a token of appreciation for long-term service. However, disputes often arise when an employee claims gratuity without completing five years. In this case, an employee served for a period less than five years and demanded gratuity. The employer denied the request. Was the employer right? Let’s examine the situation in detail using facts, issues, legal principles, and judgment.
Facts of the Case
An IT employee worked for a private limited company for four years and eight months. He resigned voluntarily and submitted a formal request for the payment of gratuity. The employer, however, refused the claim, stating that the employee had not completed the required five years of service.
The employee argued that his service duration should be rounded up and that he had worked continuously without break. He cited industry practices and partial precedents to support his claim. Eventually, he approached the Controlling Authority under the Payment of Gratuity Act, 1972 to resolve the matter.
Issues of the Case
The case raised several important legal questions:
- Is five years of service a mandatory condition to claim gratuity?
- Can an employee be granted gratuity if he served less than five years but more than 4.5 years?
- Does the nature of separation—resignation, retirement, death, or disablement—affect gratuity entitlement?
- Was the employer justified in refusing gratuity based on technical service duration?
These questions needed clear answers based on statutory interpretation and case law.
Principles and Relevant Legal Framework
The Payment of Gratuity Act, 1972 is the key legislation governing gratuity payments in India. It mandates that gratuity must be paid to an employee who has rendered five or more years of continuous service, upon termination due to retirement, resignation, superannuation, death, or disablement.
Key Legal Provisions:
- Section 4(1): Gratuity is payable to an employee after five years of continuous service.
- Proviso to Section 4(1): The five-year condition is not applicable in cases of death or disablement.
- Judicial Interpretation: In the case of Mettur Beardsell Ltd. vs. Regional Labour Commissioner, courts observed that if an employee has completed 240 working days in the fifth year, the service is often treated as equivalent to five years.
In the middle of the legal debate, the Payment of Gratuity Act, 1972 became central to interpreting whether the “five years” must mean five calendar years or whether substantial completion of the fifth year (e.g., 4 years and 8 months) qualifies.
Several courts have held that continuous service of 4 years and 240 days can be treated as sufficient, especially in establishments that work six days a week.
Judgment and Conclusion
In this case, the court examined the employee’s service records. He had served continuously for 4 years and 253 days. His employer operated a six-day week. The court relied on precedent from the Madras High Court and the Bombay High Court, both of which held that completion of 240 days in the fifth year satisfies the “five years” requirement under the Act.
Therefore, the court ruled in favour of the employee. It directed the employer to pay the gratuity amount with interest, affirming that the employee’s claim was legally valid.
The court also noted that the intent of the Payment of Gratuity Act, 1972 is to reward long and continuous service, not to deny benefits on narrow technical grounds. Since the employee fulfilled the spirit of the law, denying him gratuity would defeat the law’s purpose.
