The Jurisprudence Of Gratuity: Deconstructing The Minimum "Continuous Service" Requirement For Payment Of Gratuity

The Payment of Gratuity Act, 1972 (referred to as 'PGA' hereinafter), serves as a cornerstone of social security legislation in India, providing a lump sum payment to employees as a token of appreciation for long and meritorious service. A central tenet of this Act is the requirement of "continuous service" for gratuity eligibility. However, even the most seasoned HR professionals disagree on the minimum length of service for which gratuity is payable under the Gratuity Act. Based on the plain reading of the Act, there is confusion regarding whether gratuity is payable after 5 years of service or 4 years, 240 days (or 190 days in some cases). Indian HR professionals have struggled with whether the statutory fiction in Section 2A—the 240-day rule—shortens the minimum requirement for paying gratuity or not. This article examines the diverse judicial perspectives to shed light on the debate. Relevant Statutory Framework Section 4 (1) of the PGA (summarised): Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years: (a) on his superannuation, or (b) on his retirement or resignation, or (c) on his death or disablement due to accident or disease: Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement. Section 2A (2) of the PGA (summarised): Where an employee is not in continuous service for any period of one year, he shall be deemed to be in continuous service under the employer for one year, if the employee during the preceding 12 calendar months has actually worked under the employer for not less than: 190 days, in the case of an employee employed in an establishment that works for less than six days a week; and 240 days, in any other case. A plain reading of the above gives rise to the conflicting arguments on the minimum tenure of continuous service required to become eligible for the payment of gratuity. Judicial Decisions Surendra Kumar Verma v. Central Government Industrial Tribunal-cum-Labour Court[1] Facts: Workmen were employed in a banking concern on a temporary basis pending a qualifying test for permanent absorption and were subsequently discharged from service. All of them worked more than 240 days in the 12 months immediately preceding their discharge, but they had not completed a full calendar year. Issues: What counts as “continuous service of not less than one year” under Section 25-F of the Industrial Disputes Act 1947 ('IDA')? Judgement: The Court held that, in view of Section 25-B (2) of the IDA, a worker need not show an unbroken 12-month stint; working 240 days in the preceding 12 months is enough to treat him as having completed “one year of continuous service.” Significance: Although Surendra Kumar Verma was decided under the IDA, Section 2A of the Gratuity Act is textually identical to Section 25-B (2) IDA. High Courts, therefore, borrow their ratio when deciding on gratuity eligibility. Lalappa Lingappa & Others v. Laxmi Vishnu Textile Mills Ltd.[2] Facts: Workers whose employment had ended asked for gratuity for each calendar year in service, irrespective of how many days they had actually worked in that year. The employer paid gratuity only for those years in which the employee had worked for at least 240 days, treating all other years as ineligible. Issue: Meaning of “continuous service” in Section 2(c) of PGA (now Section 2A): does it require at least 240 days actually worked in a year? Whether mere permanence or inclusion on the muster-roll entitles an employee to gratuity for a year in which he worked fewer than 240 days. Judgement: Gratuity payable only for the years in which the worker actually worked for 240 days or more. Unauthorised absence that reduces attendance below 240 days disqualifies that year. Each gratuity year must show 240 counted days. Significance: The decision anchors the 240-day yardstick inside the Gratuity Act itself, defining the minimum length of service that must be demonstrated for each gratuity-earning year—and, by extension, for reaching the five-year eligibility threshold. Mohan Lal v. Management of Bharat Electronics Ltd.[3] Facts: Mohan Lal clocked a little over ten months' service, but his muster rolls showed ≥ more than 240 paid days when weekly-offs and paid holidays were counted. The company ended his employment without notice pay or retrenchment compensation. Issues: Does 240 paid days in the preceding 12 months satisfy “one year's continuous service” under Section 25-B (2) of the IDA? When computing those 240 days, are paid weekly off days and notified holidays considered as days “actually worked”? Judgement: A worker who has been on the muster-roll and paid for more than...

The Jurisprudence Of Gratuity: Deconstructing The Minimum "Continuous Service" Requirement For Payment Of Gratuity

Chirag Mittal

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