Applicability of Gratuity for Contract Employees

[Pradeep Jain]

Dear Sir,

We have contract employees under contract of Manpower supply and Securities services. Some of employees has completed more than 5 years of service under the same contractor without any break of service.

Query is that:-

1- Are such employee are entitled to get Gratuity ?

2- If yes, then then the same is payable by the concerned contractor or by the Company.

Regards

Pradeep

[YAGAY andSUN]

Dear Pradeep,

In one case, the Kerala High Court has held that neither the Contract Labour (R and A) Act, 1970 nor the Payment of Gratuity Act, 1972 provides that the principal employer can be held liable to pay the gratuity to the workers engaged through the contractor (1).

However, the Madras High Court has held that although liability for payment of gratuity is that of the contractor but by virtue of section 21 (4) of the Contract Labour (RandA) Act, the principal employer can be directed to make payment of gratuity to the employees of the contractor and recover the same from the contractor (2). In another case, the Madras High Court has held that when the contractor, who engages the workmen, does not pay the amount of gratuity to them, the principal employer is liable to pay all duesincluding gratuity to such workers as per provisions of section 21 (4) of Contract Labour (Regulation and Abolition) Act, 1970 (3).

(1) Comminco Binani Zinc Ltd. v. Pappachan, 1989 LLR 123 (Ker.H.C.) = 1989 (58) FLR 528.

(2) Madras Fertilisers Ltd. v. Controlling Authority under the Payment of Gratuity Act, 2003 LLR 244 (Mad. H.C.) = 2003 (97) FLR 275.

(3) Superintending Engineer, Mettur Thermal Power Station, Mettur v. Appellate Authority, Joint Commissioner of Labour Combatore and Another, 2012 LLR 1160 (Mad. H.C.).

This is for your kind information.

Regards

YAGAY and SUN

(Management and Indirect Tax Consultants)

AI Summary

Gratuity liability for contract employees: entitlement exists but courts differ on whether contractor or principal employer must pay. Applicability of gratuity to workers engaged through contractors raises whether entitlement attaches to contract employees and whether the contractor or the principal employer is liable. Judicial decisions conflict: some hold the contractor alone liable for gratuity, while others allow the principal employer to be directed to pay gratuity to the contractor's employees and recover the amount from the contractor under the contract labour regulatory scheme.