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It is a comprehensive study notes on labour law
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The Payment of Gratuity Act, 1972 provides a statutory right to employees, mandating that they are entitled to gratuity after completing a minimum of five years of continuous service. The fundamental purpose of the Act is to ensure that employees who have worked for an extended period are compensated for their service once they leave the organization. Gratuity, being a form of retirement benefit , helps employees secure their financial future, especially during the transition period when they leave active service. This Act applies to establishments with 10 or more employees and covers workers in various sectors, including factories, mines, oilfields, plantations, shops, and commercial establishments. The Act ensures fair treatment to employees and upholds their right to receive an amount that is a reflection of the length of service and wages earned. Gratuity serves as an incentive for employees to stay with an employer for a longer period, thereby reducing turnover rates.
Short Title : This Act may be called the Payment of Gratuity Act, 1972. Extent : The Act applies to the entire territory of India. Commencement : The Act came into force on 16th September 1972.
This section provides key definitions used throughout the Act. Some important definitions are: “Appropriate Government” : The term refers to the Central Government in certain establishments, while for others (like factories and mines), the State Government is the appropriate authority. “Employer” : Any person who has control over the employment of employees and is responsible for paying wages to them. “Employee” : A person employed for wages in an establishment, including workers in factories, mines, oilfields, plantations, shops, etc. “Gratuity” : The sum of money paid by the employer as a form of gratitude for the service rendered by the employee. “Continuous Service” : A term defining the period an employee has been continuously employed without a break. The definition is further expanded in Section 2A.
Gratuity is payable to every employee who: o Completes five years of continuous service. o In case of death or disablement , the 5-year service condition is waived. Gratuity is paid as a token of gratitude for long and faithful service.
This section defines how the gratuity is calculated:
This provision specifies the circumstances in which the gratuity is paid to employees:
The employer is required to determine the amount of gratuity payable. They must notify the employee or their legal heirs/nominee of the amount. The employer must then pay the gratuity within 30 days from the date it is due. If the employer fails to do so, interest at the rate of 10% per annum is levied from the due date until the date of payment.
If an employer fails to pay gratuity within the stipulated 30 days, the employee/nominee can approach the controlling authority (typically a labor commissioner). The controlling authority may recover the gratuity, along with any penalties.
For non-payment or wrongful refusal to pay gratuity, the employer may be fined up to ₹10,000 or imprisoned for up to 1 year. Employers can be penalized for providing false information or obstructing the process of paying gratuity.
The appropriate government has the authority to frame rules to implement the provisions of this Act. These rules include procedures for determining the amount of gratuity, payment deadlines, and other operational aspects.
Gratuity, once paid, cannot be attached by creditors. It is exempt from any court orders, such as in the case of bankruptcy.
The Act does not affect any right of the employee to gratuity or other payments under any other law or contract.
The appropriate government may delegate its powers or functions under this Act to any authority or officer to ensure proper implementation.
In case there is a conflict between the provisions of the Act and any contract, agreement, or other law, the provisions of the Act will prevail.
An employee's continuous service is not considered broken by certain absences such as: o Sickness o Leave o Layoff o Lockout o Strike (under certain conditions)
If any ambiguity arises regarding the interpretation of any provision of the Act, the appropriate government has the final say in its interpretation.
This section empowers the appropriate government to take measures to remove any difficulties faced in implementing the Act.
Bharat Gold Mines Ltd. v. Regional Labour Commissioner (1987) In this case, the Supreme Court held that gratuity is a statutory right of the employee and not a gift from the employer. The Court clarified that an employee has the right to receive gratuity once they fulfill the required conditions of service, irrespective of any terms in the employment contract. The Court emphasized that gratuity should not be denied except for the specific grounds of misconduct , as mentioned in Section 4(6). This ruling reinforced that gratuity is not merely a goodwill gesture but a legal entitlement for employees. Union Bank of India v. C.G. Ajay Babu (2018) The Supreme Court in this case dealt with the issue of forfeiture of gratuity in the event of an employee’s dismissal. The Court ruled that gratuity could only be forfeited if the misconduct had a direct relationship with the employee's duties. This decision clarified that employees cannot be denied gratuity based on wrongful dismissal unless the misconduct was related to fraudulent or dishonest behavior connected to the employee's role.