Gratuity - employee got transferred to our sister concern company - we can leave that previous company gratuity?

Dear Team,

We had an employee whose joining date for the 1st company was 01 July 1999, and he got transferred to our sister concern company on 01 May 2013 (2nd company). However, we did not provide him with a transfer letter, and he has finally left on 30 Jan 2021. He did not claim his gratuity from the first company during these years. Now, could you please suggest whether we need to calculate the gratuity from 1999 to 2021, or if we can disregard the gratuity from the previous company?

Thank you.

Dear Archi1993,

While doing the inter-company transfer of the employee within the group, your company should have been thoughtful of the legal consequences. The thoughtfulness includes guiding the employee on the provisions of the Payment of Gratuity Act. The second company, while taking an employee on board, could have guided the employee to claim the gratuity from the previous company. A timely settlement claim would not have required this post to be raised.

Many employees do not give due importance to their rights as an employee. This could be out of trust toward the employer and also because of the lack of awareness. Nevertheless, employers cannot take undue advantage of either or both.

The second part of the last sentence of your post is a little shocking. You have written, "Now could you please suggest, do we need to calculate gratuity from 1999 to 2021, or can we leave that previous company gratuity." If you wish to wash your hands of the payment of gratuity from 1999 to 2013 to an employee who has served 22 years in the group, then it is outrageous.

If you wish, then your company may raise the internal debit note to the previous company and claim for the gratuity from 1999 to 2013. However, make sure that the employee gets his dues from 1999.

If you just pay gratuity to him from 2013 to 2021 and take solace from the fulfillment of the provisions of the Payment Gratuity Act, the employee might have to run from pillar to post to get his gratuity from 1999 to 2013. However, it will send a wrong signal to all other employees. They may perceive that long service means nothing to the employer. The reputation of the company in their eyes could come down. Are you prepared to take that risk?

Thanks,

Dinesh Divekar

Dear Sir,

Thank you so much for your reply. However, I would like to bring to your attention that he has stolen a few company records and has taken his entire team along with him. Additionally, company assets such as cards, iPhones, etc., have not been returned by him. Please suggest what to do.

Dear Archi1993,

The payment of gratuity and the fraud/theft at the workplace are two independent things. There is no need to establish a relation between the two. If the employee has stolen the company's assets, then did you order the domestic enquiry? Did you ask the employee to depose before the enquiry? If the culpability of the employee is established, then you can tell the employee to refund the amount of the stolen goods itself. If the employee does not do that, then you can file a police complaint.

However, you can do all this provided you have material evidence of the employee possessing the company's assets. Have you maintained the meticulous records to prove that certain goods are transferred to the employee? Do you have tax invoices of the assets that the company owns? For conducting the domestic enquiry or for filing a police complaint, two vital documents are proof of the ownership of assets i.e. tax invoice and loan card signed by the employee.

Notwithstanding the fraud or theft committed by the employee, the employee is eligible to claim the gratuity. The gratuity can be withheld provided the employee has been involved in the action of moral turpitude. Not returning the company's goods is not a severe offense that can fall under moral turpitude.

While leaving the employment, if the senior employee has taken his entire team with him, then it shows the team's allegiance to him. The incident demonstrates your company's failure to develop the loyalty of the staff to the company. Rather the senior employee ensured that the staff owes allegiance to him. These things happen when overall the administration is person-centric rather than organization-centric. If the employees from the department resign from the company where the senior employee worked, then they have done it out of their volition. It is not misconduct either by the senior employee or his teammates.

Anyway, your leadership has a lesson to learn from the incident.

Thanks,

Dinesh Divekar

Thank you so much, sir, for your reply.

Dear Madam,

The fact is that no transfer order was issued containing terms of transfer. The question is, should the service put in the former sister company be treated as continuous for the purpose of gratuity? It is possible to take the view that the entire service in both sister companies be treated as continuous. Or, treat the service in the first sister company as ended from the date of transfer and also treat it as fresh employment. But in either case, since he has completed more than five years of service, he is eligible and entitled to gratuity from both sister companies.

Mixing the issue of misconduct with gratuity is unjustified and should be handled independently of each other, having regard to due process of disciplinary actions as per the law.

Regards,
Vinayak Nagarkar
HR and Employee Relations Consultant

For coverage of the Payment of Gratuity Act, the establishments under one management or different units where financial integrality or interdependency is available will be treated as one. Therefore, even if you have not issued a transfer order with treatment of previous service, his service will be treated as continuous. As such, you cannot ignore the previous service.

In an arrangement where there is no transfer order available, the employee will be in a more comfortable position because in the absence of any written communication, his service with the second company under the same management will be considered as a work arrangement. Who credits his salary is irrelevant here.

Hello all,

EMPLOYER'S RIGHT TO FORFEITURE

Section 4(6) of the Payment of Gratuity Act permits an employer to forfeit gratuity payable to an employee in certain circumstances. As per the said provision:

- The gratuity of an employee, whose services have been terminated for any act, willful omission, or negligence causing any damage or loss to, or destruction of, property belonging to the employer shall be forfeited to the extent of the damage or loss so caused.
- The gratuity payable to an employee may be wholly or partially forfeited if the services of such employee have been terminated for his riotous or disorderly conduct or any other act of violence on his part, or if the services of such employee have been terminated for any act which constitutes an offense involving moral turpitude, provided that such offense is committed by him in the course of his employment.

Very recent judgment by the Supreme Court of India states that an employer is empowered to hold back gratuity payment upon the termination of services of any employee, except on medical grounds.

Hi there,

Your query is good, sir. However, the facts have not yet been revealed; they seem to be suppressed. How can one say the employee has been transferred from the first company to the sister company when no such orders have been given? It is crystal clear, as per your words, that he left your company on a certain date.

If it is an open secret known to all, it is your primary responsibility to pay his rightful gratuity. It could also be understood by anyone reading this query that you are willingly avoiding paying his gratuity. You seem to be making a fake attempt to evade your minimum responsibility of paying his gratuity.

Now, let's come straight to the point - in any case, you have to pay his gratuity without any doubts. Please proceed, sir. No one can stop you from making the payment of his gratuity.

Thank you.