A recurring question under Indian labour law is whether an employee who has completed 4 years and more than 240 days in the fifth year of service is eligible for gratuity under the Payment of Gratuity Act, 1972. Although the statute mandates completion of five years of continuous service, judicial interpretation has significantly expanded the scope of this provision—particularly in favour of employees.
This article explores the statutory framework, relevant case law, and how Indian courts have interpreted “continuous service” and the deeming provision of 240 days, making a strong case for gratuity entitlement in such scenarios.
Statutory Framework: Section 4 of the Gratuity Act
Under Section 4(1) of the Payment of Gratuity Act, 1972, gratuity becomes payable to an employee on termination of employment after completing not less than five years of continuous service, in the following situations:
Superannuation,
Retirement or resignation,
Death or disablement (in which case, the five-year requirement is waived under the proviso).
While the statutory language appears categorical, the interpretation of “five years of continuous service” has evolved, especially through the lens of Section 2A, which defines continuous service.
Section 2A: The Deeming Provision of Continuous Service
Section 2A(2) of the Act deems an employee to be in continuous service even if they have not worked every day of the year, as long as they have worked:
240 days in the preceding 12 months (for establishments operating six days a week),
190 days in case of underground mine workers or those working in certain seasonal industries.
This provision forms the basis for the judicial interpretation that 240 days in the fifth year effectively completes the fifth year of service, qualifying the employee for gratuity.
Key Judicial Precedents
- Madras High Court — Mettur Beardsell Ltd. v. Regional Labour Commissioner
(1998 LLR 1072)
The Madras High Court held that an employee who has worked 240 days in the fifth year is deemed to have completed one full year of continuous service under Section 2A, and therefore satisfies the five-year requirement for gratuity eligibility. The Court explicitly distinguished earlier decisions that rigidly required full calendar-year completion.
- Kerala High Court — Sreeja v. Regional Joint Labour Commissioner
(2015 LLR 826)
The Kerala High Court reinforced the above position by affirming that under Section 2A(2), working 240 days in any 12-month period within the five-year window qualifies as continuous service. The Court emphasized that Section 2A(2) is a deeming provision, and as such, once the 240-day threshold is met, the law treats it as completion of one year, regardless of the actual calendar dates.
These rulings clarify that strict arithmetical interpretation of “five years” is neither mandated nor equitable under the scheme of the Gratuity Act.
Applicability Beyond Kerala and Tamil Nadu
Although both cited judgments originate from High Courts, they are not limited to their respective territorial jurisdictions. In the absence of a conflicting judgment from the Supreme Court, these rulings are treated as persuasive precedent and are widely followed across India by Controlling and Appellate Authorities under the Gratuity Act.
Labour tribunals, commissioners, and employers across jurisdictions have relied on these interpretations to grant gratuity in cases where the fifth year comprises more than 240 days of service, even if the full fifth year has not elapsed.
The 240-Day Principle in Broader Labour Jurisprudence
The 240-day rule finds resonance in other key labour statutes as well:
Under Section 25B of the Industrial Disputes Act, 1947, 240 days of service in 12 months is treated as one year of continuous service.
Under the Factories Act, eligibility for earned leave is also linked to 240 days of work in the previous year.
This judicially recognized benchmark reflects the broader legislative and judicial philosophy that 240 days of work effectively equates to one year of service in industrial and employment law contexts.
Conclusion
Based on the statutory provisions and judicial precedents, an employee who has completed four years and 240 days of continuous service in the fifth year shall be eligible for gratuity under the Payment of Gratuity Act, 1972. The combination of Section 2A and favourable High Court rulings affirms that a deemed completion of five years is legally valid for the purpose of gratuity entitlement.
Key Takeaways for Employers and HR Professionals:
Rigid denial of gratuity on the grounds of “not completing five calendar years” may be legally untenable.
Labour authorities are likely to rule in favour of the employee if 240 days in the fifth year can be demonstrated.
Employment records and attendance data must be accurately maintained to compute eligibility.
Until a contrary decision is rendered by the Supreme Court, the 240-day principle remains settled and enforceable law, guiding gratuity payments across India.