Labour Laws Q/A

Director of a Company – Whether Entitled to Gratuity

Will a Director of a Company be entitled to gratuity under the Payment of Gratuity Act?

Although the definition of ‘employee’ under section 2(e) of the Payment of Gratuity Act, 1972 does not spell out as to whether the director is an employee or not, it depends upon the functions or the duties performed by a director. It is, however, made clear that if a director of a Company is performing duties and is working for the Company then he can come within the purview of an ‘employee’ under the Act. In this connection, reference is made to one case where an employee had joined as a Manager on 1-4-1976 and retired voluntarily as a Director of the Company on 30-6-1996. The company admitted liability for gratuity for the period upto 1-4-1984 when he worked as Branch Manager and General Manager and not for subsequent period when he worked as Director. Controlling Authority and Appellate Authority granted the whole claim after observing that the designation of the respondent as a ‘Director’ did not put him in overall control of the Company. It was held by the High Court that there was no substance in the petition challenging orders of authorities below. Looking to the reasoning given by both the Authorities to the effect that he had no ultimate control over the management and considering the definition of employer and employee, the view taken by the Authorities below is absolutely correct and no interference of the High Court is required.1

Source: H L Kumar, Labour Problems & Remedies, Universal

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