Effect Of Sabbatical Leaves On Gratuity

In today’s day and age of long working hours and mundane life style, many employees often take a decision to break the monotony, and move away from the activities of their daily lives. Employees often take long leave from office in order to achieve their personal goals such as higher education, learning/upgrading skills or travelling, and such leaves are often termed as Sabbatical Leave. The duration of such sabbatical leaves may vary from one individual to the other as also the organisations. Often, sabbatical leaves are taken for a period of six months to about one year depending on the purpose for which one goes on a sabbatical.


Many companies have a provision for leaves without pay. However, only a few companies have a provision for sabbatical leaves. Often, we have come across the question whether the sabbatical period during which an employee was on leave would be considered as a part of continuous/uninterrupted service for the purpose of payment of gratuity or whether such period will be excluded for the purpose of payment of gratuity and would therefore be considered as a break in service.


According to Section 4 of the Payment of Gratuity Act, 1972 (“Act”), “Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service of not less than five years – (a) on his superannuation, or (b) on his retirement or resignation, or on his death or disablement due to accident or disease…”


The term ‘continuous service’ plays an important role in the aforesaid definition and a plethora of judgments regarding the interpretation of the term have cemented the current legal position with respect to payment of gratuity.


The Hon’ble Supreme Court of India in Lalappa Lingappa and Ors. Vs. Laxmi Vishnu Textile Mills Ltd. AIR1981SC852 observed that the term “actually employed” should be interpreted as “actually worked” and that the employees who had not worked for a minimum of 240 days that year and were absent without leave were not entitled to the benefit of gratuity. It failed to take into account their short term leaves due to various reasons and denied them the benefit of their gratuity holding that the short term leaves were not included in calculating the period of continuous service.


Subsequent to the aforesaid judgment, the Act was amended. The Hon’ble Supreme Court of India in the case Jeewanlal (1929) Ltd. and Ors. Vs.  Appellate Authority under the Payment of Gratuity Act and Ors. AIR1984SC1842 observed that the law laid down in Lalappa Lingappa case denied Gratuity to a large number of employees merely because their short-term absence remained un-regularized and expressed its regret that it took the Government three years to introduce an Amendment Bill. It was only in 1984 that Section 2A of the Payment of Gratuity Act, 1972 was introduced, which defines the term continuous service by an employee as follows:


An employee shall be said to be in continuous service for a period if he has, for that period, been in uninterrupted service, including service which may be interrupted on account of sickness, accident, leave, absence from duty without leave (not being absence in respect of which an order treating the absence as break in service has been passed in accordance with the standing orders, rules or regulations governing the employees of the establishment), lay-off, strike or a lock-out or cessation of work not due to any fault of the employee, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.


This issue was again analysed by the Hon’ble Madras High Court in the case of H. Ramappa S/o Hanumanthappa and Ors. vs. The General Manager, Sri Yellamma Cotton Woolen and Silk Mills and Ors. 2008(117)FLR863 in which it was held that “Section 2-A(1) of the Act shows that every service rendered by the employee shall be continuous service for a period, even if there is interruption during the period on account of sickness, accident, leave, absence from duty without leave, except when there is break of service under orders passed as per the Certified Standing Orders, rules or regulations and/or lay off, strike, lock-out, or cessation of work, not due to any fault of the employee concerned. All interruptions of the said type will have to be ignored and will not result in depriving the employee of the benefit of continuous service. It is only when the employee has absented from duty without leave and further, if any order is passed by the employer treating absence from duty without leave as break in service in accordance with the Standing Orders, rules or regulations, then it would not amount to continuous service during that period. It was not in dispute that no orders were passed by the employer in accordance with the Certified Standing Orders to the effect that the absence of the appellants at any point of time, was to be treated as a break in service.


It was held that appellants therein had rendered 'continuous service' within the meaning of Section 2-A(1) of the Act, and therefore, it was not open to the employer to contend that there was a break in service and the appellants were entitled to gratuity. It is only when the case of the employee does not fall within the meaning of Section 2-A(1) of the Act, the provisions or Section 2-A(2) would come into play. Therefore, in view of the amendment in Section 2A, the case of Lalappa Lingappa could not have been applied.


In view of the above, as per Section 2A of the Act, it is clear that in the event the employee is absent from the duty due to sickness, accident, leave or absence from duty without leave, he/she would be entitled to the benefit of gratuity unless the employer has passed an order treating such absence without leave as a break in service in accordance with the Standing Orders of Employment applicable to the employee. In the case of a sabbatical leave, the same would essentially qualify as a leave if permitted by the employer and would only be a leave for a longer duration than a usual leave and therefore, in our view shall be treated as a continuous service in terms of Section 2A of the Act. In other words, if an employee goes on a sabbatical with the consent of the employer and resumes work after completion of the period of sabbatical, he or she would be deemed to be in ‘continuous service’ for the purpose of payment of gratuity.  


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