Gratuity Benefits qua educational institutions: Supreme Court extends benefit to teaching staff with retrospective effect

In a huge respite for teaching community across the country, the Supreme Court recently clarified the position that teachers are entitled to payment of gratuity after retirement or superannuation or resignation.

In light of the aforesaid, the present article seeks to examine the change in the position of law regarding the issue as to whether teachers, employed in an educational institution, are entitled to the benefit of gratuity under the Payment of Gratuity Act, 1972 (The Act).

The Supreme Court in Ahmedabad Private Primary Teachers Association Vs. Administrative Officer [(2004) 1 SCC 755] while interpreting the definition of “employee” as provided under Section 2(e) of the Act had laid down that unlike non-teaching staff of an educational institution, the teaching staff as a class is not covered by the said definition.

The aforesaid judgment, on account of amendment made in the definition of “employee” in December, 2009 read with Notification dated 03.04.1997, has been overruled by the Supreme Court vide its judgment in Birla Institute of Technology Vs. State of Jharkhand And Others [(2019) 4 SCC 513]. The necessary implication of the overruling is that the class of teachers employed in any educational institution are entitled to claim gratuity under the Act from their employers.

The additional benefit flowing from the aforesaid amendment is that the entitlement of gratuity has been conferred on the teachers with retrospective effect from 03.04.1997. It appears that 03.04.1997 was chosen as the date for giving effect to the aforesaid entitlement because the Central Government on the said date in exercise of its powers conferred under Section 1(c) of the Act had notified educational institutions as a class of establishment under the definition of “employee”.

The Payment of Gratuity Act, 1972 (“The Act”) lays down a scheme for payment of gratuity to employees who are employed for wages and are working in a factory, mine, oilfield, plantations, port, railway company, shop or other establishment.

The Act inter alia prescribes that the concerned establishment ought to have employed ten or more employees on any day in the preceding twelve months. Gratuity is payable in the event of superannuation or retirement or resignation or death or total disablement caused due to accident or diseases, only after rendering continuous service for not less than five years.

The Central Government in exercise of its powers conferred under Section 1 (3) (c) of the Act issued a notification on 03.04.1997 thereby including educational institutions as a class of ‘establishment’ under the definition of “employee”. The aforesaid necessarily implied that persons employed in the educational institutions including teachers were brought within the purview of “employee” for the purpose of entitlement of gratuity under the Act.

However the Supreme Court in the Ahmedabad case, while interpreting the Notification dated 03.04.1997, created a classification within an educational institution and held that the benefits under the Act would only accrue to non-teaching staff and consequently would not accrue to the teaching staff.

The aforesaid Judgment therefore, went on to hold that teachers are not covered in the definition of “employee” as provided under Section 2(e) of the Act, as it then existed. The Hon’ble Supreme Court inter alia held as under:

“[the] legislature was alive to various kinds of definitions of the word “employee” contained in various previous labour enactments when the Act was passed in 1972. If it intended to cover in the definition of “employee” all kinds of employees, it could have as well used such wide language as is contained in Section 2(f) of the Employees Provident Funds Act, 1952… Non-use of such wide language in the definition of ‘employee’ in Section 2(e) of the Act reinforces our conclusion that teachers are clearly not covered in the definition."

It is however debatable as to whether there was any need to introduce such a classification, particularly in the context of a beneficial legislation, when the Statutory Notification validly issued by the Central Government brought “educational institutions” within the purview of the definition of “employees” under the Act.

Thereafter the Parliament, in view of the observations made in the Ahmedabad case deemed it proper to amend the definition clause of the Act to broaden its ambit and scope. Accordingly, Payment of Gratuity (Amendment) Act, 2009 was passed in December 2009 providing that an employee means any person (other than an apprentice) who is employed for wages, whether the terms of such employment are express or implied, in any kind of work, manual or otherwise, in or in connection with the work of a factory.

The aforesaid amended definition of “employee” was made retrospectively effective from the date of Notification dated 03.04.1997. It appears that the Amending Act has been given retrospective effect from 3 April 1997 because it was on the said date when the Central Government notified “other establishments” to include “educational institutions”.

Thus while the Judgment in Ahmedabad Case in a manner of speaking came to be over-ruled by an act of the Parliament, there was still no express judicial pronouncement holding the same and consequently extending the benefits of the Act to the class of teachers employed in an educational institution.

However recently the Supreme Court in Birla Case held (i) that the Amending Act over-ruled the Ahmadabad Case and (ii) that the teachers employed in an educational institution are entitled to claim gratuity under the Act from their employers with effect from 03.04.1997.

It appears that the rationale for extending the benefits to the employees with effect from 03.04.1997 was the fact that it was on the said date when the Central Government notified “other establishments” to include “educational institutions”.

The position in law, post the aforesaid Judgment read with the Amending Act and the Notification dated 3 April 1997 appears to be that the benefits under the Act now accrue to all teachers employed in education institutions, whether public or private and / or aided / non-aided.

It is however pertinent to state that benefits have been extended in 2019 with retrospective from 3 April 1997, however in our view the same may accrue only to such classes of employees who were employed with the educational institution as on the said date. Thus only such class of employees would stand excluded who retired from service prior to 3 April 1997 and classes of employees who were in employment as on 3 April 1997 and who came to be employed subsequently will be entitled to the benefits.

The Birla Case thus clarifies the position in law that amended definition of “employee” is extended to teachers employed in all educational institutions and the said entitlement will be retrospectively effective from 03.04.1997.

About the authors: Abhijeet and Ankita are partners at The Guild | Advocates and Associate Counsel.