Employees play a key role in the growth of any business. In recognition of an employee’s meritorious service to a company, certain benefits may accrue subject to such benefits being provided for under the employees’ condition for service. Gratuity is one of such payments. Payment of gratuity is one of the means to appreciate the service of an employee who has spent the number of years stipulated in their conditions of service. This piece seeks to discuss some aspects of the right of an employee to gratuity under relevant subtopics.
Dispute usually arises between employer and employee upon disengagement of the latter over whether gratuity is due, what mode of calculation to adopt, how much is the total amount due and whether the employer has the right or power to withhold the payment for any reason connected to misconduct or mode of disengagement of the employee.
In this piece, we have raised and answered the following common questions which will help readers to understand some of the underlying issues in the claim for gratuity.
WHAT IS GRATUITY?
Gratuity is a lump sum benefit provided by an employer as a form of reward to an employee upon retirement, termination, resignation, superannuation or death. It is a sum paid for an employee’s meritorious service to an organisation. Gratuity serves as an instrument of social security to such employees or their beneficiaries in the event of any of the aforementioned eventualities. Please note that gratuity is not a privilege rather a contractual or legal right which may accrue to an employee subject to meeting the terms and condition of service as provided in an employment contract or statute.
WHO IS ELIGIBLE TO RECEIVE GRATUITY?
The payment of gratuity is not automatic. Whether or not an employee will receive gratuity depends on the terms of his employment contract or law. For example, the eligibility of an employee working with any Federal or State Government Agency to be paid gratuity is dependent on whether gratuity is provided for by the enabling law which established such Agency. So, it is important to look at the provisions of the Public Service Rules to decipher whether or not gratuity is an employee benefit.
However, this is not the case for private employment as payment of gratuity will be dependent on whether an employer has gratuity as part of retirement benefits in the terms and conditions of service (or employment agreement) of a worker. Where gratuity is contained in the employment contract, then such employer becomes legally bound to pay gratuity to employee who meets the qualifying requirement.
WHEN DOES AN EMPLOYEE BECOME ENTITLED TO BE PAID GRATUITY UNDER A CONTRACT OF SERVICE?
Gratuity is usually calculated and payable based on the terms agreed between the employee and the employer. Also, gratuity becomes accruable to an employee when his services to his employee comes to an end via any other means other than dismissal or resignation with immediate effect and subject to working for the number of years that entitles him to be paid gratuity.
Please note that unlawful dismissal cannot deprive an employee of his gratuity. The court of appeal reaffirmed this position in the case of Nepa V. Adeyemi (2007) 3 NWLR (Pt. 1021) 315 where it was held thus;
“Entitlement to pension and gratuity is a vested right, which can only be taken away by the dismissal of the employee from his employment. Once the dismissal is declared unlawful and the employee has spent the number of years stipulated in the conditions of service in the employer/organization, he is entitled to draw his pension and be paid his gratuity.”
Also, we refer to the case of W.A.E.C. v. Oshionebo (supra), where the court cited the earlier cases of Osu v. P.A.N. Ltd. (2001) 13 N.W.L.R. (Pt. 731) 627, and Benson v. Onitiri (1960) SCNLR 177, with approval and held that “Tendering of a letter of resignation carries with it the right to leave the service automatically without any benefit subject to his paying of any of his indebtedness to his employer.” The foregoing authorities and many more have been cited to justify an employer’s refusal to pay gratuity to an employee who resigns with immediate effect.
The justification for denying payment to an employee who resigns without notice has been amplified in the case of Dr. Ebele Felix v. Nigerian Institute of Management (supra), where the Court held thus:
“There is, however, the further issue of the effect of the claimant’s resignation with immediate effect especially given the holding in WAEC v. Oshionebo [2006] 12 NWLR (Pt. 994) 258 CA that tendering of a letter of resignation by an employee carries with it the right to leave the service automatically without any benefit subject to the employee paying any of his indebtedness to his employer, a position that Mr. Beloved Patrick Anokwuru v. Omatek Ventures Plc & anor (supra) reiterated and then justified thus: The justification for having to allow the resigning employee to leave immediately and automatically is the fact that [he/she] thereby forfeits [any] benefit he/she may be entitled to as well as the duty to pay off all indebtedness that [he/she] may [have] towards the employer; as such, the forfeiture of benefits inures as contractual consideration for the immediate and automatic separation of contractual relationship as per the employment in issue. So it cannot be that an employee who resigns with immediate effect is allowed to also benefit from such immediate separation by claiming benefits from the employer.”
CAN GRATUITY BE PAID TO AN EMPLOYEE WHOSE EMPLOYMENT WAS TERMINATED BUT WAS OFFERED A FRESH EMPLOYMENT IN THE SAME ORGANIZATION?
As has been previously established, payment of gratuity is dependent on whether the employee upon the termination of his employment meets the conditions required for payment of gratuity as per the contract of employment. It is immaterial that the employee enters a fresh contract with the same employer upon the termination of the initial contract that qualifies him for gratuity. The said employer remains bound by the terms of the previous employment. This is seen in the case of Onuorah V Access Bank Plc. (2015) 55 NLLR (P.81, Para, D-H) the court held;
“Common sense and good industrial relation demands that if an employer voluntarily chose the part of terminating the appointment of an employee and thereafter issues such employee a fresh employment, such employer shall compensate the employee by paying all the entitlement that is due as per old relationship, which the employer unilaterally and in it wisdom decided to bring to an end.”
Nigerian law forbids employers from abdicating their duties under a contract of employment in the guise of offering an employee a fresh start through a new contract of employment just to deny the employee his gratuity under the old contract of employment. Parties will still be bound by the terms under any previous contract of employment until all the terms are fulfilled or lawfully terminated by parties. This position is equally applicable to employees who change employment more than once within the same group of companies.
Please note that it is possible for an employee to be entitled to different gratuity schemes under each contract of employment (if he has been offered more than one employment contract) provided that the conditions for laying claim to the entitlements are fulfilled. Where an employee is entitled to multiple gratuity schemes under separate contracts, each gratuity must be paid when it becomes due. It is pointless to deny the employee a due gratuity on the basis of a new contract of employment.
CAN INTEREST ACCRUE ON GRATUITY THAT IS DUE BUT REMAINS UNPAID BY THE EMPLOYER?
Usually, the terms of employment contract should provide the time within which an employee becomes entitled to his gratuity and the conditions that qualify an employee for gratuity. Failure or refusal of the employer to pay such gratuity may attract general damages for breach of contract (not interest, unless the gratuity has been invested by the employer).
This position was confirmed by the court in the case of Onuorah V, Access Bank Plc. (2015) 55 NLLR (P. 82, Paras. A-C). In that case, the claimant’s appointment was terminated on 7th August 2007 and her gratuity was calculated to be N3,912,333.30 as at 31st October 2005. In other words, the due date of payment of this gratuity was 31st October 2005 but the defendant did not inform the claimant of the gratuity until 2007. Based on the foregoing facts, the claimant claimed against the defendant, amongst other reliefs, an interest at the rate of 15% for the period of November 2005 to 7th August 2007 when the defendant bank calculated the said gratuity benefits due to the claimant. It must be noted that the defendant merged with another bank around the period but the defendant refused the claimant access to her gratuity. Rather, the defendant offered a gratuity investment option to the claimant and other disengaged staff of the defendants.
In granting the claimant’s reliefs and condemning the action of the defendant, the court analysed the facts and held thus:
“Here, I must note that the defendant played the paternalistic role of deciding for staff including the claimant what is best for them. Yet, the defendant would also argue that it is important for it to submit that the claimant is not qualified to access her gratuity because she was still a staff of the defendant as at the time in question. However, the defendant in its wisdom did not want to retain the gratuity benefit due to its existing staff, deemed it fit to invest the same for them in order for it to yield interest, while the claimant continued her employment with the defendant. Was the defendant not playing God here’ I think so.
The issue for resolution here is, therefore, whether the defendant unduly influenced the claimant to purchase the shares in question and for which the defendant must be responsible when their value accordingly fell. I held earlier that it was wrong of the defendant to have denied the claimant access to her pre-merger gratuity benefits. I also held that it is wrong of the defendant to have given the claimant options as to what to do with the pre-merger gratuity benefits. The defendant argues that the claimant voluntarily opted for share purchase; yet in another vein the defendant argued that it is the policy of the defendant bank that the claimant could not have drawn on the pre-merger gratuity benefit. What kind of voluntary action is it that an employer tells an employee that I cannot give you your benefit but you may invest it by either buying my shares or putting it in a tenured deposit with me’ In Kurt Severinsen v. Emerging Markets Telecommunication Services Limited [2012] 27 NLLR (Pt. 78) 374, this Court noted that the balance of bargaining power in the relationship between an employer and an employee tilts in favour of the employer. So when the defendant talks of voluntary action of the claimant in the instant case, it does appear to the defendant that the notion of involuntary action must surely be only when the defendant carries a cane or gun on the claimant.”
Accordingly, and rightly so to my mind, the claimant urged the Court to hold that the issue is not whether the claimant chose the option of investing in the shares of the defendant but first, whether it is lawful for the defendant to inform without in fact paying the claimant her gratuity benefits; second, whether it is lawful for the defendant to impose on the claimant how and where to invest her gratuity benefit; and third, whether it is lawful for the defendant to deny the claimant access or use of such gratuity investment as done in this suit. To my mind then, the conduct of the defendant in not paying the claimant her due gratuity benefit; dictating for her how and where to invest her computed gratuity benefit and denying the claimant of access or the use of the said gratuity benefit as was done in this case is not only illegal but it also amounts to unfair labour practice which should not be condoned by this Court. I dare say that such acts are an affront on public policy. In Mr. Olabode Ogunyale & ors v. Globacom Nigeria Ltd unreported Suit No. NIC/LA30/2008 the judgment of which was delivered on 13th December 2012, this Court in a similar scenario held as follows
‘Also unfair labour practice is the respondent compelling the claimants to bank with Equatorial Trust Bank, a Bank that the respondent has an interest in, by paying the claimants’ salaries into accounts they were compelled to operate with the Bank since the claimants were not left with any option as to the choice of a Bank.
In like manner, insisting on the claimant investing only in the defendant vide the only two options given is an unfair labour practice that this Court should not condone; and I so find and hold.
The claimant had argued that the damages which she suffered did not arise because the shares purchased with the gratuity benefits do not ‘reside in the bank’ or were otherwise being managed by a broker different from the defendant.
Instead, the damages arose out of the several illegalities done by the defendant relating to the said gratuity benefits as indicated earlier. I agree with the claimant. As such, the relief for the sum of N6,620,856.00 being the value of the claimant’s shares in the stock of the defendant is sustainable against the defendant who did not only impose on the claimant on how and where to invest her gratuity but also illegally and unfairly denied her access to the said investment.
In open Court, I had asked DW who will bear the responsibility for the investment in question since the claimant cannot access the investment. The answer I got was that the claimant bears the risk. As argued by the claimant, and I agree with her, from a risk perspective, the bank unduly exposed the claimant as she was made to put all her eggs in one basket.”
DO EMPLOYERS HAVE THE RIGHT TO WITHHOLD THE GRATUITY OF THEIR EMPLOYEES?
Sections 173 and 210 of the 1999 constitution guarantee and protect pensions of employees in the Federal and State Service. The sections also provide that the Federal Government of Nigeria or a State Government shall alter or withhold the gratuity of public service employees save as permitted under the Constitution.
The court In Abdulrahman V. NNPC (2021) 12 NWLR (Pt. 1791) 405 Held;
“Section 173 of the 1999 Constitution relates to the protection of pension rights. Section 210 (1) of the Constitution provides that gratuity shall not be withheld under any circumstance. It is inhuman and wicked for a retiree to be denied his gratuity when he ought to enjoy it and when he ought to be enjoying the fruit of his labour. The 1999 Constitution vide section 210 is to the effect that pension or gratuity shall never be withheld under any guise or condition that is not clearly stipulated. It is designed to cushion the retiree from the hardship of life in retirement to also serve as a reward for the retiree’s past meritorious service to the employer.”
In private employment relationships, the Courts have declared as unlawful the acts of employers who withheld the gratuity of their employees wrongfully.
CAN ACTS OF AN EMPLOYER TOWARDS PAYMENT OF GRATUITY AMOUNT UNFAIR LABOUR PRACTICES?
The purpose of gratuity, as an employee benefit, is to cushion the effect of the harsh realities of the economy on the employee upon his retirement. The application of the funds is left to the discretion of the employee. While the employee is allowed to make suggestions to the employee with regards to investment schemes and application of funds, the employer cannot withhold employee’s gratuity or impose any investment option on the employee, even if the investment scheme will be beneficial to the employee.
An imposition of an investment scheme on an employee by an employer in respect of due gratuity was declared by the court to be an unfair labour practice in Onuorah V. Access Bank Plc. (2015) 55 NLLR (Pp. 84-85, Paras. D-D), where the court held thus;
“Accordingly, and rightly so to my mind, the claimant urged the Court to hold that the issue is not whether the claimant chose the option of investing in the shares of the defendant but first, whether it is lawful for the defendant to inform without in fact paying the claimant her gratuity benefits; second, whether it is lawful for the defendant to impose on the claimant how and where to invest her gratuity benefit; and third, whether it is lawful for the defendant to deny the claimant access or use of such gratuity investment as done in this suit. To my mind then, the conduct of the defendant in not paying the claimant her due gratuity benefit; dictating for her how and where to invest her computed gratuity benefit and denying the claimant of access or the use of the said gratuity benefit as was done in this case is not only illegal but it also amounts to unfair labour practice which should not be condoned by this Court. I dare say that such acts are an affront on public.”
It should be restated that the question of whether or not an employee is entitled to gratuity benefit depends on the terms of service (for a private employment contract) or the provisions of the law establishing the Agency (for a public service). The terms of service and enabling law of an Agency would determine when an employee is entitled to gratuity, the procedure for computation and the total amount that will be due to an employee in deserving circumstances. Once an employee becomes due for gratuity, the employer has a primary duty to pay the gratuity and not to impose on the employee how best to use the sum due as gratuity.
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