Is gratuity a legal right for every private employee in Pakistan?

Key points

• Standing Order 12(6): a workman who resigns, or whose job is ended for any reason other than misconduct, is paid thirty days' wages for every completed year of service, or part of a year over six months.
• No gratuity is due under the law for any period in which the employer ran a provident fund and paid in at least as much as the workman.
• Getz Pharma (2021): three sales managers had won Rs 15.5 lakh, Rs 32.9 lakh and Rs 15.9 lakh in gratuity before the wages authority. The Supreme Court set those awards aside.
• A gratuity promised only in your contract is not "payable under any law", so the Payment of Wages authority cannot order it.

What the law gives a workman

Standing Order 12(6) in the Schedule to the Industrial and Commercial Employment (Standing Orders) Ordinance 1968 begins: "Where a workman resigns from service or his services are terminated by the employer, for any reason other than misconduct". Such a workman is paid gratuity of thirty days' wages for every completed year of service or any part of a year over six months: the last month's wages for a fixed-rated workman, the highest pay of the last twelve months for a piece-rated one. This is on top of anything his contract, a settlement or an award gives him.

Two limits are in the same order. Dismissal for misconduct is outside it. And where the employer runs a provident fund and contributes at least as much as the workman, no gratuity is payable for that period. Standing Order 12(7) adds that a workman gets his provident fund balance, including the employer's share, even if he resigns or is dismissed.

Section 15(1) of the Payment of Wages Act 1936 lets the wages authority hear claims for unpaid provident fund or gratuity dues that are payable under any law. That is the quick forum most employees use.

Three sales managers and one pharma company

Three men joined Getz Pharma as territory managers in 2003 and 2005 and rose to senior and national sales manager. In July 2017 one resigned; the company accepted his resignation two days later. In November 2017 the other two were dismissed after show cause notices. The company said all three had set up a distribution company of their own (paragraphs 2 to 5).

Each went to the Payment of Wages authority. On 26 December 2019 it ordered the company to pay gratuity of Rs 15,50,670, Rs 32,90,000 and Rs 15,87,300, plus provident fund and the last month's pay. The Islamabad High Court dismissed the company's writ petitions on 20 November 2020 (paragraphs 2 to 4).

What the Supreme Court said

Asked under which law they claimed gratuity, the employees' counsel named the Standing Orders Ordinance (paragraph 7). That law speaks only of a workman, so the Court asked whether these managers were workmen (paragraphs 11 and 12).

Following its earlier judgments, including a five-member bench in Syed Matloob Hassan (1992 SCMR 227) and Aurangzaib v. Medipak (2018 SCMR 2027), the Court held that a salesman's work is not manual or clerical, so he is not a workman (paragraphs 14 to 16).

The employees had never even claimed to be workmen in their applications, and led no evidence. Where the employer denies it, the burden of proving it is on the employee (paragraph 18).

Their contracts did entitle them to gratuity and provident fund. But the Court read "payable under any law" in section 15 as law made by a legislature, not a contract (paragraph 19). The appeals were allowed and the gratuity and provident fund claims dismissed. The last month's pay awarded to them was not disturbed (paragraph 21).

What to check before you claim

First, your work. Manual or clerical work points to workman; selling, managing and supervising usually do not. Say it in your claim and bring evidence of your duties, because the employer will deny it.

Second, your contract and your company's rules: do they promise gratuity, a provident fund or both? Third, the reason you left: dismissal for misconduct takes you outside Standing Order 12(6). Then speak to a lawyer about the right forum.

The case at a glance

Facts

Three sales managers of Getz Pharma (one resigned in July 2017, two dismissed in November 2017) won gratuity, provident fund and last month's pay before the Payment of Wages authority; the Islamabad High Court upheld the orders.

The question

Could the wages authority order gratuity and provident fund for employees who had not shown they were workmen under the Standing Orders Ordinance 1968?

What the Court held

No. Salesmen are not workmen; the employees neither pleaded nor proved they were. Their gratuity and provident fund came from their contracts, which are not a "law" under section 15 of the Payment of Wages Act. Those claims were dismissed.

Why

Standing Order 12(6) and (7) give gratuity and provident fund to a workman. Section 15(1) covers dues payable under a law made by a legislature. A contract may be enforceable in law, but it is not itself a law.

Limits

The Court did not decide whether the managers could recover their contract gratuity in some other forum, such as a civil suit. It did not say every salesman or manager is outside every labour law, and it did not deal with provincial Standing Orders laws passed since the 18th Amendment. A real workman's statutory gratuity was not in question.

In the Court’s words

“this Court has been taking consistent view that a salesman by very nature of his work is not a workman and does not fall within the ambit of the term workman.”

2021 SCMR 1785, para 16

“The word payable under any law, in our view, could not be anything else than the law as made by the competent legislative authority and will not stretch to the dues of Gratuity and Provident Fund payable under the contract.”

2021 SCMR 1785, para 19

“This contract of employment of the respondents with the petitioner could not be termed as a law but at best could be considered as to whether it is enforceable in law or not.”

2021 SCMR 1785, para 19

The law it relies on

What this does not mean

• It does not mean employers can keep a workman's gratuity. A workman who resigns or is let go for a reason other than misconduct is owed it by law.
• It does not mean a manager's contract gratuity is lost. The Court only held that the wages authority cannot order it; it did not decide other forums.
• It does not mean a job title settles it. The test is the actual work, and it has to be pleaded and proved.

Questions people ask

Sources

• Getz Pharma (Pvt.) Limited, Karachi v. Muhammad Nafees and others, 2021 SCMR 1785 (Supreme Court of Pakistan, 24 March 2021), paras 2-5, 7, 9-12, 14-21
  Salesmen are not workmen under the Standing Orders Ordinance 1968; contractual gratuity is not 'payable under any law' under s.15 Payment of Wages Act; gratuity and provident fund claims dismissed. verified against full text
• Syed Matloob Hassan v. Brooke Bond Pakistan Limited, 1992 SCMR 227 (Supreme Court of Pakistan)
  A salesman is not a workman under the Standing Orders Ordinance (as described in 2021 SCMR 1785, paras 15-16). cited through 2021 SCMR 1785
• Industrial and Commercial Employment (Standing Orders) Ordinance, 1968, Sched., S.O. 12(6), 12(7) text checked in FAI Statute Search

Every quote and section above is traced to the full judgment or statute text by an automatic check that runs on every update.

What the reel says