Dear Sir, In view of the decision of our management and as discussed the contract workers working under two different contractors/employer appears to be surplus and are still working under contractor/employer (SKS) & (BEW )for which, we have already instructed the said contractors/employer (SKS) & (BEW) to retrench the surplus workers around 10 to 15 after complying the relevant provisions of labor law including PF,ESIC,PW,MW,Bonus etc.

Now a question arises that there are some contract workers who have already put in more than 5 years of service as they are demanding for gratuity in such circumstances kindly indicate in detail.

Query ::

1. Whether these contract workers are eligible to get gratuity as provided under the payment of gratuity act 1972 ?

2 . whether the payment gratuity act is extended to contract labor regulation and abolition act 1970, if yes, then what circumstances?

3. Any judicial pronouncement in this regards.

Please enlighten us by giving suitable opinion as per the queries mentioned in this text.

From India, Mumbai

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If you have an account of who all have been engaged through the contractor, if the contract workers have been reporting to your onroll supervisors for leaves, grievances etc and if these workers have been doing work similar to your onroll workers, then you should pay gratuity to them also.

Let me elaborate the above tests in detail.

1. Principal employer knows by name who have been engaged by the contractor. It is not just number but the persons which is important.

2. The workers take permission from your supervisors for leave. The workers approach your supervisors in case you have any grievance. If you take disciplinary action against the workers engaged through contractor. You only decide what should be the wages payable to the contract workers. You sign agreements concerning their wages and service conditions.

3. The workers do the work similar to that of regular workers.

If you have similar relationship as above, the contract will become sham and in such situation you will be bound to pay retrenchment compensation including gratuity when they are asked to go.

From India, Kannur
Dear sir
I have perused the text dated 08.05.20, the entire edifice of your text is relating to a contract which is sham and camouflage. In such circumstances the liability of the principal employer is more akin and imminent but in the present context the texture is vise versa. Hence it is submitted the so called contractor is having a valid license obtain fro the competent authority as prescribed under CLRA Act 1970. Therefore the contract is a valid and not sham. Thus it is the bounden duty of the contractor to comply the mandate as laid down in different labor laws.
Since it is not a sham contract kindly suggest or advise ?

From India, Mumbai

Section 21 in the Contract Labour (Regulation and Abolition) Act, 1970
21 Responsibility for payment of wages. -
(1) A contractor shall be responsible for payment of wages to each worker employed by him as contract labour and such wages shall be paid before the expiry of such period as may be prescribed.
(2) Every principal employer shall nominate a representative duly authorised by him to be present at the time of disbursement of wages by the contractor and it shall be the duty of such representative to certify the amounts paid as wages in such manner as may be prescribed.
(3) It shall be the duty of the contractor to ensure the disbursement of wages in the presence of the authorised representative of the principal employer.
(4) In case the contractor fails to make payment of wages within the prescribed period or makes short payment, then the principal employer shall be liable to make payment of wages in full or the unpaid balance due, as the case may be, to the contract labour employed by the contractor and recover the amount so paid from the contractor either by deduction from any amount payable to the contractor under any contract or as a debt payable by the contractor.
Gratuity is payable vide Sec $ of Payment of gratuity ACt.
In this case Workers are entitled for gratuity.

From India, Pune
Let me put two cases here.

In Madras Fertilisers Ltd Vs Controlling Authority Under Payment of Gratuity Act and Others (2003 I LLJ 854) the Madras High Court has ruled that it is the liability of the Principal employer to pay gratuity of employees who have worked for him for 5 years and recover the same from the Contractor.

In Management of Cruickshank & Company Ltd Vs Appellate Authority under Payment of Gratuity Act and others the court observed that the responsibility of principal employer is confined to payment of wages and the definition of wages does not include gratuity, the principal employer cannot be liable for gratuity payment. At the same time, gratuity being a welfare benefit available to workers, the payment of it should not be denied due to tussle between the PE and the contractor and therefore, the PE shall pay it in the first instance and recover the same from the pcntractor.

In both the cases, the ultimate responsibility has been put on the contractor. However, if the Principal Employer knows that the same worker has been engaged for years, not less than 5 years, he can take a step that gratuity is paid by the contractor on his retirement or leaving the contractor otherwise.

Now the question of recovery of amount paid to contract workers from the contractor is a serious issue especially is the contractor refuses to accept it saying that he gets only a few percentage, say 8.33%, as service charges and it is insufficient even to meet his expenses.

One more thing is that as you said that your contract with the manpower supplier has been genuine, they have licence, they depute their supervisor to handle the grievances of his workers deployed at your site, you don't know who all have been deployed but you were concerned only with the number of persons deployed, and whatever I have said as #2 are incorrect for your case, then it is okay that you need not pay any gratuity nor ensure that the contractor pays it. But in practice the situation is like what I have said. It is not an easy job to deal with contract labour. They can raise an industrial dispute and that dispute may harm you a lot.

From India, Kannur
Opinion on query No. 1 - Yes, these contract workers are entitled to get gratuity, but from their i.e. the contractor. Principal employer should not pay gratuity, otherwise if they challenge their termination, then if the case is decided in their favour, the Labour Court may reinstate them in the employment of principal employer.
Query No. 2 - Workers of contractor will have to get an industrial dispute adjudicated in their favour, for holding the principal employer liable to pay gratuity to them. Controlling Authority under PGA 1972 is not vested with such powers. The Authority can, however, pass orders directing principal employer to pay gratuity to contract workers and recover the same from contractor. CLRA 1970 also provides for such procedure.

From India, Faridabad
Dear colleague,
After perusing relevant provisions under both the Gratuity Act and CLRA ,as well as High court and Apex court rulings, some of which are referred to above, what emerges is that the responsibility to pay Gratuity to eligible employees on termination is that of the Contractor- Immediate Employer and if he fails, it will be that of the Principal Employer who can recover it later from payments due to the contractor.
To be on safer side, it will be necessary to include a suitable clause in the contract document between the Principal Employer and the Contractor casting full
responsibility of payment of the gratuiy on the contractor to avoid any litigation in future.
Vinayak Nagarkar
HR and Employee Relations Consultant

From India, Mumbai
It is also to be noted that such issues are very common, though a few of them will be escalated and settled with the intervention of Courts, but after long industrial disputes and losing of production and harmony. Therefore, practically, contract workers who have been part and parcel of our organisation shall be recognised at least to the extent of their rights to get social welfare like gratuity. Nowwhere you can see a contract which is genuine in all respect and majority of such contracts aim flexibility in operation for the principal employer. Of course, many states having decided to be employer friendly post COVID 19, it is meaningless to debate such things here because the labour laws are going to be some letters printed and put in the lowest rack of the cupboard withoit any se, no one to refer!
From India, Kannur
Dear Ananta,
Ans: The workmen are eligible get gratuity, if the workmen has completed 5 years of working.
The workman either on regular service under principal employer or under the contractor are eligible get gratuity under payment of Gratuity Act. The definition of act is enough, no judicial pronouncement is required rather confuse you.

From India, Mumbai

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