Can Full-Time Employees Switch to Contractors Without Legal Issues?

Dear Friends,

I need the following clarifications on the Contract Labour Act:

1. Can a full-time employee working in an organization be made a full-time contractor of the same company without leaving the services of the company?

2. Can a full-time employee in the company, who has a contractor's license in his mother's name and is also running a sub-contract, do so without informing or noting to the labor office?

3. The license has expired and not been renewed, but the contract is still ongoing...

Please explain these points at the earliest.

Thanks and regards, Deepak Gehlot

Dear Deepak,

Point no. 1: As per the Employment Act, no employee can engage in dual employment or any other monetary activity. This is also mentioned in the appointment letter.

Point no. 2: An employee cannot be a subcontractor.

Point no. 3: If the labor license is not renewed, the principal employer will be responsible for any mishaps involving the contractors' workers.

If you need any further clarification, please let me know.

Regards,
Anshuman

Dear Deepak,

The clarifications I can offer are as follows:

1. An employee cannot be the contractor at the same time. Please check the Standing Orders if you have one. Otherwise, under the Model Standing Orders, provision exists for exclusive service with the establishment which employs him. In fact, it will be sending a totally wrong signal to others. Sooner or later, there will be a clash of interests, and it will not be in the organizational interest either. So, I would definitely say no to it.

2. Doing business in the mother's name is also equally bad. This would be misconduct in many standing orders.

3. The contractor is required to have a valid labor license while executing the work. He should be issued a notice to submit a renewed license by a specific date. Failing which, you could consider actions like stopping his further payment or stopping the contract itself.

Hope this clarifies.

KK

Dear Anshumanjubl,

Will you please elaborate more about the Employment Act. As far as I know, there is no such Act in India at least. The various laws (Acts) that govern Employment Regulations in India which regulate labor and employment in India are:

- Apprentices Act, 1961
- Beedi Workers Welfare Fund Act, 1976
- Bonded Labour System (Abolition) Act, 1976
- Building and Other Construction Workers (Regulation of Employment Service) Act, 1996
- Child Labour (Prohibition & Regulation) Act, 1986
- Children (Pledging of Labour) Act, 1933
- Maternity Benefit Act, 1961
- Minimum Wages Act, 1948
- National Commission for Safai Karamcharis Act, 1993
- Payment of Bonus Act, 1965
- Payment of Gratuity Act, 1972
- Payment of Wages Act, 1936
- Cine-Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981
- Cine-workers Welfare Fund Act, 1981
- Contract Labour (Regulation & Abolition) Act, 1970
- Dangerous Machines (Regulation) Act, 1983
- Dock Workers (Regulation of Employment) Act, 1948
- Dock Workers (Safety, Health and Welfare) Act, 1986
- Employees Provident Fund & Miscellaneous Provisions Act, 1952
- Employees' State Insurance Act, 1948
- Employers' Liability Act, 1938
- Equal Remuneration Act, 1976
- Factories Act, 1948
- Industrial Disputes Act, 1947
- Industrial Employment (Standing Orders) Act, 1946
- Inter-State Migrant Workmen (Regulation of Employment and Condition of Service) Act, 1979
- Labor Laws (Exemption from Furnishing Returns & Maintaining Registers by Certain Est.s) Act, 1988
- Pensions Act, 1871
- Sales Promotion Employees (Conditions of Service) Act, 1976
- Seamen's Provident Fund Act, 1966
- Trade Union Act, 1926
- Weekly Holidays Act, 1948
- Workmen's Compensation Act, 1923

I think you are talking about the Contract Labour (Regulation & Abolition) Act, 1970.

Please be very particular while you post, as this may confuse the innocent person seeking help.

Dear Mr. J S Malik,

You have replied in your response that "if a company is hiring an employee on a contract without a valid license, then they will be treated as company employees if a dispute arises," which is not correct. The Principal Employer will not be bound to absorb the contract labor if a contractor does not have a valid license under the Contract Labor (R&A) Act, 1970. It will only be a contravention of Section 23 of the said Act.

Even if the Principal Employer does not have a registration certificate under the said Act, absorption of contract labor will not be awarded as a punishment.

Regards,
Rohit