Can a Principal Employer Be Held Liable for Bonus Payments in Conciliation Settlements?

Hello friends,

In a conciliation meeting between contractors and their workers for the settlement of the issue of bonus, the principal employer was requested to attend the meeting to help in arriving at a settlement. The workers were demanding a bonus in view of the amendment in the bonus act under section 36 (vi). In the settlement, the principal employer agreed to reimburse the bonus if the contractors pay and sign as a witness. Now, the queries are:

1. Whether there is any statutory liability for the principal employer to reimburse the amount of the bonus.
2. Whether the settlement is binding on the principal employer.
3. Can the principal employer challenge the settlement, and if yes, where.

Dear Menthresh,

Obviously, all payment-related issues are the responsibilities of the Principal Employer in case the Contractors fail to resolve the same. Once the payment of bonus is accepted by the Principal Employer in the conciliation meeting, then there will not be any issue at all.

The Principal Employer is to ensure that all the contractors maintain the statutory obligations. If the same is not maintained by the Contractors, the onus of maintenance lies with the Principal Employer, and he can debit the cost to the Contractors. Payment of Bonus also falls under the purview of Statutory Obligation. Hence, the contractor has to adhere to the Payment of Bonus Act.

In this specific case, the Principal Employer has accepted to bear the cost of the bonus to workmen, then the matter of settlement doesn't arise.

With warm regards,

S. Bhaskar
9099024667

Mr. Bhaskar,

Sorry for the delay. I am grateful for your response. However, I would like to add that, admittedly, a bonus is not a part of wages. Hence, I feel that the principal employer cannot recover the same from the bills of the contractor. Moreover, in the Bonus Act, no such term as principal employer has been used.

Menthresh

Payment of Bonus: Statutory Obligations

Payment of a bonus is statutory. Once there is an agreement of conciliation, the contractor is supposed to pay. Though the principal employer is not involved, it is payment to the worker, and hence in case of a violation, both the conciliation authority and the principal employer should act on the same.

It is quite natural that the principal employer is also asked to attend the conciliation relating to contractors' workers because it is on the principal employer that the burden of expenditure is going to come, as any payment given to the workers will be a cost to the principal employer. Therefore, the agreed amount, though paid initially by the contractor, will have to be reimbursed to the contractor by the principal employer. Though as per most of the contracts, there will be an element of statutory bonus included in the monthly bills raised by the contractor, any increase in it will have to be borne by the principal employer alone.

Note that in a conciliation/settlement, it is always advisable to ensure that the principal employer is not signing the settlement.

Regards,
Madhu.T.K

Definition of an Employee in the Bonus Act

The definition of an "Employee" in the Bonus Act is broad:

"Employee" means any person (other than an apprentice) employed on a salary or wage not exceeding two thousand and five hundred rupees per mensem in any industry to do any skilled or unskilled manual, supervisory, managerial, administrative, technical, or clerical work for hire or reward, whether the terms of employment are express or implied.

Definition of an Employer

"Employer" includes:

(i) In relation to an establishment which is a factory, the owner or occupier of the factory, including the agent of such owner or occupier, the legal representative of a deceased owner or occupier, and where a person has been named as a manager of the factory under Clause (f) of subsection (1) of Section 7 of the Factories Act, 1948, the person named; and

(ii) In relation to any other establishment, the person who, or the authority which, has the ultimate control over the affairs of the establishment and where the said affairs are entrusted to a manager, managing director, or managing agent, such manager, managing director, or managing agent.

Therefore, the place of work being the place of the Principal Employer, the Principal Employer will ultimately become liable in view of having the ultimate control over the affairs of the establishment. In the case of compliance with the Bonus Act by the Contractor through conciliation proceedings, the Principal Employer's ultimate liability will be erased.

Rajan Law Firm

Please see https://www.citehr.com/285737-legal-...-industry.html

It is well settled that there is no employer-employee relationship that exists between the Principal Employer and the contract worker. In the case of an employee engaged through the contractor, the contractor is the employer and not the principal employer. When the Principal Employer has not employed the contract worker, there is no liability on the part of the Principal Employer to pay a bonus to the employees engaged through the contractor. The contract workers, as a matter of strategy, also include the Principal Employer whenever a dispute regarding a bonus is raised. Depending on the facts and circumstances of each case, the Principal Employer participates in the conciliation proceedings, and even after participating in the conciliation proceedings, may refuse to be a party to the settlement that may be reached between the contractor and his employees.

With regards,

Role of the Principal Employer in Conciliation

Though the Principal Employer is not a party to conciliation, most conciliations end up with financial benefits for the workers. Hence, the Principal Employer should be aware or informed to fulfill the obligation of payment to the workers in case the Contractor fails to do so. In any scenario, turning a deaf ear is not a part of welfare activity. Workers and Contractors are on weak footing, while the Principal Employer is on strong footing, attempting to defy the statutory provisions and not otherwise.

Regards.

What happens if the principal employer does not participate in the conciliation proceedings and therefore does not sign the settlement, if at all any is reached? Can a settlement be enforced against a person who has not signed it? The discussion in the present thread is about a principal employer who has signed the settlement as a witness. Can you give your views in a situation where the principal employer does not participate in the conciliation proceedings or, having participated, refuses to sign the settlement? The present discussion is not about a claim for the recovery of the bonus from the principal employer before a judicial or quasi-judicial forum.

The judgment cited by you has for its background a claim on the principal employer for the payment of gratuity and his non-payment of the same. Still, the High Court has not said that the principal employer only has to pay the gratuity. This judgment has not extinguished the liability of the contractor to pay the gratuity. It is well accepted that whatever amount the principal employer pays to the contract worker can be recovered from the contractor. This does not mean that the liability for payment is on the principal employer. Moreover, in the first post in this thread, it is stated that the principal employer signed as a witness; therefore, he is not a party to the settlement. Can a settlement be enforced against a witness to the settlement? These are the issues that remain to be answered.

Regards,

The idea of the Principal Employer being involved is on account of the statutory liability under Section 21, which arises with or without his participation in the conciliation.

Responsibility for Payment of Wages

(1) A contractor shall be responsible for the payment of wages to each worker employed by him as contract labour, and such wages shall be paid before the expiry of such a period as may be prescribed.

(2) Every principal employer shall nominate a representative duly authorized 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 a 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 authorized 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.

The extended definition of wages as propounded by the Division Bench of the Madras High Court is the guiding factor to understand the risk of the Principal Employer. What the judgment says is let the Principal Employer pay and recover. The liability of the contractor never gets extinguished.

Regards,

rajanlawfirm

Please see https://www.citehr.com/285737-legal-...-industry.html

Mr. Harikrishnan has rightly analyzed. The Principal Employer per se is not a party in the conciliation. Furthermore, a witness won't become a party to the agreement. I feel the remedy is to forward a copy of the conciliation to the Principal Employer to fulfill the obligation of payment in case the contractor fails to do so.