Navigating Factory License and Labor Compliance: How Should We Handle Office Coverage and Worker Compensation?

Seeking Advice on Factory License and Labor Compliance

Point 1: I am looking for your valuable advice regarding our factory license. In the same premises, we have a registered office for administrative tasks. We want to cover the registered office under the Shops and Commercial Establishment Act. However, the factory inspector says that even though it is in the same premises, the registered office is covered under the Factory Act only, and there is no need for coverage under the Shops and Commercial Establishment Act.

Point 2: We have obtained a labor license for 60 workers to be employed on any given day. Here, we are planning to opt for workmen's compensation instead of ESI. My query is whether we should base this decision on the number of workers as per the license or on the average number of workers employed. In case we choose based on the average number of workers employed, what legal consequences may arise at the time of making a claim?

I would appreciate your suggestions on this issue.

Regards,
Naresh Gadde

Point No. 1
If the administrative office is located on the premises of the factory and is connected with the factory, namely looking after administrative affairs pertaining to the factory, then it will be treated as part of the factory. The Factories Act is applicable to the administrative office since the definition of a factory covers the entire premises and precincts thereof, with all establishments located in it that are carrying on manufacturing activity or any activity connected with it.

Point No. 2
The query is not clear to me. However, a factory in the first instance is covered by the ESI Act only. When the ESI Act is applicable, the Employees' Compensation Act is not applicable. You have no option.

Regards,
B. Saikumar
HR & Labour Law Advisor
[Phone Number Removed For Privacy Reasons]

Thank you for your reply. My second point is regarding the electrical contract works we will undertake at the site. We plan to engage subcontractors for the execution of the work, but we have obtained the license under our company name to ensure that we maintain all statutory records as per the Contract Labour Act. Instead of ESI, we have opted for workmen's compensation for the average number of workers engaged. My concern is related to the license we have acquired for 60 workers. During the contract period, if the number of workers reaches or exceeds 60 on any given day, are we required to adhere strictly to the license limit, or can we choose to consider the minimum number of workers on any day? What are the consequences that may arise at the time of a claim if we do not follow the license terms?

Thanks & Regards,
Naresh

I understand that you are undertaking to execute electrical works as a contractor at the principal employer's site under your license. In terms of sec. 2(9) of the ESI Act, the definition of an employee of the principal employer includes the contractor employee as well. Thus, if the principal employer is covered by the ESI Act, then the contractor employees (namely the workers you deployed at his establishment) are also covered by ESI. You might cover the workers under an insurance policy, but you cannot avoid your liability under the ESI Act.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai
[Phone Number Removed For Privacy Reasons]

Thank you for your spontaneous response to my post. In case the principal employer is not covered under ESIC due to non-coverage of that zone, then as a contractor, we can take a workmen's compensation policy. I hope that there will be no liability for the contractor as well as the principal employer in this scenario. In this regard, on what basis should we take a workmen's compensation policy for the coverage of workers? Kindly provide your valuable advice on this.

Thanks & Regards,
Naresh Gadde

Whether it is a contractor or an employer, if workers are deployed, the responsibility of statutory compliance lies primarily with the employer. Under a contract, the principal employer will assign the work to contractors who have these compliances in place. Regarding the applicability of ESIC or Workers' Compensation, if the work location falls within Zone 1 where ESIC facilities are available, ESIC compliance is mandatory. In contrast, if the work location is in Zone 3 where ESIC facilities are not available, a Workers' Compensation policy is the minimum compliance required. Additionally, any insurance cover that offers better benefits equivalent to ESIC can be obtained, but consent/exemptions from the competent authority are necessary.

Please be mindful of the zone classification details outlined below:

Zones in Maharashtra

The state has been categorized into groups A, B, C, D, and D+ based on industrial development.

- Group A includes developed areas such as the Mumbai Metropolitan Region (MMR) and Pune Metropolitan Region (PMR).
- Group B includes areas with some level of development.
- Group C covers areas that are less developed than those in Group B.
- Group D comprises lesser-developed areas of the state not covered under Group A, Group B, or Group C.
- Group D+ includes the least developed areas not covered under any other group.

Zones in Maharashtra as classified by the Ministry of Labor:

- Zone I: Comprises areas within the limits of all 'A' and 'B' class Municipal Corporations.
- Zone II: Includes areas within 'C' and 'D' class Municipal Corporations, 'A' class Municipal Councils, and Cantonment areas.
- Zone III: Encompasses all other areas in the state not included in Zone I and Zone II.

Thank you.

Regards,
Bijay

Dear Naresh,

Factory License and Office Coverage

1) The Factory Manager is correct in stating that if you wish to include your office under the Shop Act, the premises should be free from manufacturing activities, and the factory license should be canceled for that particular location. This change must be communicated to the factory inspector. Subsequently, you can apply for a Shop Act License for the office.

Labor License and Workmen's Compensation

2) You have not specified the location (area/region/state/district) of your factory. If your factory falls under ESI coverage, you must comply with ESI regulations. Additionally, you can provide further coverage to your workers, but ESI cannot be replaced by any other act.

I hope this clarifies your doubts.

Regards,
Devendra Deshpande
Manager-HR

Dear Naresh,

Determining the Appropriate Act for Office Registration

It is a very tricky question whether an office located on the premises of the factory is to be registered under the Factories Act or the Shops and Establishments Act. In some cases, the head office or an office that conducts administrative work, even if located on the same premises, was considered to be covered under the Shops Act. In other cases, it was deemed to be covered under the Factories Act based on the 'premises and precincts' principle.

However, certain Shops Acts, like the Bombay Shops and Establishments Act, clearly specify that the Shops Act applies only to a shop or commercial establishment situated on the premises of the factory if it is not linked to the manufacturing process. This implies that if it is connected to the manufacturing process, the Factories Act becomes applicable. Therefore, examine the Shops Act of your state to determine if it contains any such provision. This will assist you in making a prudent decision.

Regards,
B. Saikumar
HR & Labor Law Advisor
Mumbai