Understanding Labor Licenses: Do Transformer Installers Need One at My Site?

Hi, can you help... If the supplier of a transformer is sending 12 persons from their company to install the transformer at my site, do they need to obtain a labor license under the Contract Labor (R&A) Act?

If the license is not applicable to the contractor working at the site, does this contractor need to submit a half-yearly return to the authority under the Contract Labor (R&A) Act?

Yes, the contractor needs to apply for a labor license. Subsequently, he also has to submit a half-yearly return.

*Note: Please verify the Contract Labor Act of the concerned state for the applicability of the labor license.

As far as my experience and knowledge are concerned, a labor license is applicable only to those where 12 or more workmen have been working on any day in the preceding 12 months. As only 12 persons are supplied here, no applicability of a labor license arises.

Seniors, please correct me if my statement is wrong.

There is no requirement to obtain a labor license because, as per the rules of the Contract Labour Act (Regulation and Abolition) 1970, it applies to every establishment in which twenty or more workmen are employed or were employed on any day of the preceding twelve months as contract labor. It also applies to every contractor who employs or who employed on any day of the preceding twelve months twenty or more workmen. Therefore, if you do not obtain a Labor License, there is no need to send a half-yearly return to the licensing officer.

With Regards

Some states have a limit of 10 workers to trigger the applicability of the Contract Labour Act. Without knowing the specific state, we can't be certain.

Again, many state rules have a provision for a temporary license (for 15 days) which automatically lapses after that period. In such cases, half-yearly returns are not required.

Please check with your contractor who is supplying you with the manpower for your workload about the employees he has on his board. I am sure he must have more than 12 employees. In that case, he has to hold a license to provide such contractual employees in respect of the concerned state Act and will submit half-yearly and annual returns under the Contract Labour R&A Act.

Regards,
Pushkar Bisht

Applicability of the CLRA Act to Transformer Suppliers

The CLRA Act is not applicable to the supplier of a transformer if the persons he is sending for installation are his own workers and not his contract workers. It is also not applicable if it is a contract for service included in the purchase order.

Regards,
Varghese Mathew
[Phone Number Removed For Privacy Reasons]

Please check the definition of contractor and contract worker in the act. If you evaluate the wording, you will see that anyone who is working on your premises because you have a contract with their employers to deliver some service to you (not just to deliver a product) falls under the Contract Labour Act. Therefore, it does not matter if they are the worker's own employees or contracted out. The act covers contract workers from the perspective of the person whose factory the work is being done in, not from the viewpoint of the service provider.

Unless you can prove that the installation is not deemed a service (as the act states: "other than merely providing any goods"), it will fall under the act's definition. This might not have been the intention of the act, but it is what the act currently states. Furthermore, whether a Purchase Order (PO) is issued or a contract is entered into, it does not alter the nature of the work being carried out.

"The CLRA Act is not applicable to the supplier of a transformer if the individuals he is sending for installation are his own workers and not contracted workers. It is also not applicable if it is a service contract included in the purchase order." - Varghese Mathew, [Phone Number Removed For Privacy Reasons]

I endorse the answer by Varghese ji. I endorse the said answer after considering the below-given points:

Definition of "Contractor" in CLRA

"Contractor" as defined in CLRA, in relation to an establishment, means a person who undertakes to produce a given result for the establishment, other than a mere supply of goods or articles of manufacture to such establishment, through contract labour or who supplies contract labour for any work of the establishment and includes a sub-contractor.

Definition of "Contract Labour" in CLRA

A workman as defined in CLRA shall be deemed to be employed as "contract labour" in or in connection with the work of an establishment when he is hired in or in connection with such work by or through a contractor, with or without the knowledge of the principal employer.

On reading both the terms as above, I conclude that the party who supplies and installs the transformer is not a contractor under the CLRA, and the workmen of such party are not contract labour. Normally, such kind of job is done with the help of fewer than 10 workers, and therefore no question of a license arises. The principal employer also avoids enrolling such party as a contractor in his RC since such jobs do not last for long.

Since the queriest raised this point, we have to debate it.

Legal View on Contract of Service vs. Contract for Service

I have another legal view also in this context, which is as follows: The term "undertake to produce a given result" necessarily involves the contract of service, and the CLRA is applicable only in the case of a contract of service. Whereas, the supply and installation of a transformer is not a contract of service but a contract for service. A contract for services is strictly a business contract between two firms on a buyer and supplier basis. There is no question of any employment relationship between the parties.

This is my view. It is not in CLRA. It is only an academic discussion. I expect comments on this by experts. One can differ with me. I just expressed my point of view.

Regards

Thank you, Kargoankar, for your comments. In the definition of 'contractor,' the mere supply of goods or articles of manufacture is excluded. Supply, installation/commissioning, trial run, etc., are nowadays part of the business contract for the supply of machinery.

Regards,
Varghese Mathew

Varghese & Kargaonkar

This is not the view being taken by the labor officers in many states. Most companies are not taking the risk of the courts later declaring that mere supply of goods is only supply of goods, and installation and erection do not come under the term mere supply, etc. I do not know of any case decided by the court on this count. If anyone has info on that, please let me know.

That is also the reason that many of the state rules provide for a temporary license taken for up to 15 days. In most cases, a license is not required as they are less than 10 workers. However, the ones I have been seeing in large factories are that teams that come to install transformers, boilers, etc., are often as large as 25-30 people. I saw one team consisting of 85. This is more likely in the case of large projects like the expansion of plants.

In any case, for the mitigation of risk, companies insist on ensuring that PF, ESIC, and/or Workman Liability Insurance (or workman compensation insurance) is taken. Also, they try to ensure that the concerned workers are paid above minimum wages.

Varghese ji wrote rightly, there is in CL 1970 (RA) only a licensing provision for a few categories like housekeeping, fabrication, loading & unloading, material shifting, and gardening. But in the above case, there is no need to obtain a license from the authority because the work does not align with the nature of CL1970. There are fewer than 20 workmen. However, if the organization is registered under the P.F. & E.S.I.C. Act, it should be the responsibility of the principal employer.

Regards,
Ashish
Contact No. [Phone Number Removed For Privacy Reasons]

Court Judgment on Employer Liability

I hope you all have seen the latest court judgment that clearly states that employers' liability exists under all laws, irrespective of whether it is a service contract or labor supply. It's about compensation for employees who were recruited by an agency to ferry cars of Mahindra and Mahindra from the factory to various other places. The fact that it was a service contract, piece rate, not controlled by the principal employer, and not even in the factory was disregarded by the court.

So, I think you better obtain a license if the numbers cross the limit.

I am in total agreement with Mr. Korgaonkar. The Contract Labor Act comes into play only in a situation wherein a contract of service is hired by an establishment through contract labor that is:
1. Perennial and on a day-to-day basis.
2. Incidental but necessary to the core activity.
3. Sufficient enough to permit the employment of a considerable number of regular and full-time workforce.
4. Being carried out mostly in similar establishments through regular workers.

In my opinion, when the erection of a particular machinery, due to its enormity or sophistication, is inextricably linked to its sale or supply, it cannot be brought within the above parameters.