Understanding Contract Labour Act: Principal Employer Obligations and Principal-to-Principal Basis

Dear All,

I would like to know about the principal-to-principal basis of a contract. Can you please help me understand where the aspect of "Principal to Principal" is defined and what the benefits are of entering into a contract on a principal-to-principal basis? Are there any case rulings related to this?

If a company is opting for a principal-to-principal basis contract, does it mean that the parent company (principal employer) does not have any statutory liability?

Kindly assist me.

Regards, RAM

Dear Ram,

The word 'Principal' standing before the word 'Employer' not only distinguishes but also qualifies it, giving rise to the distinct term "Principal Employer." A simple analysis and understanding of the term in the context of the Contract Labour (Regulation & Abolition) Act, 1970 would make one realize that there can only be one Principal Employer in an establishment in the matter of engaging contract labor. In any particular establishment, there can be many contractors, including sub-contractors, but the Principal Employer can only be one in terms of their obligations under the Act.

Ram,

The provisions of the Contract Labour Act are very clear. The definition of a contract worker is also clearly stated. If the workers come under the definition, then the principal employer is liable for wages, safety, health, welfare, and all statutory dues. Claiming that an agreement is on a principal-to-principal basis or that it's a services contract or that it's lump sum or piece rate, etc., holds no water in court.

It would be different if the contract was for ONLY THE SUPPLY OF PRODUCTS / GOODS. Without any other services or work linked (and therefore the workers are not in your factory), would the principal-to-principal system work.