Legal Dilemma: Can Our Employee Also Act as a Labor Contractor Without Breaking Laws?

Dear All,

We have frequent threats from a labor contractor to stop our services. He is taking advantage because our warehouse is in a remote location. Our laborers want to stay with us as they are local. In this situation, we are planning to bring all these laborers under one of our employees' contracts.

Legal Concerns

Is this a breach of any law? Can a current employee also be a labor contractor in the same organization? Please advise urgently.

Thanks in advance.

Regards,
Devang Pandya

Dual Role Concerns in Employment

It is generally not encouraged for employees to run any sort of contract or services under a benami name. Employees should avoid acting in dual roles due to potential vested interests.

Regards,
Pon

Considerations for Retaining Services In-House vs. Outsourcing

If retaining their services is so essential, why don't you take them under the rolls of the company rather than outsourcing it to someone else? By outsourcing, you will only incur additional expenditure by way of service charges to the contractor. I don't think that, in practice, whenever there is a dispute, the contractor will take the initiative to solve it at his end itself but will always drag the principal employer into it. By doing this, the very significance of the contract is lost. The basic objective of outsourcing is that the principal employer can concentrate on his own core functions, and the rest, such as man management, grievance handling, dispute redressal, etc., will be taken care of by the contractor.

However, in practice, whenever the workers demand a wage hike, the contractor will pass it on to the principal employer, and the principal employer will be forced to meet the demand because he needs people. Here the contractor will not take any interest in negotiation because the excess payment by way of an increase in wages is not going to be met out of his revenue but will be borne by the principal employer only. Moreover, when the service charges are calculated on the basis of a percentage (say, 8.33%, 10%, or even 12% in many cases) of total payments, including payment of statutory dues like PF, ESI, etc., or simply CTC, he will be more interested if the wages increase. Therefore, outsourcing is not a remedy but should be discouraged, especially when the contractor has a negative attitude.

Regards,
Madhu.T.K