Subcontracting Confusion: Who's the Real Principal Employer, A or B?

Principal Employer Dilemma in Subcontracting

An agreement has been entered into between A & B, which B has subcontracted to C. My query is: if C takes a license under CLRA, who will be the principal employer, i.e., A or B?

If we make A the principal employer, C does not have a contract with A. How can A be involved, and what will be the position of B then? If we make B the principal employer, then B will have to get itself registered under CLRA as the Principal Employer. However, technically, B is not a principal employer and does not have the authority.

Please let me know the solutions with an explanation. In case the Labor authority has issued any guidelines or notifications, I would be grateful if the same is shared with me.

Thanks in anticipation.

Understanding the Role of a Contractor Under the CLRA Act

As per the Contract Labour (Regulation and Abolition) Act, 1970, the definition of "Contractor" is as follows: A contractor, 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.

So, the Principal Employer (PE) will be the same and only one. As per your example, only A will be the PE, and he has to issue Form V to B & C.

Hope I am able to clear your confusion.

Thanks.

Thank you for your response, but the question still remains as to who will obtain the license under CLRA. Will it be B or C, and which contractor will represent the personnel deployed as their employees - will it be B or C? Please reply. Thank you!

You seem to be confused. A is the Principal Employer (PE). If there is no other contractor under A, and if the manpower of B exceeds 20, then A has to register itself as PE under the CL Act and later issue Form V to B to enable it to apply for the needed license. What B does with C has no bearing on this unless A also has an agreement with C.

Understanding the Role of Principal Employer in Contract Labour

The implication of the question, as far as I am able to understand, is two-fold: (1) In the absence of any contract between A (the contractee) and C (the sub-contractor engaged by B, the contractor of A), how could A become the Principal Employer to C instead of B? And (2) If A is the Principal Employer, who is the immediate employer of the contract labour for all practical purposes, whether B the original contractor or C the sub-contractor?

The practice of contract labour is, in the first place, sought to be regulated under the Contract Labour (Regulation and Abolition) Act, 1970 through the registration of the establishment wherein labour is engaged for certain specific activities through contractors and licensing of the contractors. So, it is highly imperative that one should understand and interpret certain terms used in this Act in the contextual background of the objectives of the Act.

Interestingly, when any work divisible into different and distinct componential activities is carried out through contract labour, sub-contracting of such activities becomes inevitable, thereby creating two distinct contracts as per the Contract Act - one between the principal employer and the contractor and the other between the contractor and the sub-contractor. However, the term "Principal Employer" is used in this Act only in relation to the contract labour whose conditions of service have to be regulated just in contradistinction of his immediacy of employment by the contractor. Moreover, the definition of "contract labour" u/s 2(b) presupposes his engagement through the contractor with or without the knowledge of the principal employer. Therefore, one cannot be both the principal employer and the contractor as well. So, A alone is the principal employer to all the workmen engaged through both the contractor B and sub-contractor C.

Analyzing Licensing Under the Contract Labour Act

The questions raised by Destinywins in his/her last post are of wider import and hence require a deeper analysis of the aspect of licensing of contractors under the Act in general as an academic exercise and the conditions stipulated in the Rules in particular as a matter of practical importance. As stated earlier, registration of principal employer and licensing of contractors under the Act are the two broader and basic regulatory measures employed by this special Statute. Registration is a must for employing contract labour and the failure is visited with penal action. The license granted to a contractor is name-specific in respect of the contractor, work-and-time specific in respect of the contract, and number-specific in respect of the contract labour likely to be engaged. In other words, the license is non-transferable as mentioned in the Rules. Hence, notwithstanding the fact that the contractor has a valid license for the work, if it is subcontracted, the subcontractor should also take up a separate license in the event of employing 20 or more number of workmen.

Regards