Can a Contractor Legally Subcontract Without Informing the Principal Employer? Seeking Advice

Legal Inquiry on Subcontracting Practices

Request your opinion. We have entered into an agreement with a company to provide vehicles to us along with drivers. This agreement is between my company, M/s. [Company Name], and M/s. B.

Recently, we discovered through a legal case that company M/s. B subcontracted with another party to provide drivers to a third party without our knowledge, and these drivers are placed at our premises.

1. Is there any provision in the law allowing a contractor to subcontract with a third party without the knowledge of the principal employer?

2. Are such contracts legally valid, or are they considered void?

3. M/s. B is a contractor to M/s. A; however, when they subcontracted, they did not obtain any license or registration certificate under the Contract Labour Act.

4. What could be the legal implications on Company M/s. A (the principal employer)?

Please advise.

Regards,
Ranjeet

When you entered into a contract with "B," did you put in a further safety clause - no subcontracting will be permissible.

Whether a breach of contract has taken place can be determined only by reading the whole contract to see what all clauses have been mutually agreed upon.

Dear Mr. Rao,

The clause of subcontract is not there. My question is different; I want to ask whether it is permissible in law for a contractor to subcontract for the principal employer with or without their knowledge.

Regards,
Ranjeet

Again, the specific wordings in your contract would need to be examined.

Contracts normally prohibit third-party sourcing to avoid such situations.

Hello Ranjeet,

While Nathrao is addressing the legality of the situation you mentioned, have you faced any problems or issues at the ground level in terms of the performance of the drivers who now belong to the outsourcing partner of M/S B? Does it really matter if M/S B outsources its driver requirements as long as the work at your company, M/S A, gets done without any problems? How are the driver accident insurance and other aspects covered in your agreement with M/S B?

Regards,
TS

I also echo Mr. Sateesh in this matter. Do you face any problem with the service of M/s B? If the answer is yes, did you call and discuss it with M/s B?

Whenever you engage any vehicle, you must ensure the proper documents of the vehicle and the valid driving license of the driver. If women employees are available and the vehicles are being arranged for their conveyance, then obviously, you must ask M/s B to submit the police verification report for the drivers being engaged in the hired vehicle.

As a matter of fact, what is your doubt? If you provide some more details, our members will guide you to resolve your issue.

Dear Ranjeet, If I remember correctly, you have raised a separate thread about another episode of this story and received viewpoints from several members, including myself. Avoiding queries in bits and pieces on the same issue would facilitate a better understanding for people like me to offer our remarks effectively. Reiterating my reply to the other thread, a contract entered into between an ultimate user and a Rental Car Service Provider with its own drivers for cars on rent cannot be a contract of service attracting the applicability of the CLRA Act, 1970. Let me answer your current questions as follows:

Contractual Obligations

(1) The fulfillment of contractual obligations of either party to the contract has to be strictly in accordance with the terms and conditions of the contract only.

Engagement of Contract Labor

(2) As per Sec. 2(b) of the CLRA Act, the engagement of contract labor can be without the knowledge of the principal employer.

Subcontractor as Contractor

(3) As per Sec 2(c) of the CLRA Act, a subcontractor is also considered a contractor. Obtaining a license is a separate matter depending on the number of workers employed by such subcontractor.

Thank you.

When you have not specified any clause for sub-contracting, M/s A can make a sub-contract for hiring drivers. It is legal. The significant point is that the sub-contract is specifically for hiring drivers (manpower).

If your company is registered with PF-ESI and Leave Entitlement, please ensure that the sub-contractor (M/s C) complies with all Legal and Statutory Compliances. You can request M/s B to provide records of Salary disbursement (which should adhere to Minimum Wage requirements and be made through Bank Transfer), PF-ESI Challan (including ECR), Bonus Payment Proof, Leave records, etc.

Next time you renew the Agreement, please include the following points:

STATUTORY COMPLIANCE:

The Contractor (M/s B) must comply with the provisions of all Labor Laws, rules, and regulations applicable to the employment of Associates and the services agreed to be provided under this Agreement. They should obtain all necessary registrations, licenses, approvals, sanctions from PF, ESI, Contract Labor Regulation and Abolitions Act, 1970, and other applicable laws. They should provide leave with wages benefits to all employees by granting leave or by paying leave with wages, paying Bonus under the bonus act. The Contractor (M/s B) should adhere in all aspects to the provisions of laws, regulations, bye-laws, or orders, and indemnify M/s A against all fines and liabilities for breaches of such laws, regulations, bye-laws, and orders.

You can also amend the existing Agreement through mutual discussions.

Regards