Contractor's License Expired: What Are the Principal Employer's Liabilities?

If a contractor's license expires, what will be the liability for the principal employer in such a case as per the Contract Labour Act?

Regarding monetary dues pending settlement to the contract labor engaged by the deceased contractor in the establishment of the principal employer, the principal employer is liable.

Please delete the words "deceased contractor" in the reply and read it instead as "the contractor whose license expired" - sorry for the mistake.

License Renewal and Principal Employer's Liability

Once the license expires, if a renewal application has been filed at least 60 days in advance, the license is deemed to be renewed. In Maharashtra, with the new amendment, licenses are deemed to be renewed within 7 days of the online application. In all other cases, the license actually expires.

The principal employer should immediately stop using contract labor from that contractor. If that does not happen, the courts can presume that the contract was a sham, as you have continued to deploy contract labor even though the contractor no longer has a license.

Every contractor has to get their license renewed as and when it expires. The principal employer is liable for this act. At the time of obtaining the license, Form V is issued by the principal employer for this purpose.

Hi,

If a license has expired or if there is no license with the contractor, it's the same situation - a scenario where there is neither a license nor a contractor. In such a case, all laborers employed, with or without a contractor, will be considered company employees. This clarification is supported by various judgments provided by the High Court and the Apex Court.

Best regards,
RDS Yadav
Labour Law Adviser

I have seen Supreme Court judgments stating that the simple absence of a license does not make the contract workers direct employees of the principal employer. I have also seen other judgments where they have been declared permanent on the grounds of the contract being a sham. The Contract Labour Act itself does not say they will be made permanent. It only provides for punishment in the form of a penalty and imprisonment. Of course, all judgments are based on the facts of the case, various circumstances surrounding it, and also on how good the lawyers on both sides are. Your inputs to understand the impact better will help us all.

Not obtaining a license or non-renewal of a license is a procedural lapse and does not ipso facto render the contract labor as employees of the principal employer. However, it may support the inference that the contract is a sham if other factors that may make the contract sham exist. It is advisable to ask the contractor to renew the license in advance as per your State Rules.

B. Saikumar
HR & Labour Relations Advisor
Mumbai

Irrespective of whether the contract employees will become your employees or not, and (again irrespective of whether the license is renewed or not), you, i.e., the Principal Employer (PE) company, will be liable to settle all the statutory dues (salary/wages, PF, ESI, and any other liability) of the contractor's employees working on your (PE Company's) premises.