Non-Compliance Dilemma: Who's Accountable When There's No Written Agreement?

This is an unusual query; however, I would like to clarify from seniors who will be held responsible for non-compliance - the principal employer or the contractor. If the principal employer, in spite of knowing about all the statutes related to contract work, awards the contract to the contractor at an ad hoc price, and later it is revealed by the labor inspector that compliance is not being followed properly by the contractor, while the contractor pleads that whatever he receives from the principal employer is merely the cost of salary which does not include any statutory deductions. Note that there does not exist any written agreement for this work assigned.

There is no mention in your post about the type of industrial establishment and whether the "non-compliance" detected relates only to the wages of the workmen and the statutory deductions thereof or total non-compliance, including registration, licensing, maintenance of registers, etc.

Definition of "Worker" Under the Factories Act, 1948

The definition of "worker" under the Factories Act, 1948, includes any person employed through a contractor in connection with the manufacturing process. As per Sec 2(1)(b) of the CLRA Act, 1970, when a workman is employed in or in connection with the work of the establishment through a contractor, with or without the knowledge of the principal employer, he would be deemed as "contract labour."

Implications of Total Non-Compliance

If the non-compliance is total, including failures of registration by the principal employer (PE) and licensing by the contractor, coupled with no documentary evidence for the contract, the effect is that the workmen so employed are considered the workmen of the principal employer. In this case, the PE is solely responsible.

Regards

Responsibility for Non-Compliance in Contract Work

The principal employer is liable to pay the salary and all statutory dues if the contractor fails to do so. If the contractor does not pay, the principal employer must cover these costs. These can then be recovered from the contractor. The contractor cannot claim helplessness, as they were not forced to take the work. They chose to do it, knowing they are liable for the statutory dues. In reality, the possibility of recovery is slim in most cases.

If the work is without a written contract, the situation is worse for the principal employer.

Concurring with what the seniors said above, the principal employer is liable under the Factories, PF, and ESI Acts, as the relevant labor statutes do not leave any doubt on that score. I may also add that the absence of even a semblance of any contract between the contractor and the principal employer in the form of a written agreement may render the contract workers as employees of the principal employer if there is non-compliance in respect of registration and license as well.

Regards, B. Saikumar

Contractors can only be held responsible if they have been registered under the Contract Labour Act and if their names were included in the Principal Employer registration form. The Principal Employer is solely responsible for any compliance related to the workers working within their premises.

Thanks & Regards,

From,
Sumit Kumar Saxena

Whether the contractor is registered under EPF Act separately? If yes, then the contractor will be liable, though he will have the right to claim the same from the PE.