Are Principal Employers Responsible for Gratuity When Workers Switch Contractors?

Dear All,

I would like to request suggestions on the following situation:

A few workers, who were initially employed under labor contractor X for 3 years, were later transferred to labor contractor Y. In both instances, their Provident Fund (PF) contributions were made under the PF code of the principal employer. Now, after an additional 2 years of service under contractor Y, the workers are seeking gratuity upon resignation.

Is the principal employer liable to pay gratuity in this scenario?

Your guidance on this matter would be greatly appreciated.

Kindly advise.

Provident Fund Contributions for Contractors

Never deposit contractors' PF contributions in the principal employer's PF account. Do you know what this implies? It implies that the contract is a sham, and there can be a case for the abolition of the contract system. In such a case, the contract employees will come onto the company's muster roll. Somehow or another, but carefully, tell the contractor to obtain a PF code or engage one who has a PF code.

Gratuity for Contract Employees

Now for gratuity. Were the employees issued an appointment letter? If yes, was a clause of transfer of service included in it? Generally, the answer would be no.

Contract employees can claim gratuity from the present contractor. But there will be a legal basis as both entities are separate. They can't claim gratuity from the principal employer as there is no employer-employee relationship. A claim can be made only if such an eligible employee is denied gratuity payment by the contractor.

Though entities are different, are the proprietor or partners the same in both cases? Then the employees will have a case to claim gratuity.

Dear RIMI GHOSH ji,

The answer to your question is - NO. However, if you approach an advocate like me and engage in legal action to file a claim, you may succeed by presenting certain circumstantial evidence, in my opinion.

Wishing you all the best.

Dear Rimi, This is a classic case of exploiting contractual labor. Forget about legal points. The poor contract laborers have been working for the same principal employer (PE) for 5 years or more under two or more contractors. Who is responsible for changing the contractors? Obviously, the PE, not the contract laborers. Then why should they suffer? Those laborers have been performing on behalf of the same PE and, in most cases, under the supervision and control of the PE, alongside the permanent employees of the PE who are eligible for gratuity.

I know a very famous MNC that follows the same process to exploit contractual labor. I also know another mid-cap MNC that has changed contractors for several reasons but continued with the same laborers for years, paying gratuity to contract labor as and when required, considering all past services. The agreement between the PE and the contractor is the actual cost plus a fixed service charge of the contractor on a variable month-to-month basis based on actual attendance, bonus, gratuity, engagement of contractual labor, etc.

In my opinion, this is the ideal approach that a good PE should follow.

At the end of the day, we should not forget that those contractual laborers are performing for the PE only, and they should not be deprived for technical reasons (legal points, etc.).

Thanks & Regards, S K Bandyopadhyay (KOLKATA) USD HR Solutions [Email Removed For Privacy Reasons]

Principal Employer's Responsibility for Gratuity Payment

It is obviously paid by the principal employer if the contractor of the contractual laborers is denied payment. Furthermore, if I go into detail, if you view the provident fund details and the ESIC details and cross-examine them, you will see that the contractual laborers who are fighting for their rights are working under one and only one principal employer for the last five (or eligible year). In addition, the registration of the principal employer of the contractor will also support this, although the contractors are different, the principal employer is one and only one.

It is the prevailing practice of the company to pay the contractor a calculated amount for per day wages, which consists of minimum wages, safety equipment costs, provident fund (employer part), ESIC (employer part), welfare fund (employer part), gratuity, and other applicable components as per the law of that particular land.

So, I believe it is not natural justice for the contractual worker to not receive the gratuity amount. Please correct me on the facts if I am mistaken.

Regards,
Ravi

Dear Friends,

One of the members asked me a question through private message as follows: "Dear Keshav Sir, I am not disagreeing with the answer you gave for the above question, but I want to ask if the employer is depositing the PF under his code for 5 continuous years, would the employee be able to claim to be on the employer's roll."

Instead of giving an answer to him through private message, I prefer to share my response here:

Employment Claims on the Principal Employer's Roll

The question pertains to employment claims on the PE's roll and not on Gratuity. Merely depositing PF and ESI of contract laborers under the code allotted to PE will not warrant a claim of employment on the PE's roll. PF and ESI allow remittance of contract employees under the PE's code. However, based on certain other parameters, one can establish a claim of employment on the PE's roll in a court of law.

Section 10 of CLRA: Prohibition of Employment of Contract Labor

Please note that the subject of section 10 of CLRA, which deals with the prohibition of employment of contract labor, is a separate matter, and the jurisdiction under this section lies with either the Central or State Government, as the case may be. Also, note that the function of the Central or State Government is administrative and not judicial or quasi-judicial. In carrying out this administrative function, the Government cannot delve into the merits of the disputes or claims.

Thank you.

Dear All,

Please take out your joint undertaking, which has been given to the contractor at the time of engagement. Please refer to the recent notification by the central government. It is the ultimate responsibility of the principal employer to pay all the payables to CLR's or any other workers who were engaged to work on the premises of the principal employer.

Thank you.