Contract Laborers and Gratuity: Does Changing Contractors Affect Eligibility?

If a contract laborer has worked with the Principal Employer for a consecutive 10 years, but his employer (contractor) has changed 4 to 5 times, and his tenure under any contractor has not exceeded 5 years, is he eligible for Gratuity at the time of separation?

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In this scenario, the contract laborer would not be eligible for gratuity as the key requirement for gratuity eligibility is a continuous service of 5 years under the same employer. Since the tenure under any contractor has not exceeded 5 years due to the multiple changes in the employer, the laborer would not meet the criteria for gratuity entitlement. It is essential to understand the specific provisions of the Gratuity Act and the terms of the contract to determine the exact entitlements in such situations.

The Principal Employer is liable for the payment of Gratuity if the contract workman has documentary evidence to prove that he had worked with the Principal Employer for 10 years continuously, without any break. Or, if he raises any dispute before the Controlling Authority and is in a position to adduce evidence/documents to prove that he was in employment with the Principal Employer for more than 10 years of continuous service, even though the contractor's employer was different.

Gratuity and the Payment of Gratuity Act 1972

Gratuity is decided and calculated as per The Payment of Gratuity Act 1972. According to this Act, no principal employer is liable to pay gratuity in any case. If a contractor is changed and contract workers remain the same, precautions should be taken to ensure that the previous employer (contractor) has settled their full and final dues, and a No Dues Certificate is obtained from the workers.

Steps for New Employer (Contractor)

The new employer (contractor) should hire the worker as a new appointment, maintaining a separate workmen register, issuing a new employment card with a new date of joining, etc. If possible, a temporary or casual appointment letter may be issued by the contractor without mentioning the principal employer's premises or plant.

Contract Award and Labor Employment

Generally, contracts are awarded for a maximum period of 3 years (with an extension clause), and clients always prefer to award the contracts to new contractors after floating tenders.

The contract laborers working for contractors are on a purely contractual basis or fixed-time basis. Their employment is automatically ceased when the contract is terminated or completed. Once the contract is completed, Principal Employers always ensure that all legal dues of contractor laborers are settled up to the last working day, including leave encashment. Once confirmed by their HR or Audit department with relevant supporting documents, the contractors' final bill payment is processed. Hence, there is no direct or indirect relationship of contract labor with the Principal Employer, thus not liable to pay any gratuity irrespective of the number of years of service he or she rendered on the same premises.

Regards, Suresh

Mr. Suresh is correct.

The contract is generally given for providing a specified number of staff and not by specific names. If the contractor has changed before the expiry of the qualifying period as given in the Gratuity Act, and the full and final settlement has been done, then the point of the Gratuity payment is not valid.

Col. Suresh Rathi

Understanding Contract Labor in Public Sector Units

We have shared practical insights about the happenings in industries, particularly in Public Sector Units. There is no direct relationship between the Principal Employer (PE) and the contract labor. Contract laborers are appointed by contractors based on their business requirements, and they are not directly recruited by the PE. Generally, the nature of the job is contractual and for a fixed period. Once the contract is completed or terminated, contractors pay legal dues to their workmen, and the employment ceases.

Contractor's Role and Employee Continuity

When a new contractor takes over, it is not mandatory for them to retain the old employees working with the PE. The contractor may replace the existing workforce with their own. Even if some existing workmen are rehired, they receive a fresh appointment letter as new joiners, and no gratuity is required if the contract tenure is less than 5 years. Contractors obtain a Contract Labor License from the Licensing Authority (ALC), who is aware that some existing laborers may continue without conditions or clauses requiring retention of their original joining date.

Addressing Contract Labor Rights

In this situation, where can contract labor register complaints regarding their rights? It is requested to suggest remedies that would benefit the workmen.

Regards,
Suresh

Supreme Court Judgment on Contract Workers

Kindly refer to the judgment of the Supreme Court in the case of R K Panda vs Steel Authority of India reported in 1995 (85) FJR 140. The issue relates to the absorption of contract workers by the Principal Employer. The below-mentioned observation of the Supreme Court sheds light on the issue mentioned before.

"It is true that, with the passage of time and purely with a view to safeguard the interests of workers, many principal employers, while renewing the contracts, have been insisting that the contractor or the new contractor retains the old employees. In fact, such a condition is incorporated in the contract itself. However, such a clause in the contract, which is benevolently inserted to protect the continuance of the source of livelihood of the contract labor, cannot by itself give rise to a right to regularization in the employment of the principal employer."

This makes it clear that even in such scenarios, the contract labor does not become the employee of the principal employer. Therefore, how can they claim gratuity from the principal employer? Since the contractor is the employer, only he is liable to pay gratuity. It is also settled that gratuity cannot be claimed under the provisions of the Payment of Wages Act. Reference in this regard may be made to a judgment of the Supreme Court in State of Punjab vs The Labour Court, Jullundur reported in 1979 (39) FLR 353, where it was held that the Payment of Gratuity Act enacts a complete code containing detailed provisions covering all the essential features of the scheme for payment of gratuity, and that proceedings for payment of the same may be taken under that Act and not any other Act.

However, as a caution, the contractor must ensure that such workers do not complete 5 years of continuous service.

I hope this clarifies the issue.

Regards,
S. Sensharma
Industrial Law Consultant, Meerut

To avoid abuse of the law, the government should make amendments to the Payment of Gratuity Act and establish eligibility for gratuity upon completion of one year of continuous service.

Modus Operandi of Contractors in Industrial Houses

This is the modus operandi of many contractors associated with industrial houses in the country, both in private and quasi-government sectors. Every meticulous planning goes into the engagement of experienced employees by ensuring they don't become eligible employees even by accident. Loopholes in the labor laws provide ample tools to assist in ensuring this.

Discussion had earlier on this will provide a proper understanding of the vexed issue here - https://www.citehr.com/561818-gratui...t-labours.html