Payment Of Gratuity By Principal Employer To Contract Employee For The Period Worked [Thread 614571]

Dear All,
Feb 2019 - We have appointed ABC Manpower supplying contractor agency to do House Keeping / Security.
Nov 2019 - Their one of the old employee Mr. XYZ who is working with ABC since year 2012, who is working at our site since Feb 2019 is leaving ABC company.
Please confirm - He has completed 7 yrs with ABC company but will be completing only 9 months with us. What will be our liability with respect to his Gratuity Payment.

Dear Chandrakanth,
Extension of the doctrine of Vicarious liability enjoined upon a principal employer u/s 21(4) of the CLRA Act,1970 regarding payment of gratuity to the workmen of the contractor engaged by him still remains a matter of controversy among the various High Courts.
From the inputs given, I am of the opinion that even the proportionate liability of the PE has not arisen since the exiting workman had only completed 9 months of service as contract labor in the establishment and as such the PE can legally resist the claim for gratuity, if it is staked against him also.
Alternatively, the PE may pay the entire sum of gratuity to the employee and recover the same from the contractor.

Generally, contracts are considered by the principal employers on the lesser quotations of wages. There are quotations for 1 or 2 percents increase in order to get the contract as L1 with a quotation containing minimum wages alone. In those situations if the contract is continued for years on such lower quotations, which is very much difficult even to run his own office, how can the contractor pays gratuity to all his contract labourers when he has no sufficient funds? Further how can the labourers are justified under payment of gratuity? Even in those cases how can the principal employer recovers from the contractor when he himself did not pay the amount of gratuity to the contractor in terms of contract? The same situation is applicable even to Bonus also in the cases where quotations contain wages only. When a quotation is raised for exclusively wages and on continuation of the contrat for years doesn't the contractor go bankrupt if he is legally bounded to pay gratuity to all his 5 years completed workers in the case of termination of contract?

When the rates are negotiated and finalised with the contractor it is expected of the PE to pay amongst others the cost of bonus and gratuity in terms of CTC per employee/category and therefore the question of contractors inability to pay bonus and gratuity does not arise. In some companies the gratutiy part of CTC alone is withheld by PE to ensure against default by contractors and the PE settles the gratuity to the contract workman through the contractor in the event of CW leaving the services of contractor and when the contractor raised a demand thereof. Most of agreement with contractors have an enabling proviso in the contract agreement
Panchsen
P.Senthilkumar
Former corporate Head of IR
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