Facing Financial Distress: Can Our CEO Delegate the Labor Office Meeting?

Our company is facing severe financial distress and is unable to pay vendors through whom we engage contract workmen. Consequently, the vendors are not paying their laborers. This situation has led some of the laborers to approach the labor commissioner's office, which has called us for a meeting. The letter from the labor office is addressed to the head of the organization.

Can the head of the organization depute someone else on his/her behalf to attend the meeting?

Since the letter is addressed to the head of the organization, it is important to understand if delegation is permissible. Typically, the head can appoint a representative, but it is advisable to verify this with the labor office to ensure compliance with any specific requirements.

Implications of financial distress and unpaid vendor bills

Given our financial distress and inability to pay pending bills to vendors, there could be several implications. This may include legal actions from vendors or laborers, potential penalties, or damage to our company's reputation. It is crucial to communicate openly with stakeholders and seek legal advice to mitigate these risks.

Expected orders or instructions from the labor commissioner

The labor commissioner may issue orders or instructions aimed at resolving the payment issues and ensuring the rights of the laborers are protected. This could involve setting up a payment plan, mediation between parties, or other directives to address the grievances raised by the laborers.

Meeting with the Labour Commissioner

As the matter is referred to the Office of the Labour Commissioner, it can now be further pursued across the table in the presence of the Labour Commissioner. While the company is in financial distress, payment should be made for the services availed by the company from vendors or the employees of vendors. It is the primary responsibility of the company, which is the PE. The Labour Commissioner may address the Chief of the Company only.

As far as possible, the Head of the Company should attend the meeting convened by the Labour Commissioner, as this should be set as an overriding priority.

Answering Your Queries

1) Whether the head of the organization can depute someone else on his/her behalf to attend the meeting

ANS: Yes, the Head of the company can authorize his deputy to attend the meeting convened by the Labour Commissioner if the Chief has an unavoidable priority on the date which is convened by the Labour Commissioner. However, the Chief of the company shall make a written request addressed to the Labour Commissioner, explaining the circumstances which prevent him from attending the meeting and also his intention to authorize his Second-In-Command to attend the meeting on his behalf.

2) Since we are in distress and don't have money to pay pending bills of the vendors, what could be the implications?

ANS: As the services have already been availed by the company, it shall be the responsibility of the company to arrange payment. Somehow or the other, the company should mobilize funds to meet the payment.

3) What orders or instructions are expected from the Labour Commissioner?

ANS: You should explain your problems. The Labour Commissioner's instruction is most likely in favor of contract workmen. However, the Labour Commissioner, with the powers vested in him, can give some lead time to the company if the company is able to present the reasons sincerely and honestly.

I endorse the above suggestions. However, I would like to add: what's your rapport with the Labor Commissioner (LC) and how strong is the Union? Are they agitative types or reasonable/cooperative? Considering ground realities, you should also have one-to-one discussions beforehand with the LC and union individually to assess their thinking/plan of action. While doing so, you should have your well-thought-out future plans. Are you in a position to accept/propose some commitments right now? What's going to be your Plan B if nothing goes well for an amicable solution?

As for the question of whether the CEO should sit for the discussion or not, I would say yes and no. If both the LC and Union are egoistic, then the CEO can sit. If cooperative, the HR and/or Finance Head should deal with the matter, assuming no other matter except the funds position is the crux of the problem. If necessary, you should have your bank balance statement in hand to convince the LC.

Dear Kartik, while endorsing both Mr. Nair and Prof. Kumar, I would like to add my comments with an answer to your third question as follows:

Reason for the delay in payment

The bona fide reason for the delay in payment should be recorded with the authority with supporting evidence. You are not denying the payment due to the contractor; that also needs to be recorded, and you should ask for some time to make the payment to the contractor under the circumstances.

Responsibility of payment

Making payment of wages to contract labor is the prime responsibility of the contractor. When the contractor fails to pay, the principal employer is obligated to pay and then seek reimbursement from the contractor. Therefore, in my view, the authority under the CLRA and the Payment of Wages Act has no legal right to call you.

Liability and legal implications

You are at fault for not settling the contractor's bill under the civil contract. You are not strictly liable to the Labor Commissioner. If the contract laborers raise an industrial dispute, then only the authority can call you along with the contractor. Unfortunately, many individuals in authoritative positions, as well as owners or their representatives/HR, are not well-versed in the law.

Payment of delayed wages

Regarding your third question, the authority may direct you to make the payment of delayed wages, along with payment of compensation not exceeding three thousand rupees but not less than one thousand five hundred rupees, or as prescribed in your State Rules. The authority may grant you some time to make the payment.

I further assert that this Authority lacks jurisdiction to entertain and decide claims involving complicated questions of law and facts. If you wish, you can complicate this matter with the help of a lawyer. It would be an abuse of the legal process if the authority continues the proceedings (Abdul Waheed v. Authority, Payment of Wages Act, (1995) II LLJ 1079).

Contractor Agreement and Payment Obligations

The agreement with the contractor likely stipulates that the contractor will execute the work and be paid the agreed price. It may also include a clause that the contractor will discharge all statutory obligations, independent of the payment received from the Principal Employer (PE). Thus, the contractor must fulfill their obligations regardless of payment from the PE. The PE's liability to pay the contractor's personnel arises only if the contractor fails to pay. Therefore, the contractor must primarily address the Labour Commissioner, while the PE should highlight these contract aspects.

Queries Regarding Labour Commissioner Notice

1. While the notice from the Labour Commissioner is addressed to the Head/CEO, it is neither necessary nor desirable for them to attend the hearing. These are not criminal proceedings requiring personal presence and can be represented by an authorized person. Even if the organization is proprietary, the proprietor's attendance is not necessary. If they attend, there may be pressure from labor unions and the Labour Department to make immediate decisions, which may not be feasible. An authorized person can navigate such situations, especially if you are unable to pay the due amount.

2. The Labour Commissioner's power is to persuade parties to reach a mutual agreement. Their role is conciliatory, not judicial. If no agreement is reached, the matter could be referred to adjudication. At any stage of judicial proceedings, as the situation improves, you can settle the matter by making due payments to the contractor, who then settles with their workmen.

3. As mentioned, the Labour Commissioner has a limited role. The better option is to bide your time, as the current situation is unlikely to last long.

Where there is a default in payment of wages by the contractor, the Principal Employer (PE) is under statutory liability to make the required payment and deduct the same from the bills of the contractor. The PE has no escape but has to face the situation. The contractor could afford to be untraceable for the time being or may even join hands with his employees and direct their ire against the PE. These are the practical realities one has to face.

The relationship between the PE and the contractor is based on the work order (a contract indeed) between them. However, the present circumstances constitute Force Majeure (meaning extraordinary circumstances beyond the control of the parties), so the performance of contractual obligations stands postponed. Therefore, the legal rights of the contractor against the PE are also limited.

Regards

Dear KK!HR,

You are endorsing what I said in the first part. You elaborated on it. Thanks for that.

Original Statement

What I said in the first part is given verbatim: "You are at fault for not settling the bill of the contractor under the civil contract. You are not liable to the Labour Commissioner strictly."

However, your below-given statements are contradicting my views, and therefore, I had to write on your post.

1. For the Head/CEO, it is neither necessary nor desirable for such persons to attend the hearing.

2. The power of the Labour Commissioner is to persuade the parties to come to a mutual agreement ONLY.

Different Views

One can have different views. But what I feel is, the authority has certain rights to call the PE also in certain circumstances, and when the authority calls you, you cannot just neglect or ignore it. If you feel the authority is exceeding its powers, you have the right to raise your points and fight legally.

Contractor Responsibility and Legal Obligations

The company made a contract with the contractors in a legal way. Whether the company pays the bills or not, or delays them, the contractors have the primary responsibility to pay salaries to their workers. Literally speaking, all those workers were called upon by the contractors to work in a specific company. So basically, these workers should be paid by the contractors. If the contractors fail to pay the salary dues of any contract workers, the principal employer is liable to pay all dues, and later amounts could be deducted from the contractor bills. Therefore, the contractors, in this case, point fingers at the company management for reasons for not paying salaries.

Legal Framework Under the Contract Labour Act

Under the Contract Labour Act, the principal employer has to pay all dues in any way, even selling property or taking a bank loan. There is no question of jurisdiction and powers of the Labor Commissioner. He has sufficient powers. Moreover, there is no necessity to file another case under the Industrial Disputes Act. This complaint could be converted and is sufficient for making necessary decisions on the principal employer for payment dues. This joint meeting is enough to call the management. If the employer also neglects and denies paying the dues, the Labor Commissioner has the power to prosecute the principal employer under the Contract Labour Act.

Ensuring Payment of Salaries

Both cannot escape the primary duty of payment of salaries of daily contract labor, whether you are financially stable or not. You can convince your workers for installment-wise payment of dues if accepted. The issue is not related to whether the union is strong or not but it should be approached from a humanitarian angle, and the confirmed responsibility should be fixed by the Contract Labour Act for paying the dues even if your contractor fails to do so. Please go through the Contract Labour Act, Sir. Unless it leads to unrest, industrial peace...