Liabilities of a Principal Employer Under the Contract Labour (Regulation and Abolition) Act, 1970
The liabilities of a principal employer under the Contract Labour Act are examples of vicarious liability on owners of establishments. The Contract Labour Act provides respite and recourse to contract labour from non-payment of wages by allowing them access to the principal employer in the event of a default by the contractor.
A "principal employer," as defined under the Act, covers any person responsible for the supervision and control of the establishment. In the case of a factory, such a person would include the owner or occupier of the factory or a manager under the Factories Act, 1948. Any establishment where there were 20 or more workers employed as contract labour on any day of the preceding 12 months would be covered under the Contract Labour Act.
The principal employer is required to ensure that a representative is present while the contractor is disbursing payment to the contract labour (Section 21(2)). The Act is silent on the role of such a representative. Subsection 4 of Section 21 provides that in the event of a default by the contractor in making payment of wages to the labour employed, the principal employer may need to step in and make good such payment or shortfall.
It, therefore, becomes imperative that the representative of the principal employer fully understands the nature of his duties and is authorized to take necessary steps in the event of a default. The representative should be briefed/trained by the concerned department in the organization. Such steps could include issuing notice to the contractor and terminating the relationship, if required. Care should be taken while drafting the agreement with the contractor to ensure the same.
Amenities to be Provided by the Contractor
The Contract Labour Act prescribes that the contractor shall provide certain amenities to the labour employed by it. The rules prescribe time periods within which such amenities may be provided. These facilities include:
- Canteen provisions;
- Rest-rooms; and
- First aid facilities.
In the event that the contractor fails to provide the same, the obligation automatically falls upon the principal employer. The law also provides that it may be recoverable from the contractor.
While legal recourse to recover expenses incurred by the principal employer does offer some consolation, it would be prudent to establish and clearly define mutual rights, duties, and obligations in an agreement executed with the contractor, within the confines of the law. Conditions may be imposed upon the contractor in the agreement to ensure compliance with the Contract Labour Act. Employers should provide for indemnity provisions that protect the principal employer in cases of default.
Due Diligence and Compliance
In the case of large corporates employing a vast number of persons under the Act (whether it be for housekeeping, security, or any other purpose), it would be prudent to obtain representations, in the nature of those provided below, from the contractor that in the past:
- The contractor has been in compliance with the relevant provisions of the Act;
- Has a valid license/registration under the Act; and
- Has not been in default of payment to labour provided by him to another principal employer.
A certain amount of due diligence may also be done to determine whether or not the contractor has been in default or in violation of the Contract Labour Act.
Due diligence would be of significance where contractual safeguards may not offer adequate protection to principal employers. The law imposes very strict liabilities on the owners to ensure that the contract labour employed does not suffer in any manner. This needs to be kept in mind while drafting any agreement with a contractor for this purpose.
Penalties for Non-Compliance
While there are monetary liabilities on corporates, additional liabilities are imposed on directors of companies. The penalty for non-compliance with provisions of the Contract Labour Act while employing contract labour is imprisonment for 3 months or a fine or both. Though the quantum of fines imposed is not high, directors, particularly independent directors, would not want the dagger of criminal proceedings hanging over their heads. This alone should operate as sufficient thrust to ensure compliance with this Act.
The liabilities of a principal employer under the Contract Labour Act are examples of vicarious liability on owners of establishments. The Contract Labour Act provides respite and recourse to contract labour from non-payment of wages by allowing them access to the principal employer in the event of a default by the contractor.
A "principal employer," as defined under the Act, covers any person responsible for the supervision and control of the establishment. In the case of a factory, such a person would include the owner or occupier of the factory or a manager under the Factories Act, 1948. Any establishment where there were 20 or more workers employed as contract labour on any day of the preceding 12 months would be covered under the Contract Labour Act.
The principal employer is required to ensure that a representative is present while the contractor is disbursing payment to the contract labour (Section 21(2)). The Act is silent on the role of such a representative. Subsection 4 of Section 21 provides that in the event of a default by the contractor in making payment of wages to the labour employed, the principal employer may need to step in and make good such payment or shortfall.
It, therefore, becomes imperative that the representative of the principal employer fully understands the nature of his duties and is authorized to take necessary steps in the event of a default. The representative should be briefed/trained by the concerned department in the organization. Such steps could include issuing notice to the contractor and terminating the relationship, if required. Care should be taken while drafting the agreement with the contractor to ensure the same.
Amenities to be Provided by the Contractor
The Contract Labour Act prescribes that the contractor shall provide certain amenities to the labour employed by it. The rules prescribe time periods within which such amenities may be provided. These facilities include:
- Canteen provisions;
- Rest-rooms; and
- First aid facilities.
In the event that the contractor fails to provide the same, the obligation automatically falls upon the principal employer. The law also provides that it may be recoverable from the contractor.
While legal recourse to recover expenses incurred by the principal employer does offer some consolation, it would be prudent to establish and clearly define mutual rights, duties, and obligations in an agreement executed with the contractor, within the confines of the law. Conditions may be imposed upon the contractor in the agreement to ensure compliance with the Contract Labour Act. Employers should provide for indemnity provisions that protect the principal employer in cases of default.
Due Diligence and Compliance
In the case of large corporates employing a vast number of persons under the Act (whether it be for housekeeping, security, or any other purpose), it would be prudent to obtain representations, in the nature of those provided below, from the contractor that in the past:
- The contractor has been in compliance with the relevant provisions of the Act;
- Has a valid license/registration under the Act; and
- Has not been in default of payment to labour provided by him to another principal employer.
A certain amount of due diligence may also be done to determine whether or not the contractor has been in default or in violation of the Contract Labour Act.
Due diligence would be of significance where contractual safeguards may not offer adequate protection to principal employers. The law imposes very strict liabilities on the owners to ensure that the contract labour employed does not suffer in any manner. This needs to be kept in mind while drafting any agreement with a contractor for this purpose.
Penalties for Non-Compliance
While there are monetary liabilities on corporates, additional liabilities are imposed on directors of companies. The penalty for non-compliance with provisions of the Contract Labour Act while employing contract labour is imprisonment for 3 months or a fine or both. Though the quantum of fines imposed is not high, directors, particularly independent directors, would not want the dagger of criminal proceedings hanging over their heads. This alone should operate as sufficient thrust to ensure compliance with this Act.