Navigating Contract Labor Act Challenges: Can We Be the Principal Employer for Project Deadlines?

Hi,

Dear all,

I'm Sidheshwar, working with ABB Ltd in Bangalore as a Compliance Coordinator for South India. I handle company labor compliance for our power product business and power transmission and distribution business. I manage compliance for all projects in the south region. We receive contracts from clients for setting up power substations, installing air conditioning systems, fire alarm systems, ventilation systems, etc. Essentially, we are in the project business, with projects varying in duration.

As an MNC, we focus on labor compliance and often encounter challenges under the Contract Labor Act. Before starting any project, we obtain a labor license from the labor department (state or central). To secure the license, the registration of the principal employer with the labor department is necessary. Without the registration number of the principal employer, the labor department does not issue the labor license, even if Form V is provided by the principal employer. Some government organizations also do not issue Form V. In such cases, executing the project becomes difficult, posing a significant problem for us.

Considering project deadlines, can we act as the "Principal Employer"? If so, we could issue Form V to our subcontractors, enabling them to obtain the labor license. If not, what alternative course of action should we take? Your suggestions would be appreciated.

Regards,

Sidheshwar

9986345225, bangalore@champaneria.org

Hello Siddeswar :icon13: If the contracting agency refuses to issue Form V, you will not become the principal employer. Since you are a contractor and the establishment doesn't belong to you, I feel, legally, the status of being the principal employer cannot be strapped on you. To get over the problem, I agree with your suggestion to issue Form V to the subcontractors. Technically speaking, it would be necessary in such circumstances for you to register yourself under the local Shops and Establishment Act so that you are also recognized as an establishment in relation to your contractors. For the future, please make the issue of Form V mandatory as a part of your offer. Regards, KK Nair

Dear Nair,

Thank you for the immediate response.

My dear Nair, my organization is registered under the Shops & Establishments Act, so we can issue Form V. However, the question at hand is different. We operate in two roles:

1) As a Principal Employer, where we run manufacturing units.
2) As a Principal Contractor, where we are involved in project-based business. This means we secure contracts and execute them. In such cases, we do not directly employ labor but instead subcontract labor for project completion.

Now, my question is this: If we issue Form V to our subcontractors who engage 20 or more laborers according to the Contract Labour Act, 1970, what happens to the laborers of those contractors who engage fewer than 20 for our projects? How can they be covered? In case of any issues, who will be held responsible, especially considering the high-risk nature of our business (power sector)? I seek your advice on the best course of action in this scenario.

Regards,
Sidheshwar

Dear Sidheswar,

I am also often confronted with a situation where I have to deal with parties having fewer than 20 workmen, so legally and validly, they do not require any labor license. My response is a firm "NO." If a contractor has to deal with us, he has to have a labor license. Without a license and considering the risks involved in the operations, only God can save from serious embarrassments and endless harassment by labor authorities. So, do not relax your strict conditions. Any leniency here is at your risk. By insisting on this precondition, you will be able to bring the contractors around. This is a bitter lesson I have learned.

Thank you,
KK Nair

Yes, Sir,

I agree with your concern. The reason I posted this matter is that we have been awarded a contract by BESCOM RLMS in Bangalore for the Transmission and Distribution of HT and LT electricity supply. This project is primarily focused on rural areas and spans across 14 districts of Karnataka. However, BESCOM has refused to act as the Principal Employer. When I met with the Director of Law at KPTCL (Karnataka Power Transmission Corporation Ltd), he stated that we are not the Principal Employer and declined to issue Form V. Despite this, due to our project manager's connections with BESCOM and other authorities, we managed to obtain Form V. Subsequently, we applied for a labor license from the labor department, but the Assistant Labor Commissioners are now requesting the registration number of BESCOM. They have made it clear that without BESCOM's registration, they will not issue the labor license. Currently, all 14 of our applications are pending with the respective Assistant Labor Commissioners. I even reached out to the State Labor Commissioner, but received the same response. I am uncertain about the future, but we have initiated our project and informed all relevant officers accordingly. The matter now rests with the labor department, and this presents a significant challenge. Similar issues have arisen with other clients who are associated with state or central government bodies.

Regards,

Sidheshwar

Dear Sid,

BESCOM is clearly the principal employer, and they are supposed to give you Form V under the CLRA Act. However, if the number of employees engaged by you is less than 20, you are not required to obtain a labor license. It is really frustrating to know that BESCOM is not cooperating in a matter involving legal compliance. Still, for the sake of the record and to prove your good intent, please keep writing to BESCOM followed by reminders about their Registration Number, explaining to them that you are unable to obtain a license without it.

Rahul

Dear Sidhu :blink:

In your situation, what I would look for is contractors who already possess a labor license. If a party is an established one handling contracts at different places with various agencies, then they are not tied to one agency for Form V purposes. If you keep pressurizing your contractors, they know how to get the license, by hook or by crook, better with both. You can try this alternative. But be certain that in the circumstances you are in, you won't be the Principal Employer, as the work is essentially carried out not on your premises, nor are you the ultimate beneficiary. Hope you have made some headway. :wacko:

Regards,
Nair KK.

Hi,

Dear all,

I'm Sidheshwar, working with ABB Ltd in Bangalore as a Compliance Coordinator for South India. I handle company labor compliance for our power product business, including power transmission and distribution projects in the southern region. Our projects involve setting up power substations, installing air conditioning, fire alarm systems, ventilation systems, etc. As a multinational corporation, we prioritize labor compliance, facing challenges under the Contract Labour Act. Before starting any project, we obtain a labor license from the state or central labor department, requiring registration of the principal employer. Without the principal employer's registration number, the labor department does not issue the labor license, even if Form V is provided. Some government organizations may also not issue Form V, posing significant project execution challenges. To address this issue and ensure project completion, could we potentially act as the "Principal Employer" to issue Form V to our subcontractors for obtaining the labor license? If not, what alternative steps should we consider? Your suggestions are appreciated.

Regards,

Sidheshwar

9986345225, bangalore@champaneria.org

Dear friends,

I have been following the discussion, and as I understand it, the company issuing the contract (e.g., the SEB) for another company's execution (e.g., ABB) will be deemed the principal employer under the Contract Labour (R&A) Act. This designation entails following specific procedures, starting with obtaining a license for employing contract labor. Subsequently, formalities related to Form V, Form X, etc., are necessary to regulate the employment of contractor laborers. I recommend insisting on obtaining Form V from the customer (e.g., the SEB) and incorporating clauses in the contract to mitigate liabilities under the Contract Labour (R&A) Act if required. PSU customers like NTPC rigorously adhere to these formalities, and the same should be expected from state government customers, citing this standard. Based on my understanding of the Contract Labour (R&A) Act, you cannot assume the status of "principal employer" as the main vendor. However, you can undertake the liability as though you were the principal employer through the work order/contract.

Regards,

Mxsingh

Dear Friends,

I have written several letters to BESCOM requesting registration with the labor department, but have not received a reply so far. What I did was submit an application along with the prescribed fee and received acknowledgment from the labor department. I have informed the labor department that BESCOM is in the process of obtaining registration and will provide the necessary documentation in due course.

Thanks & Regards,
Sidheshwar
9844586572

Dear Sid,

Under the circumstances, you have done enough and therefore, keep low for some time. What is important is your intention to comply with the law, and you have already done the best that one could. If you try to do more, you will only end up antagonizing BESCOM, the principal employer, and I'm sure you wouldn't like to risk that.

Regards,
Rahul

Dear Sid,

Don't involve yourself in the nonsense of labor. Maintain your records and ask the enforcing inspector/officer to ensure legal compliance from the principal employer. Furthermore, there can be no subcontractor without the principal employer.

Aby

Dear Sid,

I was once in a similar situation and wish I had seen this post earlier so I could have helped you. Here are the steps you can take:

1) First, determine if BESCOM is exempted or not. If not, remember that a State Body and the State Government are not the same entity. All of them must register themselves, and there are no exemptions in this case. The Contract Labour Act does not provide any special exemptions to Government Undertakings, PSUs, or Quasi-Government Bodies.

2) Ensure they sign Form V.

3) Proceed to apply for the license, attaching Form V. Retain a photocopy of the entire set.

4) Rather than attempting to deposit it directly, have it checked at the Receive Section and obtain a receipt. Safeguard the Receipted Copy.

5) Proceed with your operations as usual, maintaining your records as if you were already registered. Submit the necessary returns following all regulations. Treat it as though you are already Registered.

Remember, it is the responsibility of the Contract Labour Inspector to register the Establishment as the Principal Employer. Non-compliance cannot be attributed to you.

Feel free to revert back or call me for any further inquiries.

Regards,

SC

Dear Swastik,

I did all the things you suggested. I even managed to obtain some labor licenses. Thank you for the suggestion.

Regards,
Sidheshwar

Dear All,

I have a query which is almost similar, but this would be from the viewpoint of the agency engaging contract labors for their overseas/local clients:

1) What all registration is required apart from Shops & Establishment and Service Tax?
2) Is a labor license mandatory?
3) How to obtain it?
4) Do we need to take a labor license even when we employ permanent labors?

Regards,
Asha