Is there any judgment on payment of Gratuity by the Principal Employer in respect of contract laborers working with different contractors for different periods of time, with less than 5 years of service in respect of each contractor but more than 20 years of total service?
Rgds,
DG
From India, Delhi
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4Rgds,
DG
From India, Delhi
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If these workers have been working under different contractors but for the same principal employer, there is a chance that the contract itself would be viewed as a sham contract. In such a scenario, the principal employer will have to bear the liability of payment of gratuity.
Madhu.T.K
From India, Kannur
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Madhu.T.K
From India, Kannur
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Rightly put by Madhu T. K., if contractors are changed on a regular basis, it not only deprives the legal rights of the employees but also becomes a sham contract, falling under the purview of unfair labor practice. Moreover, in such circumstances, the principal employer becomes liable to pay the gratuity.
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From India, Kolkata
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Check out my blog at www.labourlawhub.com
From India, Kolkata
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There is a Supreme Court case I'm appealing from a Madras High Court decision, under which the principal employer was held liable for gratuity for dock workers unloading raw material for the company over a long period of time. In that case, the decision was in favor of the workers even though they were not working continuously every day.
You will need to search for the case. It's almost 20 years ago.
From India, Mumbai
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You will need to search for the case. It's almost 20 years ago.
From India, Mumbai
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In case of contract labor, if he completes 5 years of service, then the contractor has to pay gratuity amount to him. If the contractor is not paid, the principal employer has to pay the gratuity to the contract labor. For less than 5 years of service, there is no rule for payment.
From India, Hyderabad
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From India, Hyderabad
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Gurumurthy Sir, his question is slightly twisted. He says the contract workers worked for more than 20 years at the same location but under different contractors. Each contractor was for less than 5 years and therefore individually not liable for gratuity. However, is the principal employer liable because they worked at his factory for 20 years?
Incidentally, the act does not state that the principal employer is liable for gratuity, only for PF, ESIC, wages, bonus, and minimum wages. Nevertheless, courts have granted it as a liability if the principal employer.
So, your opinion will be appreciated in light of the above.
From India, Mumbai
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Incidentally, the act does not state that the principal employer is liable for gratuity, only for PF, ESIC, wages, bonus, and minimum wages. Nevertheless, courts have granted it as a liability if the principal employer.
So, your opinion will be appreciated in light of the above.
From India, Mumbai
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The basic issue is that there have been different contractors, and all these contractors have been employing the same workers for the same principal employer. "Changing the contractor but the workers remain the same" is a genuine example of a sham contract. When the contract becomes a sham, the question of regularisation would arise. Therefore, ultimately, the principal employer will be liable for payment of gratuity to those who have worked for him for 5 years and more.
Madhu.T.K
From India, Kannur
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Madhu.T.K
From India, Kannur
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Liability of Principal Employer for Gratuity
However much we can twist and turn, the principal employer becomes liable for gratuity in this case. A sham act of terminating or changing contractors over time, with less than 5 years of service, will not save the principal employer from liability falling on them wherever the contractor has failed to meet statutory coverages.
This is what I understand from the laws relating to the subject: 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. 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)).
From India, Pune
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However much we can twist and turn, the principal employer becomes liable for gratuity in this case. A sham act of terminating or changing contractors over time, with less than 5 years of service, will not save the principal employer from liability falling on them wherever the contractor has failed to meet statutory coverages.
This is what I understand from the laws relating to the subject: 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. 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)).
From India, Pune
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Gratuity and Contract Labour: Legal Challenges
The problem is that gratuity is not defined as a part of wages either under the Contract Labour Act or the Payment of Wages Act. Therefore, a claim of gratuity by contract labour is a long-drawn process stemming from (1) sham contracts and (2) eligibility for permanency due to working for a long time on perennial jobs. Morally, the Principal Employer (PE) should pay. Probably, the court will order it to be paid. Then it's the question of whether the company wants to take the risk of the matter in court, its cost, and possible impact.
From India, Mumbai
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The problem is that gratuity is not defined as a part of wages either under the Contract Labour Act or the Payment of Wages Act. Therefore, a claim of gratuity by contract labour is a long-drawn process stemming from (1) sham contracts and (2) eligibility for permanency due to working for a long time on perennial jobs. Morally, the Principal Employer (PE) should pay. Probably, the court will order it to be paid. Then it's the question of whether the company wants to take the risk of the matter in court, its cost, and possible impact.
From India, Mumbai
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Dear Concern,
If the contract worker has completed five years or more of service in the same payroll/company, then he is eligible for payment of gratuity under the Payment of Gratuity Act. The principal employer is only responsible when the contractor is denying to pay the same.
FYI,
Thanks,
Shubham
From India, Faridabad
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If the contract worker has completed five years or more of service in the same payroll/company, then he is eligible for payment of gratuity under the Payment of Gratuity Act. The principal employer is only responsible when the contractor is denying to pay the same.
FYI,
Thanks,
Shubham
From India, Faridabad
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Principal Employer's Liability for Gratuity to Contract Employees
Please go through this:
Section 20: Liability of principal employer in certain cases - For Section 20, the following shall be substituted:
i) If any amenity required to be provided under section 16, section 17, section 18, or section 19 for the benefit of the contract labor employed in an establishment shall be provided by the principal employer within such time as may be prescribed.
ii) All expenses incurred by the principal employer in providing the amenity may be recovered by the principal employer from the contractor either by deduction from any amount payable to the contractor under any contract or as a debt payable by the contractor.
Background
Gratuity, payable under the Payment of Gratuity Act, 1972, is a gratuitous payment required to be made by an employer to his employee at the time of termination of services of the employee or upon such employee’s death.
Section 21 (4) of the Contract Labour (Regulation and Abolition) Act, 1970 (CLRA), mandates that a principal employer is responsible for the payment of 'wages' to a contract employee in the event of a contractor’s failure to pay within the stipulated timelines or in the event of a contractor making a short payment. The principal employer then has the ability to recover the amount paid as 'wages' from the contractor. Section 2(h) of the CLRA defines the term 'wages' as all remuneration (whether by salary, allowances, or otherwise) expressed in terms of money or capable of being so expressed, which would, if the terms of employment, expressed or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment and includes, among others, "(d) any sum which by reason of the termination of employment of the person employed is payable under any law, contract or instrument which provides for the payment...". However, it excludes "(6) any gratuity payable on the termination of employees in cases other than those specified in (d)." The judgment below has now held that gratuity payable under the Payment of Gratuity Act, 1972 falls within this definition of 'wages'.
Case Study: Superintending Engineer, Mettur Thermal Power Station vs. Appellate Authority
The Madras High Court, in its recent judgment in the case of Superintending Engineer, Mettur Thermal Power Station, Mettur vs. Appellate Authority, Joint Commissioner of Labour, Coimbatore & Anr, was called upon to decide on an issue dealing with the payment of gratuity to an employee of the Mettur Thermal Power Station, Mettur, whose services were terminated in 2003. The employee concerned worked at the Power Station between 1988 and 1999, as a contract employee. In 1999, the employee was directly hired by the Power Station and he continued to be so employed till 2003. Upon termination of his services, the employee claimed gratuity payments for a period of sixteen years, between 1988 and 2003. The Power Station claimed that its responsibility to pay gratuity would lie only in respect of the period during which the employee was employed directly by the Power Station (i.e., 1999 – 2003) and not for the period when he was a contract employee. The Madras High Court held that gratuity, being a termination payment required to be paid under a law, would constitute 'wages' under the CLRA, and in accordance with section 21(4) of the CLRA, the Power Station (being the principal employer for the period between 1988 and 1999) would be responsible for the payment of gratuity to the contract employee.
Analysis
The Madras High Court relied on a decision rendered by it earlier in the case of Madras Fertilizers Limited vs. Controlling Authority under Payment of Gratuity Act and Others and held that 'gratuity' payable under the Payment of Gratuity Act, 1972, were wages for the purposes of the CLRA. Consequently, by virtue of section 21 (4) of the CLRA, the onus of payment of gratuity would lie on the principal employer in the event of a contractor’s failure to pay.
While interpreting the definition of wages, the court held that, "the very language of Sub-clause (6) suggests that any gratuity which is not covered by Clause (d) is excluded from the term 'wages'. This would presuppose that Clause (d) covers some gratuity. Which that gratuity would be is the moot question to be answered. The answer is to be found in the plain language of Clause (d) which opens with the words 'any sum which by reason of the termination of employment of the person employed is payable under any law'". The Court held that 'gratuity' payable under the Payment of Gratuity Act, 1972 is a sum which by reason of the termination of employment of the person employed is payable under a law and accordingly would fall within clause (d) of the definition of 'wages' (quoted above).
Conclusion
This decision reiterates that a contract employee, working for a principal employer at the time of termination of his services by a contractor, may have a strong claim for the payment of gratuity directly from the principal employer in the event of a contractor’s failure. Therefore, it is advisable for all principal employers engaging contract labor through manpower agencies and other contractors, to not only focus on ensuring contractor compliance towards routine payment of wages and benefits but also towards terminal payments (such as gratuity) when a contract employee is exited during the period of his or her engagement.
From India, Bangalore
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Please go through this:
Section 20: Liability of principal employer in certain cases - For Section 20, the following shall be substituted:
i) If any amenity required to be provided under section 16, section 17, section 18, or section 19 for the benefit of the contract labor employed in an establishment shall be provided by the principal employer within such time as may be prescribed.
ii) All expenses incurred by the principal employer in providing the amenity may be recovered by the principal employer from the contractor either by deduction from any amount payable to the contractor under any contract or as a debt payable by the contractor.
Background
Gratuity, payable under the Payment of Gratuity Act, 1972, is a gratuitous payment required to be made by an employer to his employee at the time of termination of services of the employee or upon such employee’s death.
Section 21 (4) of the Contract Labour (Regulation and Abolition) Act, 1970 (CLRA), mandates that a principal employer is responsible for the payment of 'wages' to a contract employee in the event of a contractor’s failure to pay within the stipulated timelines or in the event of a contractor making a short payment. The principal employer then has the ability to recover the amount paid as 'wages' from the contractor. Section 2(h) of the CLRA defines the term 'wages' as all remuneration (whether by salary, allowances, or otherwise) expressed in terms of money or capable of being so expressed, which would, if the terms of employment, expressed or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment and includes, among others, "(d) any sum which by reason of the termination of employment of the person employed is payable under any law, contract or instrument which provides for the payment...". However, it excludes "(6) any gratuity payable on the termination of employees in cases other than those specified in (d)." The judgment below has now held that gratuity payable under the Payment of Gratuity Act, 1972 falls within this definition of 'wages'.
Case Study: Superintending Engineer, Mettur Thermal Power Station vs. Appellate Authority
The Madras High Court, in its recent judgment in the case of Superintending Engineer, Mettur Thermal Power Station, Mettur vs. Appellate Authority, Joint Commissioner of Labour, Coimbatore & Anr, was called upon to decide on an issue dealing with the payment of gratuity to an employee of the Mettur Thermal Power Station, Mettur, whose services were terminated in 2003. The employee concerned worked at the Power Station between 1988 and 1999, as a contract employee. In 1999, the employee was directly hired by the Power Station and he continued to be so employed till 2003. Upon termination of his services, the employee claimed gratuity payments for a period of sixteen years, between 1988 and 2003. The Power Station claimed that its responsibility to pay gratuity would lie only in respect of the period during which the employee was employed directly by the Power Station (i.e., 1999 – 2003) and not for the period when he was a contract employee. The Madras High Court held that gratuity, being a termination payment required to be paid under a law, would constitute 'wages' under the CLRA, and in accordance with section 21(4) of the CLRA, the Power Station (being the principal employer for the period between 1988 and 1999) would be responsible for the payment of gratuity to the contract employee.
Analysis
The Madras High Court relied on a decision rendered by it earlier in the case of Madras Fertilizers Limited vs. Controlling Authority under Payment of Gratuity Act and Others and held that 'gratuity' payable under the Payment of Gratuity Act, 1972, were wages for the purposes of the CLRA. Consequently, by virtue of section 21 (4) of the CLRA, the onus of payment of gratuity would lie on the principal employer in the event of a contractor’s failure to pay.
While interpreting the definition of wages, the court held that, "the very language of Sub-clause (6) suggests that any gratuity which is not covered by Clause (d) is excluded from the term 'wages'. This would presuppose that Clause (d) covers some gratuity. Which that gratuity would be is the moot question to be answered. The answer is to be found in the plain language of Clause (d) which opens with the words 'any sum which by reason of the termination of employment of the person employed is payable under any law'". The Court held that 'gratuity' payable under the Payment of Gratuity Act, 1972 is a sum which by reason of the termination of employment of the person employed is payable under a law and accordingly would fall within clause (d) of the definition of 'wages' (quoted above).
Conclusion
This decision reiterates that a contract employee, working for a principal employer at the time of termination of his services by a contractor, may have a strong claim for the payment of gratuity directly from the principal employer in the event of a contractor’s failure. Therefore, it is advisable for all principal employers engaging contract labor through manpower agencies and other contractors, to not only focus on ensuring contractor compliance towards routine payment of wages and benefits but also towards terminal payments (such as gratuity) when a contract employee is exited during the period of his or her engagement.
From India, Bangalore
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