To Contract or Sub-contract: That’s the question

My last post dealt with the liabilities of a principal employer vis-à-vis the contractor. The next big question is – who is this contractor and what are his obligations under the Contract Labour Act.

A “contractor” is defined under the Contract Labour Act as follows:

“contractor”, in relation to an establishment, means a person who undertakes to produce a given result for the establishment, other than a mere supply of goods of articles of manufacture to such establishment, through contract labour or who supplies contract labour for any work of the establishment and includes a sub-contractor.

Therefore a contractor is a person who undertakes to do odd jobs for a manufacturing or corporate concern, such as providing house keeping, packing, maintaining canteens or refreshment stalls at the place of work of the principal employer. Therefore, firstly, a contractor should be appointed for a specific purpose, by the principal employer. A contractor could also simply be a person who supplies contract labour to an establishment.

This part of the definition is lucid. However, the words “and include a sub-contractor” throws us into an infinite loop.

The term contractor therefore includes the term sub-contractor. Therefore, every sub-contractor is a contractor. Neither the Contract Labour Act nor the rules made pursuant thereto describe or define the sub-contractor.

Section 12 that deals with licensing of contractors prohibits any contractor from employing contract labour without a license to do so. As per the Rules, every application for the grant of a license shall be accompanied by a certificate by the principal employer in Form V to the effect that the contractor has been employed by him as such in relation to his establishment. The principal employer further undertakes to be bound by all the provisions of the Act and the rules made thereunder in so far as the provisions are applicable to him in respect of the employment of contract labour by the contractor.

There are many scenarios and various interpretations that are possible on account of the above.

Firstly, assume that company A is employing some workers through B. In this scenario, the contractor is B and A is the principal employer, therefore A will issue Form V to the authorities for an application made by B. This will enable B to obtain the license mandated under the Contract Labour Act.

In a scenario where B has given a sub-contract to C then can it be said between B and C, that B becomes principal employer. In such a scenario, who is to issue Form V? Should C separately seek a license from the authorities or is the license of B sufficient?

In the event that A issued a Form V directly in favour of C, wouldn’t C become a contractor instead of a sub-contractor?

Suppose, we assume that B issues a Form V under the Rules in favour of C does B require registration as a principal employer? B may not even be eligible for registration as a principal employer.

There is no solution to this paradoxical situation emerging out the Contract Labour Act or the Rules thereunder. In fact the word “sub-contractor” is not used anywhere in the Act or Rules other than in the definition of “contractor”.

If sub-contractors were in fact intended to be regulated as a category, some form of licensing process needs to be prescribed. One cannot rely upon a simplistic reasoning that the definition of “contractor” includes “sub-contractor” and therefore every provision applicable to a contractor is applicable to a sub-contractor.

In such a case, where a principal employer issues Form V for a sub-contractor, who would in turn apply for a license, what would be the obligations of the contractor vis-à-vis the principal employer and vis-à-vis the sub-contractor. This is just not clear. We come back to the conclusion that such sub-contractor might as well be the contractor.

The deeper one digs into this, the more questions that arise. The term sub-contractor seems to be loosely used in the Contract Labour Act with no intended application.

Compliance with a law is not possible whether in spirit or letter, where the law is not clear at all.

In all this, what is the fate of the contract labour? Is he truly protected?

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