Liabilities of the Principal Employer Under the New Labour Codes

Background

The four new Labour Codes introduce a plethora of changes to India’s regulatory framework. Their impact on various domains such as IT/ITes companies, payroll and salaries and more have been discussed in previous posts. In this post we shall examine the impact of each of the four codes on the liabilities of a principal employer. This shall allow us to obtain an understanding of the various compliance consequences of the same.

The above juxtaposed with the status quo will shed light on the differences between the regulations under the Contract Labour (Regulation and Abolition) Act, 1970 and those under the new labour codes. Let us begin by analyzing the definition of the term under each of the codes.

We find that the term is not defined under the Code on Wages, the Industrial Relations Code and the Code on Social Security, respectively. It is not used at all under the Industrial Relations Code and is found in the other two codes, only under the definition of contract labour. It is under the Occupational Safety, Health and Working Conditions Code, 2020 that we find a definition of the term.

Section-2(zz) defines a principal employer in terms of where contract labour is employed or engaged. The definition deems individuals’ principal employers under the code based on the type of establishment as follows:-

(i) With respect to factories, it is the owner or the occupier or if a person has been named as the manager of the factory, the person so named;

(ii)  With respect to mines, it is the owner or agent of the mine;

(iii) With respect to any other establishment, it is any person responsible for the supervision and control of the establishment

From the above we can see that the definition is similar to that under the Contract Labour Act currently in force. Thus, there is no risk of compliance changes due to a definitional change. Let us now examine the liabilities of a principal employer under the Occupational Safety, Health and Working Conditions Code, 2020.

Liabilities of a Principal Employer

Section-53 of the Occupational Safety Code provides that a principal employer shall be liable for providing the welfare facilities under Section-23 and 24. These include provision of canteen and creche facilities amongst other requirements that may be applicable on notification by the appropriate Government. Unlike the Contract Labour Act, the code does not contain any substantive provision allowing the principal employer to recover the expense of the above facilities from the contractor.

Section-54 is not a liability per se but becomes one if we analyze its corollary. It states that where any principal employer of an establishment employs contract labour through a contractor who does not possess a license under the code, then such employment shall be deemed to be a contravention. The corollary of this is that a principal employer is vicariously liable for the non-compliance of its contractor. Therefore, it is imperative that principal employers conduct their due diligence while employing contract labour.

Section-55(3) provides that in the case where a contractor fails to make payment of wages to contract labour deployed, the principal employer shall be liable to do so. This is a replication of Section-21(4) of the Contract Labour Act. Principal employers are also prohibited from hiring contract labour in core activities as per Section-57. There are exceptions provided to the same and the provision is modelled after the Andhra Pradesh Amendment of 2003 to the Contract Labour Act.  This sums up a principal employer’s responsibilities under the OSHWC Code.

The draft Central Rules under the other codes contain provisions that relate to principal employers. For instance, Rule-54 and Rule-56 of the draft Code on Wages (Central) Rules. The former imposes the liability to ensure timely payment of wages on the proprietor of the establishment. Whereas the latter imposes the liability to pay minimum bonus on the company/firm/association or other person where the contractor fails to pay the same to contract employees. These are additional responsibilities that principal employers must be aware of.

Similarly, the Code on Social Security, 2020 imposes the liability to pay certain benefits such as contributions towards EPF and ESI on the employer. The definition of employer includes contractors; however, certain provisions indicate that principal employers are liable to pay contributions. For example, Section-17 relating to payment of both employer and employee contributions towards EPF specifically allows employers to recover the same from the contractor. The same is observed under Section-31(6) relating to payment and recovery of ESI contribution.

For further clarity on the above, we must await regulations from the relevant authorities. For example, Entry-II under the Fifth Schedule of the Code on Social Security empowers the Provident Fund Scheme to make regulations on the time and manner in which contributions shall be made to the fund by employers. And by, or on behalf of, employees, (whether employed by him directly or by or through a contractor), the contributions which an employee may, if he so desires, make under section 16, and the way such contributions may be recovered.

Changes in the draft Rules may also clarify the way liabilities are shared between a principal employer and a contractor. For this and more updates, stay tuned to our blog and its timely updates on the new Labour Codes.

Feel free to drop any questions relating to the above or other contract labour related issues in the comments below.

Disclaimer: This blog is meant for informational purposes and discussion only. It contains only general information about legal matters. The information provided is not legal advice and should not be acted upon without seeking proper legal advice from a practicing attorney. Simpliance makes no representations or warranties in relation to the information on this article.