Contractor payment of bonus & gratuity

HR - PROFESSIONAL

Dear Experts,

The liability of the principal employer for payment of bonus and payment of gratuity to the workers of the contractors, my opinion is given here in below  how far my interpretation is correct :-

FOR BONUS

The Payment of Bonus  Act 1965 defines ‘employee’ in sub-section (13) of section 2 as  any person who is employed on a salary or wage not exceeding Rs. 21,000/- per men sum in any industry to do any skilled or unskilled, manual, supervisory, managerial, administrative, technical or clerical work for hire or reward.  The definition does not include the employees of the contractors engaged by the principal employer.

 

Similarly, the term ‘employer’ is defined in sub-section (14) of section 2 of the Act 1965. This definition clause also nowhere states that principal employer shall be treated as the employer of the workers of the contractors. Section 8 of the Act 1965 provides that every employee shall be entitled to be paid by his employer bonus. So, it is clear that the employer in respect of the workers of the contractors is the contractor and principal employer has nowhere been held liable for payment of bonus to the workers of the contractor.

A Division Bench of Hon’ble Kerala High Court in the case of Kerala State Civil Supplier Corporation v. Industrial Tribunal  reported in 2007 (115) FLR Page 569 held that the workers of the contractors who were simultaneously doing same work for other organizations also, cannot claim to be the employees of the principal employer and, therefore, they are not entitled to be paid any bonus under the Payment of Bonus Act 1965.

The Karnataka High Court in another case reported in 2013 (138) FLR Page 193 held that section 2(13) of the Payment of Bonus Act 1965 defining the ‘employee’, section 11 providing for payment of maximum bonus and section 28 providing for penalty in case of contravention of the provisions of the Act do not include the contract labour as an employee and, therefore, the prosecution of principal employer for non-payment of bonus to the contract labour is not sustainable.

The Kerala High Court in a case reported in 1989 (58) FLR Page 528 held that there is no employer-employee relationship between the management and the workers of canteen contractor. All claims of the workmen are to be met by the contractor or the cooperative society which runs the canteens. However, it is held that on the strength of sub-section (4) of section 21 of the Contract Labour (Regulation and Abolition) Act 1970, the principal employer would be liable to pay wages which are not paid by the contractor. It is further stated that wages due to the workmen (of the contractor) do not include bonus or gratuity.

Therefore, on the basis of the above interpretation of the legal provisions and the case law, in my opinion, the principal employer will not be liable to pay bonus to the workers of the contractors. However, things will be different if a Labour Court, in a proper adjudication case, gives its finding that the contract system in an establishment is merely a sham and the workers employed through the contractors are, in fact, the workers of the principal employer.

 

FOR GRATUITY

The Payment of Gratuity Act 1972 defines an ‘employee’ in clause (e) of section 2 as a person other than an apprentice who is employed for wages ………………………… in any kind of work, manual or otherwise, in or in connection with the work of a factory ……………….. to which this Act applies. The term ‘employer’ is defined in clause (f) of section 2.  It also nowhere indicates that the principal employer shall be the employer in respect of the workers engaged by the contractors engaged by them. Section 4 provides that an employee shall be paid gratuity on termination of his employment. It also does not refer to the employees of the contractors.

 

In the aforesaid judgment of Karnataka High Court reported in 1989 (58) FLR Page 528, It was held that the gratuity will not be payable by the principal employer to the workers of the contractors. The Calcutta High Court in a case reported in 2010 Labour Law Reporter 1970 has held that the contractor is the person who is liable for payment of gratuity to the employees, since he has also undertaken in the contract to meet statutory liabilities.  The Calcutta High Court has held in para 16 that the contractor was employing more than 10 persons and he was carrying on business as a sole proprietor, therefore, he fulfills all the pre-requisites for the applicability of the Payment of Gratuity Act u/s 1 of the Payment of Gratuity Act 1972. However, Madras High Court in a case reported in 2013 (136) FLR Page 50 held that if the contractor, who employs the workers, does not pay gratuity to them, then the principal employer shall be liable to pay the gratuity by virtue of section 21 (4) of the Contract Labour (Regulation & Abolition) Act 1970. However, I most respectfully do not agree with this view of the Hon’ble Madras High Court. Section 21 (4) of the Contract Labour (Regulation & Abolition) Act 1970 talks of payment of wages by the principal employer in case the same are not paid by the contractor.

 

The term ‘wage’ has been defined in clause (h) of section 2 of the Contract Labour (Regulation & Abolition) Act 1970 as the same as defined in clause (vi) of section 2 of the Payment of Wages Act 1936.  The definition of wage in the Payment of Wages Act 1936 clearly excludes in sub-section (6) of section 2, any gratuity payable on the termination of the employment in cases other than those specified in sub-clause (d).  Sub-clause (d) of clause (vi) of section 2 Payment of Wages Act states that 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 of such sum, whether with or without deductions, but does not provide for the time within which the payment is to be made.  Sub-section (3) of section 7 of the Payment of Gratuity Act 1972 provides that the employer shall arrange to pay the amount of gratuity within thirty days from the date it becomes payable to the person to whom the gratuity is payable.

 

Gratuity becomes payable to an employee in accordance with section 4 on the termination of his employment if he has rendered continuous service for not less than 5 years, on his superannuation or retirement or resignation or his death or disablement due to accident or disease. Therefore, since a time limit has been provided in law for payment of gratuity, it will not be covered under sub-clause (d) of clause (6) of section 2 of the Payment of Wages Act 1936 and the exclusion in sub-clause (vi) would be applicable and the gratuity will not be treated as ‘wages’ under the Payment of Wages Act 1936 and under Payment of Gratuity Act 1972 also.

 

Therefore, on the basis of the above analysis, it becomes clear that firstly, even under the Contract Labour (Regulation & Abolition) Act 1970 (section 21(4), the contractor is the person responsible for making the payment of gratuity.  The principal employer becomes liable to pay only wages if the contractor does not pay.  But, since gratuity is also not wages under the Contract Labour (Regulation & Abolition) Act 1970, the principal employer cannot be held liable for payment of gratuity even in case the contractor does not pay gratuity.

Regards,

PBS KUMAR

 
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FIN

Madras Fertilizers Limited vs. Controlling Authority under Payment of Gratuity Act and Others......

Superintending Engineer, Mettur Thermal Power Station, Mettur vs. Appellate Authority, Joint Commissioner of Labour, Comimbator & Anr....

 

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.........

 
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FIN

The discussion is also available at;

 

http://www.lawyersclubindia.com/forum/Gratuity-for-contract-employees-84504.asp#.VyFeTtQrLIW

 

 

 
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FIN

Bonus:

Cominco Binani Zinc Ltd Vs Pappachan (1989) ILLJ 1988 

 

 
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FIN

The discussion is also available at:

 

http://www.lawyersclubindia.com/forum/details.asp?mod_id=48958&offset=2#.VyFa9dQrLIU

 

 
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Lawyer

Sir kindly give details of case.
 
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