Contract Labour Act Applicability on services of transportation on contract

Dear All, Greetings!
We have engaged one vendor – A car rental company which provides us the services of transportation to us on a KM basis. They have around 20 luxury cars driven by their drivers.
I just want to ask whether CLRA will be applicable on them or not as we have entered in to contract on a KM basis? or Labour license will be applicable on them or not?
Request you to please advise.
Regards
Ranjeet

Under this kind of arrangement, the provisions of CLRA Act will not apply. This is not a contract of service but a contract for service. Under this, the contract is for providing transportation service in return for a fee to be paid according to the usage or kilometer run. In this arrangement, we do not fill the fuel, we do not carry out any maintenance of the vehicle, nor do we pay the wages of the drivers. It is just like hiring a taxi or truck. In a contract for service, the servant-master relationship will not be present between the principal employer and the contract labor. We do not know who all are going to come with the car or truck, and it is not our responsibility to ensure that the person driving the car has a valid license to drive it or who the real owner of the car is, etc.

The situation would be different if the arrangement is such that we have a few cars and we fill fuel, maintain them but take drivers from outside and pay the outsider an amount based on the services he has given us. Under this arrangement, we take the services of some drivers through another person who undertakes to provide us the services of the drivers. In such an arrangement, we own vehicles, maintain them, pay taxes, etc., and whatever happens to the vehicles is our responsibility. For running the vehicles, we take the service of drivers either directly or through a contractor. We will also ensure that the person engaged has a valid license to drive. This is a contract of service wherein there is a master-servant relationship, and whatever we pay the drivers or the contractor, who will pay the drivers, is just salary or remuneration for the work or service rendered by the driver(s). Under this arrangement, supervision by the principal employer is also present. The driver is expected to come every day at a prescribed time and is expected to remain until a certain time, etc. In the former arrangement, there is no prescribed time but they are called as and when required. The rest of the time, they are free to get engaged somewhere else also.

Madhu.T.K

I hasten to add that the mode or method of the payment of consideration agreed upon between the parties to a contract cannot be a factor in isolation of other ingredients constituting a contract between the Principal Employer and the Contractor as defined under the CLRA Act, 1970.

The basic requirement for a person to be a 'contractor' as per sec. 2(1)(c) of the Act is that he must either execute his contract through "contract labour" or supply "contract labour". If we revert to the definition of "contract labour" under the Act, the fact of hiring such workmen by or through a "contractor" should be in or in connection with the work of the establishment, which would alone bring out the real and legal meaning intended by the CLRA Act, 1970 for its purpose.

In other words, if the purpose of the contract is extraneous to the work of the establishment, neither of them would be 'contract labour' or a 'contractor' respectively under the Act. If the transportation services are incidentally integral to the work of the establishment, the position would be different, as in the case of running a statutory canteen through any contractor.

Since the arrangement described in the post is a pure "contract for service" as observed by Mr. Madhu, I reiterate that the provisions of the CLRA Act are not applicable to it.

Dear Mr. Madhu / Mr. Umakanthan,

We have checked with the labor authorities and taken a legal view on it. According to them, CLRA will be applicable to the vendor, including the procurement of the labor license, as it involves the manpower to drive the cars, which currently stands at 38.

We have the same drivers on a daily basis, all of whom operate these vehicles for our guests. As per Section 2 (C) of the Contract Labor Act, a contractor, concerning an establishment, means a person who commits to producing a specific outcome for the establishment, apart from solely supplying goods and manufactured articles to such an establishment through contract labor, or who provides contract labor for any work of the establishment, including a subcontractor.

We request your guidance on this matter.

Regards,

Ranjeet

There is no dispute over the definition of a contractor, but what will satisfy a contractor as per CLRA is one who undertakes to produce a given result for the establishment, "other than" a mere supply of goods or articles. You should see the words "other than" and read it as one who undertakes to produce a given result by himself or through other labours supplied by him other than mere supply of goods and services. The latter words signify that one who supplies raw materials will not become a contractor even though he also brings in something which will lead to produce a given result. Similarly, persons who render some services like transporting raw materials and finished goods to or from the factory (transports and logistics), provision of finance to the company and making the transfer of funds possible (banks), giving promotional advertising to the products (advertising) etc., are also assisting the company directly. If all these are going to become contractors, then our bank managers and other officers, drivers who bring materials or take finished goods from the factory and those actors who do fantastic work in advertisement movies will also become part of CLRA. But they are not because they are providing some service, and we have entered into a contract for their service.

There can be 38 or even more numbers of taxi drivers with whom you might have made arrangements, and these drivers may be driving the car for your guests only, but when they are paid according to the trips or per km run, it should only be considered as "purchase of a service". CLRA will attract only when you PAY WAGES for the service. The taxi fare or the purchase value is not just wages or the cost of labor of the driver but will certainly include fuel cost, depreciation, interest, etc. Therefore, I strongly believe that in your case, the provisions of the CLRA Act will not come.

Madhu.T.K

It is good if we refer to the attached verdict by the Supreme Court of India in Hassan Coop. Milk vs. ESI Corporation. It was observed that when we do not know who all are the employees (drivers) of the contractor (Cab service provider) and how much the latter pays the former, there cannot be any Master-Servant relationship.

Please find the attachment.

Madhu.T.K

Dear Madhu Sir,

Thank you so much for your clarification. Your knowledge has always guided us on the right path. I would like to request you to please share your number with us so that we can seek your guidance only in case of emergencies.

Regards,
Ranjeet

Thank you for the compliments, and I am happy that you are benefiting from my advice. My mobile number is 9847583239.

Madhu T.K

Hi Madhu,

Though you are right about its applicability to the hirer of the services from the contractor, the question here is its applicability to the contractor.

It is true that the contract is for services, and the relationship is that of an independent contractor. Whether or not the contractor holds the license has no bearing on the hirer of the services. However, to fulfill our due diligence and ensure the contractor is legally compliant, we, as the hirer, shall be requesting all applicable licenses from the contractor. It is within this context that the question was asked and still remains: is this act applicable to a contractor providing cab services?

Regards,
Zaid

Zaid, I have repeatedly said that in respect of cab services, there is no master-servant relationship, but the consideration for service is measured in terms of kilometers run and not according to wages paid to the operator. If the cab service is hired for a trip, or if your employee travels on a train or a bus, will you ask for the details of wages paid to the train or bus crew? When you transport your goods through a transporter, will you ask about the wages and other contributions payable to the driver who is driving the truck? No, because there exists an agreement for doing some service, and the consideration for such service is not measured on the basis of the salary paid but on the basis of other parameters.

At the same time, if you have a cab or truck and you hire drivers through an agency who supply (driver) manpower and in consideration pay the agency an amount, then that amount shall be the labor-involved amount which will cover the wage payments to those drivers engaged by you and a margin of profits or an amount to cover the cost of administration. In such an arrangement, all the costs of repairs, fueling, etc., will be borne by you. But in the former arrangement, you will not fuel the cab nor will you incur the cost of repairs.

I think the above details were given in my earlier post also. I am afraid Zaid has not gone through the posts in detail.