Labour license compliance in case of subcontracting

In case a contract has been awarded to Contractor A, who further subcontracts a portion to Contractor B. Contractor A has obtained the Labor License for 85 people, and since there are 15 people in the subcontracted part, Contractor B has not obtained the labor license. Overall, there are 100 manpower, but due to subcontracting, 15 people are working without a license. Is this technically correct?

Since the subcontractor has fewer than 20 workers, he need not get a license under the CLRA. The contractor is also not under statutory obligation to issue Form V to the subcontractor so that the subcontractor can obtain a license.

Dear Member,

If the principal employer does not have any objection to the working of a subcontractor, then you can engage a subcontractor. When filing an application to obtain Registration Certificate under the Contract Labour (Regulation and Abolition) Act, the principal employer is required to include this subcontractor in the details of the contractor. In our view, if Form V is to be issued to the subcontractor, then the principal employer is obligated to issue Form V, not the main contractor, as the definition of the contractor also encompasses subcontractors. In your situation, the number of workers is insufficient for coverage under the Contract Labour (Regulation and Abolition) Act; hence, the subcontractor is not required to have any license.

R N KHOLA

Hi,

It's imperative to ensure that all workers involved in a project have the necessary licenses and permits. In this case, it seems that Contractor A has obtained a labor license for 85 people, but there are an additional 15 people working on the subcontracted portion who do not have a license.

This situation poses a legal and regulatory risk, as those 15 workers are operating without proper authorization. Here are some steps that can be taken to address this issue:

Identify the Regulatory Authority:
Determine which government body or agency is responsible for issuing labor licenses in your jurisdiction. They will have specific procedures and requirements for obtaining licenses.

Contact Contractor B:
Inform Contractor B about the situation and emphasize the importance of obtaining the necessary labor licenses for the 15 workers. They should be aware of the legal implications and should take immediate action to rectify this.

Document Everything:
Keep detailed records of all communications with Contractor B regarding this issue. This includes emails, letters, and any other forms of communication.

Assist Contractor B with the Application Process:
Offer guidance and support to Contractor B in the process of obtaining the labor licenses for their workers. They may need assistance in understanding the requirements and completing the necessary paperwork.

Monitor Progress:
Regularly check in with Contractor B to ensure they are making progress in obtaining the required licenses. It's important to follow up until the licenses are secured.

Consider Legal Advice:
If Contractor B is unresponsive or fails to take action, consider seeking legal advice. A lawyer specializing in labor law can provide guidance on how to proceed.

Mitigate Future Risks:
Put processes in place to prevent similar situations in the future. This may include thorough vetting of subcontractors and ensuring they have all necessary licenses and permits before commencing work.

Please note that operating without the required licenses can result in legal penalties and liabilities for both Contractor A and Contractor B. It's crucial to address this issue promptly and ensure compliance with all relevant regulations.

Thanks

In the instant case, the main contractor subcontracted a portion or part of the work awarded by the PE.

In the present case, the main contractor has obtained the license for engagement of 85 workers. However, the subcontractor did not obtain any license but engaged 15 workers. Therefore, any engagement above 85 workers shall be termed illegal.

As per the CL(R&A) law, the contractor cannot engage more workers than the licensed strength permits. The worker limit does not apply to the subcontractor because no work has been awarded to them by the PE. Thus, all the workforce (A+B) will be counted under the main contractor, A. Contractor A should either increase the license strength or issue a Work Order for part of work B to avoid any action by the licensing authority.

The Principal Employer (PE) might offer contracts to various service agencies based on the project's needs and specialization/skills. Permitting subcontracting the job is primarily the duty of the PE; nevertheless, it is the main contractor's responsibility to obtain a Contract Labour license, considering the total estimated manpower to be deployed, including the subcontractor's manpower strength. The main contractor is also responsible for maintaining A, B, C, and D registers and filing returns, including for subcontractor workers.

If there is no express provision in the contract to subcontract the job, all statutory payments must be made using the primary contractor's PF/ESI Code No., and the employer's contributions must be recovered from the subcontractor's invoices. Please note that Form III replaces the former certificate from the principal employer in Form V.

Our friend Mr. Prabhat has already discussed the applicability under the CL(R&A) Act, 1970, and I have simply expanded on a few points.

Regards,

Suresh