Three party working is ordinary in Bengaluru: a staffing or services company holds the contract of employment, the work is done at a client's premises under the client's direction, and nobody tells the worker which of the two to write to when something goes wrong. The codes do not give a single answer, and that is deliberate. Different obligations sit on different parties.
Start with what the statute calls each of you
- Contract labour is a worker hired in or in connection with the work of an establishment by or through a contractor, with or without the knowledge of the principal employer. Someone regularly employed by the contractor for its own activity, on mutually accepted conditions with periodical increments and social security cover, is deliberately kept out of that description.
- The contractor either undertakes to produce a given result for the establishment through contract labour, or supplies contract labour as human resource. A sub contractor is included.
- The principal employer is the establishment where the work is done, and it is not a bystander in the statutory scheme.
Under the Occupational Safety, Health and Working Conditions Code, 2020, the contractor is responsible for paying wages to each contract labour, and must disburse them by bank transfer or electronic mode and inform the principal employer of the amount paid. If the contractor fails to pay within the prescribed period or short pays, the principal employer is liable to make payment of the wages in full or the unpaid balance, and may then recover that amount from the contractor. There is also a route through the security deposit under the contractor's licence.
When the arrangement is open to challenge
Two limbs of the contract labour scheme give leverage.
- Licensing. The contract labour part of the safety Code applies to every establishment in which fifty or more contract labour are employed, or were employed on any day of the preceding twelve months, and to every manpower supply contractor who has employed fifty or more contract labour on any such day. A contractor to whom that part applies cannot supply or engage contract labour except under a licence. Ask for the licence number. An unlicensed engagement is a compliance failure that changes the tone of any negotiation.
- Core activity. Employment of contract labour in the core activities of an establishment is prohibited, subject to stated exceptions: where the normal functioning of the establishment is such that the activity is ordinarily done through a contractor, where the activity does not need full time workers for the major part of the working day or for longer periods, and where there is a sudden increase in volume that has to be met in a specified time. Whether an activity is a core activity is decided by the appropriate Government, on a reference or on an application by the aggrieved party.
Neither limb converts you automatically into an employee of the client. Indian courts have long refused to treat a breach of the contract labour law as producing automatic absorption, and the codes do not create such a right in terms. What the breach does is give you a strong statutory grievance and, in many cases, a settlement.
When the paper is a sham
Where the client selects you, controls your day, appraises you, disciplines you and decides when you leave, and the contractor does nothing but run the payroll, the arrangement is open to the argument that the client is the real employer and the contractor an intermediary. That is a factual finding, made on evidence: who interviewed you, who issued the offer, who assigns work, who approves leave, whose email address and access card you carry, whose appraisal you sit through, who told you to stop coming. Preserve those documents while you still have access to them. Our note on whether you count as a worker under the Industrial Relations Code deals with the related question of status, which the same evidence usually decides.
The single commonest failure in these files is naming the wrong entity and discovering it after the limitation period has run. Conciliation cannot be held more than two years after the dispute arose, and an application to the Tribunal must follow within ninety days of the failure report. Where the identity of the employer is genuinely in issue, the safer course is to put both the contractor and the principal employer on notice in writing and to implead both, letting the forum decide which of them is liable for what.
Head by head, who you go to
- Unpaid wages. The contractor first, then the principal employer on the statutory liability described above, with the authority under the Code on Wages, 2019 as the forum.
- Provident fund. The Code on Social Security defines an employee as a person employed by an establishment either directly or through a contractor, which is why establishments are pursued for the contractor's default. Take it to the EPFO with your passbook and payslips.
- Gratuity. Continuous service is computed on days actually worked, and service through successive contractors on the same site is worth pleading rather than conceding.
- Termination. Whether the conditions precedent to retrenchment apply depends on your status and on who is held to be the employer, which brings you back to the evidence above. Our guide on wrongful termination and employee rights in India sets out the sequence.
For the wider reorganisation that folded the older contract labour statute into the safety Code, see our overview of what the four labour codes changed for employees.