By Rupin Chopra and Shantam Sharma
Introduction
In the complex landscape of labour law, the question whether a principal employer bears the liability when a contractor fails to pay the provident fund (PF) dues to the labourers hired through the contractors is an all too common issue. If a contractor, who is hired by the principal employer to provide labor, fails to pay the dues, the question arises: should the principal employer be held accountable? This issue is important because it affects the financial security of the workers and raises questions about corporate responsibility and ethics.
In this article, we delve into the relevant judicial decisions and government advisory to determine the obligations of a principal employer in this scenario.
Who is a Principal Employer?
Although, not defined in the EPF Act, 1952 and the EPF Scheme, 1952, the definition of a Principal Employer can be referred[1] from the Contract Labour (Regulation and Abolition) Act, 1970 [CLRA].
As per CLRA, a Principal Employer is defined as:
- For any government office or department, or a local authority, it’s the head of that office or department. Alternatively, it could be any other officer that the government or local authority designates for this role; or
- In a factory, it’s the owner or the person in charge of the factory. If someone has been officially appointed as the manager of the factory under the Factories Act, 1948, then that appointed person is the principal employer.
Whether the principal employer be held accountable if the contractor does not pay the provident fund (PF) to the contracted labour?
To ascertain an answer, it is first imperative to look at the following judgements:
- Cases where the principal employer is not liable:
The Hon’ble Madras High Court, in the case of Madurai District Central Co-operative Bank Ltd. vs Employees’ Provident Fund Organization[2], ruled that the when a contractor is assigned a separate code number, the contractor’s employees’ cannot be considered employees of the principal employer and thus, the liability lies on the contractor to pay the social security dues of the contracted employeesOn the same lines, the Hon’ble Madras High Court, in the case of M/S Brakes India Ltd. vs The Employees Provident Fund Organization[3], reinforced the principal that the Employees Provident Fund Organization (EPFO) cannot demand PF contributions or damages from the principal employer for the employees hired through contractors who are registered with the PF department and have a separate code number. - Case where the principal employer is liable:
However, the Hon’ble Delhi High Court has taken a contrarian point of view in the case of Bharat Heavy Electricals Ltd. vs Regional Provident Fund Commissioner-II[4].In this case, the Hon’ble Delhi High Court reaffirmed an order passed by the Regional Provident Fund Commissioner, wherein it was held that even if the contractor have separate PF code number, the overall responsibility of ensuring compliance under the EPF Act, 1952, is of the principal employer and any default in that respect is required to be made good by the principal employer.
EPFO Circular
In light of the contradictory judgements by the Hon’ble High Courts, the Employees Provident Fund Organization (EPFO) issued a circular in 2017[5] to resolve the conundrum and defined the , responsibilities of a Principal Employer with respect to contract labour, such as:
- The principal employer must cover the contributions for both their directly employed employees and those employed through a contractor.
- The term employee includes contractual, casual and regular employees
- Before awarding any contract, the principal employer must verify that the contractor is registered with the EPFO portal.
- Even if the contractor have their separate PF code number, the principal employer is ultimately responsible for ensuring compliance under the EPF Act, 1952 for employees working through contractors. It includes depositing dues with the EPFO.
Conclusion
In conclusion, the liability of the principal employer for the payment of provident fund dues when a contractor fails to meet these obligations depends on specific legal framework and judicial interpretations in place. Rulings by the Hon’ble Madras High Court indicates that if a contractor is registered with the EPFO and possess an independent code number, the principal employer is not responsible for the PF contributions.
However, this does not absolve the principal employer from all the responsibilities they must ensure that their contractors are compliant with the PF regulations. Ultimately, safeguarding the worker’s right and ensuring compliance. This approach not only aligns with legal requirements but also promotes ethical labor practices and financial security for the workers.
Ritvik Kashyap , Intern at S.S Rana & Co. has assisted in the research of this article.
[1] Section 2(g); Available at: https://clc.gov.in/clc/acts-rules/contract-labour-regulation-abolition-act-1970
[2] W.P. (MD) No. 3469 of 2009
[3] 2015 LLR 635
[4] W.P. (C) 882/2014
[5] Available at: https://epfindia.gov.in/site_docs/PDFs/Circulars/Y2016-2017/CAIU_Compliance_Contractor_28445.pdf