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This article is written by Kshitija Baitalwar, Campus Ambassador at LawSikho. This article has been edited by Priyanka Mangaraj (Associate, LawSikho) and Dipshi Swara (Senior Associate, LawSikho).


With the drastic growth in the industrial sector, a lot of changes have taken place, especially in the employment sphere. There was a time when there was a direct relationship between employer and employee but this is not the case anymore. Employers who work for the state as well as in the central government have adopted new methods with changing times. They now get their work done through contractors who then employ workers on the contract basis known as contract labor. And such contract labor works under ‘Principal Employer’ which is a person who supervises as well as controls the establishment. This kind of employment has been governed under the provisions of the Contract Labour Act of 1970. The purpose of the act was passed to prevent the exploitation of contract labor. The Act provides the abolition of contract labor in certain establishments and regulations wherever possible. Therefore it is apparent that the Act restricts the contract labor to some extent.

The latest decision of Supreme Court in Dena Nath v. National Fertilizers indicated that The Contract Labour (Regulation and Abolition)Act,1970 provides for the regulation of contract labor in certain establishments and provides for the total abolition of contract labor. This article analyzes the liabilities of principal employers under The Contract Labour (Regulation and Abolition) Act,1970.

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Definition of principal employer under the Contract Labour (Regulation and Abolition)Act, 1970

Section 2(1)(g) of The Contract Labour (Regulation and Abolition) Act,1970 defines Principal Employer as, “principal employer” means-

(i) in relation to any office or department of the Government or a local authority, the head of that office or department or such other officer as the Government or the local authority, as the case may be, may specify in this behalf,

(ii) in a factory, the owner or occupier of the factory and where a person has been named as the manager of the factory under the Factories Act, 1948 (63 of 1948), the person so named,

(iii) in a mine, the owner or agent of the mine and where a person has been named as the manager of the mine, the person so named,

(iv) in any other establishment, any person responsible for the supervision and control of the establishment.

Thus under the Act “Principal Employer” means any person who is in charge of an establishment. Where the establishment is a factory, under the Factories Act, 1948 a person who is the owner or occupier of the factory or a manager would be called principal employer. And where the establishment consists of 20 or more workers employed as labor on any day of the preceding 12 months would be covered under the Contract Labour Act.       

As it is said that with great power comes great responsibility, the same as in the case of the principal employer. As being the supervisor and controller of the establishment, the Act has imposed certain liabilities on the principal employer. 

Liabilities of the principal employer

It is to be noted that registration is mandatory for every principal employer to whom the Act is applicable.


  • The principal employer is vicariously liable under the Contract Labour Act, which means  The Contract Labour Act gives relief to contract labor in case of non-payment of wages by allowing them access to the principal employer in the event of a default of payment.
  • Section 21(2) of the Act states that the representative is present while the contractor is paying out the payment to the contract labour.
  • Section 21(4) provides that in case the contractor fails to make payment of wages to the labor employed, it is the principal employer who may need to step in and make such payment. Thus it becomes the responsibility of the principal employer to look after the wages.

The principal employer can recover the same amount paid from the contractor either by the debt payable by the contractor or deducting from any amount payable to the contractor as the case may be.

Essential facilities 

  • The Contract Labour Act imposes a duty to the contractor to provide certain amenities to labor employed by it.

 The contractor should provide the following facilities:

  1. Canteen provisions;
  2. Rest-room; and 
  3. First aid facilities

In case the contractor fails to provide the above-mentioned facilities it becomes the responsibility of the principal employer to provide such facilities. However, the principal employer can recover any expenses incurred in providing these facilities from the contract labour.


  • It is mandatory for the principal employer to get itself registered under the Act, if he fails to do so he shall be punishable with imprisonment which may extend to 3 months, or with a fine which may extend to Rs. 1,000/- or with both and in case of continuing contravention, there will be an additional fine of Rs. 100/- for every day during which such contravention continues after conviction for the first such contravention. 
  • Consider if the company is the principal employer who is liable to be punished under the Act, then unless and until it is proved that the offense was committed without any intention or that they exercised all due diligence to prevent the commission of an offense, the company as well as every person in charge of, and responsible to, the company for the conduct of its business at the time of the commission of the offense shall be deemed to be guilty of the offense and shall be liable to be proceeded against and punished accordingly.
  • It is to be noted that penalties in case of non-compliance under certain other labor welfare legislation are imposed on the principal employer. For instance, for any non-payment of provident fund contribution, or non-maintenance of provident fund records, the principal employer is punishable by imprisonment for a term which may extend to 1 year, or with a fine which may extend to Rs. 4,000/- or with both under Section 14(1)of the Employees Provident Fund and Miscellaneous Provision Act, 1952 r/w para 76 of the Employees Provident Fund Scheme,1952. And under Section 44 r/w Section 85 of the Employees State Insurance Act, 1948.

Contract labour in India 

Today in India, the practice of employing contract labor through contractors and other agencies is prevalent in different industries including skilled and semi-skilled jobs. In fact, it is also in practice in allied operations and in the agriculture sector, and to some extent in the service sector also.

It can be seen from the data of the Annual Survey of Industries (ASI), which have records of establishments registered under the Factories Act, shows that there is a sudden hike in contract worker usage in the organized manufacturing sector. Hike in total employment from 7.7 million to 13.7 million between the years 2000-01 and 2015-16 was considered to be because of contract workers. The data also shows that in total employment the share of contract workers increased from 15.5 percent in 2000-01 to 27.9 percent in 2015-16, while directly hired worker’s share fell from 61.2 percent to 50.4 percent over the same period.

Other data collected from the Labour Bureau’s Employment-Unemployment Survey (2015-16) show that in India contract and casual workers hold major shares of society’s vulnerable caste groups as compared to regular workers. The increase in contract labor work arrangements not only deepens labor market segmentation but also has widespread ramifications for economic stability and social cohesion.

There are advantages for both private and government-run companies when it comes to employing workers on a contractual basis. From a  report of  PTI, it can be seen that the percentage of contract workers in Maruti Suzuki has grown from 32 percent in 2013-14 to 42 percent in 2015-16. In Fact in Coal India, which is a government-owned body, there was huge involvement of contract labor; around 55 percent of the 537 million tonnes of coal mined during 2015-16 was done by 65,000 contractual workers. This ratio is poised to only go up in the coming years.

Thus, contract labour in India has also grown in recent times. This could be due to rigid labour laws in India that made it difficult to fire workers. 

Contract labour  in the phase of COVID

It is widely acknowledged that the labor in India, in the context of the Covid-19 pandemic, has been trapped in an unprecedented crisis. The employment and livelihoods of the overwhelming majority of workers have been widely affected. The situation of the COVID 19 pandemics has forced many firms in the FMCG, finance, insurance, and retail sectors to lay off employees to cut off costs, especially contract labour. 

The covid situation has worsened the conditions of contractual employment. For example, the decline in the monthly income of the labor class, facing a severe crisis of getting employment in the local labor market, deduction in the rate of daily wages, reduction in average working days, etc. The situation of contract workers has also worsened by the fact that the protection given to these workers is ‘basic’ as compared to that of permanent employees in an establishment. Contractual workers are not able to raise their own cause for regularisation of labor, as they do not fall under the definition of ‘workmen’ as per the Industrial Disputes Act, 1947. It is certain that when  States prepare to lift the lockdown, contract-based workers have to return to workplaces with a heightened sense of uncertainty — both of health and poverty. They must be provided with additional safeguards to ensure their health, safety, and socio-economic conditions must be implemented to cope up with the situation.


It can be concluded that with the sudden change in the labor sector due to various reasons, along with the ongoing pandemic or due to rigid laws, for instance, contract labor has grown enormously and with the increase in the percentage of contractual labor, liabilities on principal employers also increase. 

The principal employer needs to be more cautious while engaging contract laborers. Companies hire labourers on a contract basis to make the process simpler with the intention to manage the workforce in an easier way. However, because of a lack of due diligence, the company can face troubles. It is necessary for principal employers to engage contract laborers by way of executing a contract with the contractor, exercising due diligence would be of great significance as contractual safeguards may not offer sufficient protection to principal employers.

The increasing percentage of the contractual workforce also raises doubts about the nature and sustainability of employment growth. As contract workers are fired easily it is necessary to implement policies that benefit the contractual force to build their skills and live healthy lives.



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