In a significant ruling dated 30 June 2025, the Calcutta High Court, in Shibaprasad Sutradhar vs. The State of West Bengal & Ors. (WPA 3503 of 2025), examined whether a principal employer can be held liable for gratuity when workers are engaged through contractors. The Court held that a principal employer cannot escape gratuity liability merely because the worker was engaged through multiple contractors.
The Court’s Ruling
The Court observed:
“The principal employer is liable to pay gratuity if the contract employee works for multiple contractors.”
The Court relied on Section 21(4) of the Contract Labour (Regulation and Abolition) Act, 1970, which makes the principal employer liable to pay wages if the contractor defaults. It interpreted the term “wages” as defined under Section 2(h), read with Section 2(vi)(d) of the Payment of Wages Act, to include gratuity, thereby holding that the principal employer must bear gratuity liability.
Precedents Considered
The Court cited several decisions, including:
• Hussainbhai v. Alath Factory (1978)
• BHEL v. Mahendra Prasad Jakhmola (2019)
• Balwant Rai Saluja v. Air India (2014)
• SAIL v. Workmen and WPA 6006/2009
However, many of these cases involved findings that the contracts were sham, resulting in the workers being treated as direct employees of the principal employer. As clarified by the Constitution Bench in SAIL vs. National Union Water Front Workers & Ors., such findings can only be made by an industrial adjudicator and not under writ jurisdiction. In the present case, the Calcutta High Court did not declare the contracts to be sham, which raises questions about the application of these precedents to the facts at hand.
Statutory Interpretation – A Critical View
With due respect, the Court’s interpretation of the Payment of Wages Act appears to stretch the legislative framework. Section 2(vi)(6) of the Payment of Wages Act expressly excludes gratuity from the definition of wages:
“Gratuity payable on the termination of employment in cases other than those specified in clause (d) shall not be deemed to be wages.”
Clause (d) refers to termination-related dues, such as those payable upon discharge, dismissal, or retrenchment. It does not, by its plain language, extend to statutory gratuity under the Payment of Gratuity Act, 1972. Therefore, importing gratuity into the definition of wages, as done in this judgment, is open to challenge.
Legal Complexities and Contractual Dynamics
The issue of gratuity liability for a principal employer is context-specific and cannot be determined in isolation. Key factors include:
• Whether the worker has rendered continuous service for five years under the same principal employer;
• Whether the contractor is functioning independently or merely as an intermediary;
• Whether the contract labour arrangement is genuine or a sham;
• Whether statutory conditions under the Payment of Gratuity Act, 1972 are satisfied.
Courts have, in certain instances, held principal employers liable for gratuity when contract labour has been employed continuously over extended periods and has effectively become part of the principal employer’s workforce.
Practical Implications for Employers
This judgment underscores the need for principal employers to adopt stringent risk mitigation strategies, such as:
• Drafting contracts with clear demarcation of obligations between the principal employer and the contractor;
• Ensuring the contractor’s independent payment of gratuity and statutory dues;
• Maintaining documented proof of compliance by contractors;
• Including robust indemnity clauses in contracts to safeguard against statutory liabilities.
Conclusion
The Calcutta High Court’s decision has reignited the debate on whether principal employers can be held responsible for gratuity payments to contract labour. While the Court has taken a pro-worker stance, its reasoning—especially the interpretation of the Payment of Wages Act—remains debatable and could invite further judicial scrutiny.
Until legislative clarity emerges, principal employers should adopt strong contractual safeguards and compliance mechanisms to limit their exposure to gratuity claims arising from long-term contract labour engagements.