'Employees who do not work directly for an organization, but are employed by a
firm that has a contract to do specific work for the organization are known as
contract labourers. Contract labour has to be employed for work which is
specific and for definite duration. Contract labour at large is not borne on pay
roll or is paid directly.
To regulate this system the government enacted the
Contract Labour (Regulation & Prohibition) Act, 1970 to secure the status of
contract labourers and to abolish them from certain establishment and it came
into force on 10th February, 1971. However, certain degree of judicial activism
has ensured the fairness of such system of labour to an extent.
Labour administration is one of the most critical tasks of an entrepreneur. In
order to improve upon the rigorous labour regulations, the industrial sector in
India is principally resorting to contract labourers, who are governed by the
Contract Labour (Regulation and Abolition) Act of 1970.
The system of employing
contract labour is prevalent in most industries in different occupations
including skilled and semi skilled jobs. It is also common in agricultural and
related operations and to some extent in the services sector. Employees who do
not work directly for an organization, but are employed by a firm that has a
contract to do specific work for the organization are known as contract
labourers. A workman is deemed to be employed as Contract Labour when he is
hired in connection with the work of an establishment by or through a
Contract workmen are indirect employees; persons who are hired,
supervised and remunerated by a Contractor who, in turn, is compensated by the
establishment. Contract labour has to be employed for work which is specific and
for definite duration. Contract labour, by and large is not borne on pay roll or
is paid directly. This article intends to highlight different constitutional and
socio-legal aspects of contract labour in India.
In India, a legal definition of contract labour is given in Contract Labour
(Regulation and Abolition) Act, 1970. According to Section 2(b) of the Contract
Labour (Regulation and Abolition) Act, 1970, a workman shall be deemed to be
employed as "contract labour" in or in connection with the work of an
establishment when he is hired in or in connection with such work by or through
a contractor, with or without the knowledge of the principal employer.
expression "employed in or in connection with the work of the establishment"
does not mean that the operation assigned to the workman must be a part of, or
incidental to, the work performed by the principal employer. Further, workers
employed by a licensee for its own benefit are not considered as contract labourers. Similarly, a permanent employee of the contractor who could be placed
at different establishments at the choice of the contractor are not called as
The deplorable condition of contract labour in India was studied by various
Commissions, Committees, and also the Labour Bureau and the Ministry of Labour
before and after independence. All these organizations have found the condition
of contract labourers to be appalling and their employment exploitative in
The concern for providing legislative protection to this category of
workers, whose conditions have been found to be abysmal, resulted in the
enactment of the Contract Labour (Regulation and Abolition) Act (hereinafter
referred to as the Act) by the legislature in 1970.
The principal aim of the Act
was and still is to prevent exploitation of contract labour and also to
introduce better conditions of work. Contract labourers primarily suffer from
inferior labour status, casual nature of employment, lack of job security and
poor economic conditions. It was also observed that in some cases the contract
labourers did the same work as the workers directly employed by the
industrialist but were not paid the same wages or allowed the same working
This practice has led to the mistreatment of these labourers as they
are not employed directly by the employer. Furthermore, the Act was passed with
an attempt to combat the problem which did not allow these contract labourers to
avail the rights and benefits which were availed by the permanent workers under
different labour and industrial provisions. The main objective of the Act was to
prevent the oppression of these labourers and to abolish the practice of
contract labour wherein
The Work Is Of Perennial Nature
- The work is incidental to and necessary for the work of the factory i.e.
the principal activity of the industry e.g. work related to production.
- The work is of the nature that it can employ considerable number of
whole time workmen;
'The work can be done by ordinary or regular workmen.
Meaning And Concept
The act is applicable to an establishment of a Principal Employer in which
twenty or more workmen are employed. To constitute the number, not only are the
workers employed by one Contractor to be counted, but the total number of
contract labourers engaged by different Contractors has to be counted. It does
not apply to establishments in which merely work of an intermittent or casual
nature is performed. However if such work was performed for more than 120 days
in the last one year or was of a seasonal character and was performed for more
than sixty days in a year, then the act is applicable.
The work site may or may
not belong to the Principal Employer, but that will not stand in the way of
application of the Act or in holding that a place or work site where industry,
trade, business, manufacture or occupation is carried out is not an
establishment. It is notable that the Act is not confined to private employers
but also applies to the government.
The jurisdiction of the Central and State
Government has been laid down by the definition of the 'Appropriate Government'
in the Act as amended in 1986. The Act defines 'workman' as meaning any person
employed in or in connection with the work of any establishment to do any
skilled, semiskilled or unskilled manual, supervisory, or clerical work for hire
or reward, whether the terms of employment are express or implied.
Central sphere, the Central Industrial Relations Machinery (also known as Chief
Labour Commissioner) has been entrusted with the responsibility of enforcing the
provisions of the Act and the rules made thereunder, through Inspectors,
Licensing Officers, Registering Officers and Appellate Authorities appointed
under the Act.
Regular inspections are being conducted by the Field Officers of
the CIRM and prosecutions are launched against the establishments, whenever
violations of the Act, Rules or notifications prohibiting employment of contract
labour are detected.
Contractual Labour In India
In India, companies, particularly those in labour-intensive sectors like
automobiles, construction and mining, usually refrain from hiring permanent
workers for project-based requirements, as termination requires issuing a
notice, payment of compensation, and intimation to the government.
India's inflexible labour laws are said to be a big hindrance for industry. But
companies have found a solution by hiring contract workers in large numbers.
Newly available data give an idea about the extent and prevalence of this
practice at some of India's top listed companies. Contract labours have a 46%
share in industry and 8.8% in the services sector. In services, the sub-sectors
with relatively high levels of regular employees are software and financial
services. This can be attributed to the specialized skills needed in these
sectors and also regulatory reasons in the case of banking. But telecom stands
out as one service sector with a high 46% share for contract workers.
In industry, temporary workers account for a higher share due to labour-intensive
jobs and also because current employment laws resemble a marriage where divorce
is not possible, says Manish Sabharwal, Chairman- Team Lease Services.
In the automobile industry, where labour unrest has been more visible in recent
years, the ratio is high at 47% but it's even higher in sectors such as energy
and utilities (54%) and in cement (52%). In the engineering sector, Larsen and
Toubro Ltd (L&T) skews the total both due to its size and the fact that its
engineering services division recruits temporary workers on a project basis.
Excluding it, the sector has a ratio of 22% but including L&T's figures takes it
up to 75%. Sectors such as pharmaceuticals and consumer goods, too, have
relatively lower levels.
Finally, if India's topmost companies have such a high level of contract labour,
we can only imagine how high the level of casualization will be among smaller
Rights Of Contract Labour
The act determines the rights of the contract labour so as to make them secure
from any exploitation. These rights ensure equal status of them as of the
workmen and the violation of which is enforceable in court of law. The interests
of contract labour are protected in terms of wages, hours of work, welfare,
health and social security. Any agreement made between the parties, which is
inconsistent with the benefits provided under the Act and are not favorable for
the labourers will be treated as invalid.
- The contract labours are entitled for the wages including overtime wages and
allowances as stipulated for their work at the establishment. It must be paid
without delay whenever the wage period is over. It must be in accordance with
the Minimum Wages act.
- The contract labours have also the right to be provided the safety measures at
the establishment and immediate health service in case of any injury to the
labour. They are entitled for facilities like rest rooms, canteens, washing
facility, first aid facilities and many more. The women labours are entitled for
the separate washrooms, restrooms.
- They are entitled not be employed in any work which is prohibited
under any law.
Current Scenario Of Contractual Labour
The size of the contract labour force in India's largest carmaker Maruti Suzuki
is reflective of how the corporate world is responding to the changed dynamics
of the labour market. The share of contract workers in the automobile company's
total workforce has grown from 32 per cent in 2013-14 to 42 per cent in 2015-16.
Around 55 per cent of the 537 million tonnes of coal mined by public sector
behemoth Coal India during 2015-16 was done by 65,000 contractual workers. This
ratio is poised to increase to at least 58 per cent in the current financial
The Centre remains one of the biggest employers of contract labour. According to
the Seventh Pay Commission, the Centre spent Rs 300 crore in 2012-13 on contract
or temporary workers.
The growing demand for contract workers is in line with the global trend of
seeking employment flexibility. Over the past 25 years unionisation has fallen
across the world. Job outsourcing and dispersal of the workforce in multiple
countries have become commonplace even for medium-sized companies in developed
As developing countries like China, Bangladesh, Egypt, Brazil and Colombia are
changing their labour laws to permit flexible hiring, developed nations with
strong trade unions have been forced to make regulations favouring temporary
hiring. Take, for instance, the concept of zero-hour contract, where the
employer has no obligation to provide any stipulated hours of work but the
employee is required to be available when the employer needs his service. This
is the latest example of flexible hiring in Britain.
Trade unions say companies prefer the use of contract workers because of the
cost arbitrage. Contract workers are paid much less than regular workers. Legal
experts point out lacunae in the law and the fact that the judiciary has
interpreted the law in various ways.
The Supreme Court in its judgment in the RK
Panda vs Steel Authority of India case said workers continuing in employment for
10 years should be absorbed as regular employees. But in a separate case, Steel
Authority of India vs National Water Front Workers, the court ruled there was no
provision in the law implying absorption of contract workers
Moreover, the process of hiring contract workers is a tedious one. An
organisation with offices across the country has to seek registration by
declaring the number of vendors who supply contract workers in each office,
based on which forms are issued by separate states. Every vendor in every
premise has to seek a licence on that basis. Many companies find ways to subvert
the law by hiring contract workers through third-party agents.
Indian Govt Policy Of 2018 In Context Of Contractual Labour
The Union government is planning to take measures to ensure companies do not
convert their full-time workers into contract employees by misusing the proposed
fixed-term contract framework. One of them is to ensure that permanent employees
in an establishment are protected in such a way that they are not converted into
fixed-term workers after we bring in the new law," a labour and employment
ministry official said on condition of anonymity.
safeguard-related provisions would be included in the executive order on
fixed-term employment, likely to be issued next month. The move is an outcome of
a consultation meeting held on February 15 2018 by the ministry with
representatives of state governments, trade unions and industry. All the 12
state governments represented in the meeting were in favour of fixed-term
Three trade unions, the RSS-affiliated Bharatiya Mazdoor Sangh, the
National Front of Indian Trade Unions, and the Trade Union Coordination Centre,
also supported the move, apart from employers' associations, according to
sources. Other trade unions, however, walked out of the meeting as a mark of
protest over not holding consultations before announcing the move in the Union
In the Budget for 2018-19, Finance Minister Arun Jaitley announced the
government's decision to allow hiring workers on fixed-term contracts for all
employers. Fixed-term contracts allow industries to hire workers for short-term
assignments and terminate their services once the project is completed.
The government is waking up to the reality of flexi-staffing. It recently
allowed temporary workers in the garment industry. The decision to set the
minimum wage of Rs 10,000 a month for contract workers is another step in that
direction. "Contract work is now a reality; the government understands that, and
is working towards facilitating it," noted Shankar Agarwal, secretary in the
labour and employment minister.
After the enactment of the Act, which took place on the 5th September, 1970 but
came in to force on the 10th February, 1971, the Courts did not have to face
impediments in granting relief to the wronged party in disputes regarding the
facilities which should be provided to contract labourers for those guidelines
had unambiguously been enumerated in Sections 16, 17, 18 and 19 of the Act.
definitions of employer, contractor and workmen had also been provided by the
Act in Section 2 which helped the court interpret the meaning of these words
which under normal circumstances seem too broad and vague. The Courts can now
also construe as to when certain labourers are to be considered as contract
labourers and to what rights they are lawfully entitled.
One of the first cases to have come up before the Courts which required
elucidation of this expression was Heavy Engineering Mazdoor Union v. State of
Bihar. It was asserted in the case that the phrase 'under the Authority of' must
be interpreted in detail and that 'Authority' must be construed according to its
ordinary meaning which means legal power given by one person to another to
perform an act.
It established in light of the situation that albeit the entire
share capital was vested in the name of President of India, and its nominees and
extensive control was vested in the Central Government, it did not make the
organization in question an industry carried on under the authority of Central
The position of the Heavy Engineering Case is again strengthened by
the Apex Court in Steel Authority of India Limited and Ors v. National Union
Water Front Workers and Ors.
, asserting that 'Appropriate Government' in
relation to an establishment would be the Central Government if, the concerned
Central Government company or undertaking is included by name in clause (a) of
Section - 2 of the Industrial Disputes Act, or any industry carried on by or
under the authority of Central Government or by a railway company, or any such
controlled industry as may be specified in this behalf by the Central
Government, otherwise in relation to any other establishment, the Government of
the State in which that other establishment is situated, will be the Appropriate
In an endeavour to answer the grave ambiguities regarding the absorption of
workmen in industries abolishing contract labour, in the case of R.K. Panda &
Ors. Vs. Steel Authority of India Ltd
, the Hon'ble Apex Court held that the
Act regulates contract labour but has never proposed to abolish it entirely. The
primary object of the Act can be taken as to save the contract labourers from
However, the right to be absorbed by the employer directly is
neither proposed nor mentioned in the Act. The Court also said that insertion of
certain clauses in the contract with the contract labourers by the industry does
not give them a right to escape from the duty of providing the contract
labourers rights. The Court directed the Company to comply with the following:
The labourers who were continuing in the employment for the last 10 years, in
spite of change of Contractors and have not crossed the age of superannuation
and were medically fit should be absorbed as regular employees in the order of
Regular wages will be payable only for the period subsequent to absorption and
not prior to that.
In the case of Rourkela Shramik Sangh v. Steel Authority of India Ltd
, the Hon'ble Supreme Court held that "the contract labourers who were less than 58
years old and medically fit should be absorbed by the Principal Employe"r. Here
the Court reverted back to the decision which it gave initially. Its decision
showed that it has again approached the problem of contract labour from a very
realistic point of view and not merely on the basis of what has been written in
the statute. The Court also took into consideration that it would be unjust to
leave the labourers unemployed after the abolishment of contract labour.
While evaluating the constitutionality of obligations, imposed on the employer,
for the benefit of its workmen, the Apex Court considered its standing ratios of
the past which was given in the case of Basti Sugar Mills Ltd. v. Ram Ujagar and
. This case, although was decided before the enactment of this Act, is
relevant to the current discussion because it effectively answers the question
that whether obligations imposed on the employer regarding conferring amenities
on contract labourers is violative of Article 19 (1) (g) of the Indian
In this case the Court clearly stated that public welfare
supersedes private interests. Right to carry on trade and business does not give
a right to the employer to exploit his workers. The practice of employing a
Contractor so as to evade the benefits conferred by major Acts on industrial labour was totally criticized and discouraged by the Court.
Again In the case of Gammon India Ltd. and Ors. v. Union of India and Ors.,it
was held that the duty of the employer is not only paying wages to the labourers
but also providing them with basic amenities in order to maintain their health
and well-being. Hence the expenditures incurred by the employer are not a form
of tax imposed on him but form a part of this responsibility towards his
labourers which he cannot shirk, and in no means can this obligation be referred
to as wasteful or unnecessary restrictions.
Thus, it cannot be said to be in
contravention of Article 19 (1) (g).By giving this decision, the Hon'ble Apex
Court clearly gave a message to the industrialists that the right to carry on
business cannot be enjoyed without fulfilling the duties which they have towards
In recent times, in the case of Bhilwara Dugdh Utpadak Sahakari Sanstha Ltd. Vs
Vinod Kumar Sharma (Dead) by LRs,
The Hon'ble apex court held that the appeal
reveals the unfortunate state of affairs prevailing in the field of labour
relations in our country. In order to avoid their liability under various labour
statutes employers are very often resorting to subterfuge by trying to show that
their employees are, in fact, the employees of a contractor. It is high time
that this subterfuge must come to an end.
Labour statutes were meant to protect
the employees/workmen because it was realised that the employers and the
employees are not on an equal bargaining position. Hence, protection of
employees was required so that they may not be exploited. However, this new
technique of subterfuge has been adopted by some employers in recent years in
order to deny the rights of the workmen under various labour statutes by showing
that the concerned workmen are not their employees but are the employees/workmen
of a contractor, or that they are merely daily wage or short term or casual
employees when in fact they are doing the work of regular employees.
cannot countenance such practices any more. However, earning profit by
exploiting labour cannot be permitted in a democratic country and welfare state
that ideally functions for the people.
Air India Statutory Corporation vs United Labour Union (1997):
In this case, the Supreme Court of India held that contract workers who perform
work that is of a perennial nature and is necessary for the business of the
employer are entitled to the same wages as permanent employees.
Steel Authority of India Ltd. vs National Union Waterfront Workers (2001):
The Supreme Court held that the principle of "equal pay for equal work" applies
to contract workers, and that they must be paid the same wages as permanent
employees if they perform the same work.
Excel Crop Care Ltd. vs Union of India (2017):
The Supreme Court held that
employers cannot hire contract workers for work that is of a regular nature and
is essential for the business of the employer. The court stated that such work
must be performed by permanent employees.
Subsequently, in Nihal Singh & ors vs State of Punjab & ors
, The Supreme
Court of India has followed the principles of the Bhilwara Dugdh Utpadak
Sahakari Sanstha's case and the hon'ble court observed that even the state
governments and public sector banks should not be allowed to avail cheap labour
for decades because such practice is not consistent with their obligations to
function in accordance with the constitution.
Magnitude Of The Study
In India, A total of 384 million persons are employed at various levels and out
of the total employed 51% are self- employed, while 33.5% are engaged as casual
labour and 15.6% are employed as regular wage or salaried employees. The Labour
Bureau, Ministry of Labour and Employment conducted a study on the Working
Condition of Contract Labours (2000-01) in Cement Manufacturing Industry, Food
Corporation of India (FCI) and National Thermal Power Corporation (NTPC) and
found that maximum employment of contract workers is in Cement Manufacturing
Industry (28331) followed by FCI depots (18112), NTPC units (17900) and Cement
Related Mines (1290) but the ratio of contract workers was highest in FCI depots
(50.2 percent) and lowest in Cement Related Mines (16.9 percent).
- Public sector undertakings and government machineries should not
be allowed to employ cheap contractual labour for prolonged period of time. Social Security
of the poor workmen must be considered before formulation of any laws governing
- There is high necessity of coordination among stakeholders for
implementation of law concerning contract labour.
The government and NGO sector must make endeavour to create
- The labour organizations must make proper venture for strict implementation
of governmental policies.
The Make in India campaign is a powerful agenda to transform India into a global
manufacturing hub. However, we assume that Labour issues will be the bottleneck
into its success. It is a vital role of the management of the company to ensure
that they create guidelines for their HR/Plant managers which will lay down a
code of conduct and ensure that the contract workers are dealt with in a fair
and equal manner as that of permanent workers.
Role of HR Department is very
crucial in attracting selecting and retaining the manpower of the company, it
may be the on roll employees , workers or contractual employees. It is
inevitable that HR Department should ensure to identify execute best HR
Practices covering entire range of employees.
However in many industries, the
cardinal focus of HR practices lies for only on roll employees and permanent
workers. Whereas HR practices for contractual labour are very limited. And in
most of the companies contractual manpower are not treated fairly.
HR Department philosophy says that employees are assets of the organization and
must be retained and developed for greater productivity with their job
satisfaction. Hence the contractual manpower should also be given due weightage
while framing the HR practices and efforts must be made by HR Department to
bring the contractual manpower into main stream.
The first step to ensure the proper administration of justice is to make the
contract labourers aware of their rights and responsibilities so that they'll be
able to find out any irregularities of law or practice and take necessary steps
for its cure. Further, it is necessary to empower the workers to complain to an
independent authority in a confidential manner; and giving punishment or reward
to a supervisor on the basis of such complaints is a more effective way of
combating corrupt practices.
We have come to an era of industrialization when
multinational companies, their Indian cohorts, various global financial agencies
and the Indian Government have all been baying for the blood of the workers. The
industrial scenario is one where the prevailing management theories lay emphasis
on 'just-in- time' production. This postulates, in the current management
parlance, 'flexibility' of labour.
This only means more contract labour, more
casual labour, fewer rights for unionisation etc. The official policy appears to
be that the workers will have to sacrifice if the country's economy is to
survive. Various state governments in India have usually employed contract
labour in the name of menial work.
Written By: Anmol Gupta
- AIR 2001 SC 3527
- 994 SCC (5) 304
- Appeal (civil) 639 of 2003
- 1964 AIR 355
- 1974 SCR (3) 665
- Civil Appeal No. 2585 OF 2006
- 1997 LLR 305 (SC)
- Appeal (civil) 6009-6010 of 2001
- 8 SCC 47 (2017)
- Civil Appeal No. 1059 OF 2005