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CONTRACT LABOUR ACT, 1970

INDEX
Sr. No.

Title

Page No.

1.

Acknowledgements

2.

Introduction

3.

The Contract Labour Act, 1970

4.

Conclusion

5.

Bibliography

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CONTRACT LABOUR ACT, 1970

ACKNOWLEDGEMENT

I would like to thank Mrs. Kusum Chatwal for giving me the opportunity to
research on the Contract Labour Act, 1970. The work contained herein is an
amalgamation of the remarkable works of eminent authors who have contributed to
the extent and impact of this legislation. I have prepared the project to the best of
my abilities using the guidance of these authors.

CONTRACT LABOUR ACT, 1970

INTRODUCTION
In this age of globalization, the employment structure across the globe has been undergoing
changes in all nations. In order to effectively compete in a globalized market, one needs
flexibility relating to labour, capital, or bureaucracy; this allows a producer to adapt to the fastchanging world and compete effectively. In particular, it is argued that stringent labour
regulations not only put domestic producers at a disadvantage but also deter foreign direct
investment and eventually impact adversely on investment, output and employment. Over the
last two decades, a number of countries have attempted to liberalize their respective labour
markets and have also amended their labour laws so as to make them more investment- and
employment-friendly a process that has weakened job security and collective bargaining.1
Among different kinds of employment that have been created in various economies to
circumvent labour laws, contract labour is becoming one of the prominent forms. In India,
contract labourers are protected by the Contract Labour Regulation and Abolition Act, 1970. This
Act was enacted by the Government of India to stop the exploitation of workers under the
contract labour system. With a view to removing the difficulties of contract labour and bearing in
mind the recommendations of various commissions and committees and the decisions of the
Supreme Court, particularly in the case of Standard Vacuum Refining Company in 1960, the
Contract Labour (Regulation and Abolition) Act was enacted in 1970. This Act seeks to regulate
the employment of contract labour in certain establishments and to provide for its abolition under
certain circumstances.
Contract Labour can be distinguished from direct labour in terms of employment relationship
with the principal establishment and the method of wage payment. A workman is deemed to be a
contract labour when he/she is hired in connection with the work or contract for service of an
establishment by or through a contractor. They are indirect employees; persons who are hired,
supervised and remunerated by a contractor who, in turn is compensated by the establishment. In

1 Agarwal, Rashmi (2001): Labour Laws and Contemporary Issues, Manpower


Journal, XXXVII,4,39-47
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either form, contract labour is neither borne on pay roll or muster roll or wages paid directly to
the labour2.
Contract Labour, thus, is neither borne on pay roll or muster roll nor is paid wages directly. The
establishments, which farm out work to contractors, do not own any direct responsibility in
regard to their laborers. Generally, the wage rates to be paid and observance of working
conditions are stipulated in agreements but in practice they are not strictly adhered to.
A contract labourer is defined in the Act3 as one who is hired in connection with the work of an
establishment by a principal employer who is the firm owner or a manager through a contractor 4.
The Act makes a number of provisions for the welfare of the contract workers including payment
of minimum wage, social security benefits and others.
During the recent years, employment of contract labour has become a contentious issue and a
key reason for the increasing labour unrest. While strikes and protests are common global
phenomena but violence and killing is not at all justifiable under any circumstances as it is a pure
case of disruption of law and order situation. This surge in violence disturbing industrial relations
has become a concerning situation for all. On September 22, 2008 the CEO of Graziano
Transmissioni India, the Indian unit of an Italian auto component maker, was clubbed to death by
a group of 200 workers. The most recent worst form of industrial unrest was witnessed in the
Maruti Suzuki India Ltd., Manesar plant, where workers went into riotous, leaving its General
Manager (HR) dead and 100 other officials laid up in hospital with serious injuries5.

2 Report of the National Commission on Labour, 1969


3 Section 2(1)(b)
4 A casual labour does not get employed through a contractor. Though his/her
appointment may be not permanent, she/he has direct contract with the principal
employer.
5 Economic Times, Business Standard, Times of India, The Hindu and India Today
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CONTRACT LABOUR ACT, 1970

THE CONTRACT LABOUR ACT, 1970


The main features of the Act can be summarized thus:1. The Contract Labour (Regulation and Abolition) Act, 1970 provides for regulation of the
employment of contract labour and its abolition under certain circumstances.
In the case of Gammon India Ltd. v. Union of India 6, the Court held that, the Act was passed to
prevent the exploitation of contract labour and also to introduce better conditions of work. The
underlying policy of the Act is to abolish contract labour wherever possible and practicable and
where it cannot be abolished altogether the policy of the Act is that the working conditions of the
contract labour should be so regulated as to ensure payment of wages and provision of essential
amenities. Section 10 of the Act deals with abolition of Contract Labour while the rest of the Act
deals mainly with the regulation of Contract Labour.
2. According to Section 1(4) It applies to every establishment in which 20 or more workmen are
employed or were employed on any day on the preceding 12 months as contract labour and to
every contractor who employs or who employed on any day of the preceding 12 months 20 or
more workmen. It does not apply to establishments where the work performed is of intermittent
or casual nature. The Act also applies to establishments of the Government and local authorities
as well7.
3. According to Sections 3 & 4- The Central Government and the State Governments are required
to set up Central Advisory Board and State Advisory Boards, which are authorized to constitute
Committees as deemed proper. The functions of the Boards are advisory, on matters arising out
6 AIR 1974 SC 960
7 Section 1(5)
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of the administration of the Act as are referred to them. The Boards carry out the functions
assigned to them under the Act.
4. According to Sections 7 & 12- The establishments covered under the Act are required to be
registered as the Principal Employer. Likewise, every contractor to whom the Act applies is
required to obtain a licence and not to undertake or execute any work through
contract labour except under and in accordance with the licence issued. Every principal employer
to whom this act applies should register his establishment in the prescribed manner for
employing contract labour. Unlike the industry sector, generally, there is no provision for
remaining unregistered. If the Government at any point of time is dissatisfied with the practices
followed, it can revoke the registration of an establishment.
5. According to Sections 16, 17, 18 & 19- The Act has provided for establishment of canteens. For
the welfare and health of contract labour, provision is made for restrooms, first aid, wholesome
drinking water, latrines and urinals. In case of failure on the part of the contractor to provide such
facilities, the Principal Employer is made liable to provide the amenities.
6. According to Section 21- The contractor is required to pay wages and a duty is cast on him to
ensure disbursement of wages in the presence of the authorized representative of the Principal
Employer. It is the primary responsibility of the contractors to provide all facilities to the workers
as delineated in the Act. However, the principal employer should ensure the presence of his
authorized representative at the place and time of disbursement of wages by the contractor to the
workmen and it is the duty of the contractor to ensure the disbursement of wages in his/her
presence.
In the case of Hindustan Steel Works Construction Ltd. vs. Commissioner of Labour8, the Court
held that thus, it is clear that under Section 21 the responsibility for payment of wages of
contract labourers is on the contractor who employs them. In case of any default by the
contractor, the principal employer is required to make good the default, but at the cost of the
contractor from whom the principal employer can recover the amount.
7. According to Section 20- In case of failure on the part of the contractor to pay wages either in
part or in full, the Principal Employer is liable to pay the same. In case the
contract labour perform same or similar kind of work as regular workmen, they will be entitled
to the same wages and service conditions as regular workmen as per the Contract Labour
(Regulation and Abolition) Central Rules, 1971.
8 (1996) 10 SCC 599
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8. According to Section 28- The Act makes provision for the appointment of Inspecting staff, for
maintenance of registers and records, for penalties for the contravention of the provisions of the
Act and Rules made thereunder and for making Rules for carrying out the purpose of the Act. In
the central sphere, officers of the CIRM have been appointed as Inspectors.
9. According to Section 10(1) - Apart from the regulatory measures provided under the Act for the
benefit of the contract labour, the appropriate government is authorized, after consultation with
the Central Board or State Board, as the case may be, to prohibit, by notification in the official
gazette, employment of contract labour in any establishment in any process, operation or other
work.
10. According to Section 10(2) - Sufficient guidelines are laid down for deciding upon the abolition
of contract labour in any process, operation or other work in any establishment and the
appropriate government while taking action under this Section will have to take an overall
picture of the industry carrying on similar activities. The guidelines furnished under sub-section
(2) oblige the appropriate government to consider, as relevant data, the material to which it must
have regard. The Central Government on the recommendations of the Board has abolished
contract labour system in a number of jobs in different industries and so far 76 notifications have
been issued.
The guidelines are mandatory in nature and are: o
o
o
o
o

Conditions of work and benefits provided to the contract labour.


Whether the work is of a perennial nature.
Whether the work is incidental or necessary for the work of an establishment.
Whether the work is sufficient to employ a considerable number of whole-time workmen.
Whether the work is being done ordinarily through regular workman in that establishment
or a similar establishment.

Case Law
The primary objective of the Act is to stop exploitation of contract labourers by contractors and
establishments. The Act does not provide for a total abolition of contract labour system but it
provides for abolition of contract labour in appropriate cases9.

9 R.K. Panda vs Steel Authority Of India, 1994 SCC (5) 304


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The legislation has its own setbacks for there is no clear definition for identifying Contract
Labour in the Contract Labour (Regulation and Abolition) Act, 1970. According to the Act a
person can be categories as a contract labour only, when he/she is a workman and employed
through a contractor. In addition to it, there exists no other provision in the Act for complete
cessation of contract labour system, it was enacted to protect and safeguard the interest of the
contract labourers.
It is the responsibility of the Central Government or as the case may be, the State Government
with concern to ensure effective implementation of the Act. The respective State Governments
with its state labour department is responsible for the overall execution of the Act in their
respective states. At central level the enforcement of provisions of the Act and rule is entrusted
with the Central Industrial Relations Machinery (CIRM). The Central Government is responsible
for the overall administration and implementation of the Act, throughout the nation.

CONTRACT LABOUR ACT, 1970

CONCLUSION
The Contract Labour (Regulation and Abolition) Act was originally enacted to regulate the
practice of contract labour to avoid exploitation of sweated labour. Section 10 of the Act
empowers the government to prohibit contract labour in certain situations at the discretion of the
government.
In practice, the Act has been interpreted as requiring the abolition of contract labour for all
services that are of a regular nature and are performed on the factory premises. Two Supreme
Court judgements in two cases involving the Gujarat State Electricity Board and Air India have
had the effect that employers using contract labour to perform regular services on the premises of
the employer become liable to absorb such labour permanently. Industry has on several occasions
expressed its disappointment at this viewpoint because it defeats the purpose of employing
contract labour.
A Planning Commission report on employment opportunities said the role of contract labour has
to be seen in the context of a growing trend towards unbundling the production process into parts
and outsourcing supply of these to different producing units. This practice will increase with the
growth of information technology. If such outsourcing leads to a greater specialisation in the
production of these services, with resulting gains in efficiency and reduced costs, it could
rather would stimulate a larger total demand for these services and, therefore, create
employment.
For example, outsourcing of security services could make these services more cost-effective and,
therefore, lead to more demand. An important aspect of cost-effectiveness is that the service can
be discontinued or contracted on a reduced scale in difficult times.
But the present legal provisions introduce a disincentive to the expansion of contractual services.
Its true that enterprises can freely outsource those services that need not be performed on the
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premises (for example, laundry and so on). But for services that are of a regular nature and have
to be performed on the premises (for examples, work in canteen, cleaning, gardening, loading
and unloading and so on), employers outsourcing these run the risk that the labour used in such
services may be treated as contract labour, and may have to be absorbed permanently on the
payroll.
This obviously discourages employers from using such services freely, and most companies
make sure that the outside labour used for such services are changed frequently so that no one
makes a claim for permanent absorption. This results in a lot of heartburn. Also, there are
numerous examples of companies asking outside workers to do regular work on their premises
without any paper work to avoid the legal hassle of giving them contract worker status. These
workers get no benefits and are paid much lower than their permanent counterparts for the same
amount of work.
The Contract Labour Act, therefore, needs to be amended urgently to allow employers to
outsource all peripheral activities to specialised companies, even if it means these employees
work on their premises. The legitimate interests of workers engaged in these activities can be
easily protected by defining minimum responsibilities for health, safety and remuneration.

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BIBLIOGRAPHY

Websites Referred:

http://labour.nic.in/content/dglw/Schemes/ContractLabour.html
http://pblabour.gov.in/pdf/acts_rules/contract_labour_regulation_and_abolition_act_1970

.pdf
http://www.igidr.ac.in/pdf/publication/PP-062-33.pdf
http://www.ficci.com/spdocument/20189/Industrial-Relations-and-Contract-Labour-inIndia.pdf

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