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Contract Labour Issue: A Balanced Approach

Author(s): B. D. Singh
Source: Indian Journal of Industrial Relations, Vol. 34, No. 4 (Apr., 1999), pp. 515-524
Published by: Shri Ram Centre for Industrial Relations and Human Resources
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Accessed: 27-02-2017 15:22 UTC

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IJIR, Vol. 34, No. 4, April 1999 COMMUNICATION





The pronouncement of the Supreme Court in the Air-India case

(1997) on contract labour problem has raised storm in business circle
and this issue has become the most discussed issue in recent times.
This is so because this landmark judgement has graver and far
reaching consequences on transaction of business in future.

While delivering judgement, Justice K. Ramaswamy observed -

"Abolition of contract labour system ensures right to the workmen
for regularisation of them as employees in the establishment in which
they were hitherto working as contract labour through the contractor.
The contractors stand removed and direct relationship of employer
and employee is created between the Principal Employer and

Horns of Dilemma

Going through the original judgement one experiences the

anguish and anxiety of the judiciary to provide justice to contract
labour who have been subjected to exploitation by the employer.
While low wages, inadequate safety provisions, negligible welfare
and social security measures, longer hours of work, exposure to
dangerous and risky operations, etc. have been characteristics of
their lot, their counterparts in regular cadre enjoy better wages, more

Dr. B.D. Singh is Professor of HRM, Management Development Institute, Gurgaon.

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516 Indian Journal of Industrial Relations

perks and privileges without performing much work. They have

their trade unions to support them. Labour laws ensure absolute
job protection. Therefore, their lot is enviable. That is why, possibly,
judiciary focuses its attention to ensure the absorption of contract
labour in regular employment to remove glaring disparities and
perhaps justifiably so.

On the other hand, the concerns of the employers are that

the trend set by the Apex Court is against the emerging business
imperatives. Besides adding to the cost, it brings in the culture
of non-performance, which goes against competitive
requirements of business. Over protectionism by the statute,
judiciary and their "associations" make the regular employees
invincibly secured and it becomes difficult for the employer to
take work out of them. In addition, today's business needs a
slick and smart organisation having net-working, out-sourcing,
off-loading arrangements. According to Tom Peters,
organisations will function like circus companies setting up their
organisations with ease and move to new grounds at very short
notice. Such a business scenario will require the continuance of
contract labour system in order to ensure flexibility and
resilience and provide competitive advantage.

Both the horns of the dilemma have their own justifications and
require to be resolved.

The Magnitude of the Problem

The institution of contract labour is inherent in business processes.

No organisation can afford to have all the assets from start to finish,
and every one has to depend on outside resources for components
and services. Therefore, business society has been resorting to
contracting from time immemorial and will continue to do so in
future also.

At the same time, no civilised society will allow one of its sections
to be exploited by the other one, either in the name of business
imperatives or something else. Exploitation is bad, whether it is by
the employer or the organised employees and must go.

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Comminications 517

Wittingly or unwittingly, contract labour have been employed in

one form or the other by all the sectors - the private/the public, and
the government (whether it is Central Public Works Department,
the Police, the Indian Railways, the Post & Telegraphs Department
or the PSUs). In most of the PSUs, the employment of contract labour
has been alarmingly high and it is difficult for them to function
without them. It will be embarrassing for some of PSUs, if the figure
of contract labour is spelt out. In some PSUs, contract labour have
been working for more than 20-25 years. If the incidents of fatal
accidents are analysed, the contract labour will be accounting for
substantial number. It is sufficient to say that the intensity of the
problem is much more than it meets our eyes. This is why SCOPE
has been raising hue and cry over this issue.

The magnitude of the problem is not less in MNCs, who build

their competitive capabilities through out-sourcing and net
working only.

The indifferent attitude of the trade unions add to their plight.

Barring a few left-wing trade unions, other trade unions do not
show much interest. In fact, most of them go for two sets of the
unions ? one for regular employees and another for the contract
labour. While the former is the real one, the latter only the showpiece.
The attitude of regular employees towards contract labour is not
any better.


One can understand the employment of contract labour on jobs

which are casual, seasonal, intermittent and for whom no permanent
employment can be and has been provided. But the contract labour
have been employed even on jobs which are of perennial and
permanent nature and for whom permanent employees have been
recruited. Contract labour have been employed on all types of jobs,
camouflaging them as temporary ones and sham devices have been
used (giving a break before completion of 240 days, etc.) to justify
the employment. Contract labour are employed mainly to hide
managerial inefficiency because in most of the cases the managers
are incapable to take work from regular employees because of their
collective militancy. Cost efficiency and easy manoeuverability are also

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518 Indian Journal of Industrial Relations

important reasons. The private sector and MNCs go for contract

labour for this reason. They are handy to manage through the middle
men and palming off the liabilities to them in event of crisis.


Contract labour system has attracted the attention and appealed

to the conscience of society since very beginning. The Whitley
Commission, Bombay and Bihar Labour Enquiry Committee, Rege
Committee and Planning Commission, etc. have shown grave
concerns towards Contract Labour System. In its judgement, in
Standard Vacuum Refining Case (1960), the Apex Court has gone to
the extent of telling it to be "primitive, archaic and baneful and an
improved version of bounded labour and sought to be abolished."
NLC also called for stricter regulations and in exceptional
circumstances to bring them on par with regular employees.

Contract Labour (R&A) Act came into being in 1970. It has

twin objectives of 'regulating' and 'abolishing'. The Act has made
the provisions for regulating the contract labour system, but
measures for implementation are not that stringent. The Act also
makes provision in perennial and permanent jobs for abolition of
contract labour. The Act gives the powers to appropriate
Government and not to judiciary to decide the issue of abolition.
But neither the appropriate Government nor the judiciary has been
given powers to regularise the contract labour on the jobs on
which they have being working. After abolition, the contract labour
virtually come to the road. This was a grey area and possibly
deliberate one, because legislature did not want to impose
employment of these labour on the employer. Nevertheless, this
remained the area of concern for contract labour. The judiciary
has been making tryst with it every now and then.

The Act, after abolition, leaves the contract labour in lurch.
Naturally this has been resented by contract labour since
beginning. But because of inadequate support from trade unions
and strong opposition from employers, their voice was
suppressed all these years. The judiciary has also been deliberating

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Comminications 519

and debating on one or the other technical and legal issues without
providing answer to this vexed question as to what should happen
to contract labour after abolition?

Some of the trysts of judiciary with the contract labour issue are
as follow:

1. Standard Vacuum Refining Case S.C. 1960 was very

comprehensive and provided the base for Contract Labour (R&A)
Act, 1970

2. Mathura Refinery Case S.C 1991 stipulated that there is no

direct relationship between Contract Labour and Principal Employer

3. Deena Naths Vs. N.L.F. - S.C. 1995 brought out that High Court
has no jurisdiction to decide the abolition of Contract Labour.

4. Since 1994, the trend of judiciary has been that of anguish and
anxiety and it has displayed unconventional wisdom, going beyond
the boundary of law. In the cases like R.K. Panda Vs. SAIL (Sc-94),
Railway Porters, Vendors and Bearers Union (S.C.-95). PC. Raha
(95) and many other judgements, contract labour working in statutory
canteen, railway canteens and postal services, etc. were ordered to
be absorbed.

5. Gujarat Electricity Board Case (S.C-95) tried to interpret the issue

from legalistic as well as practical point of view. Its legal interpretation
has been too technical and round about. But the court expressed its
shock and surprise on the employment of contract labour in PS?s
and advised them to abolish them on their own. It also advised the
Central Government to go for an appropriate legislation. But nothing
substantial came out after judgement.

6. None of the judgements gave a clear cut answer as to what

happens to contract labour on abolition. Then came the AIR INDIA
judgement S.C. (1997) which answered the question, challenging
the very validity and utility of Section 10 of the Contract Labour
(R&A) Act, 1970. The judgement has put a break in rampant and
reckless employment and abuse of contract labour and forced society
to think about them seriously.

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520 Indian Journal of Industrial Relations


I. The legislature left a gap in the existing legislation on

the issue of absorption. Perhaps the idea was to leave it to the
employer to decide. But the plight of contract labour became worse
in absence of clear-cut guidelines. There was an inherent weakness
in the Act and therefore correction was required, through judicial
activism, if legislature failed to do so.

II. After the judgement, Sec. 10 of the Act, dealing with

abolition has become infructuous and requires removal or

III. The judgement meets the aspirations of contract labour,

but takes away many of the rights of employers in ? freedom to
recruit, determine vacancies, specifications like educational
qualifications, physical fitness, age, etc.

IV. The judgement also contradicts some of the existing

legislations (Compulsory Notification of Vacancy Act, etc.) and goes
counter to the constitutional provision of reservation.

V. The judgement appears totally obsessed with the

abolition and regularisation aspect of contract labour. It is quite
oblivious of the fact as to what happens after regularisation. The
performing human resource becomes non-performing. It can be
argued that taking work is the management's duty and if they
fail, judiciary is not to be blamed. No argument can be given to
justify managerial inefficiency. But one can not overlook the
excessive protection that the regular workers enjoy from legislation,
judiciary and their associations and taking work from them is really
a daunting task. This fact can not be ignored and has to be taken
into account while approaching contract labour problem.

VI. The judgement goes counter to the emerging business

imperatives of net-working. Perhaps no such precedent exists
anywhere in the world. Even ILO standards talk about cost-cutting,
and labour-flexibilities. Therefore, judgement is criticised as a
retrograde step.

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Contract labour problem is very complex and it does not have a

straight and simple solution. All aspects of the problem are required
to be considered before arriving at a solution. Exploitation at no
cost, but inefficiency also may not be encouraged. Payment and
performance must go together . Cost efficiency is the business
requirement, but keeping the wages abysmally low for contract
labour because of their weak bargaining strength, is also not proper.
In fact, it is unethical and immoral. A balanced approach is

The management of contract labour is a managerial problem,

and it requires basically managerial solution. Of course, if legislature
and judiciary adopt helpful gesture, that should be welcomed. But
managers cannot pass on their problems to others to solve them.
They have to grapple with the problem and find the way out

The issue of contract labour is not a normal issue. Therefore,

approaches to find out possible solutions have to be innovative and
unorthodox. It is in this backdrop that the author has ventured to
suggest some approaches.

Approach One

We may continue with the problem as it exists and may allow it

to take its own shape in future. In that case, the game of hide and
seek will continue. The management will go on inventing ways to
circumvent their absorption and contract labour and judiciary will
go on undoing their camouflaging. The problem will worsen with
the passage of time.

Approach Two

Contract labour may be brought on par with their regular

counterpart minus the "commission" to the contractor. This may
satisfy the contract labour to certain extent. But the psychological
sense of discrimination will still continue to bother them and sword
of insecurity and non-permanancy will continue to hang. On the

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other hand, though employers still have the element of flexibility

and manoeuvrability through contractor, they will resent it because
such an approach will not be cost-effective and business friendly.

Approach Three

Let most of the jobs in the regular employment be converted

into to the"short term" contracts. This approach along with Approach
Two above will provide adequate satisfaction to the contract labour.
This will also be beneficial to the "organisation" as well as "short
term regular employees". The culture of complacency and undue
security will wither away. Such employees will all the time be on the
tenterhooks to perform, else face expulsion on completion of their
term. The organisation will also be on alert to retain good performers,
else they will desert them. Such an approach, while eliminating the
hiatus between the contract labour and regular employees, will usher
in culture of competitiveness. This type of practice exists in some
economically advanced countries. But this concept is difficult to be
sold and implemented in India because of deep vested interest of
the employees who have entered the permanent jobs and enjoyed
the fruits thereof for long. However, we can think for future.

Approach Four

Though Contract Labour (R&A) Act, has twin objective of

"regulation" and "abolition", not much emphasis has been given on
the former by the implementing authorities. Judiciary has also
concentrated on 'abolition' aspect all through. This has created a
perception that absorption is the only panacea of improving the
lot of contract labour. Very scant or no attention has been paid to
the "regulation aspect" of the contract labour problem. In fact,
this aspect alone has the potential of providing the balanced
approach, containing the elements to satisfy the aspirations of both
sides. This fourth approach talks about only "regulation aspect"
and pleads for removal of "abolition aspect" from the Act. Perhaps,
a similar approach has been mooted by employers (SCOPE) to the

This approach assumes that employers be given the right to

go for contracting without restrictions in order to remain

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competitive. The judiciary, the state and the management should

concentrate on regulation and monitoring, so that contract labour
are not subjected to exploitation. For that a new dispensation
for their wages, safety and welfare has to be evolved than
continue to tie them with archaic minimum wages and continue
to display callous attitude of neglect and indifference to their
needs of safety, security and welfare, etc.

Let there be a scheme that talks about wages which, if not

equal to their counterparts, should be sufficiently higher than
the minimum wages, let the safety, security and welfare be the
direct responsibility of the Principal Employer and let contract
labour have the status of a "Secondary Employee" and find a
place in the organisation's standing orders. Let there be a
stipulation that in the event of vacancy in the particular category
in the establishment, the contract labour so employed over a
period of five years or more, be given priority in employment,
if he is otherwise fit.

Not exactly similar, but something like this, has been tried
in Indian Iron & Steel Co. (IISCO Experiment). The contract labour
gets "an agreed wage" which is higher than the minimum wage.
They get D.A., though per point neutralisation is less than for
the regular employees. There is a 'Contract Labour Cell' which
ensures the safety and welfare measures of contract labour.
Besides statutory safety and welfare, the contract labour gets
HRA, LTC, Medical Benefits, VRS, etc. which is, of course, less
than the regular employees. The PF and Gratutity, etc. are also
taken care of by the Principal-Employer. Such an arrangement
has been agreed by the operating trade unions. The incidents of
abolition and other types of agitations have been far less, though
the contract labour have been deployed in permanent
departments for long. IISCO experiment provides a via-media
and a sort of balanced approach to this vexed issue. It is not the
ultimate model. It requires much improvisation in almost all
the areas.

Prohibition of contract labour system goes against the spirit of

global competitiveness. Therefore it is not desirable to abolish it. At
the same time, exploitation of contract labour is inhuman, uncivilised

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and unwarranted. A possible solution is the reconciliation of these

conflicting interests by evolving such an appropriate dispensation.
Approach Four' could be one such solution which can be further
refined, revamped and refurbished and implemented to provide a
balanced approach to this vexed problem. If the legislature amends
the Act, accomodating the elements of reconciliation, and also
strengthening the implementation machineries and making the
penalties and punishments more stringent, that will be a welcome
step. But the profession should not wait for that and must invent
and reinvent ways and means to contain this problem.

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