Contract Labour

Regulation and
Abolition Act, 1970

Naresh Kumar Pinisetti

Who are Contract Labour?
Outsourcing
Certain activities/services are outsourced instead
of carrying them out through an in-house
department or employees handle them. E.g., Toll
Manufacturing, Payroll, Fabrication, Customer
Service, IT etc.,
Hiring another agency or an individual to
perform tasks, handle operations or provide
services that are either usually executed or had
previously been done by the company's own
employees. For e.g., Maintenance, House
Keeping, Canteen, Operations, Bagging of
Product etc.,
 Flexible
Employment is
on the increase

1997-98 2016-17
Top 10 Sectors
with highest
proportion of
Contract Labour
Why Contract Labour practice
gained ground in India?

 Cost arbitrage
 Outdated Labour Laws
 Spate of judicial pronouncements
supporting workmen:
 Justice Desai
 Justice Krishna Iyer
 Justice Gajendragadkar
Why Contract Labour practice
gained ground in India?
contd…..

Unfair work practices & Militant Trade

Unionism:
 Focus on rights not responsibilities
 Nexus with political parties
 Outsiders in Trade Unions
 Frequent unrest and conflicts
Why Contract Labour practice
gained ground in India?
Contd….

Incorporation of Chapter VB in Industrial

Disputes Act
“The heavier regulation of labour is detrimental
to labour force participation and generates
higher unemployment, especially of the young”
- Botero, et al. (2003), Study of Employment and Social
Security Laws of 85 countries
Why Contract Labour practice
gained ground in India?
Contd…

Introduction of Section 9 A in Industrial

Disputes Act:
“Pro-worker legislations have contributed to the
lowering of investment and employment in the
organized manufacturing sector and thus have also
facilitated the existence and growth of a very large
informal sector”
- Besley and Burgess (2004), “Can Labour
Regulation Hinder Economic Performance?
Evidence from India”, The Quarterly Journal of
Economics
Supreme Court on System of Contract
Labour

It is surprising that more than 40 years after the Independence, the practice of
employing labour through contractors is still being accepted as a normal
feature of labour-employment. There is no security of service to the workmen
and their wages are far below than that of the regular workmen of the
company”
– Standard Vacuum Refining Co.

“The system of contract labour in Indian Industry is archaic, primitive

and of baneful nature. The system is nothing but an improved version
of bonded - labour”
- Catering Cleaners of Southern Railway
Need for Legislation on
Contract Labour

 Recommendation of Whitley Commission

 Recommendations of Bombay Textile Labour
Enquiry Commission
 Recommendation of the Rege Committee
 Observations of Second Planning Commission
 Recommendations of National Labour Commission
 Judgement of Supreme Court in Chintamani Rao’s
case
Objectives of the Act

• Regulation of the employment of contract

labour in certain industrial establishments

• Provide for abolition in certain

circumstances
Applicability of the Act

 Act applies to:

 Establishments employing more than 20
contract Labour
 Contractors employing more than 20
workmen

 Not applicable to establishments where

work performed is of intermittent or
casual nature
Who is a Contract Labour? –
Definition

A workman is deemed to be employed as

‘contract labour’ in or in relation to the work of
the establishment, if he is hired for such work
by or through a contractor, with or without the
knowledge of Principal Employer
- Section 2(1)(b)
Key Players in Contract Labour (R&A) Act

Principal Employer

*Contractor

Contractor’s Workmen

*Includes a sub-contractor
Regulation of Engagement of
Contract Labour

 Registration of establishment employing contract

labour by Principal Employer
 License to be obtained by contractor
 Govt. specifies rates of wages payable
 Govt. lays down the conditions of service, hours of
work, holidays etc., applicable to the Contract
Labour
 Specifies the rates of Wages and conditions of
service to be same when Contract Labour perform
similar kind of work performed by regular workmen
Abolition of Contract
Labour
(Section 10)
Abolition of Contract Labour – Process to be followed by
Government (Sec.10)
(a)
whether the process, operation or other
work is incidental to, or necessary for the
industry, trade, business, manufacture or
occupation that is carried on in the
In consultation with the establishment;
Contract Labour Advisory
Board

Section 10 provides for (b) whether it is of perennial nature, that

prohibition of
employment of contract
labour:
After considering the
conditions of work and benefits
provided for the contract
labour in that establishment
and other relevant factors:
is to say, it is of sufficient duration
having regard to the nature of industry,
trade, business, manufacture or
occupation that is carried on in that
establishment;*
Points
to be
considered
(c) whether it is done ordinarily
through regular workmen in that
establishment or an establishment
similar thereto;

(d) whether it is sufficient to employ

considerable number of whole-time
workmen.
Abolition of Contract Labour – Case
Law

 Non-consideration of the views of Advisory Board:

 L&T McNeil Ltd. vs Govt of Tamil Nadu 2001 I CLR 804
(SC)
 Non- application of mind by Government:
 SAIL vs. National Union Water Front Workers 2001 III CLR
349 (SC)
 Indian Iron & Steel Ltd. Vs. Union of India 2002 III LLJ 603
(Jhar DB)
 Practice in similar other establishments to be
considered:
 Gujarat Narmada Valley Fertilisers Ltd. vs. State of Gujarat
2000 I CLR 837 (Guj HC)
Abolition of Contract Labour –
Case Law
contd...

Courts cannot give directions for abolition of

contract labour:

 Gujarat Electricity Board vs Hind Mazdoor Sabha

1995 AIR 1893 (SC)
 SAIL vs Union of India 2006 III CLR 659 (SC)
 RCF vs. G Employees’ Association 2007 4 LLN
12 (SC)
What happens to contract labour
upon abolition?
Upon abolition, contract labour are to be treated as direct
employees of the employer from the date of abolition:
 Air India Statutory Corporation vs. United Labour Union 1997 I
LLN 75 (SC)

 The Principal Employer is not liable to absorb the contract

labour upon abolition in case of a genuine contract.
 In case a contract is found to be a mere camouflage/sham, the
contract labour will have to be treated as employees of the
Principal Employer and shall be directed by the industrial
adjudicator to regularize the services of the Contract Labour in
the concerned establishment.
SAIL vs National Union Waterfront Workers
2001 4 LLN 135 (SC)
Test to decide if a contract is a sham

Who appoints the workers

Who pays the salary/remuneration
Who has the authority to take disciplinary
action/dismiss
Extent of control and supervision

NALCO vs Ananta Kishore Rout 2014 6 SCC 756 (SC)

Chennai Port Trust vs. CPT Canteen Workers Welfare Assn. CA
1381 of 2010 (SC)
Balwant Rai Saluja vs. Air India 2014 III CLR 751 (SC)
SCI vs. LB Hotel & Bakery Mazdoor Union 2016 (5) ABR 443 (SC)
Rajesh Shah vs Their Workmen 2019 I LLJ 298 (Bom)
What is Control and
Supervision?
 No stipulation in contract that the new contractor has to
retain the workmen of previous contractor
 Wages, EPF, ESIC, Leave Salary, Medical Benefits of
the workmen are paid by the Contractor and not the
Principal Employer
 Contractor to maintain proper registers and records as
part of statutory compliance
 Contractor responsible for disciplinary action and
dismissal of the workmen
 Control exercised by Principal Employer to ensure that
the workers employed are qualified to render proper
service to the employees is not reckoned as absolute
control
 Haldia Refinery Canteen Employees vs IOCL 2005 5 SCC 51
Can Contract Labour seek
Regularisation?

 In case of a sham contract, the contract labour

can seek adjudication under Section 10 (1) of
Industrial Disputes Act – SAIL judgement
 In such a case, the Govt. is bound to refer the
matter for adjudication unless the demand was
frivolous or perverse – SS Sangh vs IOC 2009 (3) LLN 19 (SC);
 In case the Labour Court/Tribunal based on
material on record find that the contract labour
system is a sham, they can direct that the contract
workmen are deemed to be regular employees of
the establishment – SAIL judgement
Obligations of
Principal
Employer
Payment of Wages and
Minimum Wages
 Contractor shall be responsible for fixing wage periods
and payment of wages to workmen employed by him –
Section 21 (1)
 Every Principal Employer shall nominate a
representative to be present at the time of disbursement
of wages by the contractor to certify the amounts paid
as wages in the Register of Wages – Section 21 (2)
 In case the contractor fails to make payment of wages
or makes short payment, the Principal Employer is
liable to make payment of wages – Sec 21 (4)
 In such a case, the said amount can be recovered from
the Principal Employer from the dues payable to the
contractor
Extending Social Security Benefits

 Definition of ‘Employee’ under Sec. 2 (f) in EPF Act,

1952 includes contract labour engaged by Principal
Employer
 Establishments covered by ESI Act, 1948 engaging
contract labour come within the purview of definition of
‘Employee’ under Section 2 (9) of the Act. Sec 40
mandates Principal Employer to pay contributions
subject to the right of reimbursement from contractor
 Payment of Bonus Act, 1965 is silent on the aspect of
payment of bonus to contract labour
 Payment of Gratuity, 1972
 Cominco Binani Zinc Ltd vs Pappachan 1989 LLR 123 (Ker)
 Madras Fertilisers Ltd vs CA under PG Act 2003 LLR 244 (Mad)
 The Superintending Engineer vs Appellate Authority; Laws (MAD)
2012-7-185 (Mad HC)
Employee Compensation Act

As per Section 12 (1) of the Act, if an employee of a

contractor suffers any injury, the Principal Employer
is liable to pay compensation subject to:
a. the work is ordinarily a part of the trade or business of
the principal
b. the accident, saddling the liability for compensation,
should have occurred on, in or about the premises on
which the principal has undertaken or usually undertakes
to execute the work or which is in his control or
management and
c. the occurrence of the accident while the employee was in
the course of his employment in executing the work.
Providing Amenities
(Sections 16 to 19)
 Canteen (>100 workmen), Creche (women
workers), Rest Room, Latrines, Drinking
Water and First Aid Boxes are to be provided
by the contractor
 In case contractor fails to provide, the
Principal Employer should provide and
recover the cost from the contractor
 Failure to provide amounts to violation of
Article 21 and the workers can enforce the
right by writ petition under Article 32
 People’s Union for Democratic Rights vs Union of India
1982 3 SCC 235
 29

Thank You
Equal Pay for Equal Work

Contract Labour that performs same or

similar kind of work as regular workmen
of the establishment will be entitled to the
same wages, holidays, hours of work and
other service conditions as regular
workmen
-Complete and whole-sale identity between the two
groups; State of Haryana vs Charanjit Singh 2006 9 SCC
321
Difference in Wages

The provisions contained in Section 21 (4)

cannot extend to cover payment of equal pay
for equal work but is only restricted to the sums
payable by the contractor under the terms of
the contract of employment with each worker
- Hindustan Steel Works Construction vs
Commissioner of Labour: 1996 II CLR 610 (SC)
Regulation of engagement of
Contract Labour
contd….

 Provisionof Canteen where contract labour

engaged are > 100
 Provision for providing facilities like Rest Rooms
Drinking Water, Latrines, Washing facilities and
First-aid
 Provisionof Crèche where women Contract Labour
are employed and restriction on duty timings
 Principal employer made liable for the following
 Payment of Wages
 Providing the amenities to Contract Labour
Other Obligations of Principal
Employer

 Equal Pay for Equal Work

 Payment of Wages and Minimum Wages
 Extending Social Security Benefits:
 Provident Fund Contributions
 Coverage under ESI Scheme
 Employee Compensation where applicable
 Extending Leaves, Holidays, Weekly Offs,
Overtime Wages etc.
 Providing amenities