Group Project

Employment Law- 1

PLIGHT OF CONTRACT LABOUR

IN INDIA AND PROTECTION
THROUGH LEGAL
FRAMEWORK

SUBMITTED TO:

Dr. Parul Gupta

PREPARED BY:

Group 5

Astha Sharma (17PGHR14)

Jiten Kakar (17PGHR26)

Kanksha Vyas (17PGHR30)

Rajat Sharma (17PGHR41)

Shaunak Mahendru (17PGHR50)

Shubham Gupta (17PGHR52)

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 ACKNOWLEDGEMENT

We express our sincere gratitude to Dr. Parul Gupta, Professor, Employment Law I,
Management Developments Institute, Gurgaon, for her help and support in guiding us through
to successful completion of this project.

We are grateful to the college authorities of Management Development Institute for providing
excellent facilities and infrastructure for the successful completion of the project. And a special
thanks to all our friends for their encouragement and support.

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 CONTENTS

1. Executive Summary 4
2. Introduction: Labour Legislations: Early stages. 5
3. Introduction: Labour Legislations: Present scenario.. 7
4. Current scenario of Contrat labour in India 10
5. Salient features of the Contract Labour (Regulation and Prohibition) Act, 1970.. 13
6. Employers Perspective... 16
7. Recommendation 17
8. Conclusion.. 18
9. References.. 19

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 EXECUTIVE SUMMARY

The project specifies the main issues that have emerged on labour market reforms in India in
recent times in the academic and political circles. There is enough evidence of increased labour
flexibility since the 1980s, though no significant changes in labour regulations took place in
this period. To avoid this inflexibility and improve the profitability and effectiveness of
business, the Indian industrial establishment has been steadily moving towards increasing the
contract labour force in their ranks. The increasingtrend of contract hiring by Indian firms is in
line with the global trend of seeking employment flexibility. Contract Labour remained
ignored for a long time. The parliament therefore in 1970 passed the CONTRACT LABOUR
(REGULATION AND ABOLITION) ACT, to prevent the exploitation of contract labour.
The policy of the act is to prohibit the employment of contract labour and wherever that is
not possible, to improve the conditions of work and bring this exploited lot in the ambit of
the Labour Laws prevalent in the country.
Contract workers constitute a large part of the total wage employment in India. It has been
believed since long that most of these workers are engaged in activities necessitated by
seasonal/occasional requirement of employers or in situations where there is a temporary
increase of work ever, in view of the growing incidence of globalization a major reason for
employment of contract labour is its contribution to the economic and financial feasibility of the
establishment. The number of contract labourers in the country is on the rise, primarily because
they can be paid less than permanent workers and the ease with which they can be sacked.
However, the benefits and the assurance that theyre treated fairly and equitably is something
that needs to be regulated properly through the Contract Labour (Regulation and Prohibition)
Act, 1970 and other related legislatures. We also discuss the increasing need for such
regulations in the current scenario and finally, provide our suggestions for further changes to the
law which can be undertaken for betterment of the contract labour in India.

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 INTRODUCTION

EARLY STAGES

Contract Labour remained ignored for a long time. Neither the contractor, nor the principal
employer cared for contract labour. In the name of paid laboring, it was bonded labour which was
actually being carried out. Poor and needy people were hired by contractors to be employed in
factories, construction sites, road making, in the chemical and dye industries etc as they came
cheap and free from the hassle of labour laws. The contractors could use, abuse and exploit these
people and then when the work was completed, these people were rendered jobless and uncared
for. If during the work process a worker got killed or lost his limbs, impairing his capability to
earn ever again, it was considered the folly of the laborer and the contractors and principle
employers got away scot-free saying that they were not liable under any legislation. The Whitley
Commission (1860) in pre-Independence India recommended the abolition of contract labour
by implication.
Following such recommendations, the Government constituted various committees to study the
socio-economic conditions of contract labour. Some of such important committees formed over
the years and their comments include the following:

The Bombay Textile Labour Enquiry Committee (1938) stated that if the management of the
mills did not assume responsibility for such labour, there was every likelihood of its being
sweated and exploited by the contractor; it also recommended the abolition of the contract
system of engaging labour as soon as possible and that workers for every department in a
mill should be recruited and paid directly by the management.

The Bihar Labour Enquiry Committee (1941) condemned the practice of recruiting labour
through contractors because they said: the contractors ordinarily lack a sense of moral
obligation towards labour which the employers or the managers are expected to have, and,
therefore, do not often hesitate to exploit the helpless position of labour in their charge.

The Rega Committee (1946) found that the system of contract labour are very much in vogue.

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As a result of these findings, the scope of the definition of workers in the Factories Act
(1948), the Mines Act (1952) and the Plantations Labour Act (1951), was enlarged to include
contract labour. In the case of Standard Vacuum Refinery Company Vs. Their Workmen
(1960) the Supreme Court of India observed that contract labour should not be employed
where:

(a) The work is perennial and must go on from day to day;

(b) The work is incidental to and necessary for the work of the factory.
(c) The work is sufficient to employ considerable number of whole time workmen; and
(d) The work is being done in most concerns through regular workmen.

After assessing the need of such a legislation to be passed, the government finally passed the
Contract Labour (Regulation and Prohibition) Act, 1970 and such regulations were passed so
as to ensure an adequate level of subsistence to the contract labour force of India.

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 PRESENT SCENARIO

Reforms in the labour market aimed at increasing flexibility of labour use by bringing about
changes in legislative framework has been a subject of debate for over 20 years now. With the
dawn of liberalization, privatization and globalization, the country is, by and large, able to
preserve a sound and positive industrial relations climate. the engagement of contract labour
has become a controversial issue and it is a key cause for industrial unrest which led to the
production and financial losses to companies. It is also understood that one of the major
reasons for the industrial unrest could be increasing dependence of industries on contract
labour for the requirement of flexibility and cost effectiveness in business operations. But this
section of workers more concern about the job security and social security, exploitation in the
hands of contractors, low wages, unequal treatment by trade unions and even insulting
behaviour of the permanent workers and supervisors develop revolt manner. still contract
labour are managed well without paying the decent wages to them, although it is not possible
to bring them at par regular employees for the reason that they are doing the different skills set
and handling the various jobs.

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Constructional Framework of Contract Labour System in India
It usually refers to contractual workers engaged through the contractor (including the sub-
contractor) inestablishments. These workers are millions in number and mostly belong to the
unorganized sector. They have very little bargaining power, earn minimum wages, no social
security, temporary employment, and engaged in dangerous occupations which impact their
health and safety conditions. On the other hand, the contract labour is the irregular in nature of
work, cost effectiveness and flexibility in manpower deployment to principle employer for
plant operations. By recognizing the various conditions of contractual workers in India,
Contract Labour (Regulation and Abolition) Act, 1970 was enforced w.e.f 10th February 1971
and subsequently the Rules were also enforced w.e.f. 21st March 1974 to regulate the
employment of contract labour in certain establishments and to provide for its abolition in
certain circumstances

Employment of contract workers in India is regulated by the Contract Labour (Regulation and
Abolition) Act, 1970 that ensures minimum wage, health and safety, and some insurance
provision for them. It applies to establishments employing 20 or more contract workers and to
contractors employing 20 or more workers. It is not applicable to establishments performing
intermittent work, i.e. work performed for less than 120 days and seasonal work performed for
less than 60 days. The principal employers should register their establishments and the
contractors should obtain license to be eligible to execute work through contract labour.

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However, they are not benefitted with the job protection, compensation and union
representation that permanent workers are granted through the Industrial Disputes Act (IDA),
1947. One distinctive provision of the IDA is that no permanent worker can be fired without
the permission of the relevant state government; this is widely regarded as very restrictive.

While the employment of contract labour remained less in the time till 1991, it has increased
manifold since then; special note needs to be taken of a ruling by the Supreme Court in 2001
which interpreted the CLA, 1970 in the case of Steel Authority of India v. National Union
Water-Front Workers. This judicial interpretation has led to increased flexibility in the Indian
labour market enabling firms to employ contract workers widely, often employing them in
jobs where they work alongside permanent workers. However, the demand for better regulation
of the contract workers and liberalization of the IDA has been catching steam.

Also, another point of concern is the rising conflicts in todays scenario due to contractual
employees. In the case of R.K. Panda v. Steel Authority of India where the same issue was in
question the Supreme 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 exploitation. But the right to be absorbed by the employer directly is neither
proposed nor mentioned in the Act.
The Supreme 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. On these basis the Supreme Court gave the following decision
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 seniority.
Regular wages will be payable only for the period subsequent to absorbtion and not
prior to that.
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 injuries. Such incidents have shown the
unrest in the contractual employees in India and have shown the need for regulations for the
same.
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 CURRENT SCENARIO OF THE CONTRACT LABOUR IN INDIA

Basic policy underlying this Act, is to prohibit the employment of contract labour and wherever
this is not possible, to improve the conditions of work of contract labour i.e., the regulation of
service conditions for contract labour. Thus apart from providing for prohibition of employment
of contract labour, provisions are made for effective payment of their wages and to provide for
better health and welfare of contract labour. In short the object of this Act is to do away with
the abuses of the system of employment of contract labour. Also, while permanent workers,
being a part of the organized workforce are protected by the Trade Unions, protection by the
Trade Unions of the contractual employees is complicated and a long process that can lead to
the abolition of the contractual working system in the organization under Section 10 of the CLA
1970.

In D.S. Nakara v. Union of India, the Supreme Court stated thus-

The principal aim of a socialist State is to eliminate inequality in income and status and
standards of life. The basic framework of socialism is to provide a decent standard of life to the
working people and especially provide security from cradle to grave.

However, the Act didnt do away with contract labour as there are several fields where
engagement of contract labour becomes necessary in the interest of the industry. Thus, the Act
saw to fulfilling the following objectives:

Affording security in consonance with objectives of a socialist economic model

Affording equal treatment and security to all employees
Avoiding exploitation of contract employees

Section 10 deals with the abolition of contract labour in certain situations and processes as it sees
fit in accordance with the facts of the case. It says that such a decision of abolition and
absorption as permanent employees depends on various factors, such as:

Whether the work is incidental to or necessary for the industry or establishment

Whether it is of a perennial nature
Whether it is done by regular workmen in other similar establishments
Whether it is sufficient to employ considerable number of permanent workmen
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However, the Constitution Bench of the Supreme Court reversed its earlier decision given in the
case of Air India Statutory Corpn. v. United Labour Union and ruled in Steel Authority of India
Ltd. v. National Union, Waterfront Workers that on abolition or prohibition of contract labour
under Section 10, the workers engaged through the contractor will not automatically become the
employees of the principal employer. Another landmark Supreme Court judgment on the
absorption of contract labour is Gujarat Electricity Board v. Hind Mazdoor Sabha. The Court
recommended that the Central Government should amend the Act by incorporating a suitable
provision to refer to the industrial adjudicator the question of direct employment of the workers of
the ex-contractor in the principal establishment when the appropriate Government abolished the
contract labour. This ruling is being explained by saying that the Apex Court has been guided by
the principles of the new economic policy rather than the socio-economic policy enshrined in the
Constitution. However, it is argued that the Supreme Court has in fact harmonized the new
economic policy with the socio-economic policy authorized by the Constitution while delivering
the aforesaid judgment.
The issue of whether there should be automatic absorption of contract labour on its abolition first
came before the Supreme Court in the case of Air India Statutory Corporation v. United Labour
Union. The three-Judge Bench of the Supreme Court held that abolition of contract labour
ensures a right to the workmen to be regularized as employees in the establishment in which they
were hitherto working as contract labour through the contractor. By virtue of the abolition, the
contractor stands removed, and direct relationship of employer and employees is created between
the principal employer and the contract labour.
The abovementioned issue again came up before the Supreme Court in the case of Steel Authority
of India Ltd. v. National Union Waterfront Workers. In this case, the validity of the notification
dated December 9, 1976 issued by the Central Government under Section 10(1) of the Act in Air
India Statutory Corporation case came up for consideration. The five-Judge Bench overruled the
decision given in Air India Statutory Corporation case and held that automatic absorption of
contract labour by the principal employer on prohibition of contract labour is not contemplated by
the Act. One of the primary reasons for such a decision was the fact that the Act did not provide
in any section for the automatic absorption of contractual employees and neither did it specify the
result of abolition of contractual labour system. Thus, observing that there must be a reason that
such a section was not a part of the Act, the decision was overturned.

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The various landmark cases with respect to the CLA have been as follows:

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 SALIENT FEATURES OF THE CONTRACT LABOUR (REGULATION
AND PROHIBITION) ACT, 1970

The salient features of the Contract Labour (Regulation and Prohibition) Act, 1970 are as
follows:

Covers every establishment in which 20 or more workmen are employed on any day
of the preceding 12 months as contract labour and every contractor who employs or
who employed on any day of the preceding 12 months, 20 or more contract
employees.
Does not apply to establishments where the work is of intermittent and casual nature
unless work performed is more than 120 days and 60 days in a year respectively
(Section 1).
Provides for setting up of Central and State Advisory Contract Labour Boards by the
Central and State Governments to advise the respective Governments on matters
arising out of the administration of the Act (Section 3 & 4).
Establishments covered under the Act are required to be registered as principal
employers with the appropriate authorities. Every contractor is required to obtain a
license and not to undertake or execute any work through contract labour, except under
and in accordance with the license issued in that behalf by the licensing officer. The
license granted is subject to conditions relating to hours of work, fixation of wages and
other essential amenities in respect of contract as prescribed in the rules (Section 7 &
12).
Certain amenities have been laid down to be provided by the contractor to the contract
labour for establishment of Canteens and rest rooms; arrangements for sufficient
supply of wholesome drinking water, latrines and urinals, washing facilities and first
aid facilities have been made obligatory. In case of failure on the part of the contractor
to provide these facilities, the Principal Employer is liable to provide the same (Section
16, 17, 18, 19 and 20).
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
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 Employer.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.
The contract labour who performs same or similar kind of work as regular workmen,
will be entitled to the same wages and service conditions as regular workmen as per the
Contract Labour (Regulation and Abolition) Central Rules, 1971 (Section 21).
For contravention of the provisions of the Act or any rules made thereunder, the
punishment is imprisonment for a maximum term up to 3 months and a fine up to a
maximum of Rs.1000/- (Section 23 & 24).
Apart from the regulatory measures provided under the Act for the benefit of contract
labour, the 'appropriate government' under section 10(1) of the Act 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.

Thus, we see that the Act has primarily focused on stopping the exploitation of contract
workers by contractors, employers and the establishments by ensuring fair and equitable
working conditions. It does not provide for an abolition of contract labour system but it does
provide for abolition of contract labour in certain circumstances. However, on observing the
difference between the organized and unorganized sector, we realize that the Contract Labour
Act is, in itself unable to cater to the needs of the contract labour as only 10% of the Indian
workforce is in the organized sector and comes under the scope of the Act while the vast
majority of the 80 million people (nearly 90% of the workforce) are in the unorganized sector.

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Thus, the question of organized versus unorganized employment is more important that the
temporary/ permanent or core/ perennial issue.

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 EMPLOYERS PERSPECTIVE

While following such practices and contracting work to experts provides flexibility, leads to
efficient utilization of resources and improves overall competitiveness, there is a disparity
among employers associations whether contracting jobs is actually providing real benefits in
flexibility and cost benefits as recent amendments have nearly brought contract employees at
par with permanent employees. While contract employees are paid at par with permanent
employees now according to the work being done and their skills, welfare measures are also
being included for contract employees with a number of welfare legislations like Minimum
Wage Act, Payment of Wages Act, EPF Act and ESI Act also being extended to the contract
workers.

Also, with decreasing employment in the organized sector, the contract labour is a main source
of employment to a rapidly increasing Indian workforce with even experts in subject matters
and specialists preferring to be in a contractual relationship in various IT firms as well
nowadays. Thus, the contractual labour is no longer limited to just the manufacturing sector
where it still holds the majority of the source of employment. Even today, In the automobile
industry, where labour unrest has been more visible in recent years, the ratio is high at 47% but
its even higher in sectors such as energy and utilities (54%) and in cement (52%). 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.

Out of 480 million workers in the country, just 10 per cent are in the organized sector, depriving
the vast majority of social security benefits to contract workers who are part of the unorganized
sector. Even the industry wants these employees to be brought under the net of the organized
workforce and make them countable as formalizing such employment would reduce the need for
approvals and licenses and make it very easy to operate, besides reducing informalization. Also,
it will provide a huge push to the industrial sector for better job creation opportunities.

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 RECOMMENDATIONS

Almost 35% of the labour force in the public sector is on contractual basis as compared
to 30% in the private sector. However, there is no legislation exclusively for regulating
the engagement of the contractual workers. Thus more information needs to be
disclosed by companies on the number and percentage of workers hired on contract,
their monthly wages and the nondiscriminatory policies followed by the company.
DBT Scheme of the Central Government is an efficient scheme launched which ensures
that the money paid to the contractual employees under various rural initiatives actually
reach them by tracking their bank accounts. However, integrating such schemes with
other skill development programmes is needed to better implement socio economic
benefits enshrined under the CLA.
The Central and State Labour Boards should directly monitor the contract laboureres
under the contractors and form welfare schemes keeping them in mind with help from
the employers and trade unions.
Increased scope of the ESI Act, PF Act, Gratuity Act, etc. should be applied on the
contractual employees so as to better provide them with social welfare benefits. To
improve the conditions of the workers, it is fore mostly required to identify the
workforce in the unorganized sector and Government focus should be towards
identification of such workforce.
The initiative by the Government towards linking the bank accounts with the
Aadhar card can prove incremental in ensuring that the benefits for the labour
reach to them . But the implementation of this scheme on the ground level is still
an unanswered question.

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 CONCLUSION

While the presence of contract employees and the various problems that they face has been a
decades old argument, it is increasingly more important nowadays with the recent industrial
issues that have been in the news which led to loss of life and property. The only remedy to it
is by bringing this segment of workers under social security net. Thus, there is an important
need to formalize the informal sector and form welfare schemes keeping in mind the contract
employees of the unorganized sector as well.
Considering skill levels during wage fixation and ensuring the receipt of minimum wage to the
contractual employees will also help decrease the industrial disputes in the economy.
These steps are important as with the liberalization of the economy, the market has become
more competitive and to compete in a global perspective, increased and efficient flexibility
in the employment is needed by the organizations. Also, changes in the Industrial Disputes
Act and other legislations will be needed to reduce the dependence on the Contract Labour
Act. Also, the Trade Unions, rather than just going to the legislative for solutions to the wide
problems, need to strengthen and widen their social coalitions and press for equity both at
the workplace and in the larger society.

However, the principal and most important observation is that there is the need to further
increase the scope of the Contract Labour Act as currently, it has a very narrow scope just like
other laws. The maximum coverage of any labour law is that of the Minimum Wages Act,
which is so because it involves the agricultural workers as well. The labour welfare laws in
India, while many in number, just cover 8% of the workforce at maximum and needs to
involve the informal sector as well. This will be needed to actually benefit the employees and
to ensure rapid and effective growth in the economy

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1. https://escarpmentpress.org/globallabour/article/download/1113/1169
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to-get-more-contract-labourers-under-social-security-net
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