The Contract Labours

(Protection and Abolition)Act,

VAISHALI RATHI
V YEAR, E
15010126478
Batch- 2015-2020
INTRODUCTION
The run to maximize profits has led to increase in the pace of production and simultaneously
careful cost cutting by companies. This has promoted the concept of contract labour across the
globe.

In India also, the major workforce is in the form of contract workers engaged in seasonal or
occasional employment. These workers are engaged through contractors who work as the middle
man between the actual employers and the workers. In some cases, though the contract workers
and the workers directly employed by the industrialist did the same nature and amount of work,
they were not paid the same wages. Thus, leading to exploitation of these workers. Contract
labourers also suffer from inferior labour status, casual nature of employment, lack of job
security and poor economic conditions.

To provide legislative protection to these workers and to ensure security and welfare of contract
labourers, the Central Government passed the Contract Labour (Regulation and Abolition) Act in
1970. The Act was enacted to regulate safe working conditions for contract labourers and move
towards gradual abolition of the contract labour system.

OBJECTIVES OF THE ACT

The primary objective of the Act is to prevent the exploitation of contract workers and to abolish
the system of contract labour in cases where:

 The work is perennial in nature.

 The work is incidental or is necessary for the functioning of the establishment.

 The work is of such a nature that it can employ a considerable number of workmen full
time.

 The work need not be done by contract workers and can be done by regular workmen.

APPLICABILITY AND SCOPE OF THE ACT

The Act is applicable to

As per this, all such organizations should make an application to the Registration Officer,
appointed by the Government, to register itself as the Principal Employer and non registration of
the same would lead to barring the establishment from employing contract labor.

The contractors working as the middle men are also required to obtain a license to continue their
work. Such license has certain conditions such as hours of work, fixation of wages and provision
of certain essential amenities etc. subject to which the contractor can recruit contract laborers.

To ensure that the wages are regularly paid to the contract labours, the obligation has been put on
the Principal Employer to mandate the presence of its authorized representative while the
contractor makes payment. Any default in the payment would make the Principle Employer
liable to make the payment..

It should be noted that the Act is not applicable to establishments that work on a seasonal basis
i.e. if work is performed for less than 120 days a year, it would amount to seasonal employment
and such establishment need not be registered under the Act.

RECOMMENDATIONS OF THE NATIONAL COMMISSION ON

The First National Commission on Labour submitted its report in 1969 after detailed study on all
aspects of labour problems in both organized and unorganized sectors. This led to the enactment
of the Contract Labours Act, 1970 along with other acts.

The Second National Commission on Labour which submitted its report in 2002 recommended
that contract labour should not be engaged for core production/service activities. However, the
employer can employ them for core production/service activity to meet sporadic seasonal
demand. The Commission further mentioned that off-loading perennial non-core services like
canteen, watch and ward, cleaning, etc. to other employing agencies has to take care of three
aspects –

“(1) there have to be provisions that ensure that ensure that perennial core services are not
transferred to other agencies or establishments;

(2) where such services are being performed by employees on the payrolls of the enterprises, no
transfer to other agencies should be done without consulting, bargaining (negotiating) agents;
and

(3) where the transfer of such services do not involve any employee who is currently in service
of the enterprise, the management will be free to entrust the service to outside agencies.”

The Commission also recommended that no worker should be kept continuously as a Casual or
temporary worker against a permanent job for more than 2 years.1

However, the Act fails to regulate contract labour in out-sourcing as it is claimed to be a purely
commercial transactions between the principal employer and the contractor as independent
parties, and therefore, governed by general commercial laws. The entities are hired for the
services of their specific skills and thus, their labours are treated as labours of the entities and not
the Principal Employer. Thus, even though the labours are engaged in core activities, for
example in cases of handmade sport items, they are excluded from the purview of this Act and
thus, not implementing the recommendation. And these labours work under the entities which
are in contract with the Principal Employer for many years, till the contract exists.

Further, it was recommended that the contract labour should be remunerated at the rate of a
regular worker engaged in the same organisation doing work of a comparable nature or if such
workers do not exist in the organisation, at the lowest salary of a worker in a comparable grade,
i.e. unskilled, semi-skilled or skilled.

1
G Shivaji Rao, The Report Of The Second Indian National Labour Commission-2002: An Overview,
WOCKHARDT LTD., (Mar 5, 2003)
[Link]
ational+Labour+Commission2002++An+Overview
It is to be noted that the provision regarding remuneration of the same kind as regular worker in
the appropriate cases is put in the Central Rules which can be easily changed by the State
Governments.

ISSUES IN THE PROVISIONS OF THE ACT

The Act is successful in terms of definitions and facilities to be provided to the contract labours.
The courts have easily interpreted the words as per the requirement and have also construed as to
when the labourers would be considered as contract labourers or not.

However, the following issues have brought the Act under question:

 ISSUE OF ABOLITION OF CONTRACT LABOUR

Though the primary aim of the Act is regulation of contract labor, its ultimate objective is to
abolish the same. This brings the employment status and opportunities of those benefiting
currently under the Act under threat. An abolition of contract labor would mean loss of
employment which is against the primary objective of the Act.

However, the Supreme Court in the case of RK Panda v. Steel Authority of India,2 held that
though the Act aims to protect contract workers from exploitation, however to absorb them in the
workforce or terminate their employment is the sole discretion of the employer. The Supreme
Court further stated that the right to be absorbed by the employer directly is neither proposed nor
mentioned in the Act.

But the Supreme Court looking into the objective of the Act and devising new principles to
impart justice held that-

“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.”

2
1994 SCC (5) 304
The same issue was raised again in Air India Statutory Corp. v. United Labour Union3 where the
Supreme Court held that looking at the provisions which states that utilities which should be
provided by the principal employer to them, it can be easily inferred that the Act does not intend
to make the contract labours jobless after the abolishment of contract labours. It endures towards
a better working environment for them. The Act also does not intend to deny the workmen to
continue their work or to devoid them from benefits of permanent employment because earning
livelihood is a fundamental right. The Court ordered to absorb these workers on a seniority basis.

However when the same issue was raised again in Steel Authority of India Ltd. v. National
Union Water Front Workers4 , the Supreme Court said that Section 10 of the Act or any other
provision there does not imply for automatic absorption of contract labours. It further said that
the Act does not mention that the contract labours are or should be treated as the employees of
the employer rather they are the employees of the contractor. Therefore the employer has no duty
or under no obligation to absorb them.

The similar strict approach was taken in the case of Municipal Corporation of Greater Bombay
v. K.V. Shramik Sangh5. Recently, in the case of Rourkela Shramik Sangh v. Steel Authority of
India Ltd6 the SC held that the contract labours who were less than 58yrs old and medically fit
should be absorbed by the principal employer.

Thus, the absence of provision regarding the complete abolition has led to ambiguous state of the
contract labours, thus, failing the primary aim of the Act of ensuring safety and security of jobs
to these labours.

The strike of the contract labours at Manesar factory of Honda Motorcycle and Scooter India
Ltd. (HMSI) in 2005 where the company had to call the Police to maintain law and order shows
that the contract labours still don’t have any job security and are being exploited in terms of
wages and working conditions too.7

3
A.I.R. 1997 S.C. 645
4
(2001) 7 S.C.C. 1
5
AIR 2002 SC 1815
6
2003 4 SCC 317
7
Meenakshi Rajeev, Contract Labour: Emerging Issues and Options, 41(21) ECONOMIC AND POLITICAL
WEEKLY, (May 27, 2006), pp. 2086-2088, [Link]
Late last year, around 200 workers of a Chinese smart phone manufacturing unit, Hipad
Technology India, were “sacked” without any prior notice. Reports suggest that the workers
were employed on a contractual basis and due to the shortage of raw materials their contractor
was asked not to supply workers. Thereafter, the agitated workers resorted to violence.8

 THE ISSUE AROUND ARTICLE 19 (1) (G) OF THE CONSTITUTION

To ensure comfortable and dignified working conditions for the contract labours, the Act
obligates the owners of the establishments to provide for basic amenities and needs of the
contract workers. The same was challenged by the owners on the grounds that they have to bear
extra expenses on temporary workers and thus, should not be mandatory. The compulsion was
contended to be violation of Article 19 (1) (g).

However, in Gammon India Ltd and Ors v. Union of India9 , the Court held the

“employer is under the duty to provide the workers with the basic amenities in order to
ensure the health and welfare of the workers. Expenditures incurred in the course of this are
tax free and are in no way a form of wastage of money.”

 ISSUE SURROUNDING THE EFFECTIVE IMPLEMENTATION OF THE ACT

The power of administration has been delegated to the concerned government. The Central
Industrial Relations Machinery (CIRM) is under the duty to enforce the provisions and rules
framed there under the Act at the Central level and the Labour Department in all the states work
at the State level. The powers are accordingly divided among the authorities to ensure effective
implementation. The Central Government has even issued almost 76 notifications under the Act
to achieve the goal of the Act. However, despite these efforts, the violation of the Act is no
where reducing.

Second, the number of establishments employing contract labour is huge and majority of them
have yet not registered under the Act. The ambiguity in the provision related to non-registration

8
Radhicka Kapoor & PP Krishnapriya, Facts and myths on rise of contract labour, THE HINDU BUSINESS LINE
(Mar 18, 2019) [Link]
labour/[Link]
9
1974 AIR 960
settled by the Supreme Court in the case of Dena Nath v. National Fertilisers limited10 and it was
held that the non-registration and non-licensing will lead only to prosecution under the Act and
that the contract workers in such cases will not become the direct employees of the principal
employer The foundation of implementation of the Act itself is not strong.

Third, absence of any provision or statutory decision on the status of workers on abolishment of
the contract labour has led to failure of achieving primary aim of the Act. The varying opinions
of the Court on this matter should be cleared soon.

CONCLUSION AND SUGGESTIONS

Initial days of enactment of the Act was instrumental in protecting the labours, however, with
time, the laws has neither been gradually evolved nor implemented properly. The globalization
brought huge demand for contract labours and the system eventually became exploitive rather
than protective in nature. The contract labours seem to have lost faith as it is evident from
different strikes and incidents across the country. It is a prominent issue and needs to be
promptly addressed. To make the Act more effective, few steps that can be urgently taken are
prohibition of contract workers in core activities, same wage for similar work, piercing the veil
in sham contracts, inclusion of out-workers, provisions for over-time pay, proper health and
welfare provisions and deterrent punishments.

The latest step of the government to consolidate the labour laws appears to be a positive step but
towards safety and better working conditions but the implementation is the most important part
of it which is left to the appropriate governments, so the effectiveness of the consolidation still
remains uncertain.

10
AIR 1992 SC 457
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