Educational Rights of the Minorities under the Indian Constitution : A Myth or Reality

REGULATION OF CONTRACT LABOUR IN

INDIA:ISSUES AND PROSPECTS
DIGVIJAY SINGH
ABSTRACT:
The increasing engagement of contract labour has greater
flexibility to adjust the number of workforce, better utilization of
resources, optimization of profit and bringing cost effectiveness for
employer. However, it has the risk of lousy pay to contract workers and
denial of many benefits available in the name of social security. State
needs to play active role to make a balance in these two-conflicting
interests in industry to ensure industrial peace and harmony. The
phenomenon of labour unrest has now become one of the significant
features of industrial relations in India in case of contract labour. The
practice of employing labour through independent contractors is
increasing in the country and thus, avoiding the direct nexus between the
employers and their workmen. Also, there is now an increasing
difference in industries in the name of regular workers and contract
workers itself. The recent observation of Apex Court for equal
remuneration to contract worker is of forereaching importance to fill the
gap.
KEY WORDS: Contract Labour, Equal Remuneration, Industrial
Relations, Labour Unrest, and Social Security.
I. INTRODUCTION
Temporary or part time wage employment is now a major feature
of industrialised as well as developing countries. In India, the number of
temporary workers has grown from 10 per cent in 2009 to 34 per cent in
2013 in top companies.1 The phenomenon of labour unrest is now


LL.M., Ph.D. (Banaras Hindu University), Assistant Professor, School of Law and
Governance, Central University of South Bihar, Gaya (Bihar). Author may be contacted
at: digvijaysingh@cusb.ac.in
1
See, India Labour Market Update, ILO Country Office for India, 2016; and A.K.
Panigrahi, ―Contract Workers in India‘s Organised Manufacturing Sector‖ 5(2) The
Journal of Industrial Statistics, 2016, pp.138-153, at 138

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become one of the features of industrial relations in India in case of

contract labour. The problems and abuses resulting from engagement of
contract labour had attracted the attention of Government from time to
time. In 1969, the First National Commission on Labour submitted its
report recording the finding that contract labour system was functioning
with advantage to the employer and the disadvantage to the contract
labour and recommended that it should be abolished in the country.1
While recommending abolition of contract labour system, it was
emphasised that such facilities which other regular workers enjoyed,
should be made available to contract labour if for some unavoidable
reasons the contract labour had to stay.2 In its report the commission
noticed the fact of introduction of the Contract Labour (Regulation and
Abolition) Act, 1970. Engagement of contract labour by itself lends to
various abuses and in accordance with the devout objective as enshrined
in the Constitution.
Now, industries are hiring more and more numbers of contract
labours to have greater flexibility to adjust the number of workforce
based on economic efficiency, better utilization of resources,
optimization of profit and bringing cost effectiveness, despite the of risk
of lower worker loyalties and lousy pay.3 The practice of employing
labour through contractors and other agencies and thus, avoiding the
direct nexus between the employers and their workmen is very common
now a day. Contract labour system helps to absorb the ever-increasing
population pressure on the labour market by creating new employment
opportunities such as short term or fixed term work assignments and
allied services to the main business activities. This ensured that the
workmen were paid much lower wages than they would be entitled to
under direct employment. This system led to whole-scale exploitation of
contract labour.

1
The First National Commission on Labour, Government of India, 1969, para 29.14, and
29.15
2
V.G. Goswami, Labour and Industrial Laws (Allahabad: Central Law Agency, 10th
Edition, 2015) at 649
3
Industrial Relations & Contract Labour in India, All India Organisation of Employers,
at 1, available at: http://ficci.in/spdocument/20189/Industrial-Relations-and-Contract-
Labour-in-India.pdf

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 Educational Rights of the Minorities under the Indian Constitution : A Myth or Reality

The system of increasing employment of contract labour is

prevalent in almost all the sectors in the country. Liberalisation of market
economy in early nineties has necessitated greater flexibility of
employment for the industries to compete in the global perspective and
antediluvian labour laws have forced industries to hire contract labour to
address the cyclical demands and creating business friendly compliance
mechanism to survive and compete in the globalised economy.1
Recently, the Government of India has taken step forward to bring in a
giant of changes to the labour laws in the country including contract
labour. As part of legislative reforms of labour laws, the Centre has
started the process of codification and amalgamation of forty-four
Central labour laws into four codes in order to simplify them.2 At the
same time the Contract Labour (Regulation and Abolition) Act, 1970 has
also been amended to make it more effective. The following part of the
paper examines existing laws, judicial approach, recent changes and in
the last concludes the work.
II. REGULATION OF CONTRACT LABOUR IN INDIA
Indian labour laws are pro-workers and it is understood as very
restrictive from the viewpoint of the employer. It is very hard for
employers to fire workers particularly larger firms who have to get
permission from the government to retrench workers. Given the
restrictions placed on typical employers hiring work force, it is the case
that allowing the use of ‗contract labour‘.3 ‗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
1
J. Adi Narayana, ―Regulation of Contract Labour: Judicial Perspective‖ 1(3)
International Journal for Legal Developments and Allied Issues, 2015, at 21
2
―44 labour laws to be amalgamated into 4 codes‖ available at:
http://www.thehindu.com/news/national/other-states/44-labour-laws-to-be-amalgamated-
into-4-codes/article7762305.ece. These codes areCode on Wages, Code on Industrial
Relations, Code on Social Security, and Code on occupational safety, health and working
conditions.
3
Jaivir Singh, Deb Kusum Das, Homagni Choudhury and Prateek Kukreja, Law, Skills
and the Creation of Jobs as „Contract‟ Work in India: Exploring Survey Data to make
Inferences for Labour Law Reform,Indian Council for Research on International
Economic Relations, 2016, Working Paper 330, at 4

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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 either form, contract labour is
neither borne on pay roll or muster roll or wages paid directly to the
labour.1
The practice of employing labour through independent
contractors is increasing in the country and thus, avoiding the direct
nexus between the employers and their workmen. Entire factories were
farmed out to contractors requiring them to produce the goods in such
factories through machinery owned by the employers, and thereafter, the
goods were marked under the employer‘s brand name.2 The result is that
workmen are paid much lower rates of wages than they would be entitled
to under direct employment. This system led to whole-scale exploitation
of labour, and a series of demands were made before tribunals for the
abolition of system of contract labour in country.3 Against this demand
there started regulation of contract labour. It is primarily the Contract
Labour (Regulation and Abolition) Act, 1970 along with the other
legislations4, which are largely applicable to the contract workers in the
country. However, in spite of the plethora of regulations, the contract
labour system in the country has been in disarray.5 Structural analysis of
the following laws is not out of context.
The Contract Labour (Regulations and Abolition) Act, 1970
The Contract Labour (Regulations and Abolition) Act, 1970 is
the main law to regulate contract labour in the country. It regulates legal
entitlements of stakeholders6 and provides for both primary and

1
The First National Commission on Labour, 1969
2
J. Adi Narayana, supra note 5, at 7
3
Id., at 8
4
These legislations include particularly, the Employee‘s Compensation Act, 1923; the
Factories Act, 1948; the Employees‘ State Insurance Act,1948; the Minimum Wages Act,
1948, the Industrial Disputes Act, 1947; the Employees Provident Funds Act, 1952; and
the Maternity Act, 1963.
5
Pankaj Kumar, ―A Structural Analysis of Indian Contract Labor Laws‖ 49(2) The
Indian Journal of Industrial Relations, October 2013, at 185
6
For this Act, Stakeholders include workers, contractors, and enforcement agencies

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 Educational Rights of the Minorities under the Indian Constitution : A Myth or Reality

secondary entitlements to these stakeholders, but has some structural

issues leading to irregular realization of these entitlements.1 The Act
applies to every establishment in which twenty or more workmen are
employed or were employed on any day of the precedingtwelve months
as contract labour and to every contractor who employees or who
employed on any day of the preceding twelve months twenty or more
workmen.2 It does not apply to those establishments in which work only
of an intermittent or casual nature is performed.3 Pankaj Kumar argues
that there is conscious attempt by principal employer and the contractor
to avoid the various provisions of the law based on the limitations of the
law itself.4
The Act makes mandatory provision for registration of
establishments and provides that no principal employer shall employ
contract labour in the establishment if it is not registered or registration
has been revoked for specified reasons.5 It also empowers the appropriate
appropriate government to prohibit contract labour in certain situations in
any process, operation or other work in the establishment.6 To regularise
employment of contract labour, government may provide that no
contractor shall undertake or execute any work through contract labour
except under and in accordance with a licence issued by the licensing
officer.7
Chapter V of the Act adopts welfare and health measures
including facilities like canteens, latrines, urinals, rest rooms, crèches,
washing facilities, and first aid for the workers. If such amenities are not
provided by the contractor, shall be provided by the principal employer.
However, all expenses incurred by the principal employer in providing
such amenity may be recovered by the principal employer from the

1
Pankaj Kumar, supra note 12, at 187
2
The Contract Labour (Regulations and Abolition) Act, 1970, Section 1(4); the Contract
Labour (Regulation and Abolition) Amendment Act, 2016 proposes to do away with the
condition of registration for industrial establishments, employing up to 50 workers.
3
Id., Section 1(5)
4
Pankaj Kumar, supra note 12, at 187
5
The Contract Labour (Regulations and Abolition) Act, 1970, Sections 7, 8, and 9
6
Id., Section 10
7
Id., Section 12

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contractor either by deduction from any amount payable to the contractor

under any contract or as a debt payable by the contractor. The contractor
is duty bound to pay wages to the workers timely and
beforerepresentatives of principal employer.1 But, no consequential right
has been given in the Act per se to the workers in the event of breach of
these provisions.2 Though power has been delegated to the principal
employer to recoverfrom the contractor by deductionswhen the
contractor fails to pay wagesor other entitlements to the workers.3
It has been provided that in cases where the workmen employed
by the contractor perform the same or similar kind of work as the
workmen directly employed by the principal employer, the wage rate,
holidays, hour of work and other conditions of service of the workmen of
the contractor shall be the same as applicable to the workmen directly
employed by the principal employer.4 However, while providing these
rights to the workers no simultaneous duties have been created on the
other parties by the Act itself.5 In fact, while making this provision in the
the law, it seems no serious attempt was made to make suitable
provisions to ensure its implementation to protect the interest of contract
workers.
Other Social Security Legislations
Despite multi-dimensional social security measures adopted in India
ensuring the welfare and well-being of the workers engaged in industries,
mines, and factories etc. and contract labour unfortunately, mostly
unorganised sector workers have been unguarded and unprotected.6
However, there are various social security legislations incorporating
some benefits to contract labour and a precise study of those provisions
is not out of context here.

1
Id., Section 21
2
Pankaj Kumar, supra note 12, at 188
3
Id., Section 21(4)
4
The Contract Labour (Regulations and Abolition) Rules, 1971, Rule 25(2)(v)(a)
5
Pankaj Kumar, supra note 12, at 188
6
V.G. Goswami, supra note 3, at 20; As per the Economic Survey of India, 2016 there
are 86 per cent work force employed in unorganised sector.

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 Educational Rights of the Minorities under the Indian Constitution : A Myth or Reality

a) The Employee’s Compensation Act, 1923

It includes all workmen (except casual workers) and specifically
creates provision for the contract workers as the contractor or managing
agent has been included in the definition of an employer. While imposing
dutyupon the employer for compensationin the case of job related
disablementit creates rights to the workers fortheir legal entitlement.
Though thereis ambiguity in the tripartite relationshipof workers,
contractor, principalemployer in the contract labour systemas to on
whom thisduty would ultimately lies.1
b) The Employees’ State Insurance Act, 1948
This Act specifically makes provision for the contract workers as
the contractor or immediate employer has been included within the
definition of employer. It makes a clear distinction between the principal
employer who is the owner or occupier of the establishment and the
contractor who is the intermediary. It imposes duty upon the employer
for compensation in the case of job related disablement and creates rights
to the workers for their legal entitlement. The Act states that the principal
employer at the first instance shall pay the contribution of both the
employer and the employee and later shall recover the same from the
‗immediate employer (contractor).2
c) The Maternity Benefit Act, 1963
For the purpose of this Act, woman means a woman employed,
directly or through any agency and thus, covering contract women
workers.3 While creating rights for the workers, duties have been created
upon the employer who is the principal employer or an official who is in
control of the establishment. The Act thus creates, entitlements for the
workers based on the duties enforced upon the principal employer who is
neither direct employer and nor can ensure tenurial conditions. The
secondary liabilities on breach also fall upon the employer and not on the
contractor. Thus, though the Maternity Benefit Act was enacted for

1
The Employees‘ Compensation Act, 1923, Sections 2(e), (f), (n) and 3(a)
2
The Employees‘ State Insurance Act, 1948, Section 40
3
The Maternity Benefit Act, 1963, Section 3(o)

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providing better coverage to the working women, the Act could bring
little relief to the contract women workers seemingly due to these
structural issues.1
d) The Employees Provident Funds Act, 1952
As per the provision under this Act employee means any person
who is employed for wages in any kind of work, manual or otherwise, in
or in connection with the work of an establishment and who gets his
wages directly or indirectly from the employer, and includes any person
employed by or through a contractor in or in connection with the work of
the establishment and thus, it covers contract workers.2 Similarly,
employer means in relation to an establishment which is a factory, the
owner or occupier of the factory, including the agent of such owner or
occupier and thus, employers cover contractors also.3
e) The Factories Act, 1948
The Factories Act, 1948 is predominantly a welfare legislation
aimed at the health, safety, proper working hours and other entitlements
of the workers. Under the Act worker means a person employed, directly
or by or through any agency (including a contractor) with or without the
knowledge of the principal employer.4 The Factories Act by its‘
landmark Amendment in 1976 provides for uniform entitlements to
regular and contractual workers, but fails structurally in creating duties
upon contractors.
f) The Minimum Wages Act, 1948
This is a comprehensive piece of legislation covering all
scheduled employment and employer.5 The contract workers are covered
as employer means any person who employs whether directly or through
another person, and employee means any person who is employed for
hire or reward to do any work, skilled or unskilled, manual or clerical, in

1
Pankaj Kumar, supra note 12, at 191
2
The Employees Provident Funds Act, 1952, Section 2(f)
3
Id., Section 2(e) and (i)
4
The Factories Act, 1948, Section 2 (L). This section was inserted in 1976 in the Act.
5
The Minimum Wages Act, 1948, Sections 2 (b)( i & ii) and 2(e)

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a scheduled employment.1 The analysis of the Act shows it to be

structurally sound, the problems in implementation need to be found
beyond the domain of law.
g) The Industrial Disputes Act, 1947
It makes provision for the settlement of industrial disputes. The
Act mainly lays down the procedure for raising and settlement of
industrial disputes. On the question of contract workers, the Industrial
Disputes Act makes no distinction between regular and contractual
workers. It may be concluded by examining definition of workmen
which means any person employed in any industry to do any manual,
unskilled, skilled, technical, operational, clerical or supervisory work for
hire or reward, whether the terms of employment be express or implied.
The contract workers being indirect employees are on the pay roll of the
contractors and do not have any tenure claims. Thus, the Act in its
provisions itself has provided exclusions for the contract workers.
However, this being an Act for raising industrial dispute especially in the
case of retrenchment, can provide some relief to the contract workers
once their appeal is admitted.
I. JUDICIAL APPROACH IN REGULATING CONTRACT
LABOUR IN INDIA
The Contract Labour (Regulations and Abolition) Act, 1970 is
intended to ensure either prohibition of contract labour wherever
practicable or possible or to regulate employment of contract labour if
impracticable to prohibit or abolish this system with a view to ensure all
basic welfare amenities to workers engaged anywhere in country as
contract labour.2If a factory employs contract labour for a work, which
also happens to be its main activity, then contract labour should be
abolished. This simply means that if you want to do your main activity
via contract labour, it‘s illegal; and you need to employ regular labour.

1
Id., Section 2(i)
2
V.G. Goswami, supra note 3, at 650

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Before enactment of this Act, in case of Standard Vacuum

Refining Co. of India Ltd. v. Its Workmen1 the Supreme Court upheld the
right of workmen to seek abolition of contract labour and observed that
whenever a dispute is raised by workmen in regard to the employment of
contract labour by any employer it would be necessary for the tribunal to
examine the merits of the dispute apart from the general consideration
that contract labour should not be encouraged, in a given case the
decision should rest not merely on theoretical or abstract objections to
contract labour but also on the terms and conditions on which contract
labour is employed and the grievance made by the employees in respect
thereof. The contract in this case is a bona fide contract would not
necessarily mean that it should not be touched by the industrial tribunals.
If the contract had been mala fide and a cloak for suppressing the fact
that the workmen were really the workmen of the company, the tribunal
would have been justified in ordering the company to take over the entire
body of workmen and treat it as its own workmen.2
After enactment of the Act, in case of Catering Cleaners of
Southern Railway v. Union of India & Ors.3 Justice Chinnappa Reddy
observed that the practice of employing labour through contractors for
doing work inside the premises of the primary employer, known to
researchers of the International Labour Organisation and other such
organisations as ―labour only contracting‖ or ―inside contracting‖
system, has been termed as an aerobic system and a relic of the early
phase of capitalist production, which is now showing signs of revival in
the more recent period. Of late there has been a noticeable tendency on
the part of big companies including public sector companies to get the
work done through contractors rather than through their own
departments. It is a matter of surprise that employment of contract labour
is steadily on the increase in many organised sectors including the public
sector, which one expects to function as a model employer.‖

1
AIR 1960 SC 948
2
Justice K Chandru, ―Contract and Outsourced Labour Issues and Challenges‖, available
at:
http://www.nja.nic.in/Concluded_Programmes/2016-17/P-1013_PPTs
3
AIR 1987 SC 777

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 Educational Rights of the Minorities under the Indian Constitution : A Myth or Reality

The Apex Court of India in Secretary, Haryana State Electricity

Board v. Suresh and Others1highlighted the jurisprudence of this law and
observed that the doctrine of equality as enshrined in the Constitution of
India promised an egalitarian society and this law is resultant effect of
such constitutional mandate. The question of abolition in the event of
contract labour is employed in establishment for seasonal work would
not arise, however, this question may be taken up in case of engagement
of contract labour in work of perennial nature through intermediary. In
Air India Statutory Corporation v. United Labour Union & Ors.2Justice
Majumdar observed that it has to be kept in view that contract labour
system in an establishment is a tripartite system. In between contract
workers and principal employer is there intermediary contractor and if
because of him the employer is treated as principal employer and
contract worker carry out the work of the principal which is of perennial
nature and such contract labour is abolished, it is obvious that the
intermediary contractor vanished and along with him vanishes the term
principal employer.
However, in Steel Authority of India Ltd. v. National Union
Water Front Workers3 the Apex Court overruled the above judgment by
observing that neither section 10 nor any other provision in the Act,
provides for automatic absorption of contract labour on issuing a
notification by appropriate Government under section 10(1), prohibiting
employment of contract labour, in any process, operation or other work
in any establishment and consequently the principal employer cannot be
required to order absorption of the contract labour working in the
concerned establishment. On issuance of prohibition notification under
section10(1), in an industrial dispute the industrial adjudicator will have
to consider the question whether the contractor has been interposed either
on the ground of having under taken to produce any given result for the
establishment or for supply of contract labour for work of the
establishment under a genuine contract or is a mere camouflage to evade

1
1999 SCC (L&S) 765; See also D. S. Nakara v. Union of India 1983 SCC (L&S) 145
2
AIR 1997 SC 645
3
2001 (7) SCC 1

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compliance of various beneficial legislations so as to deprive the workers

of the benefit thereunder.
Recently, in State of Punjab v. Jagjit Singh and Others1 the issue
arose for consideration was whether temporarily engaged employees
Contract workers are entitled to the pay-scale along with Dearness
Allowance of a Permanent employee, who does such work or not, on
account of their performing the same duties, which are discharged by
those engaged on a regular basis, against a sanctioned post or not.2 The
Supreme Court ruled that contract workers should get the same pay
aspermanent workers. It held that denial of equal pay for equal work to
daily wagers, temporary, casual and contractualemployees amounted to
―exploitative enslavement, emerging out of a domineering position‖. The
court also made thephilosophical point that denial of the principle of
equal pay for equal work is a violation of human dignity.3
II. RECENT CHANGES UNDER LABOUR LAWS AND
REGULATION OF CONTRACT LABOUR
Over the years, labour laws have undergone changes based on
progressive social philosophy. The theory of ‗hire and fire‘ is no longer
hold good from workers perspectives.4Employers are always
apprehensive about contract labour. They frequently change the
personnel/services of contract labour so that nobody claims for
permanent absorption. The engagement of contract worker was
essentially based on the said theory and needed regulation. The Contract
Labour (Regulation and Abolition) Act, 1970 provides for engaging
contract workers for temporary, seasonal work but not for work of a
perennial nature. Since regular worker are becoming less productive,
more expensive, hard to put to immediate work and legally challenging
to lay off in the face of falling demand, the employers find this feature of

1
Decided on October 26, 2016
2
Available at: http://www.livelaw.in/equal-pay-equal-work-temporary-workers-note-
jagjit-singh-judgment/
3
G. Samphat, ―On parallel tracks‖ the Hindu, 3 November, 2016, available at:
http://www.thehindu.com/opinion/op-ed/On-parallel-tracks/article16090950.ece
4
Suresh C. Srivastava, Industrial Relations and Labour Laws (New Delhi: Vikash
Publishing House Pvt. Ltd., 2015) at 170

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 Educational Rights of the Minorities under the Indian Constitution : A Myth or Reality

the Act very restrictive.1Employment of contract labour has become a

debatable issue and key reason for labour unrest in economy.2As part of
legislative reforms of labour laws including contract labour, the Centre
has started the process of codification and amalgamation of forty-four
Central labour laws into four codes in order to simplify them. The Draft
Labour Code on Social Security and Welfare defines that workman shall
be deemed to be employed as contract worker in or in connection with
the work of an establishment when he is hired in or in connection with
such work by or through a contractor, with or without the knowledge of
the principal employer.3
The change in case of Contract Labour (Regulation and
Abolition) Act, 1970 is that it would now be applicable only in case of
establishments employing 50 or more workers instead of the earlier
threshold of 20 workers.4Anamitra argues that this employer-friendly
move would also implicitly encourage the use of contract workers more
liberally in establishments employing more than 50 workers.5 The
Ministry has launched common registration service on the e-biz Portal of
DIPP for 5 Central Labour Laws including the Contract Labour
(Regulation and Abolition) Act, 1970.6
III. CONCLUSION
In globalizing world, employment of contract labour is
increasing worldwide. There is need of adequate protection to contract
labour in India and Government needs to be proactive. The Government
must ensure that along with the changes made in the labour laws,
education on prevention of industrial violence and handling the
1
Available at: https://www.lawyered.in/legal-disrupt/articles/labor-laws-india-all-
proposed-reforms-amendments
2
Piyali Ghosh and Shefali Nandan, Industrial Relations and Labour Laws (New Delhi:
McGraw Hill Education India Pvt. Ltd., 2015) at 26.21
3
The Labour Code on Social Security, 2017, Clause 2.31, available at:
http://www.labour.nic.in/sites/default/files/draft%20Labour%20Code%20on%20Social%
20Security%20%26%20Welfare_0.pdf
4
Contract Labour (Regulation and Abolition) Amendment Act, 2016
5
Anamitra Roychowdhury, ―Recent Changes in Labour Laws and their implications for
the Working Class‖ 2015, available at: http://sanhati.com/excerpted/12592/
6
Press Information Bureau, Government of India, Ministry of Labour & Employment, 08-
08-March-2016

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relationships with workers should be undertaken. The law needs to allow

employers to outsource all peripheral activities to specialized companies,
even if it means these employees work on their premises. The legitimate
interests of workers engaged in these activities must be protected by
defining minimum responsibilities for health, safety, remuneration and
other benefits available in the name of social security. Addressing the
issue of contract labour through a sustainable method avoiding future
industrial unrest is must and the effective remedy may be brought by
covering contract labour under the various social security schemes. The
measures proposed by the Government and the suggested measures do
not guarantee complete end to the contract labour unrest but will help
reduce the impact caused and level of violence that is being seen in the
recent times. The recent observation of Apex Court recognising right of
equal remuneration of contract workers is most appreciable development
in this context.

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