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RAJEEV GANDHI NATIONAL LAW UNIVERSITY, PUNJAB

AN ESSAY ON

CONTRACT LABOUR SYSTEM IN INDIA

Author

Mayank Yadav(2nd Year)

Damodaram Sanjivayya
National Law University- Visakhapatnam
9032712431

Co-Author

Faiz Ahmed Qureshi (2nd Year)

Damodaram Sanjivayya
National Law University- Visakhapatnam
8962413774
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CONTENTS PAGE

I. INTRODUCTION………………………………………………………………………03

II. THE CONTRACT LABOR (Regulation and Abolition) ACT 1970 ...............................04

III. UGLY FACE OF CONTRACT LABOR SYSTEM..……………………………….......06

IV. JUDICIAL RESPONSE…………………………………………………………………07

V. STATUTORY COMPLIANCE AND PRECAUTIONS…………..………………..…08

VI. CONCLUSION…………………………………………………………………………09
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1. INTRODUCTION: CONTRACT LABOUR SYSTEM

Contract labor refers to a situation in which a potential employer parcels out work involving the
production of goods or services to another enterprise usually at a lower cost. A contract worker is
a person who is hired, supervised, controlled and remunerated by a contractor, who, in turn, is
compensated by user enterprises. Contract labor, by definition, means that a work has to be
assigned for a specific purpose and a definite duration.1

Contracts can broadly be divided into two categories, viz. job contracts and labor contracts. A
job contract is one which a person undertakes to produce a given results for the establishment,
through contract labor, other than a mere supply of goods or articles manufactured to such
establishment. A labor contract is one in which a person supplies labor for any work of the
establishment, on payment of remuneration or commission.2

Contract labor system is generally resorted by the employer for reasons like the uncertainty of
work, difficulty in ensuring closer administration by the employer or higher output by the
workers, a cost-effectiveness, flexibility in manpower deployment, and concentration in core
competencies. Inferior labor status, lack of job security and poor economic condition are the
three major characteristics of this category of workers.3

Contract labor is found in large numbers in certain activities in the unorganized sector such as in
stone quarrying, beedi rolling, rice shelling, brick kilns, and construction. A major drawback of
the contract labor system in this employment is their poor working conditions. Moreover, they do
not receive their wages in full measure, and neither the contractor nor the principal employer
takes responsibility for their welfare.4

1
Amiti Sen, Contract labour law: Convincing workers, employers key- Timesofindia-Economictimes,
http://articles.economictimes.indiatimes.com/keyword/contract-labour (accessed February 12, 2016)
2
Ibid
3
‘Contract labour: A ticking bomb amid auto industry's labour force’; The Economic Times, June 29, 2011
4
Ibid
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2. THE CONTRACT LABOR (Regulation and Abolition) ACT 1970

The concern for providing legislative protection for the contract labor, whose conditions have
been found to be abysmal have resulted of the contract labor (regulation and abolition) Act,
1970. It is a piece of central legislation which provides for the abolition of contract labor
wherever possible and for the regulation of the conditions of the contract labor in establishments
or employments where the abolition of contract labor system is not considered feasible for the
time being. The central government has framed rules under the Act, known as the contract labor
central rules, 1971.5

The Act applies to (a) every initiation in which 20 or more workers are employed or were
employed on any day of the next 12 months as contract labor and (b) every contractor who
employs or who employed 20 or more workmen on any day of the preceding 12 months. The act
will not apply to an establishment in which work only of an intermittent or casual nature is
performed, and such work does not exceed the total of 120 days in a year, and in the case of
seasonal establishment 60 days in a year.

The Act provides for registration and licensing by every principal employer and contractor
respectively. The annex Government may, after consultation with the central board or as the case
may be a state board, prohibit the employment of contract labor in any process, operation or
other work in any establishment as may be notified by it in the official gazettes having regard to
the criteria laid down in the act.6

It is the obligation of the principal employer to ensure due compliance of all labor laws
applicable to contract labor, namely, the payment of wages act minimum wages act, interstate
migrant act employees compensation act or employees state insurance act, employees provident
fund and miscellaneous provisions act. The principle employer has to ensure due compliance of
statutory and to certify the payments of contract labor engaged by the contractor. If a contractor
fails to pay wages within the prescribed period, then the principle employers are liable to pay the

5
D.C. Mathur, Contract labour in India, Mittal Publications, 1989
6
H.L. Kumar, Practical Guide to Contract Labour Regulation & Abolition Act & Rules, Universal Law Publishing (5th
edition, 2012)
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payments. The act stipulates various offenses and punishment and provides for the appointments
of inspectors with certain powers.7

In spite of good intentions which inspired this legislation, its implementation leaves much to be
desired. The act has not made much headway towards abolishing contract labor. Moreover, there
has been no substantial change in their working conditions or employment, and in many cases
even in their wage level. One cannot deny that if properly implemented; the act will be able to
serve as a useful tool to promote social and economic justice among a large number of workers
employed in the unorganized industrial sector.8

7
H.L. Kumar, Practical Guide to Contract Labour Regulation & Abolition Act & Rules, Universal Law Publishing (5 th
edition, 2012)
8
Labour Contracts in Rural India: Theories and Evidence, Development Research Programme, London School of
Economics, 1987
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3. UGLY FACE OF CONTRACT LABOR SYSTEM

The plight of contract labor employed in Indian industries has been a matter of public concern
for a long time. Almost every committee and the commission set off by the government of India
to investigate into the conditions of labor has drawn attention to the problems of contract labor.
The whitely commission (1929 - 1931), recommended the abolition of contract labor by
implication. The Bombay textile labor inquiry committee (1940) also recommended the abolition
of the contract system of engaging labor as soon as possible, and that worker for every
department in mill should be recruited and paid directly by the management. A serious note on
contract labor was taken in the second five-year plan. According to the plan, the major problem
of the contract labor relates to the regulation of their working conditions and ensuring them
continuous employment.9

The national commission on labor (1966 - 1969), made certain observations on the system of
contract labor as was then prevailed in the country. The second National Commission submitted
its report in 2002, recommended certain safeguards on contract labor system which includes
putting in place a social security net, unemployment, insurance and the provision of medical
facilities in the institutions of mandatory system of two contracts(one an individual contract and
the other, a collective contact with the worker’s union). Also, in core activities of an
establishment, the contract labor system will not be permitted whereas for other than core
activities, it will be permitted provided when no regular workers are employed and also, the
workers are not to be retrenched. The rates of wages for such contract workers would be at par
with the regular workers.10

In organized industries contracts workers are often not entitled to the same level of conditions of
employment, wages and benefits as received by the works employed directly. The working and
living condition of contract labor in unorganized sector is still worse, because of curtailments
such as casual nature of employment, ignorance and illiteracy, small size of establishment with
very less capital investment per person employed, stippled nature of establishments and superior

9
Manish Sabharwal; ‘Debate: Should Contract Labour Laws be Liberalised’; Business Standard, 1 October 2008
10
Colin Gonsalves, Kaliyug: The Decline of Human Rights Law in the Period of Globalisation, Socio Legal
Information Cent, 2011
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establishment of the employer which results in the wide disparity in the wages and working
conditions of direct labor and contract labor.

4. JUDICIAL RESPONSE

The Supreme Court in one of the famous case of Standard Vacuum refinery company v. their
workmen11 has observed that contract labor should not be employed where the work is perennial
and must go on from day to day, the work is incidental to and necessary for the work of the
factory, the work is sufficient to employ considerable number of whole time workmen, and the
work is being done in most concern through regular workmen.12

In Gammon India Ltd. v. Union of India13, the Supreme Court, while dealing with the object for
which the contract labor Act 1970 was enacted, observed “the act was passed to prevent the
exploitation of contract labor and also to instigate better conditions of work. The Act provides
for regulation and abolition of contract labor. The underlying policy of act is to abolish contract
labor, wherever practicable and possible, and where it cannot be abolished entirely, the policy of
the act is that the working condition of the contract labor should be so regulated as to ensure
payment of wages and provision of essential amenities. That is why the act provides for the
regulated conditions of work and contemplates progressive abolition to the extent scrutinized by
section 10 of the Act, which deals with extermination while the rest of the Act deals
predominantly with regulation.”

Further, the act was challenged as being unconstitutional, and the attack was repealed by the
Supreme Court of India. The court also dealt with the meaning of words “in connection with the
work of the establishment”, and held that even if a bank employ contractor to construct a
building for the bank, such work, though not banking work, would still be in connection with the
work of the establishment, and consequently, the workers would be contract workers within the
meaning of the act.14

11
1961 AIR 895, 1961 SCR (3) 536
12
http://indiankanoon.org/doc/1755056/ (accessed on 14th Feb 2016)
13
1974 AIR 960, 1974 SCR (3) 665
14
http://indiankanoon.org/doc/152484/(accessed on 14th Feb 2016)
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5. STATUTORY COMPLIANCE AND PRECAUTIONS

The contractor and Principal employer shall follow statutory compliance and take precautions
while employing contract workers such as filing an application for registration of establishments
employing contract labor and to obtain a certificate of registration containing the requisite
particulars, application for grant of license for the establishment from the contractor. There is a
rule to make temporary certificate of registration and contractor is required to take a proper
license. The contractor is obliged to send half yearly return to the licensing officer, and the
principal employer shall also have to send an annual return to the registering officer.15

While engaging contract labor through a contractor, the principal employer must take some
precautions which are laid down under the Act. At the first instance, it must be fortified that
there is no notification prohibiting contract workmen system by the appropriate government for
the engagement of contract workmen in any process, operation or any work of the establishment.

The work for which the contract labor is engaged is preferably not of perennial nature. However,
in the presence of notification by the appropriate government forbidding or abolishing such type
of system, then there is no bar in employing a contractor. The discipline of the employees of the
contractor in the discharge of functions must be regulated by the contractor itself and not by the
principal Employer.16

Maintenance of all types of records in respect of the employees employed by the contractor
should be his own liability, and the principal employer should not intercede in such matters. The
establishments must ensure compliance with various statutory obligations on the part of the
contractor under different labor enactments.17

15
I.C. Awasthy, Contractual Employment in Indian Labour Market: Emergence and Expansion, Concept Publishing
Company, 2010 (1st Edition, 2010)
16
T.J. Byres, Karin Kapadia, Jens Lerche, Rural Labour Relations in India, Routledge, 2013
17
K. R. Shyam Sundar, Contract Labour in India: Issues and Perspectives, Published in collaboration with Indian
Society of Labour Economics, Institute for Human Development by Daanish Books, 2012
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6. CONCLUSION

The Contract Labor Act is a step forward in the right direction for protecting and promoting the
interest of contract labor in industry, but it is disappointing to find that the effectiveness of this
well-intentioned labor welfare legislation has been extremely limited since The act has not made
much headway towards abolishing contract labor. The persons for whose benefit this legislation
has been enacted have gained very little from it.

There has been no significant change in their working conditions, in employment and many
cases even in their wage level. The act has not made any provision for granting permanency of
service to contract laborers who have put in a certain period of service.

Today there is an urgent need to pay attention to the welfare of the growing construction
workforce and interstate migrant workmen. One step in this direction will be to organize
construction workers though it is an uphill task considering the scattered nature of construction
sites, the migrant nature of the work and the contract system of employment prevailing in the
industry. However, with a little more administrative effort, it should be possible to extend the
existing statutory welfare measures to them effectively.

The act has proved ineffective because of the reluctance of the state labor departments; trade
unions also have not given much attention to the plight of the contract labors. The contract
workmen have to be given fair treatment, fair wages, and social security benefits

Ultimately what is important is that every piece of social legislation enacted, particularly for the
welfare of the unorganized workers must be strictly implemented and enforced in the right spirit
for achieving the noble ambition for which such legislation is enacted.