Contract Labour Act

The system of employing contract labour is prevalent in most industries in different occupations including skilled and semi skilled jobs. It is also prevalent in agricultural and allied operations and to some extent in the services sector. A workman is deemed to be employed as Contract Labour when he is hired in connection with the work of an establishment by or through a contractor. Contract workmen are indirect employees; persons who are hired, supervised and remunerated by a contractor who, in turn, is compensated by the establishment. Contract labour has to be employed for work which is specific and for definite duration. Inferior labour status, casual nature of employment, lack of job security and poor economic conditions are the major characteristics of contract labour. While economic factors like cost effectiveness may justify system of contract labour, considerations of social justice call for its abolition or regulation. The condition of contract labour in India was studied by various Commissions, Committees, and also Labour Bureau, Ministry of Labour, before independence and after independence. All these have found their condition to be appalling and exploitative in nature. The Supreme Court of India in the case of Standard Vacuum Refinery Company Vs. their workmen observed that contract labour 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 concerns through regular workmen.

Status of Contract Labourers

The practice of employing labour through contractors and other agencies, thus, avoiding the direct nexus between the employers and their workmen, was very common. Thus, 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. 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 labour, and a series of demands were made before tribunals for the abolition of contract labour system. The tribunals entertained the claims, and in many cases, granted the demands through their awards. In case of Standard Vacuum Refining Co. of India Ltd. v. Workmen, a leading case on the subject, the Supreme Court upheld the right of workmen to seek abolition of contract labour on behalf of the contractors’ workmen, and enumerated some of the circumstances in which such abolition can be directed.

There was considerable agitation by the workmen and their unions for the abolition of contract labour, especially in certain cases where it was absolutely necessary to regulate the terms and conditions of service under which such labour could be employed. Thus the Contract Labour (Regulation & Abolition) Act 1970, was passed by the Parliament and came into force on September 1970.

The Contract Labour (Regulation & Abolition) Act 1970

In India, contract labourers are protected by the Contract Labour Regulation and Abolition Act, 1970. A contract labourer is defined in the Act as one who is hired in connection with the work of an establishment by a principal employer through a contractor. While a contractor is the supplier of contract labour for the organization, a principal employer is the person responsible for the control of the establishment. This act applies to any establishment in which 20 or more workmen are employed on a contract basis on any day of the last one year and also to all contractors who employ or have employed 20 or more workmen on any day of the preceding twelve months. Every principal employer to whom this act applies should register his establishment in the prescribed manner for employing contract labour. Unlike the industry sector, generally, there is no provision for remaining unregistered. If the Government at any point of time is dissatisfied with the practices followed, it can revoke the registration of an establishment.

Contract workers need to be paid as per the minimum wage act. For the health and welfare of contract labourers certain provisions have been made mandatory by the Contract Labour Act such as safe drinking water, canteen facilities, first aid facilities etc. Social security covers in terms of provident fund benefits and medical facilities need to be also given to the contract employees.

It is the primary responsibility of the contractors to provide all facilities to the workers as delineated in the Act. However, the principal employer should ensure the presence of his authorized representative at the place and time of disbursement of wages by the contractor to the workmen and it is the duty of the contractor to ensure the disbursement of wages in his/her presence. However, if the contractor fails to pay wages or provide other facilities, the responsibility falls on the principal employer. Field officers of labour department are supposed to conduct regular inspections to detect violations of the provisions of the Act. Apart from the regulatory measures provided under the Act for the benefit of the contract labour, a government can prohibit employment of contract labour in any establishment in any process operation or other work. Such restrictions are often decided on the basis of whether the work is perennial in nature or the work is incidental for an establishment.

In such cases it is also examined whether the work is being done ordinarily through regular workmen in that establishment or a similar establishment. Though the Act lays rules as to how the contractual employment should be maintained and there are government officials for inspection to detect violations of the norms, because of the presence of two separate management systems, viz., the contractor and the principal employer, employer-employee relationship often becomes blurred. Consequently, contract labour often does not get its due and this has given rise to a number of litigations. One of the important sources of controversy is whether contract labour can be used in the core activities of an establishment together with the regular employees. A set of perennial or core activities is defined in terms of what a company had declared as its main activities at the time of registration under the Factories Act of 1948. Several litigations arose because of the use of contract labour in the so called “core activity‟ and number notifications were issued prohibiting the companies to employ contract labour for some specified work. At present, an establishment is not prohibited, in general, to employ contract labour for the core activities. A state government, however, can amend this provision of the act. A few state governments have gone ahead with such amendments.

Constitutional Validity of the Act

The benefits conferred by the Act and the rules are in their nature, social welfare legislative measures. There is a rational relation between the impugned Act and the objects to be achieved, and the provisions are not in excess of those objects. There is no violation of Article 14. The application of the Act does not amount to an unreasonable restriction on the rights under Art 19(1)(g). Moreover, the Contract Labour (Regulation & Abolition) Act 1970 is not a complete code on contract labour. The Act serves two purposes that is-1) regulations of conditions of service of workers employed by the contractor who is engaged by a principal employer; and 2) the appropriate government abolishing contract labour altogether in certain Central Government or by any appropriate government, provide that upon the abolition of contract labour, the said labour would be directly absorbed by the principal employer.

Regulation of Contract Labour

For regulation of contract labour an appropriate government by an order notified in the Official Gazette may appoint persons being Gazetted officers of Government, as it thinks fit to be licensing officers for the purposes of this Act that is for the purpose of the regulation of contract labour. The appropriate government also defines limit, within which a licensing officer shall exercise the powers conferred on licensing officers by or under the Act. Further with effect from such date as the appropriate Government may, by notification in the Official Gazette, appoint, no contractor to whom this Act applies, shall undertake or execute any work though contract labour except under and in accordance with a license issued in that behalf by the licensing officer. The license given to the contractors includes in particular, conditions as to hours of work, fixation of wages and other essential amenities in respect of contract labour as the appropriate Government may deem fit to impose in accordance with the rules, if any, made under Section 35 and shall be issued on payment of such fees and on deposit of such sum, if any, as security for the due performance of the conditions as may be prescribed.

Section 16-21 deals with Welfare and Health of Contract Labour. The appropriate Government where in the contract labour is numbering one hundred or more is ordinarily employed by a contractor, one or more canteens shall be provided and maintained by the contractor for the use of such contract labour. Without prejudice to the generality, such rules also apply as to the foodstuffs which may be served there in and the charges which may be made therefore, the number of canteens that shall be provided, accommodation, other equipment of the canteens etc. In Gammon India Ltd v. Union of India, it was held that the requirement of providing canteens even in road construction work is not unreasonable, and there is no constitutional infirmity involved.

In ever place wherein contract labour is required to halt at night in connection with the work of an establishment to which this Act applies and in which work requiring employment of contract labour is likely to continue for such period as may be prescribed, there shall be provided and maintained by the contractor for the use of contract labour such number of rest-rooms or such other suitable alternative accommodation within such time as may be prescribed. The rest-rooms shall be sufficiently lighted and ventilated and shall be maintained in a clean and comfortable condition.

It will be unreasonable to require a labourer to halt at night at place of work without the provision of a rest room where the provision is not constitutionally invalid.

Section 18 of the Act speaks of facilities like supply of drinking water, conveniences of latrines urinals and washing facilities.

First-aid facilities shall be provided and maintained by the contractor so as to be readily accessible during all working hours a first-aid box equipped with the prescribed contents at every place where contract labour is employed by him.

If any amenities mentioned in Section 16, 17, 18 and 19 for the benefit of contract labour employed in an establishment is not provided by the contractor within the time prescribed therefore, such amenity shall be provided by the principal employer within such time as may be prescribed. All the expenses incurred by the principal employer in providing the amenity may be recovered by the principal employer from the contractor either by deduction from any amount payable to the contractor under any contract or as a debt payable by the contractor.

A contractor shall be responsible for payment of wages to each worker employed by him as contract labour and such wages shall be paid before the expiry of such period as may be specified. Every principal employer shall nominate a representative duly authorized by him to be present at the time of disbursement of wages by the contractor and at shall be the duty of such representative to certify the amounts paid as wages in such manner as may be prescribed. It shall be the duty of the contractor to ensure the disbursement of wages in the presence of the authorized representative of the principal employer. In case the contractor fails to make payment of wages within the prescribed period or makes short payment, then the principal employer shall be liable to make payment of wages in full or the unpaid balance due, as the case may be, to the contract labour employed by the contractor and recover the amount so paid from the contractor either by deduction from any amount payable to the contractor under any contract or as a debt payable by the contractor.

The appropriate government must tighten up its enforcement machinery and ensure that thorough and careful inspections are carried out by fairly senior officers at short intervals, with a view to investigating as to whether the labour laws are being properly observed. It is the duty of the contractor to ensure that disbursement of wages is made in the presence of the authorized representative of the principal employer.

The governments’ failure to perform its obligation amounts to a violation of Article 21, and the workers can enforce their right by a writ petition under Article 32.

Section 21 has nothing to do with the wage rates. The object and purpose of the said section is to ensure that wages payable in law by a contractor to his workmen are paid. If the contractor fails to pay his wages legally payable by him, then under this section, the principal employer is under an obligation to pay the wages and get them reimbursed from the contractor.

Whoever obstructs an inspector in the discharge of his duties under this Act or refuses or willfully neglects to afford the inspector any reasonable facility for making any inspection, examination, inquiry or investigation authorised by or under this Act in relation to an establishment to which, or a contractor to whom, this Act applies, shall be punishable with imprisonment for a term which may extend to three months, or with fine which may extend to five hundred rupees, or with both. Whoever willfully refuses to produce on the demand of an inspector any register or other document kept in pursuance of this Act or prevents or attempts to prevent or does anything which he has reason to believe is likely to prevent any person from appearing before or being examined by an inspector acting in pursuance of his duties under this Act, shall be punishable with imprisonment for a term which may extend to three months, or with fine which may extend to five hundred rupees, or with both. Whoever contravenes any provision of this Act or of any rules made thereunder prohibiting, restricting or regulating the employment of contract labour, or contravenes any condition of a license granted under this Act, shall be punishable with imprisonment for a term which may extend to three months, or with fine which may extend to one thousand rupees, or with both, and in the case of a continuing contravention with an additional fine which may extend to one hundred rupees for every day during which such contravention continues after conviction for the first such contravention.

Merely because the contractor or employer has violated any provisions of the Act or rules, the court cannot issue a mandamus for deeming the contract labour as having become the employees of the principal employer. It is not the High Court to inquire into the question and decide whether the employment of contract labour in any process, operation or in any other work in any establishment should be abolished or not; which is a matter fit for the decision of the government.

If any person contravenes any of the provisions of this Act or of any rules made thereunder for which no other penalty is elsewhere provided, he shall be punishable with imprisonment for a term which may extend to three months, or with fine which may extend to one thousand rupees, or with both.

If the person committing an offence under this Act is a company, the company as well as every person in charge of, and responsible to, the company for the conduct of its business at the time of the commission of the offence shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence.

Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or that the commission of the offence is attributable to any neglect on the part of any director, manager, managing agent or any other officer of the company, such director, manager, managing agent or such other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

Registration And Licensing

The Act applies to the Principal Employer of an Establishment and the Contractor where in 20 or more workmen are employed or were employed even for one day during preceding 12 months as Contract Labour. For the purpose of calculating the number, contract labour employed for different purposes through different contractor has to be taken into consideration. This Act does not apply to the Establishments where work performed is of intermittent or seasonal nature. If a Principal Employer or the Contractor falls within the vicinity of this Act then, such Principal Employer and the Contractor have to apply for Registration of the Establishment and License respectively. The contractor The Act also provides for Temporary Registration in case the Contract Labour is hired for a period not more than 15 days. Any change occurring in the particulars specified in the Registration or Licensing Certificate needs to be informed to the concerned Registering Officer within 30 days of such change. From combined reading of Section 7 and Rules 17 & 18 of the Contract Labour (Regulation and Abolition) Central Rules, 1971, it appears that the Principal Employer has to apply for registration in respect of each establishment. Other important point to note is that a License issued for One Contract cannot be used for entirely different Contract work even though there is no change in the Establishment.

Penal Provisions

Section 9 of the Act provides that the Principal Employer, to whom this Act is applicable, fails to get registered under the Act, then such Principal Employer cannot employ contract labour. It also appears that if the Establishment is not registered or if the Contractor is not licensed then the contract labour shall be deemed to be the direct workmen and the Principal Employer or the Establishment shall be liable for the wages, services and facilities of the contract labour etc. 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/-.

Responsibilities

The Act enjoins Joint and Several responsibility on the Principal Employer and the Contractor. The Principal Employer should ensure that the Contractor does the following:

Pays the wages as determined by the Government, if any, or;
Pays the wages as may be fixed by the Commissioner of Labour.
In their absence pays fair wages to contract labourer.
Provides the following facilities:
- Canteen (if employing 100 or more workmen in one place) and if the work is likely to last for 6 months or more.
- Rest rooms where the workmen are required to halt at night and the work is likely to last for 3 months or more.
- Requisite number of latrines and urinals – separate for men and women.
- Drinking water.
- Washing.
- First Aid.
- Creche
Maintains various registers and records, displays notices, abstracts of the Acts, Rules etc.
Issues employment card to his workmen, etc.

Checklist For Principal Employer

Registration of the Establishment.
Display of the following notices rate of wages, hours of work, wage
period, date of payment of wages, date of payment of unpaid wages and name and address of the inspector having jurisdiction.
Maintenance and Preservation of Register of Contractor.
Filing of Return of Commencement and Completion of the Contract.
Filing of Annual Return.
Supervising the responsibilities of Contractor to avoid enjoining of the liabilities.
Ensure provision that facilities of Canteen, Drinking Water, Washing, Rest Room, Latrines and Urinals, First Aid, Creche are provided by the Contractor.

Checklist For Contractor

Licensing.
Renewal of the License.
Maintenance and Preservation of Register of Persons employed, Muster Roll, Register of wages, Register of Fines, Register of Deductions for damages or loss, Register of advances, Register of overtime.
Display of Notice rate of wages, hours of work, wage period, date of payment of wages, date of payment of unpaid wages and name and address of the inspector having jurisdiction.
Provide facilities of Canteen, Drinking Water, Washing, Rest Room, Latrines and Urinals, First Aid, Creche.
Employment card.
Service Certificates.
Half yearly return.

Compliances under the Act

Principal Employer:

Within 15 days of commencement or completion of each contract work under each contractor, submit a return to the inspector, intimating the actual dates of commencement and completion of such contract work.
Submit annual returns to the registering officer concerned not later than, 15th February following end of the year to which it relates.

Contractor: File half yearly returns with the concerned Licensing Officer not later than 30 days from the close of the half year.

If not obtaining registration/license

Under section 9 of the CLRA Act, the Principal employer cannot employ contract labour at any time or until the time specified by the Government Authority, if the registration is revoked.
Under section 23[4], despite not obtaining registration under the CLRA Act the Principal employer engages the Contract labours, then the Principal employer will be punishable with imprisonment of three months or a fine of Rs 1000/- or with both.
The Workmen cannot be deemed as an employee of the Principal Employer irrespective the registration under CLRA Act is obtained or not: – The workmen cannot claim permanent placement in their respective employment irrespective of the case that the Principal employer or the concerned Contractor do not have or obtained Registration or License respectively. The same was the view of the Hon’ble Kerala High Court in P. Karunakaran vs Chief Commercial, that the contract labourers cannot claim for permanent absorption in the employment to which they temporarily have been employed. If the contract labours are allowed to do so irrespective in Private or Government sector then a mass injustice will be done to the youths of India and as against the principle of equal opportunity in the matter of employment.
In Dena Nath And Ors vs National Fertilizers Ltd. And Ors., the Hon’ble Supreme Court of India uphold the view of the Kerala High Court that the principle of equal opportunity of work at all sector and also state that in case the Principal employer or the Contractor violates Section 7 or 12, the only consequences are the penal provisions envisaged under section 23 and section 25[7] of the Act.

The Contract Labour (Regulation & Abolition) Central (Amendment) Rules, 2017

For Rule 82 of the Principal Rules, the following rule shall be substituted, namely:-

“82. Every contractor shall upload a Unified Annual Return in the Form XXIV specified in these rules, on the web portal of the Ministry of Labour and Employment on or before the 1st day of February following the close of the year to which it relates.
Every principal employer of a registered establishment shall upload a Unified Annual Return on or before the 1st day of February following the end of the year to which it relates.
The principal employer or contractor shall also file a Unified Annual Return to the concerned authorities manually on or before the 1st day of February following the close of the year to which it relates.
In case, if, the employer maintain registers or records or reports in electronic form, such registers or records or reports shall also be taken into consideration by the inspector for the purpose of examination of any register or record required to be kept under the Contract Labour (Regulation and Abolition) Act, 1970 (37 of 1970) and the rules made thereunder and require the production thereof for inspection.”

Further in the Principal Rules, Form XIV and form XV shall be omitted.

Also in the Principal Rules, after Form XXIII, a new form has been proposed to be inserted, namely Unified Annual Return Form-‘XXIV’

Highlights

The wage ceiling of Rs. 500 has been removed and thus, the definition of a workman now includes a person employed in a supervisory capacity who draws wages as notified by the Appropriate Government in the Official Gazette.
Provides for instances of obtaining temporary license.
Introduces the provision of furnishing of work order failing which the license of the contractor can be cancelled.
Encouraged the payment of wages through electronic mode and where the payment has to be in form of cash, the same has to be done in the presence of a representative of the principle employer.