Contract Labour Act

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. Inferior labour status, casual nature of employment, lack of job security and poor economic conditions are the major characteristics of contract labour. 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 a 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. 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.

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 a person responsible for the control of the establishment. Contract workers need to be paid as per the minimum wage act.
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.
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.

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 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 were 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 therein and the charges which may be made, therefore, the number of canteens that shall be provided, accommodation, other equipment of the canteens etc.
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 therefor, such amenity shall be provided by the principal employer within such time as may be prescribed.
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.
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.
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 wherein 20 or more workmen are employed or were employed even for one day during the preceding 12 months as Contract Labour. For the purpose of calculating the number, contract labour employed for different purposes through different contractors has to be taken into consideration. This Act does not apply to the Establishments where work performed is of intermittent or seasonal nature. The contractor 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 a 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.

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 of 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 Canteen, Rest rooms, Requisite number of latrines and urinals, Drinking water, Washing, First Aid, 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
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 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.
In Dena Nath And Ors vs National Fertilizers Ltd. And Ors., the Hon’ble Supreme Court of India upheld 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 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 maintains 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’