Engaging Contract Labour: Learnings from Landmark Judgements

Abstract

Despite debates on its hiring, contract labour is a growing form of employment in India. Establishments usually maintain a workforce composition of both regular workers and contract labour for optimizing their available resources and ensuring financial prudence. However, in the process, they often get embroiled in compliance issues related to regularization and ‘equal pay for equal work’ in the context of contract labour. In this article, we have explored the different judicial interpretations of the Contract Labour (Regulation and Abolition) Act, 1970, on contract labour. For this, we have referred to the landmark judgements passed by the Supreme Court of India on the deployment and regularization of contract labour, and also their entitlement to equal pay for equal work. A scrutiny of these judgements directs us to advise establishments to avoid engaging contract labour in their core and perennial activities. Considering the statutory provisions and the possible legal complications, we have recommended some measures to establishments to mitigate the underlying risks in deploying contract labour alongside regular workforce in similar kinds of jobs or activities. We propose that the legislative framework grants flexibility to industries to generate employment to contract labour, without compromising on the rights of these workers.

Keywords

Contract labour Contract Labour (Regulation and Abolition) Act 1970 core activities equal pay for equal work landmark judgement Supreme Court of India

Introduction

Around two decades have passed since the Indian economy embraced the policies of economic liberalization. In tandem with several labour market reforms and a competitive market economy, the industrial relations environment in India is also changing (Srivastava, 2001), with restructurings occurring at the workplace level (Gillan & Lambert, 2013). Organized sector employment is on the rise, though many jobs in this sector are either casual or informal (ILO, 2018). Thus, the Indian employment scenario has witnessed a significant transformation in employment status and jobs, with steady growth in precarious forms of work (Sapkal & Sundar, 2017). As the economy is gearing up with revival measures to encounter the global pandemic caused by the COVID-19, the government has brought in several labour market reforms. We begin this article with the projection that such reforms could bring about a new focus on precarious employment arrangements.

As per the World Development Report of 2013, many industrialized and developing nations have adopted alternative employment arrangements like part-time and temporary work. Since employment protection legislation is stricter for regular workers, firms in many countries hire more temporary workers to increase workforce flexibility (Pierre & Scarpetta, 2005). In India, companies have adopted cost-cutting strategies by reducing overhead costs to be competitive (Kulkarni, 2008), and they are consequently engaging contract labour.

Contract labour is an indirect worker borne neither on the payrolls nor on the muster rolls of regular workers in an establishment. The primary motive behind hiring contract labour is to have greater flexibility in adjusting the workforce in the face of occasional surges or slowdowns in demand. These workers are an alternative workforce for any employer. Establishments tend to use contract labour as a strategic advantage against regular workers who are unionized, to check the latter’s wage demands (Sen et al., 2013).

The probabilities of abuse and exploitation of workers hired through contractors necessitated the Contract Labour (Regulation and Abolition) Act, 1970 (also referred to as the CLRA Act this point onwards). This Act covers any principal employer (also referred to as user-establishment or user-enterprise in this article) that employs a minimum of 20 contract labour. It provides two broad measures to restrict the malpractices related to contract labour. The first is to regulate their working conditions by requiring contractors to get licensed and the user-establishment to undergo registration. The second measure is empowering the appropriate government through Section 10 of the Act to altogether abolish contract labour in certain notified operations or processes in an establishment. The appropriate government, as per the Act, in case of establishments like banks, mines and railways, is the central government. State governments are the appropriate governments for establishments located in the respective states.

User-enterprises tend to maintain a workforce composition of regular workers and contract labour to optimize the available resources and financial prudence. The central and state governments have been proactive in issuing notifications to abolish the contract labour system. However, ‘the statute is silent on what is to be done with the abolished contract labour—do they lose their jobs or are principal employers obliged to hire them as permanent labour?’ (Singh et al., 2019, p. 407). The Supreme Court of India, the Apex Court of the country, through its various landmark judgements, has decided on the ‘regularization’ of contract labour. Regularization refers to absorbing such labour in the regular workforce of a user-establishment.

Contract labour is often deployed alongside regular workers to do the same or similar work. Such a scenario is likely to attract provisions under Rule 25(2)(v) of the Contract Labour (Regulation and Abolition) Central Rules, 1971. These provisions are duly incorporated in the license issued to a contractor by the licensing authority. As per these provisions, contract labour has to be remunerated equally with regular employees for equal work.

Establishments with a workforce mix of regular workers and contract labour are often concerned about compliance issues related to engaging contract labour, their regularization and paying them equally with regular workers for equal work. Our study spells out specific guidelines for establishments on hiring contract labour based on analysing the impact of judicial interpretations of the CLRA Act. Ahead of the introduction, the article lays down the legal provisions related to contract labour and the various challenges they face. In the next section, we have elaborated the principle of equal pay for equal work. The relevance of the study comes next. After this, we have presented notable landmark judgements by the Apex Court on the deployment and regularization of contract labour and their entitlement to equal pay with regular workers for the same work performed. Analysis of the judicial approach vis-à-vis statutory provisions follows. We have also given our recommendations on minimizing the risks of engaging contract labour in the next section. The article ends with concluding remarks.

Contract Labour in India: Legal Provisions and the Reality

Contract labour, according to the CLRA Act, 1970, is engaged ‘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’. This category of workers is different from regular, casual or badli workers.

The Model Standing Orders provided in the Industrial Employment (Standing Orders) Central Rules, 1946, outlines the different types of workmen in any industrial establishment as permanent, probationers, badlis, temporary, casuals and apprentices. A permanent workman is employed on a permanent basis. A probationer is employed provisionally against a permanent vacancy but is yet to complete 3 months’ service. An establishment can hire a badli in place of a temporarily absent permanent workman or a probationer. A workman hired for any temporary work, to be completed within a limited time, is a ‘temporary’ worker. A casual workman is on casual employment, while an apprentice is a learner whom the establishment pays an allowance during the training period.

In contrast, contract labour is engaged on a contract for service through a contractor or a contracting agency by a user-establishment. The contractor is given the responsibility of supervision and remuneration of contract labour and gets compensated by the principal employer for the wage bill on such labour.

Contract labour is working in millions in sectors such as road, air and rail transport, construction, plantations, ports and docks, factories, oilfields, shipping and agricultural operations. The organized manufacturing sector in India witnessed an increase in workforce participation of contract labour of up to 13.7 million in 2015–2016, growing by nearly 78% from 7.7 million in 2000–3001, as cited by the Annual Survey of Industries (Kapoor & Krishnapriya, 2019). A report dated 3 January 2018, released by the Press Information Bureau, Government of India, mentions that the contract labour spread across enterprises in the central sphere of the government has grown in numbers from 8,39,234 in 2015 to 11,10,603 in 2017 (Press Information Bureau, 2018).

Right from the emergence and growth of this segment of the industrial workforce, contract labour has been subject to exploitation in the hands of contractors and principal employers alike. Contract labour suffers from the anxieties of job insecurity, absence of social security measures, discriminatory behaviour of unions, low wages and even abusive treatment from regular workers (All India Organization of Employers, 2012). Considering the concept of a ‘social class’ by Parry (2013) comments that contract labour comes in the category of a ‘discernible social class’ (p. 352). Unlike the regular workers in an establishment, contract labour usually has lesser pay and lower productivity. Wage disparities are common between regular and contract workers (Joseph, 2019). Trade unions mostly have an apathetic attitude towards espousing the cause of contract labour (Saini, 2010).

Barrientos (2008) highlights the use of child labour hired through subcontracting arrangements or informal networks of contractors in the Indian garment sector, without the buyers’ knowledge. In a field study on migrant construction workers, Dhal (2020) has established that such contract labour faces the challenges of precariousness, non-availability of regular work and harassment in the hands of antisocial elements and even contractors. Little support is extended by unions and the government. Rajeev (2009) has surveyed establishments in Karnataka to highlight corruption and collusive agreements between contractors, principal employers and labour inspectors. Such collusion often leads to exploitation of contract labour by depriving them of minimum wages and benefits. In similar lines, Sood and Nath (2020) point out corruption in the labour departments. These authors hold the government responsible for the failure to control such corruption.

Rajeev (2009) has established that contract labour is exploited in multiple ways, for example, not paying minimum wages. The author has conclusively commented that though there are regulations in operation, they are mostly abused. Several rights rendered to contract labour by the Indian Constitution are compromised, and legislation is poorly enforced. Hence, the government needs to monitor the implementation of the legislative framework.

As Suresh (2010) comments, the contract of employment for contract labour is between a worker and the contractor; still, the CLRA Act ‘does not stipulate the contract to be a formally concluded agreement between workers and firms’ (p. 442). The Act provides that workers engaged in tasks with a perennial and permanent need in an establishment and are continuously employed for at least 240 days need to be regularized. They are also eligible for the same wages and benefits as regular workers. However, Parry (2013) observes that this law is ‘open to judicial interpretation’, and it is skewed in favour of employers (p. 357). The author has even cited the example of Bhilai Steel Plant in the state of Chhattisgarh, which has ‘consistently circumvented’ (p. 371) the provisions in the CLRA Act and continued to hire contract labour in its operational functions.

Though Rule 25(2)(iv) of the CLRA Central Rules, 1971, provides for paying the stipulated minimum wages and pension to contract labour; these workers are beyond the ambit of the Industrial Disputes (or ID) Act, 1947. Because of this reason, they can be dismissed at will (Sen et al., 2013). User-enterprises can terminate contract labour without seeking permission from the appropriate government (Chaurey, 2015). Contractors also exploit contract labour often by the threat of throwing them out of employment.

Though the 1970 Act intends to ensure the welfare and protect the interests of contract labour, employers often misuse its provisions to circumvent other restrictive labour legislations (Das et al., 2015). Another unique mode of abusing the legislative framework is through sham (or bogus) contracts. Through such contracts, establishments often indulge in continuing with the same contract labour, though the contractor keeps changing.

Equal Pay for Equal Work in the Context of Contractual Labour

The ‘equal pay for equal work’ (also referred to as EPEW this point onward) principle finds its genesis in Article 23(2) of the Universal Declaration of Human Rights adopted in 1948 by the United Nations. It is an essential ingredient of equality and is a cornerstone of establishing an egalitarian society in India (Jain, 2008). This principle was interpreted from the Preamble to the Constitution of India and Articles 14, 16 and 39(d) of the Constitution of India to address gender equality and curb gender-based discrimination in employment. The Equal Remuneration Act, 1976, was passed to give effect to this principle.

However, EPEW has subsequently found application in issues beyond gender, for example, qualification or skill of an individual. Neunsinger and Warrier (2019) argue that even though the practice of EPEW has met with limited success, it has found a broader scope of application beyond gender, claiming equal pay for the same or similar work. Thus, trade unions and women’s movements have been successful in ensuring that this principle is applied to address other forms of wage discrimination in their struggle for wage justice. The Supreme Court of India has been continuously expanding the scope of EPEW, and it has made newer interpretations to eliminate different types of discrimination (Jain, 2008).

Landmark judgements related to EPEW often extend its scope to the Right to Equality under Article 14, following which, ‘The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India’. Courts have also referred to Article 16 in this context, which lays down ‘equality of opportunity for all citizens in matters relating to employment or appointment to any office under the State’.

In ‘Mewa Ram Kanojia vs. All India Institute of Medical Sciences & Others [1989 SSC (2) 235]’ (Singh, 1989b), the Supreme Court clarified that the EPEW doctrine is not a fundamental right. Instead, when Article 39(d) is read with Articles 14 and 16, this principle is declared a constitutional goal. Thus, the state should not tender differential treatment between persons holding identical posts and performing similar duties in the same establishment. In the same verdict, the Apex Court created ‘the test of reasonable nexus’, which is applied by courts ‘to permit that classification or discrimination, which is sought to achieve efficiency in organization but also is in conformity to the principles of reasonability and justification’ (Jain, 2008, p. 17). Exceptions to the principle would be when employers are not the same, and when the quality and volume of work and education qualifications are different.

One conclusion that has often emerged from judgements on EPEW is that this principle is not abstract. The discretion rests with the state to prescribe different pay scales for different cadres, considering aspects like educational qualification and nature of duties and responsibilities. In ‘V. Markendeya vs. State of Andhra Pradesh [1989 AIR 1308] on 6 April, 1989]’ (Singh, 1989a), the Apex Court held that ‘the purpose of Article 39(d) was to fix certain social and economic goals for avoiding any discrimination amongst the citizens doing similar work in matters relating to pay’.

The EPEW principle was applied in the context of casual workers hired on a daily wage basis in the landmark judgement ‘Dhirendra Chamoli and Another vs. State of Uttar Pradesh [1986 (52) FLR 147] on 5 August, 1985’ (Bhagwati, 1986). The Supreme Court observed that casual workers hired by the Nehru Yuvak Kendra on daily wages were performing the same work as regular employees on Class IV. Therefore, these workers were entitled to the same pay and working conditions. The Apex Court has also upheld this mantra in ‘State of Punjab & Others vs. Jagjit Singh & Others’ (Khehar, 2016) by extending it to those working in temporary arrangements. Since the spirit of this principle can also be applied to contract labour, such labour should ideally be eligible for the same wage rates, leaves, working hours and other service conditions as regular workers. We have discussed some recent landmark judgements on this principle for contract labour in a separate section of the article.

Relevance of the Study

Rationalization of workforce deployment within an establishment is essential to arrive at the optimum combination of workers (comprising regular workers and contract labour) for each plant or office. Any establishment must ensure the following for arriving at such an optimum combination:

Demarcation of Its Core Jobs and Incidental Jobs

Identification of the right combination of regular workers and contract labour, along with the requisite skillsets for each category

Analysis of the risk(s) associated with the deployment of contract labour alongside regular workers

Such rationalization by bringing in contract labour with regular workers is often obstructed by the strict labour legislation restricting rightsizing of the workforce. However, both the CLRA Act and the ID Act suffer from weak enforcement. Thus, temporary workers have an increasing presence in regular work, which helps the factory owners reduce the scope of permanent employment (Guha, 2009). The verdict in ‘Steel Authority of India Ltd. & Others vs. National Union Water Front Workers & Others’ (Supreme Court, 2001) gave a unique judicial interpretation to engaging contract labour. This judgement has enabled establishments to go for large-scale hiring of contract labour, ‘often employing them in jobs where they work alongside permanent workers but can be fired more easily than regular workers’ (Das et al., 2015, p. 12).

Establishments generally tend to engage contract labour in the following activities alongside regular workers:

Core technical activities like process or operations-related activities;

Non-core technical activities like maintenance-related activities;

Non-core non-technical activities or services like support assistance, paramedical and security;

Peripheral activities like housekeeping/janitorial services, canteen services and courier services; and

Project or construction activities.

Of these, hiring contract labour in the first three categories requires attention and review in the wake of several verdicts given by the Apex Court. Section 10(2) of the 1970 Act is a crucial component of the Act. It has regulatory provisions on the practice of hiring of contract labour. The content of this subsection specifies that ‘before issuing any notification under sub-section (1) in relation to an establishment, the appropriate Government shall have regard to the conditions of work and benefits provided for the contract labour in that establishment and other relevant factors’. Subsection (1) of this section, however, has the most controversial clause for many employers, which ‘enables governments to prohibit contract labour in any part of a firm’s operation if their work is found to be “core”, ongoing or better-suited to regular workers’ (Barnes et al., 2015).

In this article, we have explored the different judicial interpretations of the CLRA Act on hiring contract labour. For this purpose, we have prudently referred to various rulings to minimize the risks of engaging contract labour. Outcomes of the article are expected to provide guidelines on labour market flexibility. Our recommendations can help establishments avoid the risks of deploying contract labour alongside regular workers in similar jobs or activities. To reinforce our analysis, we have arranged judicial interpretations chronologically, so that the article also serves as a reference document on such judgements.

Landmark Judgements on Deployment of Contract Labour

Over time, several verdicts on contract labour have been given by the Apex Court and High Courts. The most prominent among these is ‘Standard Vacuum Refining Co. of India vs. Its Workmen & Another’ (Gajendragadkar, 1961), which is a precedent to the 1970 Act. The practice of engaging contract labour and their regularization both have evolved through the different judgements. There also have been instances in which the Apex Court has set aside its past judgements. While the main contention of the majority of these cases has been the regularization of contract labour, some others have also dealt with the issue of identifying the appropriate government. This section presents a brief chronological discussion on such landmark judgements.

‘Standard Vacuum Refining Co. of India vs. Its Workmen & Another [1961 AIR 895] on 20 January 1961’ (Gajendragadkar, 1961)

Workers of Standard Vacuum Refining raised a dispute on contract labour deployment to clean and maintain its refinery. They demanded abolition of the prevailing contract labour system. The workers also appealed for regularization of the contract labour retrospectively in the establishment with effect from their initial deployment. They contended that though these jobs were permanent, the establishment used to hire contract labour through several contractors. As a result, the contract labour was getting lower wages and was not entitled to the benefits, amenities and social security schemes, otherwise, extended to the regular workers.

The Industrial Tribunal, Bombay, ordered the establishment to deploy regular workers for the said service, as it was perennial, continuous and necessary for the establishment. The Tribunal pronounced termination of the system of contract labour. Later on, a Bench of three judges of the Supreme Court heard the appeal by Standard Vacuum Refining. According to the Bench, the power of direct abolition lay with the Labour Court or Industrial Tribunal, if the contract system was found to be camouflaged. Thus, the Apex Court upheld the right of contract labour. It also specified that an establishment would be prohibited from engaging contract labour in the following situations:

the work is by nature perennial and has to be carried on daily;

the work is necessary for and also incidental to the establishment’s work;

the work is sufficient for the establishment to engage full-time workers in considerable numbers; and

the work is performed in other establishments by regular workers.

This judgement was pro-contract labour. The Apex Court stated that the contract labour was performing work that was neither intermittent nor temporary; rather, it was perennial and incidental to the establishment’s work. Based on this ruling, the Planning Commission of India recommended improvements in the working conditions of contract labour in the second Five Year Plan.

The entire subsection (2) of Section 10 was included in the Act from this verdict. This judgement stands out in importance, because, until this ruling, workers could not raise disputes related to contract labour, as the Industrial Disputes Act did not have such provisions related to contract labour. It is historical as it spelt the deciding criterion for regularizing contract labour (Upadhyaya, 2013). The principles evolved have, hence, become guiding rules while deciding on abolishing contract labour in an establishment.

‘Vegoils Private Ltd. vs. The Workmen [AIR 1972 SC 1942] on 10 September 1971’ (Vaidyialingam, 1972)

Vegoils, the user-establishment, had deployed contract labour alongside permanent workers for its allied works like loading and unloading. The regular workers raised a dispute to abolish such contract labour in allied jobs in places like canteens. The reason cited was that these jobs were perennial.

The Industrial Tribunal dealing with the case opined that such works, by nature, were permanent, closely related to the principal activity of the establishment and were generally carried out by regular workers in similar plants in the region. Accordingly, regular workers only should be executing such works. Interestingly, when the Tribunal entertained the dispute, the CLRA Act was not passed. Though the Act got the presidential assent before the Tribunal passed the award, it became effective on and from 10 February 1971, after the said award.

When the Supreme Court heard the appeal by the user-establishment, the contention was whether the abolition of contract labour in any establishment from the date the CLRA Act became effective would be within the jurisdiction of the Industrial Tribunal. The Apex Court held that

with effect from February 10, 1971, it is only the appropriate Government that can prohibit contract labour by following the procedure and in accordance with the provisions of the Central Act. The Industrial Tribunal, in the circumstances, will have no jurisdiction, though its award is dated November 20, 1970, to give a direction in that respect which becomes enforceable after the date of the coming into force of the Central Act.

Though courts were not empowered to issue any notification for abolishing contract labour, an exception would be in the case of a sham contract to avoid obligations under the CLRA Act. The verdict specified that the jurisdiction to abolish contract labour must be according to Section 10. The Apex Court declined to give any relief to the workers and even reversed the Tribunal’s order. Hence, this judgement was pro-employer, though it was overruled in ‘Air India Statutory Corporation vs. United Labour Union’ (Ramaswamy, 1996).

‘Gammon India Ltd. etc. vs. Union of India & Others, etc. [1974 AIR 960] on 20 March, 1974’ (Ray, 1974)

The user-establishment, Gammon India Ltd., was in the business of constructing roads, buildings, weighbridges and dams. It contended before the Supreme Court that it was not a contractor as per the definition given in the CLRA Act. Gammon India also stated that its work was not a part of any principal employer and not connected with the work of such establishments. Hence, statutory obligations on any contractor, including wages, restrooms and canteens, were claimed not to apply to the establishment. The application, scope and constitutional validity of the Act and the Rules were also challenged. Another contention in the case was that the CLRA Act ‘amounts to unreasonable restriction on the right of the contractors violating Article 19(1)(g) of the Constitution’, as the provisions in the Act and the Central Rules were commented to be expensive and incapable of implementation.

The Apex Court turned down the contention of Gammon India as unsound, on the ground that construction work carried out by the latter was a work by the establishment. Based on this reason, any worker would be deemed to be contract labour in connection with the work of the establishment. The Supreme Court also examined the constitutional validity of the Act. It elaborated on the object of the Act and the rationale behind the framing of Section 10. The Bench of five judges opined that ‘the dominant idea of Section 10 of the Act is to find out whether contract labour is necessary for the industry, trade, business, manufacture or occupation which is carried on in the establishment’. The final verdict turned down the contention of Gammon India that the Act is unconstitutional. It clarified that after abolishing contract labour, such workers would not be absorbed automatically in the user-enterprise. This decision was in favour of the employer-establishment. Nevertheless, the judgement upheld the dignity of human labour and rejected the contention that the provisions in the CLRA Act violated Article 14.

Besides, the Supreme Court objected to the point raised by Gammon India that the appropriate government had excessive power to issue licenses, register and appoint inspectors. This judgement is notable also because the Apex Court gave cognizance to the meaning of the term ‘work of an establishment’.

H.C. Bothra vs. Union of India [1976 (32) FLR 282]

In this case, the petitioner collected and manufactured (if necessary) quarry products for supplying to the railway. The verdict of the Apex Court pronounced that since such work was carried out by engaging workmen, they were to be considered as contract labour under the CLRA Act. The petitioner was also held to be a contractor under Sec. 2(c) of the Act. Through this decision, the Apex Court gave clarity to the definition of a contractor as given in the Act.

‘Hussainbhai, Calicut vs. Alath Factory Thozhilali Union, Kozhikode & others [1978 AIR 1410] on 28 July 1978’ (Krishnaiyer, 1978)

The user-enterprise, having the business of manufacturing ropes, contended about the absence of its direct employer–employee relationship with the concerned workers, as they were employed through intermediate contractors. The Industrial Tribunal did not buy this argument, and accordingly, its award was in favour of contract labour. A Division Bench of the Kerala High Court, and finally, a three-judge Bench of the Supreme Court upheld the award. The verdict of the Bench favoured contract labour by specifying that

If the livelihood of the workmen substantially depends on labour rendered to produce goods and services for the benefits and satisfaction of an enterprise, the absence of direct relationship or the presence of dubious intermediaries or the make-believe trappings of detachment from the Management cannot snap the real-life bond. The story may vary but the inference defies ingenuity. The liability cannot be shaken off.

The real employer was decided to be the one who was throughout in charge of these workers.

This verdict is one of a kind, as its guiding principle rested on whether contract labour is hired for the betterment of an organization or an individual. Interestingly, other courts have not based their verdicts much on this judgement.

‘BHEL Workers’ Association vs. Union of India & Others, etc. [1985 AIR 409] on 18 January 1985’ (Reddy, 1985)

Out of around 16,000 workers, the user-establishment Bharat Heavy Electricals Limited BHEL had hired about 1,000 workers as contract labour. Compared to the directly employed workers, the contract labour were getting lesser wages from their contractors. Their conditions of service were also inferior. Contractors were alleged to pay the contract labour only after deducting commission. The contract labour claimed that their fundamental rights under Articles 14 and 19(1)(f) were compromised.

The Apex Court held in-principle that

no invidious distinction can be made against contract labour. Contract labour is entitled to the same wages, holidays, hours of work and conditions of service as are applicable to workmen directly employed by the principal employer of the establishment on the same or similar kind of work. They are entitled to recover their wages and their conditions of service in the same manner as workers employed by the principal employer.

Besides, suppose there was a dispute about the similarity of the work carried out by regular workers and contract labour. In that case, as per the provisions in the Act, the Chief Labour Commissioner (Central) should decide the fate of such a dispute. This judgement was in favour of contract labour.

‘Dena Nath & Others vs. National Fertilizers Ltd. & Others [1992 AIR 457] on 22 November, 1991’ (Dayal, 1992)

In this case, the main argument was whether contract labour would be regularized if the establishment failed to seek registration, and the contractor did not obtain license. In other words, should non-compliance of sections 7 and/or 12 of the CLRA Act make contract labour eligible as direct workers of the user-establishment? In a similar issue, the Madras, Bombay, Gujarat and Karnataka High Courts had earlier favoured regularization. Specifically, in ‘Food Corporation of India Workers’ Union vs. Food Corporation of India [(1990) Lab IC 1968]’, the Gujarat High Court had decided both licensing and registration to be mandatory conditions for attracting the provisions of the Act. Also, neither the user-establishment nor the contractor could get the benefits of the Act on failing to get registration or licence, respectively. The contract labour would then be deemed to be the workers of the principal employer because the matter would move beyond the purview of the CLRA Act.

The Supreme Court in the present case stated that

the only consequence is the penal provisions contained in sections 23 and 24 of the Act and that the principal employer or contractor can be prosecuted under those sections, but the Act nowhere provides that such employees employed through the contractor would become the employee of the principal employer.

It confirmed that if there was any offence, the offending party (contractor or user-establishment) would be liable for punishment. No other relief would be extended in favour of any party. It also held that the High Court could not order any establishment to absorb contract labour solely because of non-compliance by the establishment or the contractor. The verdict specified that neither the CLRA Act nor the Central Rules provides that the contract labour would be directly absorbed in the establishment’s workforce after abolition. The CLRA Act, as per the verdict, does not mandate to abolish contract labour entirely, but in certain appropriate cases. This judgement was pro-employer.

‘R.K. Panda vs. Steel Authority of India [1994 SCC (5) 304] on 12 May 1994’ (Singh, 1994)

In this case, the contract labour claimed to have been employed by Steel Authority of India Ltd. (SAIL) through multiple contractors. They appealed to be doing jobs that were perennial and identical to the jobs performed by the regular workers. These workers laid their claim for treatment as regular workers on this ground, and also their entitlement to the same pay as the latter.

The verdict specified that ‘the framers of the Act have allowed and recognized contract labour and they have never purported to abolish it in its entirety’. The Apex Court clarified that the Act nowhere specified any right to contract labour to be absorbed by the principal employer. In summary, the judgement laid down the absorption of contract workers engaged initially through any contractor but working continuously in the principal employer’s establishment on different assigned jobs, even after the contractor changed. The Supreme Court upheld the rights of contract labour by clarifying that mere insertion of specific clauses in the contract cannot deprive contract labour of their rights. This judgement provided specific directions for regularization and favoured contract labour.

‘Gujarat Electricity Board, Thermal Power Station, Ukai, Gujarat vs. Hind Mazdoor Sabha & others [1995 AIR 1893] on 9 May 1995’ (Sawant, 1995a)

In this case, the issues were as follows: whether there could be a dispute to abolish the contract labour system and who could raise such a dispute. Other contentions included who is empowered to abolish such a system and the status of contract labour post-abolition.

A Bench of two judges of the Supreme Court answered the questions raised in the verdict. The ruling specified that

[i] In view of the provisions of Section 10 of the Act, it is only the appropriate Government which has the authority to abolish genuine labour contract in accordance with the provisions of the said Section. No Court including the industrial adjudicator has jurisdiction to do so…. [ii] if the contract is sham or not genuine, the workmen of the so called contractor can raise an industrial dispute for declaring that they were always the employees of the principal employer and for claiming the appropriate service conditions…. [iii] If the labour contract is genuine a composite industrial dispute can still be raised for abolition of the contract labour and their absorption. However, the dispute, will have to be raised invariably by the direct employees of the principal employer…. [iv] Even after the contract labour system is abolished, the direct employees of the principal employer can raise an industrial dispute for absorption of the ex-contractor’s workmen and the adjudicator on the material placed before him can decide as to who and how many of the workmen should be absorbed and on what terms.

The Apex Court, thus, denied contract labour their right to be absorbed. However, this decision was turned down later in ‘Air India Statutory Corporation vs. United Labour Union’ (Ramaswamy, 1996). The part of the judgement declaring that the regular workers of the user-enterprise could approach the industrial adjudicator was subsequently set aside. The remedy was described as ‘a teasing illusion’ and as inadequate.

‘Parimal Chandra Raha & Others vs. Life Insurance Corporation of India & Others [1995 AIR 1666] on 29 March 1995’ (Sawant, 1995b)

In this case, the canteen workers of the user-establishment, Life Insurance Corporation of India (LICI), claimed pay scale at the same level as the canteen workers of government departments or Railways or other statutory corporations. The reason cited was that they were hired to work in incidental operations connected with the respective industry. These canteen workers also claimed their entitlement for automatic absorption as direct employees of LICI, with the same pay as applicable to regular employees.

The Supreme Court decided that workers of a canteen run statutorily or on account of some other obligation (either express or implied) of the employer-establishment would be its workers, even if such canteen was operated by a contractor, a co-operative society or a managing committee. However, workers of non-statutory and non-recognized canteens would not become employees of the establishment. This judgement was pro-contract labour.

‘Air India Statutory Corporation vs. United Labour Union [Civil Appeals 15536-37, 15532-15534 of 1996] on 6 November 1996’ (Ramaswamy, 1996)

In this case, the user-enterprise, Air India Statutory Corporation (AISC), had failed to abolish the contract labour engaged for dusting, sweeping, cleaning and watching of the building of AISC in response to a government notification. The contract labour subsequently demanded absorption to be effective from their respective dates of joining AISC, with all rights and benefits. Thus, the main issue was the right of contract labour to be regularized.

A Bench of three judges of the Supreme Court examined the earlier court verdicts at length. The Bench held that ‘all the workmen in the respective services working on contract labour are required to be absorbed in the establishment’. It further clarified that ‘on abolition of the contract labour system, by necessary implication, the principal employer is under statutory obligation to absorb the contract labour’. The verdict was in favour of contract labour as it spelt out automatic absorption of such workers, on the application of Section 10.

The Apex Court specified that on abolishing the contract labour system, a direct employee–employer relationship was established between contract labour and the user-enterprise, as the contractor was then eliminated. Through this judgement, the Apex Court overruled its earlier decisions in ‘Dena Nath & Others vs. National Fertilizers Ltd. & Others’ (Dayal, 1992) and ‘Gujarat Electricity Board, Thermal Power Station, Ukai, Gujarat vs. Hind Mazdoor Sabha & Others’ (Sawant, 1995a) that had denied absorption of contract labour. This decision was subsequently overruled in ‘Steel Authority of India Ltd. & Others vs. National Union Water Front Workers & Others’ (Supreme Court, 2001).

‘Secretary, Haryana State Electricity Board vs. Suresh & Others [1993(3) SSC 601] on 30 March 1999’ (Banerjee, 1999)

In this case, the Haryana State Electricity Board (or the Board) had awarded a housekeeping contract for a year at its Panipat Plant. A contractor deployed cleaning staff for this work. At this time, neither the Board had registration as the principal employer nor the contractor was a licensed one. The contract labour working as cleaning staff approached the Labour Court. They claimed for absorption by the Board because they had rendered service for 240 days in a year. The Labour Court ordered for the continuation of services of these workers, along with 10% back wages. The High Court of Punjab and Haryana subsequently upheld this order, though it ordered continuity of service without back wages.

The Haryana State Electricity Board took this matter to the Supreme Court, which refused any re-inquiry of facts on the genuineness of the contract system in its judicial review. The reason was that an inquiry was already carried out by the Labour Court and upheld by the High Court. The Apex Court mentioned that

it is not permissible in the new millennium to decry the cry of the labour force desirous of absorption after working for more than 240 days in an establishment and having their workings supervised and administered by an agency within the meaning of Article 12 of the Constitution.

The verdict also specified that ‘The expression “regulation” cannot possibly be read as contra public interest but in the interest of public’.

As per Section 25F of the Industrial Disputes Act, a worker who has rendered 240 days’ continuous service in a year has the right to receive compensation or termination notice. This provision deters employers from hiring workers continuously for a duration exceeding 239 days to avoid demands for the permanency of such workers (Shyam Sundar, 2011).

The judgement given was pro-contract labour, and it struck a heavy blow to the contract labour system. It laid down the principle that if in a perennial job, the principal employer hired contract labour through a contractor without obtaining registration and/or license, as is applicable, such contract labour would be deemed to be regular workers after working continuously for 240 days.

‘Steel Authority of India Ltd. & Others vs. National Union Water Front Workers & Others [Civil Appeals 6009-6010 on 2001] on 30 August 2001’ (Supreme Court, 2001)

SAIL had engaged contract labour to handle goods in its stockyards. After the Government of West Bengal issued a notification directing prohibition of contract labour, the National Union Water Front Workers Union filed a writ petition. The petition appealed for absorbing 353 odd contract labour in SAIL. The High Court of Calcutta ordered for regularization of the contract labour from the date of this notification. While the case was pending in this High Court, the Supreme Court delivered its judgement on ‘Air India Statutory Corporation vs. United Labour Union’ (Ramaswamy, 1996). The central government was specified as the appropriate government in this judgement. However, the High Court dismissed the appeal and gave the verdict that the state government was the appropriate government on that particular date.

Besides evaluating the meaning of the appropriate government under the Act, the Constitution Bench of the Supreme Court examined the automatic absorption of contract labour after a notification was issued. The Bench, after a detailed deliberation on earlier judgements, laid down that

Neither Section 10 of the CLRA Act nor any other provision in the Act, whether expressly or by necessary implication, provides for automatic absorption of contract labour on issuing a notification by appropriate Government under sub-section (1) of Section 10, prohibiting employment of contract labour, in any process, operation or other work in any establishment. Consequently the principal employer cannot be required to order absorption of the contract labour working in the concerned establishment.

The Apex Court opined that the genuineness of a contract must be assessed by the adjudicator. If the contract was genuine, and the notification aligned with Section 10, then the user-establishment was required to abolish contract labour for the said work. However, if the contract was sham, the establishment had to regularize such contract labour. The previous judgement ‘Air India Statutory Corporation vs. United Labour Union’ (Ramaswamy, 1996) was also prospectively overruled. The Bench decided that the user-establishment was not obligated to regularize its contract labour post-abolition. As per this verdict, contract labour would have no legal right to be absorbed automatically and would not be eligible for benefits as regular workers.

This judgement was in favour of principal employer-establishments and rendered them respite. It also provided them with a free hand in deploying contract labour without any risk of absorption, and it indirectly enabled enterprises to compete in international markets.

Subsequently, in ‘Steel Authority of India Ltd. vs. Union of India & Others [(2006) 12 SCC 233]’ (Sinha, 2006), the Supreme Court reiterated that abolition of contract labour was the exclusive discretion of the appropriate government only. The Labour Court had no authority in this regard.

‘Haldia Refinery Canteen Employees Union & Others vs. Indian Oil Corporation Ltd. & Others [Civil Appeal 658 of 2002] on 29 April 2005’ (Bhan, 2005)

In this case, the contractual canteen staff, represented by the Haldia Refinery Canteen Employees Union, were working through a contractor in a statutory canteen of Indian Oil at its Haldia Factory in Midnapore, West Bengal. The union contended for their absorption and regularization, considering that the work was perennial and because the canteen was related to and incidental to the establishment’s work.

The Supreme Court held that

No doubt, the respondent management does exercise effective control over the contractor on certain matters in regard to the running of the canteen but such control is being exercised to ensure that the canteen is run in an efficient manner and to provide wholesome and healthy food to the workmen of the establishment. This however does not mean that the employees working in the canteen have become the employees of the management.

The judgement clarified that

the workmen working in the canteen become the workers of the establishment for the purposes of Factories Act only and not for any other purpose. They do not become the employees of the management for any other purpose entitling them for absorption into the service of the principal employer.

The verdict also stated that even though the contractor had the ultimate right to recruit contract labour, the user-establishment also had the right to ascertain the competence and suitability of such contract labour in terms of their levels of knowledge, skills, proficiency and capability so that the work specified in the contract for service was performed efficiently. This judgement favoured the principal employer.

‘Bhilwara Dugdh Utpadak Sahakaris Ltd. vs. Vinod Kumar Sharma (Dead) & Others [Civil Appeal 2585 of 2006] on 1 September 2011’ (Supreme Court, 2011a)

The Labour Court had earlier held that the workers hired as contract labour were not the employees of the contractor but of the user-enterprise, namely Bhilwara Dugdh Utpadak Sahakaris Ltd. The argument was that these workers were working under the orders of the enterprise. The High Court of Judicature in Rajasthan upheld the decision. On reviewing the case, the Supreme Court commented on the prevalent unethical practices that reflect the deteriorating labour relations. The verdict specified, ‘Globalization or liberalization in the name of growth cannot be at the human cost of exploitation of workers’. Reference was made to the common practice among employers to show their employees as employees of a contractor by subterfuge.

Accordingly, the final verdict aligned with the decision given by the Labour Court and the High Court. Further, the Apex Court explained that the present case had no bearing given in ‘Steel Authority of India Ltd. & Others vs. National Union Water Front Workers & Others’ (Supreme Court, 2001). It was specified that

The SAIL judgement (Supra) applies where the employees were initially employees of the contractor and later claim to be absorbed in the service of the principal employer. That judgement was considering the effect of the notification under Section 10 of the Act. That is not the case here.

This judgement favoured contract labour. It has served as the basis for many other cases in the future. For example, in ‘Nihal Singh & Others vs. State of Punjab & Others [Civil Appeal 1059 of 2005]’ (Chelameswar, 2013), the Apex Court observed that the union, states and various departments indulged in irregular appointments. They also permitted such appointments, and those appointed on contract or daily wages were allowed to continue on the job for years. Such selections were made without adopting any rational procedure, thus violating Article 14. The guiding principle of this verdict has been that the public sector, central or state level, should engage in practices that align with their constitutional obligations.

‘Balwant Rai Saluja & Another vs. Air India Ltd. & Others [Civil Appeals 10264-10266 of 2013] on 13 November 2013’ (Prasad, 2013)

In this case, Air India Ltd., the principal employer, had engaged a contractor named Hotel Corporation of India (HCI) for running a canteen in its corporate premises. This canteen was being operated to comply with a requirement under the Factories Act, 1948. Chef Air Flight Catering was a unit of the same contractor.

The contract labour of Chef Air raised a dispute with the Industrial Tribunal and appealed for the regularization of their services in Air India with back wages. The underlying rationale was that these workers were initially engaged on a daily wage basis for 40 days, and, with subsequent extensions, they served for 240 days in a year. It was contended that the contract labour ultimately worked under the supervision and control of Air India as HCI was also functioning under its control.

The Tribunal quashed the termination of these workers. It directed Air India to reinstate them with 50% back wages. On appeal, the Delhi High Court set aside this award, and, subsequently, a Division Bench affirmed this decision. The case was referred to a Bench of two judges of the Supreme Court of India. The Bench decided in favour of the concerned contract labour, upholding the Tribunal’s decision. Finally, the case was referred to the Bench of three judges of the Supreme Court. The main issue for consideration was whether the contract labour engaged in the statutory canteen could be absorbed as regular workers.

The Bench deliberated on previous related judgements in which the concept of supervision and control was considered as a relevant test to establish an employee–employer relationship. The wordings in the verdict were

it can be concluded that the relevant factors to be taken into consideration to establish an employer–employee relationship would include, inter alia, (i) who appoints the workers; (ii) who pays the salary/remuneration; (iii) who has the authority to dismiss; (iv) who can take disciplinary action; (v) whether there is continuity of service; and (vi) extent of control and supervision, i.e. whether there exists complete control and supervision.

In addition to the test of supervision and control, the Apex Court also relied on the perspective of economic control, as was dictated in ‘Hussainbhai, Calicut vs. Alath Factory Thozhilali Union, Kozhikode & Others’ (Krishnaiyer, 1978).

The judgement further elaborated that

With a view to find out reasonable solution in a problematic case of this nature, what is needed is an integrated approach meaning thereby integration of the relevant tests where for it may be necessary to examine as to whether the workman concerned was fully integrated into the employer’s concern meaning thereby independent of the concern although attached therewith to some extent.

The case was finally adjudicated in favour of Air India. The Supreme Court laid down that

workmen could not be said to be under the effective and absolute control of Air India. The Air India merely has control of supervision over the working of the given statutory canteen. Issues regarding appointment of the said workmen, their dismissal, payment of their salaries, etc. are within the control of the HCI. It cannot be then said that the appellants are the workmen of Air India and therefore are entitled to regularization of their services.

It was concluded that contract labour engaged in a statutory canteen of a factory should be considered as workers of the factory only for the purpose of the Factories Act. For this, the contract labour would require to qualify the test of employer–employee relationship. Also, the principal employer must be proved to be exercising absolute and effective control over such workers.

‘Bharat Heavy Electricals Ltd. vs. Mahendra Prasad Jakhmola & Others [Civil Appeals 1799–1800 of 2019] on 20 February, 2019’ (Supreme Court, 2019)

In this case, BHEL had engaged contract labour through a contractor in its factory at Haridwar. On their termination from service, the contract labour approached the Labour Court claiming for their reinstatement. The Labour Court, after due consideration with regard to supervision, superintendence and administrative control exercised by the establishment, gave a verdict in favour of the contract labour. In response to an appeal made, the Uttarakhand High Court upheld the decision of the Labour Court. Subsequently, BHEL raised an appeal before the Supreme Court.

As a precursor to this judgement, ‘supervision and control’ was explained in ‘International Airport Authority of India vs. International Air Cargo Workers’ Union [(2009) 13 SCC 374] on 13 April, 2009’ (Raveendran, 2009). The Apex Court held that

…if the contract is for supply of labour, necessarily, the labour supplied by the contractor will work under the directions, supervision and control of the principal employer but that would not make the worker a direct employee of the principal employer, if: (i) the salary is paid by a contractor; (ii) the right to regulate the employment is with the contractor; and (iii) the ultimate supervision and control lies with the contractor.

The Apex Court relied on a two-pronged test to arrive at a decision (Obhan & Dua, 2019). This test was laid down by the Supreme Court itself in ‘General Manager, (OSD), Bengal Nagpur Cotton Mills, Rajnandgaon vs. Bharat Lala & Another [(2011) 1 SCC 635]’ (Supreme Court, 2011b). It argued that

Two of the well-recognized tests to find out whether the contract labourers are the direct employees of the principal employer are: (i) whether the principal employer pays the salary instead of the contractor; and (ii) whether the principal employer controls and supervises the work of the employee.

In ‘Food Corporation of India vs. General Secretary, FCI India Employees Union & others [Civil Appeal 10499/2011]’, the Supreme Court had held that once the agreement of the user-establishment with a contractor ended, and the establishment was paying wages to the contract labour performing the same duties as regular workers, then such contract labour must be regularized.

On this basis, the Supreme Court decided that even though the contract labour worked under the directions, supervision and control of the principal employer (here, BHEL), such labour would still not be considered its direct workers if the concerned contractor was paying their salary, regulating their employment and exercising their ultimate control and supervision. The primary control was with the contractor who paid salaries to the contract labour. In contrast, the control and supervision exercised by the principal employer were secondary in nature. Both the tests, thus, failed. The judgement was in favour of the principal employer, negating the Labour Court’s award and the decision given by the High Court.

Landmark Judgements on Equal Pay for Equal Work for Contract Labour

‘State of Punjab & Others vs. Jagjit Singh & Others [Civil Appeal 213 of 2013] on 26 October 2016’ (Khehar, 2016)

In this case, temporary workers were appointed against regular posts available in the regular cadre with the state of Punjab. They were randomly assigned duties and responsibilities similar to regular employees. The main issue in the set of appeals raised was whether temporarily engaged workers were entitled to equal pay for equal work, at par with regular employees.

As per the Apex Court’s verdict, the principle of equal pay for equal work was extended to all temporary employees of an establishment (e.g., daily-wagers, ad hoc appointees, casuals and contractual workers). The principle was held to be binding on all courts. This judgement vested with such employees ‘the right to claim wages, at par with the minimum of the pay-scale of regularly engaged Government employees, holding the same post’. The Apex Court strongly denounced the determination of artificial parameters that could deny the fruits of labour. Discrimination between individuals performing the same work, with the same duties and responsibilities, was held to be an action that ‘besides being demeaning, strikes at the very foundation of human dignity’, which would not be permissible in a welfare state.

The Supreme Court also highlighted specific parameters for the application of EPEW. These included the claimant’s responsibility to prove parity in duties and equating work based on factors like functionality, quality, criticality and sensitivity, hierarchy, seniority, merit and the establishment’s geographical location. This judgement was in favour of casual and temporary workers.

‘Sabha Shanker Dube vs. Divisional Forest Officer [Civil Appeal 10956 of 2018] on 14 November 2018’ (Rao, 2018)

In this case, the Forest Department of Uttar Pradesh was the user-establishment. The contract workers were hired on a daily wage basis in different Group ‘D’ posts in the Department. These workers approached the High Court of Allahabad with writ petitions and sought regularization by way of ignoring short breaks in their service.

The High Court allowed these writ petitions. It directed the Government of Uttar Pradesh to reconsider the regularization of these workers. The High Court also instructed the state government to ignore the short breaks in service of the concerned and relax the eligibility criteria of service rules like the minimum educational qualification and physical requirements. In response to this verdict, the state of Uttar Pradesh appealed to the Allahabad High Court’s Division Bench. The Bench set aside the High Court’s directions for regularization. It also held that workers on daily wages were not eligible for the minimum of the pay scales of regular employees.

In response to the appeal raised in due course, the Supreme Court turned down the High Court’s order. The verdict stated that ‘the appellants are entitled to be paid the minimum of the pay scales applicable to regular employees working on the same posts’. Directions were accordingly issued to the State Government. This judgement was in favour of casual and temporary workers.

Analysis of the Judicial Approach vis-à-vis Statutory Provisions

The judiciary often encounters difficult choices, especially in matters about labour, and the legislature rests the onus of making tough decisions on the judiciary (Parameshwar, 2006). Judicial pronouncements in the existing legal regime favouring the regularization of contract labour act as a deterring factor for corporates, leading to non-creation of employment. Employers demand that the clauses of abolition should be removed from the central Act. Employers also propose greater flexibility in deploying contract labour in peripheral activities so that establishments can concentrate on their core activities (Shyam Sundar, 2011). In an interesting study on the proposed labour law reforms, Karani and Panda (2018) recommend that the Act be renamed as the Contract Labour (Regulation) Act, thus mitigating the uncertainties related to regulation.

A holistic analysis of the various provisions in the CLRA Act gives valuable insights. First of all, we should not overlook the mechanism enshrined in the Act by the registration of an establishment and obtaining a license by a contractor. This mechanism indicates that the Act mainly emphasized regulation and not the absolute prohibition of contract labour. Also, since the penalties for violation of provisions under the Act are prescribed in Chapter VI of the Act, regularization cannot be construed as a remedy under the Act.

This apart, the proposition of regularization as a mode of recruitment itself is a defiance of the constitutional regime in India. It is tantamount to treating equals in an unequal manner. Regularization also allows back-door entry of individuals, contrary to Articles 14 and 16. Absorption or regularization, and thus permanency of casual and daily wage workers appointed or recruited dehors the constitutional scheme of public employment is impermissible and violative of Articles 14 and 16.

Analysis of the several judgements on contract labour by the Supreme Court of India directs us to advise establishments to avoid engaging contract labour in their core and perennial activities. As per the Annual Report of 2018–2019 of the Ministry of Labour and Employment, the appropriate government has issued 94 notifications towards abolishing contract labour in specified establishments. If contract labour is still engaged, the user-enterprise needs to take adequate safeguards in line with the statutory provisions, administrative guidelines and interpretations given by the Apex Court. Any such establishment should also ensure that contract labour is not engaged alongside the regular workforce in the same or similar jobs or activities.

The 2016 judgement ‘State of Punjab & Others vs. Jagjit Singh & Others’ (Khehar, 2016) is, indeed, pathbreaking. Through this verdict, the dignity of contract labour was upheld. Denial of equal pay for equal work was held as ‘exploitative enslavement, emerging out of a domineering position’ for contract, temporary and casual workers. Though the verdict was given for such workers who are hired in government enterprises, it highlights how labour is treated through the lens of ‘a two-tier caste system of regular and contract workers’ in both private and public sectors (Sampath, 2016).

Measures to Mitigate the Risks involved in Engaging Contract Labour

Singh et al. (2019) argue that even though engaging contract labour could bring immediate cost advantages to any establishment, employers usually opt for regular workers wherever labour is considered crucial for production. The reason is that regular workers have a long-term relationship with their employer-establishment. Nevertheless, contract labour features as an employment form that is growing in the labour market.

Considering the statutory provisions, the legal complications in engaging contract labour alongside regular workers, and also safeguarding the interests of user-enterprises, we propose the following measures to mitigate the underlying risks:

An establishment needs to avoid engaging contract labour before its registration under the CLRA Act, 1970. It should also make sure that there is no notification by the appropriate government towards prohibiting the contract labour system in any of its operations, works or processes.

An establishment should combine the different services at its plant or office premises while awarding service contracts. Through this, a contractor would be required to obtain labour license and have its independent Provident Fund (PF) Code and Employees’ State Insurance (ESI) Code under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, and the ESI Act, 1948, respectively. The user-establishment has to ensure statutory compliance by the contractor. Such compliance may include timely disbursement of minimum wages (preferably online); maintenance of prescribed registers; and submission of PF, ESI Challan and annual returns in online mode.

To monitor and curtail any corrupt practices that could be detrimental to the interest to contract labour, we recommend strict monitoring not only of establishments engaging contract labour but also of labour inspectors. Principal employers often under-report the number of contract labour they hire so that they can be beyond the purview of the CLRA Act. Taking a cue from the findings reported by Rajeev (2009), we suggest that labour inspectors need to be held liable to punitive actions if they are found to collude with the unethical user-establishments. We cannot help but agree with Sood and Nath (2020) that the existing corruption in government departments should be checked, and that the already low number of inspectorate staff is increased.

An establishment should avoid direct supervision and primary control of contract labour in matters related to hire and fire, sanction of leave, enforcement of discipline, and direct payment of wages or any advance amount. As the principal employer, the establishment should also establish an employer–employee relationship between the contract labour and the contractor. Some of such measures include issuing employment cards when engaging the contract labour, issuing identity cards during deployment and providing service certificate on the separation of the contractor’s tenure. The establishment can also mandate the contractor to submit an undertaking for indemnifying it as the principal employer from all statutory obligations.

Deployment of contract labour beyond closure or termination of the contract may also be avoided. Overall, an establishment should prefer a contract for services (or service contracts), involving men, materials and machines, over any contract of service (or manpower contract). If there is any such situation, an establishment must strictly avoid any settlement process, be it bipartite or tripartite.

A regular worker is likely to be more productive than a contract worker. This is because of the restrictions on the tasks contract labour can perform, and the extent of contract and supervision of a manager on contract labour (Schwab, 2020). All establishments must summarily avoid deployment of contract labour alongside regular workers in the same or similar nature of work. To ensure this, we suggest the following measures in various types of activities or jobs:

In case of activities connected with technical operations, an establishment should avoid deployment of contract labour as far as possible in its core activities. Regular workers can be realigned and deployed in all core operational activities. Efforts may be made to segregate operational areas vis-à-vis off-site areas for engaging regular workforce vis-à-vis contractual workforce.

For activities related to technical maintenance, an establishment should avoid engaging regular workers or non-executives as far as practicable. Deployment of regular workers alongside contract labour must also be avoided. Additionally, if rationalization is needed, the establishment can so plan that the said jobs are completely contracted out or are done only by regular workers.

In the context of office set-ups or marketing offices, an establishment may revisit the process of deploying regular workers for non-technical office-related or clerical jobs performed by contract labour. In case any regular worker or non-executive is already deputed for the above, assigning contract labour to such jobs may be reviewed critically by the competent authority.

For jobs like paramedical services, an establishment should avoid similar designations for regular employees and contract labour to avoid possible legal complications. Further, the terminology used for classifying such contract labour may be suitably reviewed. The recruitment or deployment of regular workers or non-executives in such positions may also be assessed.

For project activities, if the establishment requires additional workers for a specified period, it could explore options for engaging them on a term-employment basis.

Conclusion

Contract workers equally pen the success story of any establishment with their blood and sweat, working alongside the regular employees. However, in reality, they are the most underprivileged partners in the progress of any business enterprise. The contract labour system is ‘one of the principal methods used by the employers to gain flexibility in the labour market. Thus, employers have been able to find ways to reduce the workforce even with the restrictive provisions in place’ (Sharma, 2006, p. 2081). Gupta et al. (2008) aptly point out that ‘hiring contract workers can enable firms to get around many of the regulatory restrictions on adjusting employment levels, productions tasks, and others’ (p. 7) (c.f. Goldar & Aggarwal, 2010). These workers need both the patronage and protection of the principal employer-establishment so that their employer–contractor cannot deny honouring their rights granted by the statutes.

Establishments must cognize that their regular workers must coexist with contract labour. Hence, these two categories of workers need to nurture a symbiotic relationship and complement each other. User-enterprises have to exercise caution in deploying contract labour and ensuring all statutory compliance to avoid possible legal complications. Post-globalization, there has been an increasing trend among establishments, both public and private, to engage contract labour. The need of the hour is easing out of hiring contract labour. A more significant onus lies with the public sector in this context, as it is looked upon as a model employer. We also propose that the legislative framework grants flexibility to industries to generate employment to contract labour, without compromising on protecting the rights of this segment of the workforce.

The ongoing pandemic has brought new challenges to the labour market in India. Contract workers happen to bear the brunt as they are extremely vulnerable. Lacking in social security and security of tenure, contract labour has already been in a dire situation, migrating to their states and then again returning to their places of work. As the economy has started resuming its industrial activities post the multiple lockdowns, the government needs to ensure that the contract labour displaced during the lockdowns gets employment free from exploitation by contractors and employers.

Further, the concept of fixed-term employment (FTE), included in the upcoming Industrial Relations Code, 2020, would empower employers to hire employees under fixed term contract for a specific duration. Such workers would be entitled to the same salary and social security as regular employees. Therefore, the concept of FTE can safeguard the interest of employees/workers engaged in different establishments. This practice can simultaneously eradicate complex issues like regularization and EPEW commonly faced by establishments.

Footnotes

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The authors received no financial support for the research, authorship and/or publication of this article.

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