From "vikramlamhe" : Dear Friends,

I am sharing herewith 35 Important Questions related to engagment of Contract labour & looking forward for the answer of these questions from Labour Laws Experts & CITEHR members.

SOME IMORTANT QUESTIONS RELATED TO CONTRACT LABOUR

1. What are the differences between contract labour and outsourcing? Which is better option and why?

2. Is Contract labour Act applicable when jobs and services are outsourced?

3. What are the non-perennial and non-permanent jobs which can be assigned to contract labour?

4. Can we have permanent employees and contract labour working side by side on the same job?

5. What is the best ratio between permanent and contact labour? Can we engage 100% contract labour?

6. Can we have different wages and other terms for permanent employees and contract labour doing the same or similar job?

7. Can we transfer casuals/temporaries on the rolls of contractor?

8. Application and implication of P.F., ESI, Bonus, Gratuity and other statutory benefits to contract labour, casuals etc. and how to ensure compliance?

9. How to ensure submission of PF and ESI returns by the contractor?

10. How to get a new PF code number from PF authorities?

11. Security, Housekeeping, Drivers, Canteen, Horticulture etc. on contract/voucher payment. Sustainability? Is there any Case laws?

12. Liability of principal employer for injury, illness, disability, death etc.

13. Can and should the employer have a say in the number and selection of contract labour?

14. Who is to take disciplinary action against contract labour? Under what rules? Are standing orders applicable to contract labour?

15. Is it necessary and desirable to issue employment card/gate pass/identity card to contract labour? If so under whose authority/signature? Safeguards?

16. Each contractor engaging less than 20 but together they engage more than 20. Will the provisions of registration, licensing and other statutory provisions apply?

17. Statutory requirements and precautions in awarding contract for safeguarding managements interests.




18. If License not renewed but contractor continues to work – legal implications including permanency?

19. Contractor changing but contract labour not changing – implications, precautions required?

20. Contract terminated due to unsatisfactory performance of the contractor, contractor leaves – can contract labour claim permanency? What should employer do?

21. Contract labour terminated through a settlement. Should principal employer be a party?

22. When contractor runs away leaving his workforce and supervisor, how to manage work and labour and who is to handle pending conciliation reference?

23. What to do if the contractor refuses to pay the labour?

24. What are the action required to be taken by the management after abolition of contract labour?

25. Can management challenge the decision of appropriate Govt. regarding abolition of jobs?

26. Should contractor and contract labour be rotated? Why? How often?

27. How to reduce number of contract labour?

28. Contract labour demanding permanency – How to handle?

29. Contract labour demanding similar benefits as permanent employees. Is the claim legally valid?

30. Is Pension Scheme also applicable to contract labour?

31. Is Minimum Wages Act applicable to contract labour?

32. What is the liability of Principal Employer in the case of sub-contracting?

33. What are the implications of Supreme Court Judgment in the SAIL case reversing earlier Air India Judgment?

34. Implications and liabilities of temporary/casual/probationer employees/trainees? Is there any maximum duration?

35. What is the relevance of 180/240 days & what are the Implication of breaks?

Regards,

Vikram Singh
9810102421

5th August 2011 From India, Delhi

Dear Mr. Pritam, I am looking for the answers. Regards, Vikram Singh 9810102421
11th August 2011 From India, Delhi
Attached Files
File Type: doc SOME IMORTANT QUESTIONS RELATED TO CONTRACT LABOUR.doc (22.5 KB, 7059 views)
Hi, You may find answers to most of your questions in the attached document which I found while surfing the net. The source is unknown. Regards, Swapnil
13th August 2011 From India, Pune
Attached Files
File Type: pdf Contract+Labour+-+Clarifications.pdf (46.1 KB, 7809 views)
Dear Vikram,

Here is the full answer to most of your questions, thanks to Mr. Swapnil

Q. What is the difference between contract labour and outsourcing? Which is better

option and why?

Ans. Neither the term “Contract Labour” nor the term “outsourcing” has been defined under

Contract Labour Act.The intention of ultimate net result of both the terms appears to be

same. Term “outsourcing” has been coined very intelligently to create confusion between

the two.

“Contract Labour” is a term which is applied to man power engaged by somebody else to

produce a given result to principal employer where this man power has no direct relationship

of employer-employee with the principal employer. This includes the simple supply of

manpower to principal employer by contractor where contractor is not involved in specified

activity.

“Outsourcing” conveys more or less same meaning. When an employer engages somebody

else to deliver a specified result where employer is not involved with the man power

engagement or supervision or control activity over such man power. If any activity which is

outsourced to someone and carried outside the premises of the principal employer, such

manpower engaged will not be termed as “workman” under Contractor Labour Act.

It is not the nomenclature of the term but the real intent to decide when it is a Contract

Labour or outsourcing. It can also be said like contract labour reflect manpower where as

outsourcing reflects the job or the activity.

Bombay High Court in the case of Sudhir Kondiram Jadhav (2002 I CLR 97) has held that

workers employed by agencies will be the Contract Labour under the Act.

Q. Is Contract Labour Act applicable when jobs and services are outsourced?

Ans. When the jobs and services are outsourced and are carried out in some other premises

not being premises under controlled and management of the principal employer, Contract

Labour Act will not apply. For all other jobs and services outsourced which are carried out in

the premises of the principal employer will be covered under the Contract Labour Act.

Q. What are the non-perennial and non-permanent jobs which can be assigned to

contract labour?

Ans. Neither the “perennial” nor the “permanent” term has defined under the Act. The word

Important Clarifications

On Contract Labour

“perennial” has been used under sec. 10(2)(b) where it is said that if the job exists for

sufficient duration will be considered as of “perennial” nature. The act no where prohibits

engagement of contract labour on any job or activity or service unless it is prohibited by the

Appropriate Govt. under the provisions of the Act. Andhra Pradesh State Govt. has amended

the CL Act in 2003 and clarified the jobs / activities on which contract labour can be deployed

but no other state has moved in this direction to bring clarity on this point. At present contract

labour can be engaged on any permanent nature of job in strict legal sense but yes, it

should be avoided as this may become a basis for the state Govt. to prohibit employment of

contract labour on that particular job / activity / service in the industry.

Q. Can we have permanent employees and contract labour working side by side on

the same job?

Ans. Yes! As explained above unless it is prohibited by the Govt.

Q. What is the best ratio between permanent and contact labour? Can we engage

100% contract labour?

Ans. There is no guide line provided under the Act about this ratio. The concept of

engagement of contract labour or giving job on contract basis originated to get the things

done in a given time frame to be paid on the basis of net result and not on the number of

manpower involved and this can always be applied to those areas of the industry where

activities are such that they do not require full time workers for the major portion of the

working hours or any sudden increase of volume of work which needs to be accomplished

in a specified time. So 100% contract labour can’t be engaged unless the whole industry is

leased out to someone else, who ultimately becomes the principal employer for the

manpower engaged by him. In my view ideal ratio of contract labour, to keep the healthy

industrial relations should be around 70/30 (70% to be engaged by principal employer and

30% through contract labour).

Q. Can we have different wages and other terms for permanent employees and

contract labour doing the same or similar job?

Ans. Though, rules framed under Contract Labour Act by Central Govt. as well as State

Govts. carry a condition [central rule 25 (2) (v)(a) & (b)] that where the workmen employed

by the contractor perform the same or similar kind of work as the workmen directly employed

by the principal employer of the establishment, the wage rates, holidays, hours of work and

other conditions of service of the workmen of the contractor shall be the same as applicable

to the workmen directly employed by principal employer of this establishment on the same

or similar kind of work but if, there is an disagreement with regard to the type of work, shall

be decided by the concerned labour commissioner.

But recently Supreme Court in the case of U.P. Rajya Vidyut Utpadan Board case (2010

LLR 453) has clarified that nature of work, duties and responsibilities, attached to the job of

permanent workmen and contract labour are relevant in comparing and evaluating as to

whether the workmen employed through contractor perform the same or similar kind of

work as the workmen directly employed by the principal employer. Degree of skills and

various dimensions of a giving job have to be gone into to reach a conclusion that nature of

duties of the workmen in two categories are on par or otherwise. Often the difference may

of a degree. It is well settled that nature of work can’t be judged by mere volume of work;

there may be qualitative difference as regards reliability and responsibility.

However, Madhya Pradesh High Court in the case of Steel Authority of India Ltd. case (

2007 LLR 79) has held that the workers through contractor under CL Act will be entitled to

equal wages which were being paid to regular employees.

Q. Can we transfer casuals/temporaries on the rolls of contractor?

Ans. As principal employer one should not do it. Transfer from the rolls of principal employer

the rolls of contractor establishes that contract is sham and camouflage and the real control

and supervision is of principal employer. Even if one wants to do this, better way would be

to first clear full and final accounts, severe the relationship of principal employer and casual

/temporary workmen by proper documentation. Then contractor can engage / employ such

casual / temporary workmen on his rolls. In this whole process documentation is the key to

establish whether the arrangements are genuine or fake.

Q. Liability of principal employer for injury, illness, disability, death etc.

Ans. Principal Employer is fully responsible in case of injury, illness, disability or death

unless the contract labour is covered under ESI with his contractor employer.

Q. Can and should the employer has a say in the number and selection of contract

labour?

Ans. No! Once the job / services / activities are allocated to a contractor under proper

agreement, principal employer should not have a say in number and selection of contract

workmen, at least on documents. If the principal employer is selecting the contract labour,

appointing them under the name of contractor, it is sufficient to establish the relationship

employer-employee between the principal employer and the so called contract labour.

Q. Who is to take disciplinary action against contract labor? Under what rules? Are

standing orders applicable to contract labour?

Ans. Contractor as employer in relation to contract workman should take disciplinary action

against such errant workman under the service rules of his organization / terms of

employment. Standing Orders are not applicable to contract labour as the definition of the

workman under Industrial Employment Standing Order Act does not cover contract labour

unless your Standing Orders cover this category.

Q. Is it necessary and desirable to issue employment card/gate pass/identity card to

contract labour? If so under whose authority/signature? Safeguards?

Ans. Yes! It is very much desirable. Issue of employment card / identity card is an obligation

under the provisions of contract labour act and rules. Employment card / Gate pass / indentity

card should be issued by and under the seal of contractor because he is their employer.

Management of principal employer should not involve themselves in this activity.

Q. Each contractor engaging less than 20 but together they engage more than 20.

Will the provisions of registration, licensing and other statutory provisions apply?

Ans. In this situation, principal employer will be under legal obligation to obtain registration

under the contractor labour act but individual contractors having less than 20 workmen will

not be required to obtain license under the act as the same does not apply to them. However,

there is a catch. If a contractor employs 20 persons on any day during the preceding 12

months, act will apply.

Q. Statutory requirements and precautions in awarding contract for safeguarding

managements interests.

Ans. Principal Employer should execute well drafted agreement and other documents to

establish the relationship of principal employer and contractor. Principal employer should

not establish the supervision and control over the contract labour for carrying out any activity.

It is advisable to have the expert services for this whole process. Because any minute

lacunae in drafting of various documents may land principal employer and the organization

in trouble in case of dispute. I strongly discourage the growing habit of copy paste exercise

normally concerned managers do while engaging contractor for their organization in terms

of various documents. This should not be done because each organization has its own

specifications, limitations, nature of work and requirements etc.

Q. License not renewed but contractor continues to work – legal implications

including permanency?

Ans. Even if the license of the contractor is not renewed but continues to work, contractor

labour can’t claim permanency with the principal employer merely on this ground. However

contractor can be prosecuted for the violation of the provisions of the act for not getting his

license renewed. Karnataka High Court in the case of Steel Authority of India Ltd. (1990) 64

FLR 573 has held that licensing is only a regulatory measure and it does not create any

privilege. Bombay High Court in the case of General Labour Union (Red Flag) has held that

the employees engaged by a contractor to run a canteen for a company does not become

employees of the company if the contractor fails to register the contract with the appropriate

authorities. Supreme Court in the case of Deena Nath (1992 LLR 46) has held that

consequence on non compliance with the provisions related to registration and license is

penal.

Punjab & Haryana High Court in the case of Food Corporation of India (2008 LLR 391) has

held that when the contractor does not possess valid license only penal provisions would

be attracted and it is no where provided that such contract labour would become the

employees of principal employer.

Q. Contractor changing but contract labour not changing – implications, precautions

required?

Ans. The situation where contractor in changing but contract labour remain same may be

viewed against the principal employer as it reflects against the spirit of the act unless the

shift of labour from one contractor to other is properly documented. This may lead to

declaration of sham contract. Supreme Court in R.K. Panda case (1994 LLR 634) has held

that workers working under different contractor for last 10 years will be absorbed by the

principal employer.

Q. Contract terminated due to unsatisfactory performance of the contractor,

contractor leaves – can contract labour claim permanency? What should employer

do?

Ans. No! In this situation contract labour can’t claim permanency in the organization. The

moment, contract is terminated, the workers employed by such contractor looses the right

to enter into the premises of the principal employer to work as it is the responsibility of the

contractor to either keep such labour under his employment or clear their accounts. If principal

employer allows such contract labour to work in the premises without any tag / identification,

in all probabilities such contract labour will be deemed as the workmen of the principal

employer.

Q. Contract labor terminated through a settlement. Should principal employer be a

party?

Ans. No! Principal employer should not become a party to such a settlement executed

between the contractor and his workman. It is a mutual matter between the contractor as

employer and his workman.

Q. When contractor runs away leaving his workforce and supervisor, how to manage

work and labor and who is to handle pending conciliation reference?

Ans. It is for the contractor to discharge his responsibility as employer towards his workmen.

If he runs away leaving his workforce, in no way principal employer is responsible for taking

care of them in strict legal sense except payment of wages, if not paid by the contractor.

Principal employer should not involve himself in the conciliation reference.

Q. What to do if the contractor refuses to pay the labour?

Ans. Principal Employer is responsible and under legal obligation to pay wages to the

workmen employed by contractor in the premises in case contractor refuses to pay [sec. 21

(4)] of the Act. Kerala High Court in the case of Cominco Benani Zinc Ltd. case (1989 LLR

123) has also held that if the contractor fails to pay wages to his employees engaged by

him, principal employer will be liable to pay the same.

Q. Action required to be taken by the management after abolition of contract labour?

Ans. Principal Employer is prohibited to engage contract labour on such job / activity /

service which is abolished by the Appropriate Govt. In such situation principal employer

should not engage contract labour for such job / activity / service. If he does so, such

contract labour would be deemed as the employees of the principal employer.

Q. Can management challenge the decision of Appropriate Govt. regarding abolition

of jobs?

Ans. Yes! Management can challenge the decision of the Appropriate Govt. regarding

abolition of jobs in High Court through writ.

Q. Should contractor and contract labour be rotated? Why? How often?

Ans. Rotating contract labour and contractor for the same job / activity / service may be

held as unfair labour practice unless there are sound reasons and proper documentation

exists in favour of principal employer as bonafide action.

Q. How to reduce number of contract labour?

Ans. First, by identifying the jobs / activities / service which are regular and perennial in

nature and organization requires constant labour. Secondly replace such contract labour

by regular workmen by the company.

Q. Contract labour demanding permanency – How to handle?

Ans. Ensure that your engagement of contract labour system in the organization is genuine.

All documentation including appointment, supervision and control should be sufficient to

establish that contract is not sham. I suggest to seek expert advice and avail such services

as this is very sensitive issue.

Q. Contract labour demanding similar benefits as permanent employees. Is the claim

legally valid?

Ans. Yes! Their claim may be legally valid as it is already provided in the Act that contract

labour is entitled for equal wage, benefits and facilities doing the same or similar kind of

work as employees of principal employer.

Q. Is Minimum Wages Act applicable to contract labour?

Ans. Yes! Rules framed under Contract Labour Act by Central Govt. as well as State Govts.

carry a condition [central rule 25 (2) (iv)] that rates of wages payable to the workman by the

contractor shall not be less than the rates prescribed under the Minimum Wages Act for

such employment where applicable and where the rates have been fixed by agreement,

settlement or award not less than the rates so fixed. Moreover all State Govts. have included

the category of Contract Labour under their respective MW notifications.

Q. What is the liability of Principal Employer in the case of sub-contracting?

Ans. Same - as in the case of contractor. Because, as per the provisions of the Act sub

contractor is covered in the definition of the contractor.

Q. Implications and liabilities of temporary/casual/probationer employees/trainees?

Is there any maximum duration? Relevance of 180/240 days? Implication of breaks?

Ans. Contract Labour Act does not provide any where the status of workman as temporary

/ casual / probationer / trainee. It is for the contractor to employ his workman in his

organization as he wants. It is no where going to affect the principal employer.

29. What changes are likely to be made in the contract labour Act as a part of Labour

Law reforms?

Ans. Industrial Disputes Act has already being amended recently with reference to definition

to workman, introduction of grievance redressal committee, right of workman to approach

labour court directly in case of individual dispute etc. Govt. is also considering amending

Contract Labour Act which is in terms of providing clear cut equal benefits and wages to

contract labour with regular workman but such considerations are at very preliminary stage

and no one knows whether it takes shape or not.

• • •
14th August 2011 From India, Bangalore
Dear Mr. Vikram ji,
Your 35 questions are not totally attracted the meaning of "CONTRACT LABOUT ACT". Firstly please calrify your questions are related to Act or General Contract with employee - employer agreement.? Firstly know the contract labout Act.
Regards,
PBS KUMAR

14th August 2011 From India, Kakinada
Attached Files
File Type: pdf NOTES ON CONTRACT LABOUR2.pdf (115.9 KB, 3355 views)
File Type: pdf Contract Labour - Clarifications.pdf (46.1 KB, 2022 views)
I would like to know what are the total hours of working for contract staff including lunch hours
3rd October 2011 From India, Mumbai
Dear Chital ,
Rules framed under Contract Labour Act by Central Govt. as well as State
Govts. carry a condition [central rule 25 (2) (v)(a) & (b)] that where the workmen employed
by the contractor perform the same or similar kind of work as the workmen directly employed
by the principal employer of the establishment, the wage rates, holidays, hours of work and
other conditions of service of the workmen of the contractor shall be the same as applicable
to the workmen directly employed by principal employer of this establishment on the same
or similar kind of work but if, there is an disagreement with regard to the type of work, shall
be decided by the concerned labour commissioner
19th October 2011 From India
Dear Mr.Vikram Singh,

Here are the answers for the questions you have raised.

1. What are the differences between contract labour and outsourcing? Which is better option and why?

The engagement of labour through a contractor / contractors for the accomplishment of certain works other than core ones in an organization can generally be termed as the system of contract labour, whereas, outsourcing refers to the practice of contracting out certain incidental or lean activities/services to outside agencies. Basically, both are in the nature of contractualisation of labor providing a better output at a reduced cost without compromising on the competitive working environment. In other words both are simple contractual arrangements between the de facto employer ie., the principal employer and the de jure employer ie., the contractor/service provider. But, difference between the system of contract labour and the system of outsourcing arises from the manner of their execution. In contract labour system, the ubiquity of actual practice would prove that the role of the contractor is normally limited to that of a supplier of the agreed number of contract workmen with necessary skill levels, ensuring their availability as and when required for the principal’s specified operations / services. Continuous supervision and control of the methods of work and the workmen are retained by the principal himself. In the case of outsourcing, it need not necessarily be so for in most cases the outsourced services are performed elsewhere under the direct supervision and control of the service provider. In contract labour system, engagement of contract labour is more or less a continuous operation as long as the services are required by the principal employer, whereas, in outsourcing, the arrangement is normally adhoc and intermittent depending upon the nature of the services outsourced. In contract labour system, the principal employer has got certain legal obligations such as ensuring payment of wages, gratuity, bonus, contributions to P.F. and ESI schemes, vicarious liability in respect of employment accidents to contract labour. In outsourcing, there are no such obligations on the part of the principal as the service provider himself is a separate legal entity. In contract labour system, the employment relationship between the principal employer and the contract labour still subsists in an indirect form by virtue of the place of work, concurrent closeness of supervision over the method of work and control of the contract workmen leaving hiring and firing and the existence of vicarious liability in respect of certain statutory compliances. However, in outsourcing, no employment relationship exists between the principal and the workforce of the service provider as long as the out-sourced services are generated from elsewhere, even though they are meant for the principal.

From the points of view of economy and control over performance, the contract labour system is a better one in respect of activities incidental to the core activities of the establishment. In terms of effective services and timely delivery, outsourcing is a better option for the principal is relieved of the responsibility of on- the job- supervision.





2. Is Contract labour Act applicable when jobs and services are outsourced?

Normally, as long as the outsourced jobs/services are performed elsewhere, the Contract Labour Act is not applicable. However, if they are performed in the premises of the establishment of the principal by the employees of the outsourcing agency, the Act will apply.

3. What are the non-perennial and non-permanent jobs which can be assigned to contract labour?

It is not possible to define non-perennial and non-permanent jobs with a mathematical precision. It is always relative or contextual to the trade, business, manufactory or core activity of the principal employer’s establishment. What is a core activity in a particular establishment may be an incidental one in another and vice-versa. For the sake of convenience, we can generalize that any distinct job whose performance requires only a short period of time is a non-perennial job and a job whose requirement is intermittent or only occasional is a non-permanent one.

4. Can we have permanent employees and contract labour working side by side on the same job?

Generally, no because such an arrangement, if followed regularly, would indicate that the contract is ruse or sham. How ever, occasional engagement of contract labor along with permanent employees on the same job to meet the contingency of sudden increase of volume of work in the core activity which needs to be accomplished in a specified time may be justified.

5. What is the best ratio between permanent and contract labour? Can we engage 100% contract labour?

The ratio between the core activity of the establishment and its non-core activities would be the determinant.

6. Can we have different wages and other terms for permanent employees and contract labour doing the same or similar job?

No; Pl. see Rule 25(2)(v)(a) of the Central Rules,1971. In this connection I would also furnish the extract of the relevant portion of the judgment of the h’ble Supreme Court in BHEL Workers’ Association, Hardwar v.Union of India [1985(1)SCC630] as hereunder:

“…..Contract labor 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.”

7. Can we transfer casuals/temporaries on the rolls of contractor?

No.

8. Application and implication of P.F., ESI, Bonus, Gratuity and other statutory benefits to contract labour, casuals etc. and how to ensure compliance?

The E.P.F Act,1952 takes the contract labor employed in the principal employer’s establishment into the sweep of its definition of the term ‘employee’ u/s 2(f). Provision has also been made for separate codes for contractors in the clarification issued by the EPFO.

The contract labor employed in factories and other establishments covered by the ESI Act,1948 are also employees under the Act as per section 2(9).The term ‘immediate employer’ defined u/s2(13) of the Act includes a contractor also.As per S.40 of the Act, the principal employer has to pay contributions in the first instance subject to the right of reimbursement.

Regarding payment of bonus under the P.B Act 1965 to contract labor, no mention in either statute.However, since the charges payable to the contractor would include all proportionate statutory dues to the contract labor for the entire period of contract, one can safely conclude that the principal employer should ensure bonus disbursement to the contract labor engaged for his establishment.

The liability of the principal employer for the payment of gratuity to the contract labor under the P.G Act1972 is also in the twilight as there are divergent views among different High Courts. For instance,in Cominco Binani Zinc Ltd. V.Pappachan[1989 LLR 123] the Kerala High Court held that neither the C.L.R.Act nor the P.G Act provide that the employees engaged thru the contractor would be entitled to gratuity from the principal employer and as such the principal employer would not be liable to pay gratuity to the contract labor.On the contrary,the Madras High Court has held in Madras Fertilizers Ltd.v. C.A under the P.G Act [2003 LLR 244] that the principal employer can be directed to pay gratuity to his contract labor subject to reimbursement by way of recovery from the contractor. I would request others to throw more light on this!

9. How to ensure submission of PF and ESI returns by the contractor?

Make a specific clause in the agreement that the contractor will submit the periodical returns to the PF and ESI authorities within the stipulated dates and furnish a certificate to that effect along with copies of challan for remittance accompanying his monthly bills for payment.

10. How to get a new PF code number from PF authorities?

Learned members well versed in EPF procedures may answer please.

11. Security, Housekeeping, Drivers, Canteen, Horticulture etc. on

contract/voucher payment. Sustainability? Is there any Case laws?

The question is a little bit hazy.

If it is pertaining to employment of such personnel through contractors, the answer is ‘yes’ in so far as such jobs are incidental and not prohibited by a notification u/s 10 of the CLRA Act. However,if there is a statutory obligation on the employer to provide certain services, the labor employed therein, though engaged through contractors, will become the employees of the principal employer ( eg., contract labor employed in a canteen of a factory of 250 or more workmen)-----Steel Authority of India Ltd., v National Union Water Front Workers [2001 LLR 961]

If it is pertaining to “engagement of people on some incidental works” in order to avoid the intricacies of their regular employment, the emphatic answer will be ‘No’. Payment by voucher or other means or its periodicity are just mere modes. Mode of payment cannot determine or alter the status of employment. Even if watering the gardens in and around the premises of the establishment requires just one hour each in the morning and evening every day and the gardener does it on part-time basis regularly, he is an employee.

12. Liability of principal employer for injury, illness, disability, death etc.

Section 12(1) of the Employees Compensation Act,1923 provides that if an employee is employed by a contractor for the trade or business of the principal employer and in case he suffers any injury during the course of employment, the principal shall be liable to pay compensation.Sec12(2) entitles the principal employer to be indemnified by the contractor. The object of this provision is to safeguard the right to compensation when employer delegates work to another person for the contract between the principal and contractor cannot affect the right of the employees or their dependents to claim compensation from either of them at their option. However, the following 4 essential conditions have to be satisfied before invoking Sec12: (1) engagement of a contractor by the principal employer to execute the work relating to his trade or business. (2) the work is ordinarily a part of the trade or business of the principal (3) the accident saddling the liability for compensation should have occurred on, in or about the premises on which the principal has undertaken or usually undertakes to execute the work or which is in his control or management and (4) the occurrence of the accident while the employee was in the course of his employment in executing the work.

13. Can and should the employer have a say in the number and selection of contract labour?

Yes; since the contract is for the purpose of getting things effectively done within a specified span of time and the principal is well aware of the economics of the project to be contracted out, he has got a say in the minimum and maximum no. of contract labor likely to be employed. But, the selection of contract labor is only limited generally to that of specific skills required for the project and not in terms of pick and choose.

14. Who is to take disciplinary action against contract labour? Under what rules? Are standing orders applicable to contract labour?

The principal employer has no disciplinary control over the contract labor employed for his establishment.

15. Is it necessary and desirable to issue employment card/gate pass/identity card to contract labour? If so under whose authority/signature? Safeguards?

Even though employment card in form XIV is given to every contract worker, ID card signed by the contractor may be given as an additional safeguard.

16. Each contractor engaging less than 20 but together they engage more than 20. Will the provisions of registration, licensing and other statutory provisions apply?

Section 1(4) of the CLRA Act,1970 deals with the applicability of the Act to the establishment and the contractor in its following two limbs:

(a) to every establishment in which 20 or more workmen are employed or were employed on any day of the preceding 12 months as contract labor

(b) to every contractor who employs or who employed on any day of the preceding 12 months 20 or more workmen

So not withstanding the fact whether every contractor engaged has less than 20 workmen under him, the Act will apply to the establishment if the number of contract labor aggregates to 20 or more in the specified period of time and registration u/s 7 as principal employer is mandatory.

In so far as the individual contractors engaged by the principal employer are concerned, it is my personal view that they need not take licence u/s 12 for there is no change in the status of the workmen employed through them and themselves as ‘contract labor’ and ‘contractor’ defined respectively u/s 2(1) (b) and (c).

17. Statutory requirements and precautions in awarding contract for safeguarding managements interests.

(1) The management should be very clear about the nature of job/work/activity to be contracted out; it should not be an activity prohibited u/s 10 of the Act.

(2) If the work is of a composite nature involving various specialized componential sub-works, a single contractor having all the where-withal and infrastructure can be preferred. Even then it should be ascertained before hand whether he would be engaging sub-contractors for technical reasons.

(3) As for as possible, sub-contracting should be avoided; if inevitable, the number should be limited.

(4) A reasonable fore-cast should be made about the requirement of man-power for the entire work to be contracted out. Particularly, when different contractors are to be engaged, the probable no. of men likely to be employed by each should be determined.

(5) Apart from technical expertise, the experience of the contractor with the CLRA Act should be assessed for ensuring his statutory compliance during the execution of the contract.

(6) It should be ensured whether adequate insurance coverage under the Employees Compensation Act has been taken by every contractor engaged.

(7) While determining the cost of the contract work, minimum wages if any fixed for the employment, statutory contributions to EPFO and ESIC,bonus,insurance premium etc., should added to the labor cost.

18. If License not renewed but contractor continues to work – legal implications including permanency?

In Labourers Working in Salal Hydro-Project v.State of J&K [AIR 1984 SC 177] the Supreme Court said that if contractors undertake or execute any work through contract labor without obtaining a licence u/s 12(1), they would be guilty of a criminal offence punishable u/s 23 or 24. The same is the position when the licence obtained earlier is not renewed later u/s 13(3).But it should be noted that the Act does not provide for automatic absorption of contract labor either expressly or by necessary implication. Hence it is difficult to say that the provisions of the Act or the Rules made there under would lead to abolition of contract labor in the concerned establishment with a simultaneous absorption of the existing contract labor engaged through a defaulting contractor in the absence of provision for absorption or grant of permanency.

19. Contractor changing but contract labour not changing – implications, precautions required?

This would be an anomalous situation of rotating the same group of contract labor among various contractors in the same establishment one after another and is normally called as “umbrella contract.”Apart from being a clear vindication of the fact that the arrangement is sham or ruse, it can also be considered as an unfair labor practice on the part of the principal employer as enumerated at item No. 10 of part I of Schedule V of the Industrial Disputes Act,1947.

20. Contract terminated due to unsatisfactory performance of the contractor, contractor leaves – can contract labour claim permanency? What should employer do?

The engagement of a particular group of contract labor is coterminous with the contract between their contractor and the principal employer. When the contract itself is terminated for whatsoever reason, the exit of the contract labor is simultaneous too. In such an unfortunate situation, look-out for a next suitable contractor is the option.

21. Contract labour terminated through a settlement. Should principal employer be a party?

No.

22. When contractor runs away leaving his workforce and supervisor, how to manage work and labour and who is to handle pending conciliation reference?

Stop engaging the abandoned contractor’s workforce and supervisor; settle their wages due, if pending and adjust it with the payments due to the contractor. Inform the conciliation officer about the developments and keep yourself off.

23. What to do if the contractor refuses to pay the labour?

Make direct payment and debit it to the contractor’s a/c.

24. What are the action required to be taken by the management after abolition of contract labour?

Don’t engage any more contract labor in the prohibited activity. Since absorption of the erstwhile contract labor is a separate issue depending upon so many factors like the conditions, if any stipulated in the orders, demand and willingness of the contract labor for absorption etc., wait and decide accordingly.

25. Can management challenge the decision of appropriate Govt. regarding abolition of jobs?

Yes, if there are valid grounds.

26. Should contractor and contract labour be rotated? Why? How often?

No.

27. How to reduce number of contract labour?

The engagement of multi-skilled regular workmen in sufficient numbers on jobs of perennial and intermittent nature would help reduce the number of contract labor.

28. Contract labour demanding permanency – How to handle?

Normally contract labour cannot stake a claim for permanency against the principal employer. However, in the case of the alleged contract is said to be sham or a camouflage, they can raise a dispute under sec 2(k) of the Industrial Disputes Act, 1947 for the remedy of absorption as regular employees of the principal employer.

29. Contract labour demanding similar benefits as permanent employees. Is the claim legally valid?

Yes, if they are engaged in similar or same jobs as the permanent employees.

30. Is Pension Scheme also applicable to contract labour?

Yes.

31. Is Minimum Wages Act applicable to contract labour?



Yes.

32. What is the liability of Principal Employer in the case of sub-contracting?

Since sub-contractor is also a contractor, no change in the liability of principal employer vis-à-vis sub-contractor.

33. What are the implications of Supreme Court Judgment in the SAIL case reversing earlier Air India Judgment?

Let’s first have a brief look at the principles emerging out of the judgment in Air India Statutory Corporation v. United Labor Union & Others [ 1997(I) L.L.N.75 ]:

(1) Since the public law interpretation is the basic tool of interpretation in that behalf relegating common law principles to purely private law field, the term “appropriate government” occurring in Sec 2(1)(a) of the CLRA Act should be interpreted so as to ascertain whether an establishment is an instrumentality or agency of the State not merely with reference to its constitution, pervasive control exercised by the State over it, but, with reference to its activities complying with the basic law requirements of Art.14 of the Constitution. Hence, for the Air India Statutory Corporation, the appropriate government is the Central Govt from the inception of the CLRA Act.

(2) Since the notification prohibiting employment of contract labor from December 9, 1976 for sweeping, cleaning, dusting and watching of buildings owned or occupied by the establishments in respect of which the appropriate govt. under the said Act is the Central Govt. was in exercise of its power as appropriate Government after consultation with the Central Advisory Board is valid in law.

(3) In tune with the Directive Principles of State Policy, on abolition of contract labor system from any establishment u/s 10 of the Act by the appropriate Government, the logical and legitimate consequence thereof, will be that the erstwhile regulated contract labor covered by the sweep of such abolition for the concerned activities would be entitled to be treated as direct employees of the employer from the date of abolition.

Now, the principles laid down by the Hon’ble Five-Judge Constitution Bench of the Supreme Court in Steel Authority of India Ltd and others v. National Union Water Front Workers and others [ 2001(4) L.L.N.135 ] on the same issues are:

(1) In the case of a Central Govt. company/undertaking, an instrumentality of the Govt., carrying on an industry, the criteria to determine whether the Central Govt. is the appropriate Govt within the meaning of the CLRA Act, is that the industry must be carried on by or under the authority of the Central Govt. AND NOT that the company/undertaking is an instrumentality or an agency of the Central Govt. for purposes of Art.12 of the Constitution; such an authority may be conferred either by a statute or by virtue of principal and agent or delegation of power and this fact to be ascertained on the facts and in the circumstances of each case.

(2) Since the impugned notification dated December 9, 1976 by the Central Govt. apart from being an omnibus notification devoid of compliance of sub-secs (2) of Sec 10, it is ex facie contrary to the postulates of Sec 10 of the Act. Besides that in as much as it is indicative of non-application of mind by the Central Govt., it can not be sustained.

(3) Beneficial legislation should be construed liberally in favor of class for whose benefit it is intended but that does not mean reading in provisions of enactment what legislature has not provided, whether expressly or by necessary implication, or substituting remedy or benefits provided by legislature. A combined reading of ss 2© and 2(i) of the CLRA Act and Se 2(s) of the Industrial Disputes Act,1947 would reveal that contract labor engagement by contractor does not create relationship of master and servant between principal employer and contract labor. Therefore, neither Se10 of the CLRA Act nor any other provision in the Act, whether expressly or by necessary implication, provides for automatic absorption of contract labourer on issuing a notification by appropriate Govt. under ss(1) of Se. 10, prohibiting employment of contract labourer, in any process, operation or other work in any establishment. Consequently, the principal employer cannot be required to order absorption of the contract labourer working in the concerned establishment.

IMPLICATIONS OF THE JUDGMENT

(1) The reasoning adopted for the determination of “appropriate government” in Air India case cannot be accepted. The appropriate govt. for the Central Undertaking would be those covered under sec 2(a) of the I.D Act, 1947.

(2) No automatic absorption of contract labor consequent abolition u/s 10.

(3) If a notification prohibiting contract labor in any process/job in any establishment is devoid of consideration of all the factors mentioned in ss(2) of Se.10, it is invalid.

(4) Since the over-ruling of Air India’s judgment is explicitly declared to be prospective, any direction issued by any industrial adjudicator/any court including High Court, for absorption of contract labor pursuant to the over-ruled judgment will hold good and the same should not be set aside, altered or modified in cases where such a direction has been given effect to and become final.



34. Implications and liabilities of temporary/casual/probationer employees/trainees? Is there any maximum duration?

The Schedule specifying matters to be provided in standing orders under the Industrial Employment ( Standing Orders ) Act,1946 deals with classification of workmen by means of examples. Therefore, depending upon the type of industry, nature of employment etc., workmen can be broadly classified into the following categories:

(1) permanent:

“ A workman engaged on a work of permanent nature which lasts throughout the year and who has also completed his probationary period, if any, not being engaged to fill in a temporary need of extra hands on permanent jobs, e.g., in leave vacancies.”[ Jaswant Sugar Mills Ltd. V. Badri Prasad-AIR 1967 SC 513 ]

(2) Probationer:

One of the literal meanings of the term ‘probation’ is a fixed period of time during which a new entrant to a job is put on the job with simultaneous training or orientation and watched over to find out his/her suitability to be confirmed. So, a probationer is a provisional employee in the waiting for confirmation. The period of probation will be as fixed in the Standing Orders or Service Rules applicable. The period of probation of an employee may be extended by the employer if the rules so provide. Therefore, an employee can not get automatic confirmation on completion of the specified period of probation and there should be a specific written order by the employer. Similarly, keeping an employee as probationer indefinitely even after the expiry of the specified period may, in judicial review, lead to deemed completion of the probation period.

(3) Temporary workman:

The Model Standing Orders in Schedule I of the Industrial Employment ( Standing Orders ) Central Rules, 1946 defines that a temporary workman is a workman who has been engaged for work which is of an essentially temporary nature likely to be finished within a limited period. When a workman is engaged either for work of a temporary or casual nature or on a work of permanent nature to fill in a temporary need of extra hands, he is called a temporary workman. What is important here is the nature of his engagement and its regularity. In other words when a person is employed only whenever a suitable work is available, his nature of employment under the employer is considered to be purely temporary. Per contra, if the same person is regularly employed, that is to say without intermittent break, if any, he cannot be deemed as a temporary workman and deprived of the benefits of continuous service under the employer.

(4) Casual labor:

In casual labor also the prominent feature is the absence of regularity in employment due to several factors such as the nature of works to be done, the periodicity of the works etc., and casualization of certain works are resorted to in order to save costs.

(5) Apprentice:

A combined reading of the terms ‘apprentice’ and ‘apprenticeship training’ occurring in ss ( aa) and ( aaa ) of Se 2 of the Apprentices Act, 1961 respectively would mean that a person undergoing a course of training in any industry or establishment in pursuance of a contract of apprenticeship is an apprentice. The Central Model Standing Orders defines that apprentice is a learner who is paid an allowance during the period of his training whereas the TamilNadu Model Standing Orders defines that apprentice is one who is engaged in learning any skilled work provided that the period of such learning, shall not exceed one year for those with prescribed technical qualification and three years for others.

For the purposes of certain labor enactments viz., the Employees Compensation Act,1923, the Industrial Disputes Act,1947, the Factories Act,1948, the Employees State Insurance Act,1948, the Employees Provident Fund Act,1952,[ other than Act apprentices in the last two] apprentices are treated as workmen. The Payment Bonus Act,1965 and the Payment of Gratuity Act,1972 explicitly exclude apprentice from their respective definitions of the term “employee”.

35. What is the relevance of 180/240 days & what are the Implication of breaks?

Sec. 25B of the Industrial Disputes Act, 1947 defines continuous service of a workman under an employer. Simply put, if a workman’s service under an employer for a period is said to be continuous inclusive of interruptions on account of sickness or authorized leave or an accident or a legal strike or lock out, a cessation of work not due to any fault of the workman. When it is not possible, sec 25B introduces a legal fiction by way of providing deeming clauses under sub-sec 2 of sec 25B. Clause (a) of 25B(2) states how to determine continuous service of a workman for a period of one year; Clause (b) of sec 25B(2) states the case of a period of 6 months. The explanation provided thereunder specifies certain interruptions to be treated as non-interruptions for the purpose of computing the number of days on which a workman has actually worked. They are – 1) Lay-off days, 2) Days spent on leave with wages, 3) Days of absence due to temporary disablement arising out of an employment accident and 4) 12 weeks of maternity leave in case of female worker. For a period of one year, a workman should be deemed to be in continuous service under an employer if during the preceding 12 calendar months, he has worked for 190 days in case of employment below the ground in a mine and 240 days in any other case including the breaks/interruptions mentioned above.

I have tried to answer all the 35 questions to the best of my knowledge and experience. Corrections or improvements if any will be gratefully appreciated.
19th May 2013 From India, Salem
Attached Files
File Type: docx CITE HR - CONTRACT LABOUR RELATED QUESTIONS.docx (37.7 KB, 776 views)
Dear Mr Umakanthan,
All your posts are really interesting and informative. A person like you with so much of experience spending time on equipping the young practitioners is really appreciable. It shows the interest you have in building HR competency for the nation as well the passion you have towards the community.
I have one query regarding payment of bonus to contract labour.
Why should principal employer pay bonus to the contract workmen.
Is the contractor is not running separate business and if so it should be from his profits and not from principal employer.
Please clarify.
18th June 2013
Dear Raja,

Pl refer to my answer to query no.8. As you are well aware, though our Constitution aims at securing Living Wages to our working class, the actual scenario is totally pessimistic in that still the Central and State Govts are bringing more no of employments into the schedule of the Minimum Wages Act,1948 year after year.In order to raise the wages, bonus is treated as deferred wages and included as an additional monetary compensation due to the employees. As mentioned in my answer, it has to be included in the cost of labour provided by the contractor and as such it would be logical and just as well that the Principal Employer indemnifies the contractor in this regard.But, the reasoning behind your question is correct. At the same time, we should not lose sight of the fact that no PE gives the the same quantum of bonus to the contract labour as given to the regular employees. If I were not wrong, only 8.33% of the wages earned by the contract labour in an accounting year is added to the contractors' charges.So, technically though the contract labour get bonus from the contractor only, since it is deferred wages, the PE has vicarious liability for its payment.
7th January 2014 From India, Salem


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