As per the Factories act if you want layoff the you need to follow the below given formalities/process
"During lay off days the workers who have been in continuous service for at least one year are to be paid lay off compensation @ 50% of the normal wages. However, no compensation shall be paid if such lay off is extended for a period beyond 45 days. For establishments employing 100 or more employees, prior permission from the government should be taken before laying off employees"
also please find the more details @ chapter-V A & B of Industrial Dispute Act
ISO 27001:2013 Internal Auditor
HR & Management Representative
You have sought legal opinion however, have you considered issue from Management Science point of view?
There is difference between "Human" and "Physical" assets. While latter, when changed, may give same output, this need not be the case of latter. When you change the workers, they could carry along with them the knowledge assets developed over the years like machine operations, resource optimization etc. Till the newcomers settle in, your company could incur some losses because of depletion in productivity. Will your owner be able to quantify those losses?
Going further, your company will have increased wage bill owing to service charge to the contractor plus service tax. Is this acceptable to the owner?
Therefore, review your decision from management science point of view and not necessarily from legal point of view.
There is actually no rule under the factories act or contract labour, which specifies percentage of contract labour Allowed. However, the provisions of the law and the stand taken by the courts is that you can not use contract labour for core manufacturing activities or any process that is incidental to the main purpose of your business. Therefore, using hundred percent contract Labour would not be allowed under the law.
The other problem would be in the fact that retrenching your entire staff would be costly and "get you stuck in a long legal battle. The amount of retrenchment compensation required to be given under the law may make it and unviable to switch to contract labour.
A more detailed explanation can only be given by studying the complete circumstances and situation. You should get in touch with a good consultant who can help you find the correct answers.
Like the other members pointed-out, pl confirm the following aspects of the situation--IF you wish to have actionable suggestions/solutions:
1] What's the sector/industry you work in?
2] What is the employee size--BOTH permanent employees & contract, as of today?
3] You mentioned 'he want to change all labour and give all labour work to the contractor': Do you mean that ALL the existing employees--both permanent & contract--are to be replaced OR ONLY those who are now working on contract?
4] What is/are the reason(s) to make the changes? Pl note that in such situations, there COULD be more of the 'unsaid' reasons than what's admitted openly.
IF you are really serious about getting realistic solutions/suggestions, pl clarify the above points so that the members can respond.
I am with you reg the 'Human/Physical assets' angle of the issue.
However, pl note that, quite often, many factory owners--am not generalizing--[especially those who have got to head them by virtue of legal/inherited rights] DON'T or rather CAN'T get such things into their heads. No matter what you tell them, they think everything that happened so far is absolute crap & they have super-smart ideas to make the whole thing work far better. Such people will only learn the hard way....when they get hit....most often pretty badly. Unfortunately, those who get effected in the crossfire will be guys like Neeraj Saraswat......it's only coincidental that he is the HR. Even the operational staff is likely to get hit.
This is the usual affair in family businesses. Always the new Captains usually adopt such a cavalier attitude in excess of enthusiasm on their taking the reigns of the organisation. Already our learned friends M/S Nathrao, Saswat and Dinesh have rightly cautioned you about the prospective ill-consequences both legal and moral respectively. Without knowing the constitution of the undertaking, employees number etc., whatever opinion given would be a generalized one and can't be situation-specific.
Today I become boss and I change all staff.
This is no way of running a business.
India faces a problem when labour becomes too organised then management is hamstrung in even routine decisions.
But the pendulum swings to other side when we dilute all laws to the extent that owners are masters of all they survey and can hire and fire at will.
All this in the name of ease of doing business.
We need to adopt a middle path where checks and balances are functional and not grease based.
Equally the condition of unorganised labour in industries is backbreaking and suffer merciless exploitation.
India is a long way from being an ideal welfare state and is dominated by greed and unregulated functioning.