Can I Use Contract Labor in Production? Seeking Your Insights and Legal Guidance

Engaging Contract Labor in Production

Can I engage contract labor in Production? Please give your opinion and provide details on which section deals with that.

Regards,
P. Packiaraj

According to the Contract Labour (Regulation and Abolition) Act and as interpreted by the Honourable Supreme Court, contract labour cannot be engaged in processes where the engagement of contract labour is prohibited. (My views are relevant for Tamil Nadu. The position in other states, I am not aware of.) Therefore, please check whether the Government of Tamil Nadu has prohibited the engagement of contract labour in the process in which you want to engage contract labour and then proceed.

With regards,

Dear Mr. Packiaraj,

According to the Contract Labour (Regulation and Abolition) Act and as interpreted by the Honourable Supreme Court, contract labour cannot be engaged in processes where the engagement of contract labour is prohibited. (My views are relevant for Tamil Nadu. The position in other states, I am not aware of.) Therefore, please check whether the Government of Tamil Nadu has prohibited the engagement of contract labour in the process in which you want to engage contract labour and then proceed.

With regards,

Dear Sir, I am presently working in Chennai. The Contract Labour (Regulation and Abolition) Act, 1970 states that contract labour is prohibited; however, there is no specific clause or section indicating whether contract labour can be engaged in the production process or not. I could not find any section that explicitly states that contract labour should not engage in the production process.

Please help me clarify this doubt, sir. Could I get your contact number?

P. Packiaraj [Phone Number Removed For Privacy Reasons]

The CLRA Act does not specifically state that contract labor can be engaged in processes (other terms are also used in Section 10 of the CLRA Act) in which they are not prohibited. However, Section 10 of the CLRA Act has been interpreted by the Honorable Supreme Court in a number of cases to mean that contract labor could be engaged in processes in which they are not prohibited. The leading case on this point is the Steel Authority of India case. I am not sure about the citation for this judgment.

With regards

Contract Labor in Production Activities

Based on my understanding, contract labor should not be involved in core production activities. They may be assigned to non-core activities and supporting production tasks such as security, housekeeping, packing, loading, and unloading, among others.

Regards,
K. S. Sivakumaar

As per my understanding and experience in Kerala, I think that the engagement of contract labor in areas of operation that are perennial in nature is prohibited by law. Section 10(1) of the CLRA Act empowers the Appropriate Authority to prohibit the engagement of contract labor in a particular operation or job mainly on the following grounds:

1. When the process in which contract labor is engaged is identical to the core area of operation.
2. When the work in which contract labor is engaged is perennial in nature.
3. When the work in which contract labor is engaged is carried out by regular workmen in similar establishments in the same industry.
4. When the work in which contract workers are engaged is of such duration that regular workers can be employed.

In short, if your operation is regular in nature and can be staffed with regular/full-time employees, you are not supposed to engage contract labor.

The law stipulates that many establishments hire workers, including clerical and even managerial personnel, through contractors, and the authorities responsible for prohibiting such engagement often remain silent. However, in some cases (as seen in Kerala), when trade unions of regular employees object and bring it to the attention of labor authorities, interventions have taken place. Therefore, if you wish to work with a contractor, you can do so as long as the issue is not raised. If it is brought to light, you may be asked to discontinue the arrangement.

Regards,
Madhu.T.K

Please understand that the employment of contract labour by the contractor is based upon the registration by the principal employer as per the following provision:

Registration of Certain Establishments

7. Registration of certain establishments: (1) Every principal employer of an establishment to which this Act applies shall, within such period as the appropriate Government may, by notification in the Official Gazette, fix in this behalf with respect to establishments generally or with respect to any class of them, make an application to the registering officer in the prescribed manner for registration of the establishment:

Provided that the registering officer may entertain any such application for registration after the expiry of the period fixed in this behalf, if the registering officer is satisfied that the applicant was prevented by sufficient cause from making the application in time.

(2) If the application for registration is complete in all respects, the registering officer shall register the establishment and issue to the principal employer of the establishment a certificate of registration containing such particulars as may be prescribed.

Effect of Non-Registration

9. Effect of non-registration: No principal employer of an establishment, to which this Act applies, shall— (a) in the case of an establishment required to be registered under section 7, but which has not been registered within the time fixed for the purpose under that section, (b) in the case of an establishment the registration in respect of which has been revoked under section 8, employ contract labour in the establishment after the expiry of the period referred to in clause (a) or after the revocation of registration referred to in clause (b), as the case may be.

Licensing of Contractors

12. Licensing of contractors: (1) With effect from such date as the appropriate Government may, by notification in the Official Gazette, appoint, no contractor to whom this Act applies shall undertake or execute any work through contract labour except under and in accordance with a licence issued in that behalf by the licensing officer. (2) Subject to the provisions of this Act, a licence under sub-section (1) may contain such conditions including, in particular, conditions as to hours of work, fixation of wages, and other essential amenities in respect of contract labour as the appropriate Government may deem fit to impose in accordance with the rules, if any, made under section 35 and shall be issued on payment of such fees and on the deposit of such sum, if any, as security for the due performance of the conditions as may be prescribed.

Grant of Licences to the Contractor

13. Grant of licences: (1) Every application for the grant of a licence under sub-section (1) of section 12 shall be made in the prescribed form and shall contain the particulars regarding the location of the establishment, the nature of the process, operation or work for which contract labour is to be employed, and such other particulars as may be prescribed. (2) The licensing officer may make such investigation in respect of the application received under sub-section (1) and in making any such investigation the licensing officer shall follow such procedure as may be prescribed. (3) A licence granted under this Chapter shall be valid for the period specified therein and may be renewed from time to time for such period and on payment of such fees and on such conditions as may be prescribed.

Form II of the Contract Labour (Regulation & Abolition) Central Rules, 1971

Form II provides for in Sl No 3. Nature of work in which contract labour is employed or is to be employed. The form reads like this:

FORM II [See rule 18(1)] Certificate of Registration

Date Government of India Office of the Registering Officer

A certificate of Registration containing the following particulars is hereby granted under sub-section (2) of Section 7 of the Contract Labour (Regulation & Abolition) Act, 1970, and the rules made thereunder, to....

1. Nature of work carried on in the establishment. 2. Names and Addresses of Contractors. 3. Nature of work in which contract labour is employed or is to be employed. 4. Maximum number of contract labour to be employed on any day through each contractor. 5. Other particulars relevant to the employment of contract labour.

Signature of Registering Officer with Seal.

Therefore, if the principal employer gets the certificate, then the contractor can deploy the contract labour in the permitted activity.

Regards,
Rajan Law Firm

Please see the link for more information: https://www.citehr.com/285737-legal-...#axzz1WJ1p0i4f

You cannot engage contract labor in production. Jobs that are of a seasonal nature pose no problem in engaging them. However, jobs that are perennial cannot be taken on. That is why it is called the Contract Labour (Regulation and ABOLITION) Act. The Act itself aims to abolish the system of engaging contract labor in production and jobs that are continuous in nature.

Regards,
Balaji

I do agree with Rajan Law Firm. If your license clearly mentions that the job in the factory is permanent in nature and you want to engage contract labor for that, you can go ahead with that.

Thanks and regards,
Girish N. Chaturvedi

I agree with Mr. Madhu T K. You can engage contract labor as long as it is not prohibited by the concerned authority. Or one can stop using contract labor once it is objected to or prohibited by the concerned authority.

In practice, contract labor is very commonly used in production and manufacturing, and concerned authorities routinely allow the use of contract labor by issuing and renewing contract labor licenses.

In very few cases where unionized workers object to engaging contract labor, authorities have restricted the use of contract labor. But here also, the union's pressure on management works better than an order or restriction from authority.

Fellow citehr members are requested to please confirm specific cases they know where the use of contract labor was abolished or restricted by authority.

Contract Labor in Direct Production Processes

The question raised is whether contract labor can be employed in direct production processes. I request you to read Section 10 of the CLRA Act. This section gives power to the appropriate Government to prohibit the employment of contract labor in any processes, operation, or other work in an establishment. Before exercising this power to prohibit contract labor, Section 10 of the CLRA Act prescribes the procedure to be followed by the appropriate Government.

In other words, through the CLRA Act, Parliament has not abolished contract labor but has given power to the Central and State Governments to abolish contract labor. This implies that unless and until either the Central Government or the State Government abolishes the employment of contract labor in any processes or operations, contract labor could be employed in those processes or operations. The Government of Andhra Pradesh, through the Andhra Pradesh Act 2003, had amended Section 10 of the CLRA Act. This amendment prohibits the employment of contract labor in the core activities of any establishment. However, this amendment has force only within the State of Andhra Pradesh and is not applicable in other States. If any member is aware of any such amendments in any other States, they may inform this forum with specific details.

With regards,

Hi Madhu, the act specifically prohibits contract labor in production as it states that it can only be used for non-core and non-perennial work. It is not left to the states, and we agree on that. However, if you do take up contract labor for core activities, the penalty is not just an order to stop using contract labor. Instead, they will be deemed to be permanent labor of the factory, with all the consequences that it entails. The possibility of such an order depends on local conditions, so it's a risk that the unit needs to take a call on.

The question of whether the contract workers engaged in an operation, which is later declared as prohibited, should be absorbed as regular workmen by the Principal Employer has been discussed in various cases. In Steel Authority of India Ltd Vs. National Union Waterfront Workers (2001 (II) LLJ 1087), it was held that the mere abolition of contract labor following section 10(1) of the CLRA Act would not entitle the workmen to automatic absorption.

If any job is found to be perennial in nature and, following the finding, the Appropriate Authority has prohibited the engagement of contract labor in that job or operation, the principal employer can employ regular workmen. In the process, he shall give preference to the former contract workmen, if otherwise found suitable. A direction of this kind has been given by the Jharkhand High Court in a recent judgment in Bharat Coking Coal Ltd Vs. Workmen, Bharat Coking Coal Ltd (2010-II-LLJ 131). Therefore, there is no compulsion on the part of the Principal Employer to employ the erstwhile contract labor. In Gujarat State Electricity Board Vs. Hind Mazdoor Sabha (1995 SC –II-LLJ 790), it was held that a claim for regularization is maintainable if raised on the ground that the contract was a sham and camouflage. The same view was expressed in Municipal Corp. of Greater Mumbai Vs. K V Shramik Sangh (2002-II-LLJ 544).

If the contract is a sham, the principal employer will be bound to absorb the employees. In the following instances, a contract shall become a sham contract:

• When the Principal Employer signs as a party to a wage settlement between the Contractor and his workmen.

• When the Principal Employer has absolute control and supervision over the work of contract workers.

• When the Principal Employer fixes the service conditions of contract workers and initiates disciplinary action against them as and when required.

• When the Principal Employer ordinarily pays salaries and allowances to contract workers, otherwise than when the contractor fails to pay on time.

• When the Principal Employer himself becomes the authority for granting leave to contract workers.

Regards,
Madhu.T.K

I fully agree with Mr. Madhu's opinion and a few others who have correctly observed that contract workers can't be engaged in "regular" jobs that are perennial in nature, such as production or other routine/core activities or processes. In fact, the ignorance of such basic and important provisions of a very prominent Labour Act is appalling.

The unsavory fact that many private/small organizations are flouting these rules and provisions with impunity does not make a wrong act right. As HR professionals, we should at least be aware of what is ethical and rightful (if it's not possible to get it implemented). Such pathetic issues arise from the lack of proper HR education and a business environment that encourages and thrives on wrongful and illegal acts.

Regards.

I feel some of the members are getting it wrong. Correct me if I am wrong.

Prohibition of Contract Labor

The CLRA Act has a provision for prohibiting the use of contract labor, and this specific prohibition can be enforced by the state or central government by following the procedure to prohibit the use of contract labor.

As stated by Mr. Harikrishna, unless specifically prohibited by the concerned government, the use of contract labor is legal. He has given the specific example of Andhra Pradesh, where the government has specifically prohibited the use of contract labor in core processes.

As per my knowledge, the Maharashtra State Government has not prohibited the use of contract labor in core manufacturing.

Citehr Members may please share their knowledge with respect to other states.

Ch. Gopikrishna From Nellore, India

Dear Hari Krishnan Sir,

According to your comment, contract labor can be engaged in Andhra Pradesh or not because one of my friends' companies is engaging the same.