Can a Manufacturing Company Legally Hire All Workers Through Contractors? Seeking Insights

Dear Seniors, Can the manufacturing company engage all the workers through contractors? Alternatively, can the employer engage 100% of the workers through contractors? P.S: All the contractors and Principal Employers follow all the provisions of the Contract Labour Act.

You can engage all the workers through contractors. However, for supervision, inspection, and scrutinizing the bills, you must keep some employees in your roles. You should not completely depend on the contractors and consultants' employees for all the work.

The Contract Labor Act (R&A) 1970 (shortly CLRA Act) does not stipulate any ratio of contract labor to be employed in an establishment, nor does it prohibit on its own the employment of contract labor in any activity, including a core activity. Though it does not prohibit on its own any contract labor in any activity, we should be aware of the fact that it is an Act enacted for regulating and abolishing contract labor as well. Section 10 of the Act, which is the soul of the CLRA Act, empowers the appropriate government to prohibit the employment of contract labor after considering the following factors before issuing any notification abolishing contract labor:

1) Whether the activity is incidental to or necessary for the industry or business.

2) Whether it is of perennial nature.

3) Whether it can be done ordinarily by the regular workmen.

4) Whether it requires the employment of a considerable number of whole-time workmen.

Thus the answer to your question is 'yes' technically, but the spirit of the Act demands caution.

Regards,
B. Saikumar
HR & Labor Law Consultant
Chipinbiz Consultancy Pvt. Ltd.
Mumbai
[Phone Number Removed For Privacy Reasons]

There is no provision in the Contract Labour (R&A) Act that on its own prohibits the employment of contract labour, even in core activities technically. However, this is subject to the powers of the appropriate government under Sec. 10 of the Act.

Regards,
B. Saikumar
HR & Labour Law Consultant
Chipinbiz Consultancy Pvt. Ltd.
Mumbai
[Phone Number Removed For Privacy Reasons]

Yes, there shall be a notification by the appropriate government prohibiting a particular work/activity. As long as there is no such prohibition, the employment of contract labor, even in core activities, can be done.

Kindly ensure compliance with the Private Security Regulation Act of 2005. The work is consistent but is influenced by contractual agreements. However, the reasons for this engagement are unclear.

Understanding Contract Labour and Core Activities

True, the Contract Labour Act does not technically prohibit the employment of contract labour even in core activities. Here, we need to understand the difference between getting a job done through a contractor and outsourcing a job. An organization cannot outsource its core activity as per the Supreme Court judgment.

Regards,
Kamal

Dear Prashanth, you have asked the right question in this scenario. The majority of new companies are following this practice. As I discussed with some of my seniors, we can hire contract workers for any task, including production. However, the work assigned to the worker should be of a temporary nature.

Temporary vs. Permanent Work

If the job is of a regular nature, the Department of Labour will not issue a license to the contractor. If a worker works for 240 days or more, it will be considered a permanent job. For permanent positions, we need to hire employees on a full-time basis.

Regards,
Seetharam

It is stated in state government notifications that contract labor cannot be used for core activities. Even the labor department does not register for manufacturing activities, and neither does the contractor get a license for the same.

Thank you.
Regards

It is a settled position in law, as laid down by certain High Courts with regard to the Private Security Guards Act in force in some states like Maharashtra, that security guards governed by such Acts fall outside the purview of the Contract Labour Act. Hope this settles your doubt.

Regards,
B. Saikumar
HR & Labour Law Consultant
Chipinbiz Consultancy Pvt. Ltd
Mumbai
[Phone Number Removed For Privacy Reasons]