Can Contract Workers Become Permanent Employees After 180 Days? Seeking Legal Insights

Clarification on Contract Workmen and Regular Payroll

Dear HR professionals, I just want to clarify whether any "Workmen hired on contract" as per the "Contract Labour (Regulation and Abolition) Act, 1970" from the "contractor" and who work for "more than 180 days" continuously in an "Establishment," will qualify to be "on regular payroll" of the "Establishment" as per law or as per any clause of other labor laws. If yes, then kindly provide the details of the relevant labor law with applicable provisions. Can an Establishment permanently enroll such "Workmen" at its own discretion?

Awaiting your valuable inputs.

Regards

If an establishment hires labor from a contractor who obtained a license under the Contract Labor Act, such workmen will be treated as workmen of the contractor but not of the establishment that hires them. If the contractor has no license, there is a risk of such workmen being treated as workmen of the establishment that hired them through the said contractor since courts may view such a contract as a sham (false) when a dispute is raised by such contract labor for regularization under the Industrial Disputes Act, 1947.

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

Nothing stops the employer from taking on some or all of the employees as permanent employees if he wishes.

Dear Bhargava, Further to what I already said, a contracted worker is not entitled to regularization in the service of the company merely because he completes 180 days, provided he is engaged by a licensed contractor. Trust this will clear your doubt.

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

Thank you, Mr. Saikumar. Ok, now this point is clear. Can you provide any reference to the judgment of the "Supreme Court" regarding the regularization of contract labor? It would be really helpful for further interpretation.

Clarification on Contract Labor Employment

Furthermore, I would like to clarify whether contract labor can be employed in the "main/core processes of the establishment" or if it is "strictly prohibited" as per the act and the "orders of the Appropriate government" by notification in the official Gazette from state to state.

I want to clarify whether it depends on the orders of state governments to deploy contract labor in the "core processes" of "Establishments"? Or will it vary from state to state? Can you explain what the rules are in this regard in "Uttar Pradesh" and in "Haryana" and where I can refer to the state-wise contract labor regulation and abolition rules?

Thank you,

Regards, Amit Bhargava

Dear Bhargava, merely completing 180 days never makes contractor workmen qualify for regulation of employment with the Principal Employer (PE). Regularization of the contract workforce is not so simple; the court will review all terms and conditions as per the Contract Labour (Regulation and Abolition) Act (CLRA Act) before making a decision on the regulation of contractor workmen in any industry/establishment.

To avoid any type of litigation, it is always suggested to replace the contractor labor with a different contractor. Regularization and other industrial relations issues are outcomes of regular engagement of contractor labor in the establishment.

Thank you,

Regards,
Rakesh Koul
[Phone Number Removed For Privacy Reasons]

Dispute Over Contract Workers in Core Jobs

This is a point of dispute between professionals. The act states that contract workers can be used only in non-core and non-perennial work. However, elsewhere in the act, it mentions that the government may notify work in which contract labor is not allowed. Some lawyers and HR professionals argue that since the government has not specifically banned any activity, it is allowed.

My opinion is that since the act specifically states contract labor can only be used for non-core work, having contract workers perform production-related or core jobs is not allowed. In any case, it gives workers the opportunity to approach the court for relief in the form of confirmation in employment or to demonstrate that the contract is a sham to prevent workers from receiving their full dues.

Also, there is a provision in the act that states where you have both contract and permanent workers working, both must receive the same wages. In that case, there is no benefit to having contract workers, except that you can remove them easily.

You can refer to the case of Steel Authority of India Ltd & Ors v. National Union Water Front Workers & Others 2001 II LLJ 1087 (Supreme Court) where the whole scope of absorption was discussed. As regards the UP & Haryana rules, it is better either to procure them from local law book stores there or the Labour department websites of the respective States.

Regards,
B. Saikumar
HR & Labour Law Consultant
Mumbai
Tel: [Phone Number Removed For Privacy Reasons]

Thank you for the update! I have received the case law and would appreciate it if you could provide clarification on the points mentioned below.

Furthermore, I would like to understand whether contract labor can be employed in the "main/core processes of the establishment" or if it is "strictly prohibited" as per the act and the orders of the Appropriate Government by notification in the official Gazette from state to state.

I am seeking clarification on whether the deployment of contract labor in the "core processes" of "Establishments" depends on the orders of state governments or if it varies from state to state.

Regards,
Amit

Is there any case law by the Apex Court or High Courts on the "perennial nature of work" by contract workers?

10. PROHIBITION OF EMPLOYMENT OF CONTRACT LABOUR

(1) Notwithstanding anything contained in this Act, the "appropriate Government" may, after consultation with the Central Board or, as the case may be, a State Board, prohibit, by notification in the Official Gazette, the employment of contract labour in any process, operation, or other work in any establishment.

(2) 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, such as:

- (a) Whether the process, operation, or other work is incidental to, or necessary for the industry, trade, business, manufacture, or occupation that is carried on in the establishment.
- (b) Whether it is of perennial nature, that is to say, it is of sufficient duration having regard to the nature of industry, trade, business, manufacture, or occupation carried on in that establishment. Can you provide me with some case law as to what is meant by "sufficient duration" above?
- (c) Whether it is done ordinarily through regular workmen in that establishment or an establishment similar thereto.
- (d) Whether it is sufficient to employ a considerable number of whole-time workmen.

How do we check this? Any case law reference defining a considerable number.

Awaiting your valuable inputs.

Regards,
Amit

Yes, it is clear that the Contract Labour (Regulation and Abolition) Act, 1970 states that contract labor can only be used for casual work that is of a different nature than regular work. However, it is very difficult in practice. If any regular or casual worker completes 240 days in a year, then it is necessary for the employer to either give them notice or pay. The court has ruled that it is not the employer's liability to confirm casual services.

Regarding Contract Labor in Core Activities

I concur with the views of Saswatabanerjee. Technically, the act does not impose any prohibition on employing contract labor in core activities, but the spirit of the collective provisions of the act indirectly warns the employer not to engage them in core activities. Any other view is welcome.

Regards,
B. Saikumar
HR & Labour Law Consultant
Mumbai
Tel: [Phone Number Removed For Privacy Reasons]

Dear Sir, if you have hired contract labor without following the provisions of the Contract Labour (Regulation and Abolition) Act, such as registration of your establishment, obtaining a license by the contractor, proper contract agreement, and not adhering to the Minimum Wages Act or other labor statutes, and if the control and supervision of these workmen are being done by your supervisors (including sanctioning their leaves or taking other direct actions), then, if the matter is put to judicial scrutiny, these workmen may gain permanency as your workmen in your organization.

Though there are many Supreme Court judgments stating that flouting the provisions of the Contract Labour Act amounts to penal action under that act only and no absorption is granted, the judgment will differ from case to case depending on the facts. However, if you have followed the provisions of the Contract Labour (Regulation and Abolition) Act, you have no cause for worry.

Secondly, if you are situated in Maharashtra and a complaint has been filed by the union or workmen under the MRTU & PULP Act, the famous judgments of CIPLA and Kalyani will apply. The ratio is that when the employer-employee relationship is disputed or disputable, a complaint under that act is not maintainable.

Regards.

Can you provide any references to judgments of the Supreme Court regarding the regularization of contract labor? Specifically, in cases where contract employees (especially in security roles) work continuously for 180 days or more in an establishment, would they qualify to be put on the establishment's regular payroll?

With reference to your query regarding the contractual workmen, there is no automatic absorption of these employees if the contractor holds a valid license and the employer has a certificate of registration under the Contract Labour (R&A) Act. There should be a valid agreement between the parties, and the contract should not be a sham or camouflage. If the employees are on the contractor's payroll, receiving instructions from the contractor's supervisor, and their salaries are being paid by the contractor, then these employees are not entitled to permanency. Even if the aforementioned conditions are not met, as per the landmark ruling in Debnath v/s National Fertilisers, the Honorable Supreme Court has held that there will be no automatic absorption into the permanent employment of the principal employer for these workmen.

Regards