Is It Legal to Use Contract Labor for Core Manufacturing Tasks in Maharashtra? Seeking Insights

During an audit, we raised an objection to the use of contract labour in direct manufacturing work in a factory in Maharashtra on the grounds that it was a core activity and the work is of a perennial nature. As such, these jobs must be done by employees on the company's payroll, not by contract labour. The factory manager has responded as below:

Factory Manager's Response

“There is no bar in Maharashtra State under the Contract Labour Act on employing contract labour in core or production-related activities. Further, they do not work under the direct supervision of company employees. Hence, they cannot claim permanency in the company.”

We know that this is not allowed (the work is supervised by floor managers), but we can't find the section, rule, or provision that counters the above argument. I would appreciate help from my colleagues on the site for any inputs on this matter.

Regards.

Hi Saswata Banerjee, Previously, to my recollection, the Form V under Maharashtra Rules used to contain an undertaking by the principal employer that he will not engage contract labor in any work of perennial nature, etc. However, the same condition is not there now. Though Sec. 10 prohibits the employment of contract labor in the work of perennial nature (or core activity), it does not ipso facto ban contract labor in core activities as there is a procedure to be followed under the said section. I also invite your attention to Sub-Rule (iv)(b) and (v)(b) of Rule 25 of Maharashtra Rules under CLRA Act, which state that where the workmen employed by the contractor perform the same kind of work as the workmen directly employed by the principal employer, their wages shall be the same, and their working hours and service conditions shall be the same. Incidentally, Rule 25 deals with conditions for granting a license. All these go to indicate or suggest that the contract labor can be assigned the same work as is done by the permanent employees, provided they are paid wages equally, etc. Therefore, there does not appear to be any provision expressly barring the employment of contract labor even in a work of perennial nature (core activity).

Regards, B. Saikumar

HR & Labor Law Advisor

Mumbai

People have been smart—they are assigning some activities exclusively to contract labor. I think Rule 25 is more concerned with permanent and contract employment in various non-core activities (like loading, security). So, do you agree with the contention that they can use contract labor for production-related activities? If you have any cases that I can check in support or against, I would appreciate it. Also, what would be the ruling by a court if a worker filed a case demanding permanency on the grounds that he is doing core production work? Most licenses I have seen are not for production but are worded vaguely, so it looks like support work. Is the government issuing licenses for production?

It is not that I agree or disagree with the views of some employers. What I have pointed out to you is the probable interpretation that can flow from Rule 25, so that when you object to outsourcing a core activity, you need to rebut such interpretations possibly advanced by an employer. You can contend, as you said now, that what is meant in Rule 25 is not a core activity. Then Rule 25 does not say it either. However, the spirit of Sec.10, which is the soul of the CLRA, is that it does not want contract labour in any work of perennial nature or core activity. I have not come across any specific case. If you search for cases decided under Sec.10, you may get some inputs in support of your view.

As regards permanency, the contract labour can very well raise a dispute under the Industrial Disputes Act. The industrial court will examine whether the contract is a sham/camouflage based on the facts and evidence. If the contract is found to be a sham, it may even direct absorption of the workers having regard to the tenure of engagement. I do not think a worker can win a case merely because he is doing a core job unless he proves that the contract is a sham. There is no provision in the scheme of the CLRA Act for issuing licenses for production but only for issuing licenses for engaging labour.

Regards,
B. Saikumar

HR & Labour Law Advisor

Mumbai

Query on Contract Labor License and Core Activities

One last query: a contract labor license is given for specific work (nature of activity). In all licenses I see, these are non-core activities. So if the license is for a non-core activity but employment is in a core activity, how will it affect the situation?

In my view, it may affect the situation in three ways:

1. It may amount to a violation of the conditions of the license and may lead to the cancellation of the license under Sec. 14 of the CLRA Act.

2. It may lead to the violation of the provisos of the CLRA Act and may attract penal provisions under Sec. 23.

3. It may build a case for the contract labor for claiming wages on par with the permanent employee performing such work.

In any case, you can check the following case wherein the employment of contract labor in work of perennial nature was held to be contrary to the principles of the CLRA Act:

Larsen & Toubro Ltd, Bangalore v. State of Karnataka 1999 II LLJ page 532 (Division Bench of Karnataka High Court)

Regards, B. Saikumar HR & labor law advisor Mumbai

Amendment CLA 2008/5824/LAB-10 of Maharashtra CL Rules

As per amendment CLA 2008/5824/LAB-10 of the Maharashtra CL rules, which came into force in June 2010, a new declaration (Form IA) has to be provided by the Principal Employer (PE) for new registration. It's only applicable to new registrations, and hence a company having an establishment license before 2010 need not give such a declaration.

For any establishment registered after that, it's tricky because if contractors are deployed after giving such a declaration, penal provisions can be attracted under the Contract Labour (Regulation and Abolition) Act (CLRA) or the Indian Penal Code (IPC). It is time someone challenges this amendment in a court of law as this is a de facto prohibition, and none of the conditions envisaged in Section 10 are satisfied.

Regards