Long-Term Contract Work: Can It Lead to Permanent Employment with the Principal Employer?

Eligibility for Permanent Employment After Long-Term Contractual Work

Can anybody guide on whether a principal employer with an employee (or employees) who has completed around 8 to 10 years continuously under various contractors is eligible to claim permanent employment with the principal employer?

Furthermore, if an employee has been working for such an extended period, does it not indicate that the nature of the work is not purely contractual? Instead, could it be argued that the business requirement necessitates a permanent position rather than a contractual one? If so, does this fall under any provisions of the law, or is there any relevant regulation?

Looking forward to your advice.

Regards,
Tushar Swar.

Understanding Contractual Employment and Regularization

If the contract is genuine, there is no risk as far as the principal employer is concerned because an employee who has been engaged or even employed without following the recruitment processes of applying for the job, attending a written test/interview, and undergoing induction as applicable to regular employees of the company cannot claim regularization, as decided by various courts including the Supreme Court of India. However, if the contract has been a sham, then employees engaged through the contractor who have been working for the principal employer but carrying out the same work as the regular employees can claim regularization.

Provisions of the CLRA Act

The CLRA Act has made it very clear that no employee shall be engaged through a contractor in any work of perennial nature that can be performed by a full-time permanent employee. Keeping the employees under different contractors for years is clear evidence of a sham contract. Therefore, considering prima facie facts, I believe that the employees can claim regularization.

Regards,
Madhu.T.K

Dear Madhu, can you please throw some light on this?

Implications of Absence of Labour License

In the absence of a Labour License, if any person is engaged by the Contractor in the establishment of the principal employer where the contractual work is being carried out, the said employee may be regarded as an employee of the Principal Employer. In the event of any inspection by the concerned authority, the state of the principal employer may be endangered, as the identity of the said employee would be challenged by the visiting Inspector. Without a valid license in possession of the Contractor, despite the presence of an agreement between the Contractor and the Principal Employer, the authority may not agree to accept that person as an employee of the Contractor. This is because, as per the provisions of the CLAR Act & Rules, no principal employer without a Registration Certificate can engage any Contractor, and no Contractor without obtaining the CL License from the Licensing Authority is permitted to engage contract labour in the establishment of the principal employer.

Risks of Open-ended Contracts

Also, in the event of a Contractor who does not qualify for licensing his/her establishment due to a lesser number of manpower being engaged, the open-ended contract poses threats to the principal employer. As discussed above, Contract Labour can be engaged in jobs that are not of sufficient duration. An open-ended contract means the duration of the job is indefinite, being the core activity of the principal employer where only regular employees can be engaged. So, the entire arrangement between the contractor and the principal employer shall be regarded as a "camouflage" under a contract or agreement which is sham and illegal.

Regards.

Understanding the Implications of CLRA Act Non-Compliance

Absence of registration and/or license under the CLRA Act alone will not make the contract a sham. However, interference by the principal employer in service matters of the contractor's employees, such as negotiating the wages of contract labor, making direct salary payments to the contractor's workers, approving other benefits, leave, advances to workers, and taking disciplinary action against them whenever the principal employer finds any fault, would make the arrangement a camouflage. The Supreme Court in General Manager (OSD) Vs. Bharat Lal (2011(128) FLR 560 SC) supports the above view on sham contracts. Mere non-compliance with registration and/or licensing by the principal employer or contractor, as the case may be, will not qualify for regularization [Municipal Corporation of Greater Mumbai Vs. K V Shramik Sangh & others (2002(93) FLR 838 (SC)]. Non-registration and/or failure to obtain a license violate the relevant provisions of the CLRA Act, for which prosecution provisions will apply, but the workers cannot attain the status of permanent workers.

Nature of Work and Regularization

If the nature of work continues without interruption but is not directly related to the core activities of the company, then it cannot be considered perennial. A similar stance was observed in a recent case, Bharat Coking Coal Ltd Vs. Their Workmen, Bihar Colliery Kamgar Union and another (2014 LLR 64), where the Jharkhand High Court ruled that working for 240 days in a year would not qualify for regularization, even in light of the fact that the principal employer and the contractor did not possess the required registration and license, respectively, under the CLRA Act.

Regards,
Madhu.T.K

I partially agree with the learned follower, Mr. Madhu, in his explanation given in the first part of his reply. Mr. Madhu, please correct me if I am wrong.

Supreme Court Verdict on Contractor Employment

As far as I remember, there is one verdict given by the Special Bench of the Honorable Supreme Court of India in the matter of Reeta Devi in the recent past (I do not have full details right now) that merely being employed with any contractor for a long period and having completed 240 days of attendance in a calendar year will not make a contractor's employee eligible for regularization as an employee by the principal employer. Details will be provided if you so desire, shortly.

Regards,
AK Jain

Clarification on Employee Regularization

Please read what I have written. Being employed with a principal employer for years will not give the employee the right of regularization, provided the contract is not a sham. However, at the same time, there is a risk if the contract is a sham.

Madhu.T.K

Question on Declaring a Contract as a Sham

How can the contract be declared a sham? Suppose we have an agreement for engaging workers in housekeeping, security, loading, and unloading. Now, if we are utilizing them in core activities instead of housekeeping and security, and no one knows where the contract workers are actually working, how can the contract be deemed illegitimate?

Regards,
Dinesh

Understanding Sham Contracts

A sham contract is one which is a windscreen arrangement, not a genuine one. If you are utilizing housekeeping or security personnel in core activities, the arrangement is not with a genuine view. How can you say that nobody comes to know that they are being utilized for perennial activities? At least those who are engaged should know that they are being utilized for perennial work. Can you guarantee that they will not raise a dispute in the future?

Regards,
Madhu.T.K

Thank you very much for your valuable feedback and for helping me understand the sham contract. However, as I do not have much experience in labor disputes, I have a doubt. I agree that they can raise the dispute as they know that they are engaged in core activities. But how can anyone prove that they have been utilized in core activities? What evidence is needed in this case to prove that they are being utilized in core activities? How will the conciliation officer believe that the worker is correct? I am asking this from a worker's point of view, not an employer's point of view.

Thanks & Regards,
Dinesh

It depends on how other employees cooperate with them. If the issue is taken up by a union, the employer may find it difficult to prove otherwise because the union can produce witnesses in support of their views. Moreover, your production logs should have details about such engagement, I presume.

Regards,
Madhu.T.K