Outsourcing Core Manufacturing Processes: Can We Do It Legally and Effectively?

Outsourcing Core Activities in Manufacturing

With reference to the subject, we are in the manufacturing industry and have more than 2,500 permanent and contractual workers. Our management now wants to reduce some manpower by outsourcing certain processes as job contracts to another party, so that manpower could be reduced.

My question is, can we outsource specific processes or core activities of the factory through job contracts? Are there any legal implications associated with this decision?

Please share your valuable suggestions here.

Thanks & Regards,
Awdhesh Kumar

When you outsource some of the activities, especially the core activities in which a good number of employees are regularly employed, a labor dispute may arise. It is acceptable if you outsource a new process in which no worker was previously engaged and the results are unknown. However, since you are outsourcing a process that was previously carried out by your own workers, you cannot have any defense. Therefore, I don’t find any merit in your decision to outsource an existing process.

Regards,
Madhu.T.K

Good evening, Madhu Sir,

Thank you for your inputs. Actually, we will use the surplus permanent workmen somewhere else, so that is not a problem for us. These matters have already been discussed, and written consent has been obtained from the union as well. I am a bit confused about the job contract/system of core activities. Could you please shed some light on this?

Regards,
Awdhesh Kumar

You are not allowed to contract out core activity. The provision in the act is for out workers. That refers to work done by a contractor at a location other than your factory. In such a case, they do not come under contract manufacturing.

That means you can take a partly made item, ship it out to a contract manufacturing site, and get it done there. But you cannot employ contract labor for a peripheral and definitely not for a core function.

I suppose these are two separate activities:

1. Contracting your work as a job contract.
2. Letting an existing worker go.

Why have you signed a contract with the existing worker for activity 2? You must fulfill those conditions as per the factory act or the worker's contract with the existing worker. Contracting core or other processes to a third party should require legal binding unless you have signed a contract.

It is your moral responsibility, I suppose, to provide compensation or offer them other work if you find them or they request it. Any buffer period for individual workers should make them feel satisfied by moral and legal conditions of the contract worker.

Legal intricacies may sometimes lead to confrontations between HR and the union. However, human practice and legal practice should help you gain a better understanding to make decisions in your scenarios.

These are just suggestions; I am not a legal practitioner.

Dear Mr. Awdhesh,

As I understand, the matter has already been discussed with the operating unions, and written consent has also been obtained with the good motive that existing employees are to be deployed suitably. In my opinion, you could also separate that part from your main process and award that job to a contractor by completing the formalities of engaging the contractor.

Regards,
AKS