Navigating the ID Act: Do Contractors Need State Approval to Terminate Laborers?

Can my contractor, who is engaging 150 contract laborers in non-core activities, have to apply to the State Government for permission under Sec. 25-N of the ID Act for termination of a few unscrupulous contract laborers, as Sec. 2(j) of the ID Act covers contract establishments as well? Please advise.

Dear Kesavapanda, I fail to understand why you want to retrench the unscrupulous contract laborers, first of all. Unscrupulous laborers can be subjected to disciplinary action, and terminating their services by way of retrenchment will not fit into the retrenchment as defined under section 2(oo) of the ID Act.

Retrenchment of Contract Labor

However, to your query about whether the contract labor can be retrenched or not, my answer is YES. The Supreme Court has confirmed in SAIL v National Union Waterfront Workers and Ors. that contract labor can be retrenched by the contractor in conformity with the provisions of the ID Act.

Thank you for providing your input. It is good to have received at least one opinion. I believe I should advise my contractor to follow the proper procedures so that no one could take advantage of any wrongdoing.

Clarification on Industrial Dispute and Contractor Obligations

According to the proviso to Sec. 2(a)(ii) of the ID Act, a dispute between a contractor and their contract workmen is also considered an industrial dispute. This provision was added as an amendment in 2010, thereby covering a contract establishment under the ID Act. I seek input from academicians and IR/HR practitioners on whether the contractor is required to seek permission from the State Government for the retrenchment of some contract workers, especially if there are more than 100 contract workmen engaged in the unit (as mandated by Sec. 25-N(b) and the procedure outlined in Sec. 25-N(2) of the ID Act). Additionally, the contractor abides by Sec. 25G and takes disciplinary action against unscrupulous workers, as advised. Our unit plans to reduce non-core activities outsourced to the contractor, necessitating a reduction in the contract workforce. Hence, I am seeking advice on this matter.

Certification of Standing Orders for Contractors

Similarly, should the contractor obtain certification of standing orders, considering that Sec. 2(e)(iv) of the Industrial Employment Standing Orders Act, 1946 applies to them? If the answer is affirmative, is there assistance available for drafting standing orders for a contract establishment for a fee? Are there any model standing orders suitable for a contract establishment? Please provide clarification on this matter.

Thank you once again, Sri Koragaonkar Saab.

Dear Kesavapanda,

Your post dated 28.08.2015 did not attract my attention since I found it to be lengthy and not specific. In your post, you only answered yourself correctly. Since the establishment of a contractor is an industrial establishment as defined under Section 2(e)(iv) of the IE(SO) Act, your contractor can go for certified SO. However, right now your contractor has to follow the procedure under 25G of the ID Act.

Clarifying Retrenchment and Standing Orders

Interesting that you put an unclear post and then complain that no one has responded. First, you talk of retrenching unscrupulous employees. Then you talk of retrenching/reducing manpower because you are reducing the amount of work for contract labor. Both of the above are not the same, and therefore the answers would be different.

Understanding Retrenchment

Let us also understand what retrenchment is. It is the removal of workers on account of downsizing. You have to do it on a last in, first out basis. There is no provision to pick and choose. So if you need to remove specific individuals, it has to be for cause and after disciplinary action.

Drafting Standing Orders

About drafting standing orders, if you want them made, send me a message offline. Model standing orders exist in every state; we don't know in which state you operate. Some states have the automatic application of standing orders, and there is no need to get certified standing orders. In other states, standing orders need certification for each unit. However, even there, it is unlikely that the labor authorities would allow significant deviation from the model.

Regards.

Yes, yes, Mr. Saswatha Benarjee, you are absolutely right. My earlier question was about termination—what my contractor's intention was to remove the two unscrupulous contract laborers. Some advised that my contractor has to approach the State Government for the same. Therefore, I needed clarification in the first instance. But as per the reduction of orders, it was my turn; I wanted to downsize the contract laborers. Therefore, it is now my turn to advise him appropriately to follow the procedure while downsizing his numbers in congruence or consistency with Section 25-G and 25-N of the ID Act.

On enquiry, some said that for downsizing the contract laborers, Section 25-N is not attracted to the contractor and therefore, he need not approach the government for permission even though the ID Act was applicable to the contractor's establishment. When I was put in a quandary as to what advice I should give to my contractor in order not to be caught by any Government machinery of Andhra Pradesh for not following the procedure, I have opted to ascertain the opinion from eminent people through this forum. As per Shree Korgaonkar's remarks, I advise my contractor to approach the Government of Andhra Pradesh for obtaining the permission along with the reasons for the downsizing.

In this connection, is there any liability of mine to furnish information to my contractor relating to the reasons for downsizing in the non-core activity along with the evidence? If the authorities desire the evidence, how can my contractor reply without my information? Can you please advise me?

We don't know how large your unit is or where it is located. However, in most cases, though the ID Act applies, no one seeks permission under that for downsizing. If contract labor is used for core manufacturing activities or for perennial work, then things are different, of course. The purpose for which companies hire contract labor is that they can be removed at any time. The company just has to inform the contractor that fewer people are now needed. Many times, the contractor will redeploy the individuals elsewhere. In other cases, they will ask them to leave. Only in a few cases where the contract employees approach the labor commissioner or file a complaint in the labor court for unfair retrenchment do you have a problem. So I would say, don't invite trouble where none exists, unless you have militant labor or a union that is active in contract labor. Cross the bridge when you come to it.

I agree with you on your practical approach cent percent, and that is being practiced everywhere. Nevertheless, we cannot ignore the legal aspects which I discussed in response to the query. We must know the law first, and accordingly, we should take necessary precautions while appointing a labor contractor and engaging laborers through him.

Legal Considerations for Labor Contracts

By virtue of the amendment in Section 2(a)(ii) in 2010 of the ID Act 1947, a dispute between a contractor and his contract workmen is also considered an industrial dispute, and accordingly, contract labor can raise an industrial dispute.

Secondly, the Supreme Court in SAIL v National Union Waterfront Workers and Ors. has confirmed that contract labor can be retrenched by the contractor in conformity with the provisions of the I.D. Act, as I stated in my earlier post.

Under the above circumstances, the HR fraternity should take some precautions, keeping in mind the provision under Section 2(oo)(bb) of the ID Act and ask the labor contractor to have an appropriate contract document with his laborers.

Regards

I heartily welcome all who have contributed to my query, and I thank you all once again. Of late, one HR executive responded to me stating that Chapter V-B is applicable only to factories, mines, and plantations as per Section 25-L, which is not applicable to any contract establishment. When I went through it, it indeed lessened my pain. Now, I intend to take steps to reduce the contract labor. In such a situation, to retrench some contract labor, what procedure does my contractor have to follow? Kindly advise.

Because according to the advice of the HR executive, neither Chapter V-A nor Chapter V-B is applicable to my contractor. What procedures does he have to follow in cases of layoff, retrenchment under the ID Act?

Absolutely not. Mine is a factory manufacturing different engineering parts. I was clarified that Sec. 25-N is applicable to my own factory employees, not to the contract undertaking which I employed in my factory. My manpower contractor's establishment does not fall within the three classifications: Factory, Mine, or Plantation.

Therefore, I put forward my query once again: if it is not applicable, what's the procedure for retrenchment he has to follow statutorily under the ID Act as the ID Act covers contract establishments as well? Or if the advice given to me was wrong and the contractor has to go for prior permission from the Government? Please advise.

I think there is a disconnect right there. If a contract worker is working in your factory, then he is a part of your establishment both for the Factories Act and ID Act. It does not matter that the contractor has a different office. Since Section 25N applies to your factory, it applies to all those who work there, irrespective of who pays their salary.

If the contract workers are working in the contractor's factory, then this matter does not apply to you at all. Why should you worry about someone else's factory?