Contractual to Outsourced: What Risks Do Employers Face with Rehiring the Same Workers?

Contractual Employment and Outsourcing

The labourers are selected on a contract basis for a period of six months only. After giving a one-week break, the extension order has been given to the contract labourers for up to six months. Then, one more extension was given to some particular employees. After the relieving order has been given to the labourers, an advertisement was published for outsourcing the labourers from agencies. The same employees have been taken on as outsourced labour for one year.

Potential Issues for the Principal Employer

As a principal employer, may we face any issues if we continue with the same employees? What problems may be faced by the principal employer?

Whatever change in designation does not deny his claim for a permanent position when he files a complaint against your company before the labor court. Hence, do not engage in such activities and try to convince management to transition manpower into permanent roles, at least for good workers.

Dear Suresh, the arrangement of outsourcing labor being adopted in your company is nothing but an "Umbrella Contract." The salient feature of this is the continuity of employment of the same contract workmen in the same establishment, with contractors periodically changing for record purposes.

If you analyze the CLRA Act, 1970, you will find that the engagement of contract labor on jobs or operations of a perennial nature is prohibitable by the Appropriate Government. Even otherwise, in case of any complaint or claim regarding permanency or for absorption as regular workmen of your company by the contract labor, it would be very easy to prove that your contracts are sham or bogus ones, only to deprive such workmen of the rights and benefits of regular employment under the guise of contract labor.

Such a practice is certainly an unfair labor practice under the Industrial Disputes Act, 1947 [Sl no 10 of I of Schedule V]. Any such judicial orders against your management would have a retrospective effect from the first day of the commencement of such an arrangement. So it would be prudent to take the issue seriously at least now and plan your staffing pattern accordingly. The ratio decidendi of the case laws and the periodical restrictions imposed by the Governments on contract labor nowadays indicate the trend that the adoption of contract labor is not more beneficial or better than regular employment, except for the flexibility in hire and fire.