Can We Use Contract Labor for Core Production Tasks During High Demand Periods?

Seniors,

Can we engage contract labor on core activities, e.g., production, for a certain period less than 6 months in total within a 12-month calendar period due to sudden customer demand as production volume has increased?

Does the Contract Labor Act prohibit the engagement of workers in core activities?

Thanks in advance.

Regards,
Prashant

Dear Prashant, to meet sudden demand, you can engage contract labor. In fact, this is an apt situation for using contract labor. There is no distinction made in the CLRA Act between core and non-core activities. Incidentally, core activities are those activities of strategic importance to the company. They may not be central activities. For example, in the electronic goods industry, quality control is a core activity—the trade secrets should not go outside the company, whereas the production of components need not be so.

Hi KK!,

Please read the CLA, and you will know that contract workers can't be used in the actual manufacturing process or core work of an establishment. In fact, if you use contract labor in the core business process, the labor office may abolish such contract work and direct the employer to take them on their muster roll.

KK!, please be careful about the content you post.

Thank you.

The understanding of the CLRA Act is very clear that only in prohibited trades can contract labor not be deployed. If a trade is not prohibited, whether it is in manufacturing or ancillary to it, the Principal Employer (PE) can outsource the job. If I am mistaken, please correct me. This practice has been in place for more than 2.5 decades.

Dear friends,

The Contract Labor (Regulation & Abolition) Act, 1970

The Contract Labor (Regulation & Abolition) Act, 1970, as its short title suggests, is an Act to regulate the working conditions of contract labor to prevent their exploitation by contractors and principal employers and abolish the practice wherever contract labor are engaged in activities of a perennial nature. When we examine the provisions of Section 10 of the Act, the prohibition of contract labor in any process, operation, or other work in any establishment is an authority given to the Appropriate Government after considering the relevant factors mentioned in sub-section (2) of Section 10 only. Similarly, if we analyze the exemption granted under Section 1(5) of the Act to establishments where only works of an intermittent or casual nature are performed, if such works are carried out through contract labor beyond the stipulated number of days as explained in the above section, then the Act automatically applies. Even in such a scenario, the prohibition becomes effective only upon notification by the Appropriate Government under Section 10. Until then, all provisions related to regulation, including the registration of the principal employer and the licensing of contractors, would be applicable to such establishments. Therefore, there is no automatic prohibition of engaging contract labor in core (the term not defined in the Principal Act) or perennial processes, operations, or work in any establishment.

Amendments by the State of Andhra Pradesh

However, the State of Andhra Pradesh has amended Section 2 of the Principal Act by inserting a new subsection (dd) and defining the term core activity as any activity for which the establishment is set up, including any activity essential or necessary to the core activity while excluding 12 specific activities. Similarly, the Andhra Pradesh Government has amended Section 10(1) by substituting a subsection to allow the principal employer to engage contract labor for any core activity subject to conditions: (a) the normal functioning of the establishment is such that the activity is usually done through contractors OR (b) the activities do not require full-time workers for a significant part of the working hours in a day or longer periods (c) any sudden increase in the volume of work in the core activity that needs to be completed within a specified time. However, this amendment, as you are aware, is only applicable to the State of Andhra Pradesh.

Legal Implications of Engaging Contract Workers

The practice of 2.5 decades does not make it legally correct. When I mentioned that PE can't engage them, I was referring to section 10 of the Act. There is an eminent danger that the labor office may intervene and abolish the contract as per the provisions of the section. As long as you are not caught, you continue engaging contract workers in a legally incorrect way.

Criteria for Engaging Contract Workers

"(a) whether the process, operation, or other work is incidental to, or necessary for the industry, trade, business, manufacture, or occupation that is carried on in the establishment:

(b) whether it is of perennial nature, that is to say, it is of sufficient duration having regard to the nature of the industry, trade, business, manufacture, or occupation carried on in that establishment;

(c) whether it is done ordinarily through regular workmen in that establishment or an establishment similar thereto;

(d) whether it is sufficient to employ a considerable number of whole-time workmen."

Anyway.

Engaging Contract Labor in Core Activities

As correctly explained by Umakanthan Sir, unless there is a prohibition notified by the Appropriate Government, there is no ban on engaging contract labor, whether it is for core or non-core operations. The Principal Employer (PE) will get registration, and the contractor will get a license under the CLRA Act.

As explained by Prashant, the issue pertains to Maharashtra, where the Andhra Pradesh Amendment to the Act is not applicable. It is in the above context that comment no. 2 was made. I agree that the continuance of any practice, regardless of its duration, does not render an illegal practice legal; the 2.5-decade practice was meant to signify that it is not illegal to outsource any manufacturing activity.

Thanks once again to Shri Umakanthan Sir for explaining in detail the provision for all the citehr aficionados.

Is the engagement of contract labor in the said process banned or not? This needs to be checked with the act and rules of the state where the establishment exists. What made you raise this question - is it academic or do you anticipate a problem? There is no need to engage a contractor; instead, appoint the required manpower on a contract basis for six months. Discuss this with the union, take them into confidence, and assure them of a percentage of the incentive from the extra gain you expect from this new order. There is always a way to find a solution within.

Thank you.

Mr. Umakanthan has put the issue in the correct legal perspective. There is no automatic prohibition of contract labor in core activities until it is prohibited in that activity/trade by the appropriate government through a notification. However, the Principal employer incurs the risk of sec.10 at any time.

B. Saikumar
HR & Labour Law Advisor
Navi Mumbai

Dear colleague,

Nothing stops you from engaging contract labor in core manufacturing activities if it is not specifically prohibited by government notification.

Regards,

Vinayak Nagarkar
HR Consultant

No, the Contract Labour Act does not prohibit engaging workmen in core activities. However, if the nature of the new activity differs from the earlier work, then wages, incentives, safety measures, and fringe benefits shall apply accordingly with prior notification and a sufficient period.

Regards,

Adv. Manoj Liyonzon
lawyermanoj@live.com
+91 7010513085

The requirement is just for 6 months over a period of 12 months. Then why don't you employ workers directly for 6 months? Pay them wages directly, contribute to their PF, ESI, etc., directly without involving a contractor in between. This is even possible by employing a certain number of workers on a fixed-term contract and terminating them once the work is over. Since the termination of fixed-term employees will take place automatically, the retrenchment clauses will not become applicable. Even otherwise, for normal work of 6 months, which should be less than 240 days, the retrenchment provisions will not come into play. I think this kind of employment would be safer.

Okay, so any manufacturing unit whose core business is the manufacturing of products cannot employ any contractual worker in the core section of manufacturing. However, if they receive all benefits equal to those of regular payroll permanent workers such as PF, ESI, pay, and bonus, what's the issue? This will provide more people with jobs in line with the state's minimum wage scale. Proper monitoring of payment for these workers by the PE is essential.

Dear Sumitra,

If you read all the posts carefully, you will realize that CLAct does not prohibit engaging contract labour in core activities as such. When the government wants to prohibit in a certain industry, it notifies to that effect in the gazette. In the absence of such notification, one can engage CL in core activities.

Regards,
Vinayak Nagarkar
HR Consultant

Yes, you can engage contract labor in the core activities of your establishment as well. The CLRA Act does not prescribe whether you can or cannot engage contract labor in certain activities. It is only the Appropriate Government that can notify in which activities contract labor cannot be deployed. Other than that, contract labor can be engaged in almost any activity. However, as professionals, we must foresee the implications in the future before engaging contract labor in certain activities, such as core activities as you suggested. This foresight is crucial as it may lead to problems in the future regarding employment and unnecessary litigation in this regard.

All of you, please read section 10 of the Act. I had pointed out the imminent danger of a prohibition order for engaging contract labor in core processes. It is the organization's decision whether to take the risk or not.

Dear colleague, no doubt there is exposure. But I want to know, in how many industries has the Government prohibited engaging contract labour in core processes since the Act came into existence? Therefore, despite a certain amount of risk, organizations are engaging contract labour in core processes by complying with the regulatory provisions of the Act and carrying on with the business for many years. It is a rampant practice to engage contract labour in assembly operations in the electronic/electrical industry, garment, and such others in the absence of prohibitory orders. The Act seeks to regulate service conditions of contract labour where it is not prohibited.

Regards, Vinayak Nagarkar HR Consultant

Is it obligatory that only contractors having a valid labor license be engaged? One organization engages fewer than 10 contract laborers through a contractor, and the CLAR Act is not applicable to him. What will be the consequence of such engagement?

As far as possible, engage those contractors who can get a valid license. Naturally, if the contractor has fewer than 20 people to be deployed in your plant, there is no need for them to get a license. There is no risk involved in such engagement. The highest risk with regard to the engagement of workers through contractors is the claim for regularization, and this is possible even if the contractor has a license, but the contract itself is not genuine or is a sham.