Industrial Establishment (Standing Orders) Act 1946 applicability to Contract Labour - Reg

Dear Sir and Umakanth Sir,

Applicability of the Industrial Establishment (Standing Orders) Act 1946

Regarding the applicability of the Industrial Establishment (Standing Orders) Act 1946 or Certified Standing Orders of a factory, I seek guidance on the following points:

1. What is the scope of the Industrial Establishment (Standing Orders) Act 1946 concerning contract workmen?

2. If a contractor employs 300 workmen, does the contractor need to obtain certification?

3. Are the Certified Standing Orders of the company applicable in this scenario?

4. Should the contractor adhere to the concerned company's Certified Standing Orders to initiate disciplinary action against their workmen?

5. What is the procedure to follow for terminating contract workmen, if any?

Thank you for your assistance.

Regards, AM

Understanding the Provisions of the Act

Please read the following links for a better understanding of the provisions of the act:

https://www.citehr.com/605163-who-qu...s.html#2408761
https://www.citehr.com/172573-labour...ad.html#744348

To understand the provisions better with respect to employing "contract labour," one has to read both the attached acts, which are concurrently relevant on the subject.

Clarifications on Your Queries

Qn.1. What is the scope of the Industrial Establishment (Standing Orders) Act 1946 concerning Contract workmen?

The Standing Orders (SO) as applicable to the employees of the Principal Employer suo-moto apply to contract workmen also.

Quote: "1. Short title, extent and application.—(1) This Act may be called the Industrial Employment (Standing Orders) Act, 1946. (2) It extends to the whole of India. (3) It applies to every industrial establishment wherein one hundred or more workmen are employed, or were employed on any day of the preceding twelve months: Provided that the appropriate Government may, after giving not less than two months’ notice of its intention so to do, by notification in the Official Gazette, apply the provisions of this Act to any industrial establishment employing such number of persons less than one hundred as may be specified in the notification."

Qn.2. A contractor has 300 workmen; does the contractor need to get certification?

The certification of the SO is the responsibility of the employer, an "Industry" to whom the SO Act is applicable. Yes, the contractor should have the required registration/license. The Principal Employer also issues necessary forms under the act to employ the Contractor under the CLR&A Act.

Quote: THE CONTRACT LABOUR (REGULATION AND ABOLITION) ACT, 1970 (ACT NO. 37 OF 1970)

"9. Effect of non-registration.- No principal employer of an establishment, to which this Act applies, shall-- (a) in the case of an establishment required to be registered under section 7, but which has not been registered within the time fixed for the purpose under that section, (b) in the case of an establishment the registration in respect of which has been revoked under section 8, employ contract labour in the establishment after the expiry of the period referred to in clause (a) or after the revocation of registration referred to in clause (b), as the case may be."

"13. Grant of licences.- (1) Every application for the grant of a licence under sub-section (1) of section 12 shall be made in the prescribed form and shall contain the particulars regarding the location of the establishment, the nature of process, operation or work for which contract labour is to be employed and such other particulars as may be prescribed. (2) The licensing officer may make such investigation in respect of the application received under sub-section (1) and in making any such investigation the licensing officer shall follow such procedure as may be prescribed. (3) A licence granted under this Chapter shall be valid for the period specified therein and may be renewed from time to time for such period and on payment of such fees and on such conditions as may be prescribed."

Qn.3. Is the Certified Standing Order of the company applicable?

The answer to this is as in Qn.1.

Qn.4. Should the contractor follow the Concern company's Certified Standing Order to initiate disciplinary action against their workmen?

The Principal Employer is bound to instruct the Contractor to proceed as per the rules applicable therein. However, the Principal Employer doesn't prosecute the contract labour directly.

Qn.5. What is the procedure to follow for terminating contract workmen?

As mentioned in Qn.4, the Principal Employer will not directly take any disciplinary action against the erring contract workmen. Instead, they will issue the necessary report/facts of the case to the contractor for appropriate action as per the rule applicable to the contract labour.

Understanding the Contract Labor System

Generally, the Contract Labor System is a form of indirect labor through the practice of outsourcing certain activities of an industrial establishment for reasons such as economy, specialization, flexible hiring and firing, and elimination of constant and close supervision. Under this outsourcing arrangement, which can either involve the entire activity or just the manpower, the establishment receiving the services is the outsourcer, and the entity rendering the service is the outsourcee.

Contractor's Establishment: Essential Nature of Activity

(1) If the activity of an establishment involves manufacturing or providing services on behalf of another person/entity at the latter's place of business or simply supplying labor to one or more such entities under a contract for service, the relationship between the two becomes that of a contract for service. In such a scenario, the establishment becomes a Contract Labor Establishment, and the workers employed there are considered its direct labor. In the context of the CLRA Act, 1970, the outsourcer becomes the Principal Employer, the outsourcee becomes the Contractor, and the labor provided by the contractor becomes Contract Labor.

(2) Alternatively, the entire outsourced activity can be delegated to the outsourcee, i.e., the contractor, to be carried out at their own facility or premises. In this situation, despite the existence of a contract for service between the outsourcer and the outsourcee, the CLRA Act, 1970 does not apply. This implies a direct employer-employee relationship between the outsourcee, i.e., the contractor, and their labor. Consequently, the contractor's establishment is treated as an industrial establishment, and all labor laws, including the IE(SO) Act, 1946, apply subject to the coverage criteria. Therefore, I believe I have addressed your questions numbered 1, 2, and 5.

Regarding questions 3 and 4, the answer is "No" since there is no direct employment relationship between the Principal Employer and the Contract Labor.

Applicability of Industrial Employment Standing Orders

The contractor referred to in this post is engaging 300 workers and likely must have registered his establishment under the State Shops and Establishment Act. Therefore, the Industrial Employment Standing Orders Act/Rules will apply to his establishment. Until certified standing orders are in place, the Model Standing Orders must be followed by him. The certified standing orders, if any, of the Principal Employer, will not apply to him. For disciplinary action against the contract worker, he will have to follow the provisions of the Model Standing Orders and principles of natural justice.

Regards,
Vinayak Nagarkar
HR Consultant

Dear Colleague,

The Standing Order is nothing but guidelines/constitution of an establishment. The applicability of SO is for both employees on direct rolls or contractual as per the rules framed in SO by the employer.

The establishment of a Contractor can have its own SO if the engagement is 100 or more.

Regards,