Can Contractual Workers Form a Union and Claim Permanency in a Company? Seeking Legal Insights

Respected All, If an employer has a yearly contractual labor agreement, and the RC is renewed every year, can contractual employees (workmen) claim permanency with the company even if they are on the contractor roll? Can contractual workmen establish a union in the organization even if they are on a contractual roll? What is the legal remedy?

Regards,
Shivaji

There is no specific legal remedy. Contractual employees forming a union is not new in India. Regarding the permanency of jobs as per CLRA, in the past, some jobs were abolished, and in certain cases, the court verdict was in favor of absorption. In my opinion, if contractual employees are engaged through a contractor, let the contractor handle the situation in consultation with the Principal Employer (PE). It will be better if the PE is not directly involved in negotiation. The legal merit will depend on the specific case-by-case basis.

S K Bandyopadhyay (WB, Howrah)
CEO-USD HR Solutions
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Dear Shivaji,

If any such situation is arising in your organization, try to control it with immediate effect. Discuss with those employees using saam, daam, dand, bhed, and try to divide workers and their approach. Contracts with labor unions can result in substantially higher wages and benefits. Labor unions charge dues to pay the salaries of union leaders and workers during a strike.

I suggest you control and manage this situation with immediate effect. If necessary, talk to district officers/bodies regarding the rejection of registration. First, identify how many workers are involved. After confirming their involvement, conduct a verification process for those employees. Verify their educational background, and if verification fails, you can discharge the related employee with immediate effect.

Dear Shivaji,

The right to form an association is a fundamental right under Article 19(1)(c) of the Constitution of India. Additionally, the definition of the term "trade union" under section 2(h) of the Trade Unions Act, 1926, does not classify workmen/employees as regular, temporary, or contract. Therefore, contract labor can form their own trade union, or any other trade union in the industry can admit contract labor as their members if permitted in their bylaws and represent them in industrial disputes involving their conditions of service.

The system of contract labor

The system of contract labor is an indirect employment arrangement involving three parties, namely the principal employer who engages a contractor under a contract for service, the contractor who actually employs his workmen, and the contract labor who is bound to the contractor under a contract of service. Thus, there is no employer-employee relationship between the principal employer and the contract labor engaged in his work. Therefore, contract labor cannot validly raise any dispute against the principal employer for their permanency if the contract between the principal employer and the contractor is genuine.

I am not able to understand what sort of clarity Shivaji still needs.

Legal Rights of Trade Unions

Workers joining together and forming a trade union and getting it registered under the Trade Unions Act, 1926, is a legal right emanating from the fundamental right under Article 19(1)(c) of our Constitution. Contract laborers are not the lesser children of the law to be prevented from exercising this right just because such a union would be against the interests of the employers.

Contract Labor: An Overview

Contract labor is an indirect form of labor in which a third party, the contractor, comes into play between the actual beneficiary, the principal employer, and the contract laborers who are denied the legal benefits and rights of the regular employees performing the same work. If the work required to be performed is incidental or special in nature, there is no harm in engaging contract labor for such works through a contractor for the sake of delegation of effective supervision and control over the process and easy hire and fire as long as the work continues.

The ground reality is that even core activities are contracted out by way of outsourcing through third parties. Even though the ultimate beneficiary is the principal employer under this indirect employment system, the contract laborers cannot stake any claim against the principal employer because there is no direct employer-employee relationship between the two due to the presence of a third party, the contractor. That's why the enactment and enforcement of the Contract Labor (Regulation and Abolition) Act, 1970. It is better that you should go through the "Statement of Objects and Reasons" of the said Act.

Impact of Liberalization, Privatization, and Globalization (LPG)

After the advent of the so-called LPG, the system of contract labor has become ubiquitous in almost all industries, resulting in a paradigm shift in the pattern of employment, including Government departments. Even the CLRAA, 1970, has been in force for the last five decades, and despite certain regulatory measures introduced by the Act, experience shows that it remains a mere paper tiger to the extent that one can find almost 30% to 50% of contract laborers in every industry. Various High Courts and the Supreme Court of India have tightened the noose so far by their liberal interpretation of the provisions of the CLRAA, 1970, in several case laws. However, no industrial dispute against the principal employer would be maintainable regarding the permanency of the contract labor by the efflux of time unless it is proved that the contract is a sham, which is the ratio decidendi of the judicial pronouncements. Hence, the tactics of changing contractors while keeping the same set of contract laborers have been adopted by the industries for the sake of easy hire and fire as the economy becomes more market-driven. Even trade unions are also very skeptical about espousing the cause of contract labor, and the contract laborers are also scared of losing their existing contractual employment.

Thank you very much, Sir. Now I am clearer on the subject. Once again, thanks for sharing valuable knowledge.

Regards,
Shivaji

Further to what Mr. Umakanthan has rightly described and explained in detail, I would also like to refer to Section 30(2) of the Contract Labour Act 1970, which reads as follows:

"Nothing contained in this Act shall be construed as precluding any such contract labour from entering into an agreement with the principal employer or the contractor, as the case may be, for granting them rights or privileges in respect of any matter which are more favourable to them than those to which they would be entitled under this Act."

There is a general practice in industries to sign Long Term Settlements (LTS) through the Unions of Contract Labour by the Contractors, where the Principal Employer witnesses the settlement and indirectly owns the financial liabilities generated from these settlements. Ultimately, we have to run the industry.

Regards,

Dr. Kamlesh Agrawal

Yes. As per the Trade Unions Act, 1926 and under the definition of "Workmen," all persons employed in trade or industry can establish unions, subject to the provisions of the act. The Act does not make any distinction between regular workmen and contractual workmen.

However, contractual workmen cannot claim permanency as the relationship between the employer and contractual workmen is on a temporary basis, subject to registration/licensing as per the CLRA Act. If the principal employer doesn't have any registration in CLRA and employs contract labor without registration, then every worker working for the principal employer is treated as a worker of the principal employer.