October 23, 2021

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Labour contract law implementation in India

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This article is written by Ansari Qamar Zarfishan who is pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.

Table of Contents

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Contract labourers are labourers who are employed through a contract to perform certain work for a temporary period. A ‘contract’ under the Indian Contract Act, 1872 is an agreement enforceable in the court of law. To constitute a valid contract there should be mutual obligations, free consent and the parties must be competent to enter into a contract. The contract can also be ‘contract to hire’ which could be for a fixed term (between the employer and employee) or indirect flexible employment (between employer, employee and third-party agent or contractor).

Fixed-term contract is used in white-collar workers, and the indirect flexible employment contract is used in blue-collar workers (manual jobs). In this article we will discuss the indirect flexible employment contract, what are the provisions relating to the Labour Contract laws applicable in India, more specifically the Contract Labour (Regulation and Abolition) Act, 1970, what are the problems faced in implementing laws, and recommended solutions.

Article 21 of the Indian Constitution guarantees the right to life and liberty to every citizen. This right includes the right to live with dignity which can be assured by providing decent working conditions and fair wages to the workers as stated in a case by the Supreme Court.

The Directive Principles of State Policy directs the State to ensure that the health and strength of workers are not abused or misused due to works that do not suit their age or strength. Under Article 43 of the Directive Principles of State Policy provides for the state to secure the living wages of workers and standard of life which can ensure the full enjoyment of leisure and for social and cultural opportunities. 

There are other laws governing various aspect of labours, of which the most relevant laws relating the contract labours are: 

  • Contract Labour (Regulation and Abolition) Act, 1970 (CLRA), 
  • The Factories Act, 1948, 
  • The Employees Provident Funds Act, 1952, 
  • Workmen’s Compensation Act, 1923, 
  • Industrial Dispute Act, 1947, 
  • The Trade Union Act, 1926, 
  • Employees State Insurance Act, 1948, 
  • Inter-State Migrant Workers (Regulation of Employment and Conditions of Service) Act, 1979, and 
  • Minimum Wages Act, 1948.

This Act applies to a company or establishment that employs more than 20 workers on any day of the preceding twelve months, on a contractual basis. A ‘contractual worker’ is a worker employed on a contractual basis by the contractor and not directly by the principal employer. A ‘contractor’ is a person who supplies contractual labour to the principal employer. A ‘principal employer’ is a person who controls the company or an establishment (owner of mine; owner or occupier or manager of a factory; head of the office or department or an officer notified by the government or local authority).

Contractual labourers are employed only for a temporary period and are not continuous, to ensure that they cannot be exploited to perform the work of permanent employees which is necessary for the functioning of the establishment. However, the contractual labourer can be employed for certain ‘core activities’ such as:

  • Loading and unloading operations,
  • Catering services,
  • Warden or security service,
  • Sanitation work (cleaning, disposal of waste, sweeping),
  • Gardening and maintenance of lawns, etc,
  • House-keeping and laundry services,
  • Courier services, if it does not form the essential part of the establishment,
  • Transport services, inclusive of Ambulance services, 
  • Running of educational, hospitals and training institutions, clubs, guest house, etc. and
  • Any other activity that constitutes a ‘core activity’ of an establishment and is not on a continuous basis.

The Act lays down the duties of the employer and the contractors.

The contractor’s duties are as follows: 

Section 21 of the CLRA provides that the contractor shall be responsible for the payment of wages, and working conditions. The wage period must be fixed and should not exceed one month. As per Section 3 of the Payment of Wages Act, 1936, if the contractor fails to make payment to the workers then, the principal employer will be liable to make the payment and charge the said amount from the contractor. The contractor shall also pay a bonus to the workers under the Payment of Bonus Act, 1965.

Section 16-21 of the CLRA, 1970 provides for the duty of the contractor with regard to providing essential facilities for the welfare of the contractual workers namely,

Canteen, restrooms, washing facilities, drinking water, latrines, urinals, First Aid facilities. In the event the contractor fails to provide these essential facilities, the principal employer shall be responsible to provide for the same. 

Section 12: If the contractual worker is an inter-state migrant, it is the contractor’s duty to make a passbook and return the worker after the contract is over.

Section 14: If the migrant worker is employed to a lower-paying post, then it is the duty of the contractor to compensate as a ‘displacement allowance’ (i.e., 75Rs or 50% of the monthly wages).

Section 15: The contractor should also provide for journey allowance to the workers.  

Section 29: The contractor should maintain a Muster roll, register of wages, persons employed, register of fines and deductions for damages or loss, register of overtime and advances.

The duties of the Principal Employees are as follows:

It is the duty of the principal employer to engage contractual workers only from licensed contractors and register the establishment or company to hire contractual workers. 

If the principal employer fails to meet the above criteria, the worker employed will be deemed to have been employed directly by the employer and will not be considered as a contractual labourer. (sections 7- 12 CLRA, 1970 Food Corporation of India Workers Union v Food Corporation of India and Others, 1992)

It is also the duty of the principal employer to ensure that the contractor complies with the applicable labour laws. 

The principal employer is duty-bound to provide the essential facilities to the contractual workers for the health and safety of the workers namely;

Under the Factories Act, 1948, the employer should ensure that the factory maintains a policy on health and safety of the workers.

The employer should ensure ventilation and temperature, adequate space, cleanliness, drinking water, urinals and latrines. Other facilities such as First Aid, canteen, lunchrooms, washing and sitting facilities, creches, etc.

The Building and Other Construction Workers Act, 1996 provides for similar essential facilities for construction workers.

Under Section 13A of the Payment of Wages Act, 1936 obligates the employer to maintain a register of wages paid, work performed, receipts, register of contractors, etc.

Section 29 of CLRAA, 1970, states that it is the duty of the principal employer to place a notice in the work premises in the language easily understood by a majority of the contractual labourers, the notice should contain information such as hours of work, place and time of distribution of wages, wage period, dates of payment of wage and unpaid wages.

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The Factories Act, 1948 provides for the rights of the contractual labourers or employees.

Section 54, states that the workers should be made to work for 48 hours a week and 9 hours a day only;

Section 61 provides that if the worker does overtime, the worker should be notified of the hours of work and should be given the wages that is double the ordinary rate. 

Under Chapter VIII of the Factories Act, 1948, where a worker has worked for 240 days or more, he/she should be given annual leave with wages, plus a day leave for every 20 days of work.  

Section 111A, the workers have the right to obtain information relating to health and safety at work premises and receive training for the same.

Section 9(iii) of the Employees’ State Insurance Act, 1948 states that if the worker draws a monthly wage of Rs. 15,000/- then they are entitled to receive a social security cover.

Employee’s Provident Funds and Miscellaneous Provisions Act, 1952 provides for provident fund benefits after the retirement of the worker. The Payment of Gratuity Act, 1972 states that in case the worker has completed five years in employment under the same employer, then the worker is entitled to receive a gratuity.

There are other benefits also which the workers can claim such as:

If the worker is injured in the course of employment and is not covered under the Employment Insurance Scheme, then such worker can claim under the Workmen’s Compensation Act. 

If a female worker is not covered under the Employment Insurance Scheme, then such worker can claim maternity leave with wages under the Maternity Benefit Act, 1961.

What is the abolition of the work contract?

When the contract for which the labour is employed expires the contractual labour gets terminated in compliance with Section 10 of CLRAA and the labour cannot be employed for more than the terms specified.

During the pandemic, an advisory was issued by the Ministry of Labour & Employment requesting the recruiters or establishments not to terminate the contract labours and ensure timely payment of their wages. However, this advice is not binding advice so, the employers had the power to terminate the contractual labourers.

What are the problems in implementing laws?

The Contract Labour (Regulations and Abolition) Central Rules, 1971 Chapter III, rules 25(2)(v)(a) states that where a worker employed by a contractor does the same kind of work as a worker directly employed by the principal employer then, such worker shall be entitled to receive the same hours of work, wage rate, holidays and other conditions of service as the worker employed by the principal employer. However, this provision has not been implemented due to the lack of provisions for ensuring simultaneous duties of the employer.

The Act is limited to only those employers who employ 20 or more workers or where the work is less than 120 days of casual work or less than 60 days seasonal work. The Act does not talk about workers that are less in numbers.

Section 10(2) (b) provides for the abolition of contract labour when the work is perennial or permanent. This provision aims at removing labour when the contract is over, but in actual implementation, the workers are employed for an extended-term and the enforcement officials are unable to restrict the use of contract labourers in spite of the fact that it is against the law.

And last but not the least, Chapter III, Rule 25 (2) (v)(a) of the Contract Labour (Regulations and Abolition) Rules, 1970 provides for ‘equal pay for equal work’ is ambiguous and lacks implementation as mostly the establishment pays more to experienced workers.

Solution

The Contract Labour (Regulations and Abolition) Act, 1970 should also be applied to less than 20 workers. The simultaneous duty of the employer should be provided in scenarios where the worker does the same work as a worker employed by the employer. The contract labourers are being exploited despite the laws being provided, the government should make efforts to check the actual implementation of the laws in various states, whether it is relating to safety, health and socio-economic conditions, to ensure the workers are insured, etc. And not just the government, the employer and the contractor should also make sure that both of them follow the applicable labour laws.

State of Karnataka v. Uma Devi (2006) 4 SCC 1

In this case, the issue to prohibit uncertain employment was raised before the court. The court had refused the matter by stating that if uncertain employment is prohibited then that would mean that those who could be employed for at least on contractual, temporary or casual basis would be denied a chance of getting employed instead of not having a job at all. Such an uncertain or temporary job would give them at least some succour. The court had therefore refused to grant permanent status to the workers who have been working for a long period, however, the court had also re-emphasized that ‘equal pay for equal work’ has been clearly given in the Directive Principle of State Policy and is a part of the equality principle enshrined in the Indian Constitution.

Thus, to sum up there are 44 Central Labour laws and 200 State laws dealing with labour matters in India. These laws contain provisions relating to wages, number of workers, duration, conditions of work, duties of the contractors and employees, rights of labourers, etc.


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