A NOTE ON CONTRACT LABOUR

RAJIV JOSHI
ADVOCATE
• The Contract Labour (Regulation &
Abolition) Act, 1970 is applicable to every
establishment which employs 20 or more
workmen as contract labour. It also
applies to every contractor who employ 20
or more workmen.
• The contractor is defined in Section 2 (c) of the
aforementioned act. The said definition is as
under :-
• “contractor”, in relation to an establishment,
means a person who undertakes to produce a
given result for the establishment, other than a
mere supply of goods or articles of manufacture
to such establishment, through contract labour
or who supplies contract labour for any work of
the establishment and includes a sub contractor.
• A plain reading of the said definition would
indicate that a contractor can be engage
for carrying out “any” work of the
establishment.
• In the event the said act is applicable to the
establishment, (which it is in your case) it is
obligatory and binding on your company to
obtain registration under Section 7 of the Act. In
the event any particular contractor engages
more than 20 workmen, then it is obligatory on
the concerned contractor to obtain a licence
under Section 12 of the aforementioned etc.
Chapter V of the said act deals with canteens,
rest rooms, first aid etc.
• Rule 25 of the Maharashtra Contract Labour
(Regulation and Abolition) Rules, 1971 is as under :-
• Form and terms and conditions of licence :
• Every licence granted under Rule 23 or renewed
under Rule 29 shall be in Form No. VI
• Every such licence shall be subject to the following
conditions, namely :-
– the licence shall be non transferable ;
– the number of workmen employed as contract labour in the
establishment shall not, on any day, exceed the maximum
number specified in the licence ;
– save as provided in these rules, the fees paid for the grant,
or as the case may be, for renewal of the licence shall be
non refundable;
 – The rate of wages payable to the workmen by a contractor shall not
be less than the minimum rates of wages fixed under the Minimum
Wages Act, where that Act applies, where the rates have been fixed
by agreement, settlement or award shall not be less than the rates
so fixed, and where rates have been fixed under the Minimum
Wages Act, and also under any agreement, settlement or award,
the rates, shall not be less than the higher of the two rates
• where, the workmen employed by the contractor perform the
same kind of work as the workmen or a class of workmen
directly employed by the principal employer, the rates of wages
payable to the workmen by the contractor shall be the rates
payable to the workmen directly employed by the principal
employer doing the same kind of work ;
– save as provided in these rules, the fees paid for the grant, or as
the case may be, for renewal of the licence shall be non refundable;
• In any other case, the rates of wages shall be such as may be
specified in this behalf by the Commissioner of Labour ;
• v) a) the hours of work and other conditions of service of the
workmen of the contractor shall be in accordance with the
provisions of the Minimum Wages Act, where that Act applies,
where any agreement, settlement or award is in force in accordance
with the provisions of the said agreement, settlement or award ; and
where in any employment the Minimum Wages Act applies and
there is also in force any agreement, settlement or award, the
conditions of service shall be governed by the provisions which are
more beneficial to the workmen ;
• In other cases where the workmen employed by a contractor perform the
same kind of work as the workmen directly employed by the principal
employer of an establishment, the hours of work and other conditions of
service of the workmen of the contractor shall be the same as applicable to
the workmen directly employed by the principal employer of the
establishment ;
• In cases not falling under sub clause (a) or (b) the hours of work and other
conditions of service of the workmen of the contractor shall be such as may
be specified by the Commissioner of Labour.
• Thus, if any contract labour performs the
same work which is being performed by
regular employees of the company, then
he has to be offered the same wages and
other terms and conditions of service.
• If the workmen employed in the core
activity are contract labour, then these
workmen or any union representing them
can invoke the provisions of Section 10 of
the Contract Labour (Regulation &
Abolition) Act, 1970.
• Section 10 (2)
• Before issuing any notification under sub section (1) in
relation to an establishment, the appropriate government
shall have regard to the conditions of work and benefits
provided for the contract labour in that establishment and
other relevant factors, such as –
– 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 ;
– whether it is of perennial nature, that is to say, it is of sufficient
duration having regard to the nature of industry, trade, business,
manufacture or occupation carried on in that establishment ;
 – whether it is done ordinarily through regular
workmen in that establishment or an establishment
similar thereto ;
– whether it is sufficient to employ considerable
number of whole time workmen.
• Explanation : If a question arises whether any
process or operation or other work is of
perennial nature, the decision of the
appropriate government thereon shall be final.
• Thereafter the Government may or may
not abolish employment of contract labour
in any particular area. This decision of the
government can be challenged by filing a
writ petition.
• There is no ratio fixed under the act to
determine how many contract labour the
company can employ as compared to the
permanent workmen employed by the
company. There are instances where the
entire activity of a factory is carried out
with the help of contractors whereas in
some cases only specialized services like
gardening, house keeping, security etc.
are contracted out to the said contractors.
• At present the process of claiming permanency
on the part of the contract labour is extremely
cumbersome and complicated, especially in the
State of Maharasthra. A substantial number of
employers therefore, prefer to engage contract
labour in all parts of the establishment. This also
helps in getting the direct head count to a
minimum. It also keeps costs under control as
the contract labour is generally paid at minimum
wage level.
• A frequent doubt prevails in the minds of a number of persons who raise a
question as to whether the company should enter into a contract for supply
lf labour or supply of service. Though these might be the different systems
for the company the contract labour does not make any distinction
whatsoever between these two systems. The contract labour expects the
principal employer of the concerned contractor to comply with all the
provisions of the Contract Labour (Regulation & Abolition) Act, 1970,
Minimum Wages Act, 1948, ESI Act, 1948, EPF & MP Act, 1952 etc. etc.
Non compliance of any of these statutes would have the necessary
consequences. Thus, whether your company employs a person for
providing services or whether he is employed for providing labour is
immaterial. House keeping, gardening, cleaning, material handling,
contracts are generally issued on fixed rates. However, inspite of the said
contracts being rate contracts the contractor has to maintain a muster roll,
pay minimum wages to its employees and make other statutory
compliances. Thus, there is no specific advantage by issuing a rate
contract or entering into a contract for services. In the eyes of law both are
the same.
• It is also to be noted that the provisions of the Contract Labour
(Regulation & Abolition) Act, 1970 have to be followed
scrupulously. In the event there is any lacuna in the same, the court
can come to the conclusion that the contract is merely a paper
arrangement or a “Maya of legal appearance” and can direct the
workmen to be absorbed in to the regular employment of the
company. Thus, your company should fully ensure that it has a
valid registration certificate, the contractor has a valid licence, the
returns are submitted in time, the licences are renewed, the
contractor pays the concerned employees at rates which are not
less than the minimum wages, he extends them all statutory
benefits like leave, H.R.A., bonus, E.S.I., P.F. etc. Non compliance
on the part of the contractor automatically casts the liability on the
shoulders of the principal employer.
• As explained above, the contract labour system being
the best system for employment of labour, it is the
tendency of the employers to rampantly engage contract
labour on all jobs without taking into consideration the
consequences. Contract labour which works in the
establishment for a substantial period of time tends to
organize itself under a union and claim permanency.
This can lead to problems with the existing union or the
existing union can also join hands with the contract
labour. The repercussions of these can seriously affect
the business. These repercussions also have to be
taken into consideration. At times there are problems of
quality of work and dedication to the organization.
• Irrespective of above, at present it seems that
employment of contract labour is the best way to
take care of fluctuating business requirements.
By engaging such type of contract labour, the
chances of they being permanent in the services
of the company are remote. Moreover, their
numbers can be trimmed down if need arises at
a later stage. If however, the company is sure of
the amount of production and the availability of
work in the core area, then the company should
employ permanent labour instead of contract
labour.