Contract Labour ( R & A) 1970

Contract labour ( Regulation & Abolition) Act 1970

Purpose : To raise the standard of working conditions and prevent exploitation of employees.

Application : 20 or more people in any day of the preceding 12 months

History : A landmark case in 1960 that of the Standard Vacuum Refining Company versus their workmen laid the foundation of the CLRA act in India. The Supreme Court gave a monumental judgment concerning the protection of interests of contract workers. The Court issued strict guidelines and laid down specific regulations concerning contract labour. It clarified which work and assignments were to be abolished.

For 31 long years the most debated and focused section of CLRA was Section 10 and all the discussions were around 2 buzz words i.e Perennial & Permanent nature of job. The large understanding was that engagement of Contract labour in such jobs can end up absorption by principal employer. Then came the most historic and land mark judgement of SAIL Vs National Union Water Front Workers which brought in completely new understanding around prohibition and absorption.

landmark judgment SAIL Vs National Union Water Front Workers and others (2001 LAB. I.C. 3656=2001 LLR 691 (SC) = 2002 (4) LLN 135 (SC))

The brief genesis of the dispute lays in engagement of 353 contract Labours in the stockyard of SAIL at Kolkata. The Union filed a writ petition in High Court seeking direction for absorption of Contract Labour in the regular establishment of SAIL in view of the prohibition notification dated 15th July 1989 by the Government of West Bengal. The Division Bench of the High Court dismissed the Writ appeal filed by SAIL. Subsequently the matter went on appeal to the Supreme Court.

Before the 5 judge bench could hear on this case lots of variance on similar matters were observed by the apex court in earlier cases.

The apex court in Dina Nath & others Vs National Fertilizers Ltd & Others (1992 (64) FLR 39 =1992 (II) LLJ 46 (SC)) had ruled that the act does not provide for automatic absorption by Principal Employer upon abolition of Contract Labour. The same view was again reverberated in the case between R.K. Panda and Others Vs Steel Authority of India and Others (1994 (2) LLN 378 (SC) = 1994 (69 FLR 256 (SC)). A similar view was also taken by the apex court in the Association of Chemical Workers, Bombay Vs A.L. Alaspurkar and Others (1994 LIC 2582 (SC) = 1995 (71) FLR 79 (SC)). However, in total variance to the aforesaid case the Supreme Court in AIR India Statutory Corporation Vs United Labour Union and Others ( supra) inter-alia ruled that by "necessary implication" the Principal Employer will be under statutory obligation to absorb the Contract Labour on abolition of the Contract Labour system.

Under such back ground the five bench of the Supreme Court examined the question of automatic absorption of Contract Labour on issuance of a valid notification under section 10 (1) of the CLRA Act. The Court ruled that in section 10 of the CLRA act there is no implicit requirement of automatic absorption of Contract Labour by the Principal Employer in the concerned establishment on issuance of notification by the appropriate Government under section 10(1) prohibiting employment of Contract Labour in a given establishment. However, the Court observed in case a contract between the Principal Employer and the Contractor is found to be not genuine but a mere camouflage, Employer and shall be directed by the industrial adjudicator to regularize the services of the Contract Labour in the concerned establishment. However, such cases will be dealt under the Industrial Disputes Act and not under the CLRA.

In light of this judgment the concept of automatic absorption of Contract Labour is no more in existence.

Now the next big question which subsequently evolved was “Are Contract Labourers Direct Employees: The Two Prong Test”

The question of whether contract labourers qualify as direct employees has been raised multiple times. The most relevant and recent judgement can be referred.  Justice Rohinton Fali Nariman and Justice Vineet Saran in the case of Bharat Heavy Electricals Limited vs. Mahendra Prasad Jakhmola & Ors (Civil Appeal No. 1799-1800 of 2019), the Supreme Court of India reiterated the basic tests to be applied in determining whether contract labourers can be classified as direct employees.

BHEL had entered into an agreement with a contractor to engage contract labourers in its factory at Haridwar. The employment of certain contract labourers was terminated by BHEL, following which the contract labourers approached the Labour Court at Haridwar, seeking reinstatement. The Labour Court ruled in favour of the contract labourers, basing its analysis on the fact that BHEL exercised supervision, superintendence and administrative control over them. In BHEL's appeal, the Uttarakhand High Court upheld the Labour Court's ruling, holding that as the contract labourers were performing duties identical with BHEL's regular employees, they were under the command, control and management of BHEL, and the contract with the contractor was a sham .Thereafter, BHEL appealed to the Supreme Court.

The Supreme Court Court, in order to decide the above said dispute relied the test laid down by itself in the case of  General Manager, (OSD), Bengal Nagpur Cotton Mills, Rajnandgaon v. Bharat Lala and Another ((2011) 1 SCC 635), which is as follows:

"Two of the well- recognized tests to find out whether the contract labourers are the direct employees of the principal employer are:

(i)                whether the principal employer pays the salary instead of the contractor; and

(ii)              (ii) whether the principal employer controls and supervises the work of the employee."

On the payment of salary, the same can easily be verified from the documents . On the Control and Supervision part the apex court further relied upon the case of International Airport Authority of India v. International Air Cargo Workers' Union ((2009) 13 SCC 374)

The case of International Airport Authority of India v. International Air Cargo Workers' Union ((2009) 13 SCC 374) explained the expression, 'Exercise of control and supervision'. The Court held that "If the contract is for supply of labour, necessarily, the labour supplied by the contractor will work under the directions, supervision and control of the principal employer but that would not make the worker a direct employee of the principal employer, if: (i) the salary is paid by a contractor;(ii) the right to regulate the employment is with the contractor; and (iii) the ultimate supervision and control lies with the contractor. The principal employer only controls and directs the work to be done by a contract labour, when such labour is assigned to him. But it is the contractor as employer, who chooses whether the worker is to be assigned/ allotted to the principal employer or used otherwise. In short, worker being the employee of the contractor, the ultimate supervision and control lies with the contractor as he decides where the employee will work and how long he will work and subject to what conditions. Only when the contractor assigns/sends the worker to work under the principal employer, the worker works under the supervision and control of the principal employer but that is secondary control. The primary control is with the contractor."

In the present case, the contract labourers were being paid salaries by the contractor, and not by BHEL. Further, the second test was not met as BHEL was merely exercising secondary control over the contract labourers. Therefore, the SC set aside the judgment of the Uttarakhand High Court and the Labour Court's award.

Permanency claims against the principal employers are not a recent trend . Many such cases have been witnessed in the past in industrial, manufacturing industries in in India. It is very important for principal employers to be conscious of the two-part test while employing contract labourers. In order to avoid such claims, a detailed contract for the supply of contract labour should be in place between the principal employer and the contractor. Further, the contract should explicitly lay down the rights and obligations of the principal employer and the contractor, for instance who shall pay the employed contract labourers. All steps should be taken to ensure that the ultimate supervision and control over the contract labourers rests with the contractor.