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Published : February 14, 2013 | Author : Shastree
Category : Contracts laws | Total Views : 33888 | Rating :

Name: Aniruddh Shastree Resource consultant, recruiter, assisting in client acquisition. Masters from I.L.S.Law College & MBA(HR).

Title: Approach Note on “Contract Labour (R&A) Act, 1970: Practices, Problems & perspectives With respect to manufacturing Industry

Abstract : A drift from physical power based labour to IT software works, permanency of jobs to project based organization, Government reforms that are moving from pro labour to pro capitalist has led to impact on labour system in India.

Liberalization of Indian economy and increasing globalization and foreign companies interested in Investment in India , Global market uncertainty making corporations unsure of the workforce they would need has led to rise in contract based labour system and out sourcing.

The article tries to portray the change of process of hiring; impact of contract labour on society and companies, concerns for employers, influence of these economic conditions on Contract labour(R&A), Act, 1970 is discussed in this article.

Faced with economic onslaught unleashed by multinationals and global giants in the wake of introduction of contemporary policies of globalization and economic liberalization, Indian employers have been clamouring for more and more flexibility in their dealings with employees. Further, an introduction of Information technology and variety in product range has added the need to have workforce only on temporary basis, most commonly known as contract labour.

From assembly line workers to Information technology workforce, contract labourers have become a popular staffing option in today's market.

As businesses poke their heads out of the recession, they are finding the courage to hire, but don't want to lay off new hires if the economy sours. The solution is to hire Contracted workers, or more specifically, temporary workers on contract.

Contracted workers solve several HR staffing issues: They provide flexible hiring for major projects and seasonal rushes; they provide specific expertise; and they let HR induct new employees without actually hiring them, and in the long run, they save money because many expenses, from salary to benefits, are managed by the staffing firm.

But a Contracted workforce also raises challenges for HR executives, who must manage the culture shock for temporary workers who feel excluded, and permanent workers who feel threatened. There are also added costs of training and the spectrum of potential lawsuits over benefits.

The swells and shrinkage of the market changing allows for the off load and on load of employees. Instead of hiring core employees [then laying them off], many companies have a percentage of Contracted employees.

As reported in “People’s Democracy” (Weekly Organ of the Communist party of India (Marxist), Volume. XXVII, NO.15, April 2003, Topic of Article: “Hire & Fire, Contract Labour and a Group of Monsters”. Written by: Mr.Tapan Sen , mentions that

The Second National Commission’s recommendation allowed deployment of contract labour in all non-core jobs and also in the core jobs in case of exigencies. The GoM completed the unfinished task left by the commission and finalised the definition of non-core jobs to embrace more than 80 per cent jobs in any industrial establishment. As decided by the group of ministers, the so-called non-core jobs which may entail deployment of contract labour include 1) maintenance, service and repair of equipments, machines and plants, 2) construction and maintenance of buildings, roads and bridges, 3) gardening, 4) loading and unloading of raw materials and finished goods, 5) running of hospitals, educational and training institutions, guest houses and clubs, 6) sweeping, cleaning, dusting, and collection and disposal of wastes.

Once the above definitions get the legislative sanction, the first item itself --- i.e., maintenance, service and repair of equipments, machines and plants --- will throw at least 80 per cent work in any major manufacturing establishment open for deployment of contract labour. And the definition of the so-called non-core jobs has been so much enlarged that in an overwhelming part of the manufacturing and service sectors, deployment of contract workers in almost all jobs will be legitimised, thereby casualising the entire workforce.

One of the important and common reason or perception about employing contract labour instead of regular labour by principal employers is that too much security of employment breeds inefficiency, lack of commitment to work and also breeds indiscipline.

Contracted labour has undergone a significant corporate shift over the last few years: as business move into a new decade of development and growth, this complex arena of organizational spending remains an evolutionary component in achieving overall company objectives and goals.

Two major sources of hiring Contract labourers used are the sourcing through staffing suppliers and independent contractors.

Top Contract labour management pressures faced these days by Principal employers are:
1- Increased risks of Organizational needs to manage all facets of Contract labour,
2 -Managing independent contractors,
3- Low visibility into all aspects of contract labour,
4- Need to enhance spend control on service and projects.

This has led to increased corporate focus on the specific attributes to the Contract labour that creates an organizational need for visibility: visibility into all companywide projects and services that currently utilize Statement of work based labour and contractors for reducing risks associated with managing contractors and aligning Contract labourers with greater organizational goals and further implement distinct on boarding process for contract works and services.

In order to resolve these above said problems , focus of principal employers has been upon enhancing capabilities of contract labourers by clearly defining employee types, standardized management projects based on of statement of works and enhancing ability to measure effectiveness of Contract workers and projects.

Strategies for managing contract labour are further focused by improvements on Analysis/ reporting , Real time project portfolio, Proactive planning and budgeting, proper tracking of project expenses, supplier assessment and certification reviews, consistent tracking against regulatory requirements.

In following these processes the principal employer enhances enterprise intelligence and a path to tread into become the best in class organization.

For all above said tasks, there are a certain number of tasks that need to be done such as approval related tasks, billing transactions, budget alignment, planning and budgeting needs to improve.

Independent contractors remain a vital component of the contract labour practices and reliance on contract labour often requires a balancing act to maintain quality while mitigating risks and maintaining costs. Further there should be clearly defined communicated compliance policies led by 3 steps for opening and closure of contract which are compliance of on boarding process, compliance evaluation tests, and compliance of off boarding process.

Standard characteristics by which the contractors are graded are in 5 parts namely, Process, Organization, Knowledge, technology, Performance:
1- Process (the operations),
2- Organization (Corporate focus and collaboration among stakeholders),
3- Knowledge management (Contextualizing contract labour data and exposing key stakeholders),
4- Technology (the selection of the appropriate contract labour management tools and the effective deployment of those tools),
5 – Performance Management (the ability of the organization to measure its contract labour management results and improve its business).

Indian employers and some foreign investors into India are demanding that the provisions of contract labour (Regulation & Abolition), Act, 1970, be made less stringent and more flexible, and they should be given a free hand to hire contractors to perform their jobs, particularly those which in their opinion do not form a part of their “core” operations & processes. Their demands reached a pinnacle after a 3 Judge bench of the Supreme Court of India ruled in Air India Statutory Corporation 1997 (9) SCC 377: 1997 SCC(L&S) 1334, that if a principal employer resorts to contract labour system in any process, operation or other work despite prohibition thereof by the appropriate government under the Contract Labour ( Regulation & Abolition ) Act , 1970, “a direct employment relationship would be automatically created between contract workers working in the ‘ prohibited ‘ zone and the principal employer.”

On 30 August 2001, a 5 bench Judge Constitution Bench of the Supreme Court in Steel Authority of India (2001)7, SCC 1: 2001SCC (L&S) 1121 overruled its 3 Judge Bench division in Air India.

In Steel Authority of India the apex court held, inter alia, that “no provision of the Contract Labour Act or the rules framed there under provides for automatic absorption of the contract labour, on the issue of a notification by appropriate government prohibiting employment of contract labour”.

Further, the Second National Commission on Labour in 1999 recommended that “no worker shall be kept continuously as a casual or temporary worker against a permanent job for more than 2 years unless he is employed on a contract for a specified period”, and Commission recommends that after working continuously for the same principal employer, the worker should be treated as permanent employee.

The debatable areas in the Indian Disputes Act, mainly applicable to commercial and manufacturing operations, include:

Chapter V B related to the special provisions of lay-off, retrenchment and closure in certain establishments; Sections 11-A related to powers of labour courts, Tribunals and National Tribunals; Section 25-F that lays down the conditions precedent to retrenchment; and Section 25-G that details the procedure for retrenchment, dispute resolution mechanism, adjudication and labour inspections.

Primarily, the disputable aspect of section 11-A of the Industrial Dispute Act 1947(IDA) , is that it permits the labour courts to modify a retrenchment order dealt to an employee, including the case in which a worker is retrenched on disciplinary grounds. In U.P. State Road Transport Corporation vs. Subhash Chandra Sharma and Others, AIR 2000 SC 1163, the Supreme Court observed:

“... this section vests the Labour Court with discretion to substitute the order of discharge or dismissal of a workman into an order of reinstatement on such terms and conditions, if any, as it thinks fit or give such other relief to the workman including the award of any lesser punishment in lieu of discharge or dismissal as the circumstances of the case may require.”

Court interference in matters of retrenchment order by an employer is perceived by the companies as over-interference even in their primary functioning.

Further, Section 25-F of the Industrial Disputes Act (IDA) 1947 provides mandatory conditions precedent for retrenchment of workmen. These provisions only prescribe the conditions for terminating the services and do not confer any right on the workman for permanent absorption, as suggested by the judicial interpretation in a number of cases, much to the consolation of employers. Section 25-G lays down the procedure for retrenchment.

It follows the principle of “last come, first go”, based on the foundations of seniority of service and rules of social justice.

This rule in turn may deprive the employer to retain their most updated and technically accomplished employees. It violates the employer’s right to select among the best workers, and neutralizes the right to retain the younger and better-trained workers in favour of the older and less trained ones, as the case may be.

Section 25-O of the IDA lays down the procedure to be followed by employers during closure of a company.

It prescribes a condition that the employer should refer the cases of closure to the state government.

However, in Excel Wears vs. Union of India AIR 1979 SC 25, when this aspect of law came into question, the court held that the right to close a business is an integral part of the fundamental right to carry on a business and it is wrong to suggest that an employer has no right to close down a business once he starts it.

The section 25-O as it stood was declared unconstitutional. Further in

G.K. Sengupta vs. Hindustan Construction Co. Ltd., 1994 LLR 550 (Bom),the court held that such a permission of closure should be refused only if the Tribunal is satisfied that the management’s action is not bonafide, the principles of natural justice have been violated or such a decision would not justify any reasonable person in coming to such a conclusion.

Though the approach of the section is to provide the procedure for closing down an undertaking, this section goes further and, among other things, imposes a restriction of seeking permission by the employer even to close down his undertaking.

Issues concerning under the provisions of the Contract Labour (Regulation and Abolition) Act, a workman is deemed to be employed as contract labour when he is hired in connection with the work of an establishment by or through a contractor for work which is specific and for a definite duration. Thus, contract labour differs from direct labour in terms of employment relationship with the establishment and method of wage payment. Contract labour, by and large, is not on the payroll.

It is usual that the main social benefits paid by the contractor towards the contract labour are charged back to the establishment.

The Supreme Court of India in the Standard Vacuum Refinery Company vs. their workmen (1960-II-ILJ page 233) observed that contract labour should not be employed where
(i) The work is perennial and must go on from day-to-day;
(ii) The work is incidental to and necessary for the work of the factory;
(iii) The work is sufficient to employ a considerable number of full-time workmen; and
(iv) The work is done in most concerns through regular workmen.

The Contract Labour Act was created with the objective of gradual abolition of casual labour hiring, and to regulate the working conditions of casual labour, wherever permitted. Section 10 of the Contract Labour Act prevents firms from outsourcing most core functions or hiring workers on temporary contracts for more than 120 days. Anyone so employed can demand permanent employment from the company. Also, the “appropriate government” under section 10 is authorized, after consultation with the central board or state board, as the case may be, to prohibit, by notification in the official gazette, employment of contract labour in any establishment in any process, operation or other work.

The Supreme Court in Steel Authority of India Ltd. vs. National Union of Waterfront Workers & Others 2001 (4) LLN 135 OR, held that the contract workers would have no right to automatic absorption.

They would only have a right to a preference in employment if permanent workers were to be employed to fill in the vacancies created by the removal of the contract workers.

The court added that on issuance of a notification by the appropriate government under Section 10 prohibiting employment of contract labour in a given establishment, it is for the contractor to provide work to his labour in other establishments, where the contract labour system is not prohibited.

Legal Consequences for default on the part of contractor for non renewal of his licence have been discussed by a bench of Madras High Court in Workmen of Best & Crompton Industries Limited. Represented by their general secretary of Socialist Workers Union, madras V/S Management of Best & Crompton Engineering ltd., Madras (1985- I- LLJ, 492). Their lordship observed that: “The contractor’s licence has not been renewed within the prescribed time limit and that the registration under section 7 was initially granted for 30 workmen, has not been amended to cover engagement of 75 workmen.”.... “Rule 29 requires that the application of renewal should be made before the validity of license. It would therefore, be inferred that the contractor is not eligible to apply for renewal at all and that his only remedy if he wants to work as a licensed contractor, is to apply for a fresh and new license. Otherwise, the workmen would not be deemed to be employed as contract labour.”...

“If a workmen were not employed through the contractor holding a valid licence under the Act, they would be workmen employed by the principal employer – Management. .... if the management was aware that the contractor has not obtained license and yet it engaged the workmen employed by the contractor and paid wages though contractor, who had no existence in the eyes of the law for the want of license would lead to the conclusion that there was a direct relationship between the management and the workmen of the Contractor”.

Giving permanent status to every contract labourer after 120 days would discourage this policy of hiring skilled labour for shorter duration and specialized works. This helps the establishment to involve more labour force on a contractual basis and get work done with efficiency.

The legal regulation of contract workers has profound implications for those enterprises that have a global supply chain spread over several countries. Contracting out work allows firms to concentrate on their core business and improve overall competitiveness.

Therefore, there is a demand from employers for an amendment of Section 10 of the CLA (Contract Labour Act) so that there are sufficient guidelines for deciding any process, operation or other work in any establishment.

When the contract labour is engaged by an employer by more than one contractor and none of the contractor is engaging 20 or more workers but the total number of workers exceeds 20, in that event the principal employer will be required to obtain registration under the Contract Labour (Regulation& Abolition) Act, 1970 and none of the contractor will be required to obtain licence under the act. The remedy for abolition or regularization of workers as engaged through the contractors will be by approaching the appropriate government and not the court for abolition of the system.

As per the author Suresh.C.Srivastava – Research professor, Indian law Institute, New Delhi, in his article “Implementation and enforcement of the Contract Labour (Regulation & abolition) act, 1970, state the Problems of enforcement of the act arise because the

1) Act lacks a distinction between core and peripheral activities, which has led to non-implementation. Indeed some industries which donot have resources of their own to undertake work on their own, they give that work on contract basis. In such industries it become difficult to implement the act because of requirements are not clearly stated.

2) Nominal fines: The Supreme court in People’s Union for Democratic Rights & Other V/S Union of India (AIR 1982 SC 1473), on imposition of nominal fines observed:, “We are shocked to find that in cases of violation of Labour laws only small fines of Rs 200/- , The Magistrates seem to view the violation of Labour laws with great indifferences unconcern as if they are trifling offences undeserving of judicial severity. They seem to overlook the fact that labour laws are enacted for improving condition of workers and employers cannot be allowed to but off immunity against violation of labour laws by paying paltry fine while they would be making profits which would far exceed the amount of fine. If the violations of labour laws are going to be punished only by meagre fines, it would be impossible to ensure observance of labour laws and the labour laws would be reduced to nullity. They would remain merely paper tigers without teeth or claws. We would like to impress upon the magistrates and the judges in the country that the violation of labour laws must be viewed with strictness and whatever and whenever any violation of labour laws are established before the court, they should punish the errant employers by imposing adequate punishments.”

3) The contract labour act applies to every establishment and any contractor who employs 20 or more contract labour, the contractors have taken advantage of this provision and has thereby evaded the provisions particularly licensing and other welfare provisions by employing less than 20 contract labourers. Further they have also taken advantage by taking licences in different names.

The amended definition of “appropriate Government”, poses various problems:
(i) The definition has brought Department of Central government within the purview of the state government and thereby creating an anomaly and problems in the enforcement of the act. It is so, because, the departments of the central governments, where sovereign industry, thereby not fully covered under the “industry “ under the Industrial Disputes Act,1947, but under the Contract Labour (Abolition & Regulation) , Act, 1970. The office and Departments of the Government or Local Authority are covered under the definition of “Establishment”.

It is therefore, suggested in order to remove this anomaly, that the definition of “appropriate government”, be amended to include any office or department of the central government or local authority within the purview of central Government.

(ii) In the view of Supreme Court ‘s decision in Air India Statutory Corporation V/S United Labour Union, all central public sector units have been brought within the purview of the Central Government and thereby placed greater responsibility upon the central government. In order to meet this situation, it is suggested that more number of inspectors, staff and infrastructural facilities to be created to cope up with the situation.

(4) Neither the act nor rules framed there under prescribes the time limit for issuance of certificate of registration or grant of license. It is therefore suggested, that the act may be amended to provide time limit for the disposal of the application of registration and licenses.

(5) In order to avoid duplication there should be a single window for issuing license and there should be a licensing authority to deal with the situation in the state.

(6) In order to bring uniformity in the procedure for enforcement, the central government should issue directions to the state government by laying down the norms and procedure to be followed in respect of a prohibiting employment of contract labour.

(7) The penal provisions under the contract labour (regulations and abolition) act 1970 are not deterrent enough to reduce the extent of default. In the absence of deterrent punishment, the principal employers prefer to face the prosecution than to comply with the provisions of the act.

It is therefore suggested that the Act be amended to provide for deterrent punishment.

(8) The act unlike Factories Act 1948, or Mines Act 1952, or some other labour legislation do not provide for minimum punishment in case of violations of the provisions of the act. It is therefore suggested that the Act be amended to prescribe minimum punishment.

(9) Under Section 24, unlike section 23 there is no provision for a person who has been convicted and is again found guilty of the contravention of the same offence. It is therefore suggested that the Act be amended to provide for deterrent punishment for the repeated offence being committed by the same person.

(10) There is no punishment prescribed in the Act for not providing the facilities by the contractor. This is so, because, the principal employer is liable to pay the amount or provide the facilities in case of failure of the contractor to make payment or provide facilities. It is therefore suggested that the Act be amended to provide for the punishment for the violation of the provisions by the contractor.

(11) In order to make implementation effective, the strength of the inspector must be increased and they should be trained from time to time.

(12) There is no provision in the Act for appointment of Safety officers. It is suggested that the safety officer be appointed particularly in construction work.

(13) It is time to extend worker’s education scheme for contract labours.

(14) Utilization of licensing fee for strengthening inspectorates: A problem closely connected with strengthening of inspectorates is the problem of availability of finances in each states. Almost all states are of the view that the main hurdle in increasing the strength of inspectorates is the paucity of funds. Therefore, there is a need to utilize the licensing fee for this purpose.

(15) Most contract labour is unskilled and illiterate and ignorant of their rights.

They do not inform about any violation. What is more distressing is to get statement of contract labour. Even if it is procured, the workers seldom come to give evidence against the employer. The employers generally win over them.

(16) It is difficult to maintain proper supervision over industrial undertakings employing contract labour. Practical difficulties and expediency in the execution of certain works also stand in the way of enforcing provision of the act. Taking into consideration human ingenuity which knows no list to devise means to avoid compliance of the Act, a deep and pervasive control is needed which is only possible by the coordination of various departments responsible for the enforcement of labour laws.

Further similarly, Mr.Ingerjit Singh, Advocate, New Delhi in the same book as mentioned above mentions in his article titled “Contract Labour –Policy perspective and imperatives in a liberalized framework”, states that - the reasons for some of the maladies in implementation of the Act seems to be related to quantity and quality of machinery and some weakness and defects in the law:

(a)Inadequacy in numbers of inspecting officers vis-a-vis the areas/jurisdictions and the number of establishments to be covered.

(b) Lack of skill, initiative and aptitude on their part, combined with lack of integrity in many cases;

(c) Lack of proper supervision and cross checking by senior officers as also their undue stress on numbers (inspections/prosecutions etc.) rather than quality of implementations, education of employers/ contractors etc.

On the other hand there are some provisions of the Act/Rules which themselves lead to such situations. These are:

(1) Applicability of the Act to establishments employing 20 or more workers and placing subcontractors on par with (main) contractors leads so often artificial and deliberate fragmentation of contracts and manipulation of contracts in such a manner that petty contractors normally employ less than 20 workers and even the man contractors escape from the provisions of the Act. In many cases; this is done with the consent, if not connivance of the principal employer.

(2) While the Principal Employer and Contractor are liable to obtain registration and license respectively before engaging contract labour else they violate the law, there is no legal liability or accountability on the part of licensing officers to issue the same within the fixed periods nor there is any provisions(as in some other enactments) that if these are not issued within a specific time period , the registration/licence will be deemed to have be issued, nor the officers are made accountable or punishable for deliberate delays for ulterior reasons or laxity.

(3) There is no direct or independent provision under the Act for filing claim for short / non payments; illegal deductions etc. and the claims have to be filed under the payment of wages Act, or Minimum wages Act, which create problems regarding the applicability of these acts. Under the payment of wages Act and Minimum wages Act, a contractor is himself an employer and no recovery can be made from principal employer or as provided for in Section 21(4) of the Contract labour act as the Principal Employer is not the “employer” of the contract labour under the said laws. This has rendered the said section under the Contract labour act useless.

L.K.Deshpande, formerly Dept. of Economics, University of Bombay, Mumbai, India, mentions in his essay titled “Labour Market Flexibility and its impact on Contract labour”, that Employers in developed countries demanded freedom from the shackles of the state legislation, according to them, reduced their competitiveness relative to producers elsewhere particularly those in East & South East Asia who are not encumbered by regulation at all or not as much. The problem did not arise when trade was mostly restricted to industrialized countries that had attained more or less comparable levels of economic & social development.

The rise of East & South East Asian economies, aided and abetted by globalization and new micro electronics technology, overturned cart full of employment opportunities & welfare state capitalism.

Winds of globalization and liberalization have tilted the already existed imbalance of bargaining power of labourers in favour of employees.

Both globalization & technology increased the mobility of capital relative to labour and weakened the state’s ability and willingness to tax to maintain full employment & social security.

Flexibility means freedom to employers but insecurity to workers.

On one side news media reported that bureaucracy & inefficiency , red carpetism & corruption was causing reduced productivity , monetary loss to many public sector companies , at the same time license raj permits minimized enterpreneual spirit of private investors of the country. On the other side, solutions reducing fiscal deficit were being thought out at central government level.

In early stages of industrialization in India, recruitment of labour through agents or intermediaries was quite widespread. The practice was not restricted to manufacturing industries alone. Much of the infrastructure of roads, ports, was built by gangs of workers supplied by middlemen or agents to employers. Employers imported labourers even from other cities, villages and states. Once hired, the workers were carried, though not always on payroll of employer but they were supervised and trained if at all, by employee cum agent known in different parts of the country by different names such as Jobber, Sirdar, jamadar, mucaddam. These workers were at the mercy of jobbers.

Although licence permit raj after independence of India and inward orientation of the economy enabled employers to pass on the high labour costs to the consumers, many employers blamed the state legislation of the labour market & unions for the slow growth of organized employment in India. Their cry for flexibility of labour became louder and shriller after liberalization. Companies complained that it would be impossible for Indian industry to survive in the globalized world of fiercely competitive products if it was handicapped by rigidities of the regulated labour market in India.

In the wake of labour market flexibility post economic liberalization, which is believed to enhance competitiveness in an environment of rapidly changing market and technologies, the government is in dilemma as most of the labour laws and social protection laws has been labour friendly.

The competitive environment of Indian industrial firms has changed following the liberalization of the industrial trade policies in the 90s. Management of industrial firms responded to these changes by initiating a process of restructuring their operations. A major impact of these on industrial labour markets has been outsourcing of production workers, services, final products and components reflects the distancing strategies, particularly in the presence of dual labour markets , on the part of industrial firms to gain new margins of flexibility in increasing competitive markets.

There are 2 views that can be taken from this situation;

One is that restructuring and technology orientation would lead to decline in employment growth in organized industry and workers would crowd into unorganized sector with low productivity & low real wages.

Greater outsourcing of labour intensive products would cause a decline in well paid employment. Linkages may weaken due to removal of capacity restrictions on the large scale sector further reducing output demand and employment in informal sector enterprises.

Second view is that, the direction of change in employment elasticity of output in organized industry could go either way depending on the factor industry bias of technological change and the output mix change. Capacity restrictions are just one of the several factors driving subcontracting practices.

Saving of wage and non wage benefits of formal employment is not always the primary reason for outsourcing by firms in the organized sector. Broadly speaking, outsourcing is a result of cost boundaries facing firms as they choose between “make” or “buy” decisions.

The amendments urgently required are:
(1) In Industrial disputes Act 1947, - for giving discretion and freedom to employers in the employment and discharge of labour.

(2) In the trade Union act 1926, - to rationalize the structure of trade Unions and make them more responsive and accountable to the system.

(3) In Contract labour (R&A) Act1970, - by making it easier / less complicated for employers and contractors and with better safeguards and amenities to contract labour instead of thinking of abolition and absorption almost everywhere.

(4) Scrapping of Rule 25(2) v (b) – (Same or similar work), removing the bottlenecks and complications arising out of the High Court and Supreme Court judgements.

There are 3 primary reasons for which this need is being emphasized:

1) Emphasis on need for labour force to change according to the market fluctuations which happens because of increase in specialized products that requires firms to quickly change the size, composition, and at times the location of the workforce.

Employers view flexibility in the labour markets as essential because in the era of economic liberalization and growing competition between firms and countries, production should be organized to suit market conditions. Even Second national Commission on Labour and Deputy Chairman of Planning Commission Mr. Montek Singh Ahluwalia advocates the need for flexibility in the labour markets saying that it would promote competitiveness and efficiency in the current wake of globalization and rapid technological progress.

An underlying wave of change in Laws can be because of foreign investors who are keen on investing in labour intensive countries are deterred from investing in India presently due to provisions in Industrial disputes Act 1947 especially Ch V-B, and Section 9-A, and of Section 10 and complications of Contract Labour (regulation & Abolition) act 1970, can be a probable reason to favour changes pro contract labour, which is not fully proved yet.

2) Emphasis on lowering labour costs and increasing productivity because of rising competitiveness.

3) The political economy perspective which advocates free markets where there would be no government intervention and interference of trade unionism.

Report of the Committee on Unorganised Sector Statistics, National Statistical Commission Government of India, February 2012, state that Unorganised or informal sector constitutes a pivotal part of the Indian economy. More than 90 per cent of workforce and about 50 per cent of the national product are accounted for by the informal economy.

Since majority of labour workforce still works in small unorganized units and only a fraction of total labour workforce is employed in organized workforce, effect of amendment of the labour regulations is still unknown.

Hence, we can say to some extent that industry sector in order to surpass stringent labour regulations, is largely resorting to contract labourers governed by the Contract labour (Regulations & Abolitions), Act, 1970. Among various kinds of employment that have been created in various economies to circumvent labour laws, contract labour is becoming one of the prominent forms. In India contract labourers are protected by Contract labour Regulation & Abolition act, 1970.

A contract Labourer is defined in the act is as the one hired in connection with the work of an establishment by a principal employer who is the firm owner or a manager through a contractor. This act makes a number of provisions of welfare of the contract workers including payment of minimum wage, social security benefits and others.

While Speaking in favour of Contract labour policy we can say that it permits employers to have

(i) Staffing Flexibility, that is to say, there may be certain positions whose futures are unsure. Hiring a contractor to fill the position for a particular time frame is a good alternative to hiring someone permanent if you are not certain of the position's stability. Independent contractors are also useful for companies that have fluctuating workloads and need short-term staff to help out for a specific project. Once the contract term is fulfilled, there is no obligation for either party to continue the relationship.

(ii) Trial Evaluation: If the company has a permanent position available, but you want to evaluate a potential employee first, you can hire him on a contract basis. This will enable you to assess the person's abilities and skills to see whether he measures up to your standards. If you're unsatisfied with the contractor's performance, you can simply choose not to call him back for future work. If, however, you're happy with the work done, you can offer to hire that individual as a permanent employee who is already trained for the work.

(iii) Reduced Costs: The cost of hiring temporary contract workers is a lot less than hiring an employee. Most temporary workers are not provided with company benefits such as health insurance, and you do not have to pick up a share of Social Security or Medicare taxes or pay for worker's compensation or unemployment insurance. Also, in many cases, contract workers have their own equipment to do the job they're contracted for and don't need company office space.

At the same time a negative side of using temporary workforce could be
(i) Less Control:
Independent contractors often have their own way of completing tasks which may differ from the way your work is carried out. You can not supervise them as closely as you do employees or exercise as much control. Using contract workers may also result in a varying quality of work you receive on projects where different individuals have been hired.

(ii) Safety Issues:
Safety is always an issue, but even more so with temporary workers whom you have not trained, and therefore may not have been taught all the required safety practices and procedures to complete the job. Since independent contractors are not covered by worker's compensation in many states, you may be liable for injuries the contractor suffers and could possibly be sued for damages if there is carelessness on your part.

The Contract labour(R&A) Act, 1970 regulates relationship between a contract labour employed through an intermediary by the principal employer and the principal employer.

One of the important sources of controversy is whether contract labourer can be used in the core activities of the establishment together with regular employees. A set of perennial activities or core activities is defined in terms of what a company had declared as its main activities at the time of registration under the Factories Act, 1948.

Second National Commission for Labour suggests that Contract Labour should be used in non-core activities and also to some extent in core activities creating a distinction between core and non-core activities instead of perennial and non-perennial activities. This opinion was opposed by trade unionists and employers to small extent.

In the report by Ministry of Statistics in Annual Survey of Industries on Website www.mospi.gov.in , surveys from 1989-90 till 2009-10 , state the following industries which are in majority in the aspects of hiring workers through contractors or outsourcing / subcontracting of labour processes.

1) Production of X-ray apparatus.
2) Postage/couriers by private companies.
3) Photocopy machines.
4) Computer based systems & hardwares.
5) Waterproofing utilities.
6) Weaving / Spinning.
7) Electrical appliances.
8) Apparatuses of radio and television.
9) Ceramic and glass wares.
10) Mica based products.
11) Casting of metals.
12) Domestic appliances that run on electricity.
13) Manufacture of surgical cotton & medical apparatuses.
14) Textile products.
15) Tobacco, leather, paper products.
16) Transportation.
17) Petro & Plastic products.
18) Repair of capital goods and services.
19) Food items and beverages.

In line with this discussion I put below views of few of the experts in the field of Contract Labour (R&A), Act, 1970

VIEWS OF WORKERS , PRINCIPAL EMPLOYERS AND TRADE UNIONS ON CONTRACT LABOUR(REGULATION & ABOLITION) , ACT, 1970 as per Research Paper in Tata Institute of Social Sciences, Mumbai, by R.C.Dutta and Milly Sil .

Workers say that if the government changes the definition under the act from ‘Perennial and permanent jobs’ , to ‘core and peripheral jobs’, then the employers would take the benefit of it to engage contract workers in only peripheral jobs as these kind of jobs continue the most. This would finally result in employers employing contract labourers and would ‘sack’ all regular employers.

Employers say that more emphasis would be laid on core activities and peripheral activities should be contracted out as that would be efficient and would lead to lesser costs and for that they should have greater freedom to employ contract workers, so employers are of the opinion that the Act should be scrapped.

Trade Unions:
(i) Outsourcing should be treated as contract and should be treated as contract and should be covered by Contract –Labour Legislation.

(ii) Reiterating equal pay for same and similar work both for temporary / contract legislation in the main body of legislation.

(iii) Regularization of contract workers deployed in permanent/perennial jobs in the permanent roll of the company and stringent punishment.

(iv) Payment of minimum wages prevalent in the company/establishment to the contract workers of the said company.

(v) All contractors must obtain licence from appropriate authority for running its operations.

(vi) In case of death owing to accident or otherwise in course of employment, contract workers should be paid same compensation as the regular workers.

(vii) Principal employer should be held responsible for employment of all labour laws for the contract workers including maintenance of employment register , submission of annual returns to labour department, PF,ESI and other social security measures and workmen’s compensation any violation of those laws should attract stringent punishment on the principal employers as well.

Recommendations of Advocate of Bombay High Court Mr. S. M. Dharap for amendment are:
1. Absorption of employees performing work of perennial or incidental nature where the government issues notification for abolition of the contract.

2. Creation of machinery for adjudication of disputes, as regards contract labour.

3. Section 10 of this act provided for Prohibition of Contract Labour. This section should be suitably amended to provide for an alternative avenue of approach for aggrieved workers to ventilate the grievances through quasi-judicial machinery instead to adhering administrative machinery.

4. The provision with regard to the advisory board under the Act should be repealed and the jurisdiction in deciding such matter should be referred to the machinery under the Labour laws having powers to impart judicial decision.

5. Definitions of terms worker/workmen should be suitably amended on the lines of those under the Bombay Industrial Relations Act, so as to include contract labour under it.

6. “Employee”, means any person employed in or in connection with the work of any establishment to do any skilled, semi-skilled or unskilled manual, supervisory, technical, or clerical work for hire or reward in any industry, and includes, a person employed by a contractor to do any work for him in the execution of a contract with an employer.

7. Equal wages for equal work, to “strictly”, be the responsibility of the principal employer, failure of which shall result in severe punishment, to the principal employer and his agents.

8. A method and a procedure for regularization of employment of contract labour on their absorption, post abolition of a contract work, should be provided for.

9. The term, “Sham and Bogus contract/ contractors”, should be defined and included in the act.

10. Powers to the inspectors under the act, to inspect relevant records pertaining to the implementation of social security status viz. Provident Fund Act and Employee State Insurance Act, in addition to those available to the Inspectors under the said statutes.

11. The number of forms to be filled in the employers. (Principal/Contractors) should be minimized.
So, any alternative framing of labour laws need to reconsider and assess these aspects before moving forward with the conception of ‘rigid labour laws and its hindrance to employment growth.’

From the above recommendations and discussion, we see that there are many things that can be looked upon.

Globalization and the increased integration of markets during the closing decades of the twentieth century are two inter-related developments; a trend towards democratization of governments in all regions. These two developments together have posed challenges as well as opportunities to the labour movements. Rising inequalities among workers points to a possible rise or need for unions to strengthen their role as guardians of social cohesion.

First is that the whole question of whether improving status of organized sector manufacturing by reforming the labour laws would practically make a difference to the growth of employment considering that labour in the organized sector forms only 6-8 percent of the total labour force, the rest being in the unorganized sector(As per www.mospi.gov.in) .

Secondly, whole debate on whether rigidity of the labour laws is hindering growth of the manufacturing sector hence employment generation in this sector seems to be vague if large scale flouting or violations of labour laws are taken into consideration.

Any step taken into account should take into account the interests of both the employers and employees and workers with greater protection to workers.

On one hand, Human Resource department apart from functions of selecting, appraising, rewarding, developing people and focus on interplay between departments, tasks , people and organization. Increased linking of HR department’s role to line management and providing competence to the organization and enhancing ability to attract and develop human resource and lead in organizational growth.

On the other hand HR department along with allied departments is focusing on employment contracts which are increasingly closed on an individualized level which can lead to reduction in importance of centralized union based negotiations.

This two way process has led to rise in challenge of integration and employee commitment as well as flexibility and adaptability along with getting quality output from all employees / workers of the company, whether on contract or regular on rolls.

In short 4 key challenges can be said to have emerged, these are
1- Competence building,
2- Trust building,
3- Change: Providing stability& streamlining Methodology.
4- Individuals: Overload, under performance, Quality of work, Attitudes, managing relationships.

1- Competence: Work in projects by contract labour is more difficult to track& monitor because of limited control of principal employer over contract labour as well as limitation of skills & motivation of labourers; this creates a situation where competence management needs to be emphasized.

2- Trust: Achieving trust among workers and enhancing their performance is a challenge since workers and not permanently placed under one principal employer or many times even not under one contractor. Further, cohesion between workers may be loose and it not only makes it difficult for them to socialize between themselves, but also with contractors and principal employers. Workers may react & act according to their previous experience and hence workers may not accept every order / mannerism may be accepted to be true by them. Further, it is quite possible that workers may be possessing different levels of competencies & dexterity as they might have worked on varied tasks at different sites at different times.

Adding to it, some workers may have got into rigid mentality and set themselves into a stereotype method of functioning; this makes new employer struggle with making workers change the habit. Workers may be possessing several methods of working for a same or similar task, this can lead to chaos and confusion; this brings us to third challenge: Change – Providing stability & streamlining methodology.

3- Change: Providing Stability & Streamlining methodology.
Organization’s philosophy, targets, circumstances may demand organization to demand contractors & contract workers to work in different method than their regular work method.

4- Individuals: Overload for workers, under performance, working towards deadlines, managing quality of work, supervising consistency of work, managing mutual relations. Problems that emerge when contract has to be discontinued, impact of contract labourers on workers that are on rolls of company. Further, clarifying the role of individuals & evaluation of work and decisions regarding wages remain problems for contract labour.

Since contract labourers as individuals do not work for a lifetime for a single organization or contractor, their commitment to task and attitude of indulgence to other’s work, attitude to create chaos and disturbance in normal functioning may create problem as the principal employer cannot take action against them directly. All the more confidentiality of some of the data and whereabouts of things at workplace can also be a concern.

Thus, changes in the content of functioning of HR dept & IR dept along with cooperation from other departments suggests that special efforts need to be made for creation of new dimension of work and finding solutions to problems that arise because of labour contracting and job contracting .

Thus, Adaptability is a necessary condition for the continued existence of a legal system. The challenges of the contemporary world (namely economic, political and social) can be successfully met by either discarding or by adjusting the labour regulations of the Indian legal system.

The question now looms large on horizon is that whether the interest of contract labour are to be protected at the cost of business of organizations. If the answer to the said question is ‘YES’ then the consequence would follow that this would lead to the organizations getting obsolete and slowly dying and if the organizations do not exist where does labour get its livelihood from?

If the answer is ‘NO’ then what is required is that the organizations must be freed from the fear of abolitions/regulations by regulating the condition of contract labour alongside allowing the organizations to compete the dynamic environment so that they are able to justify their existence. The existence to these needs to be given urgently.

Indian Industry is now forced to compete with multi nationals and global enterprises who, as a matter of routine, regularly out source almost 90% of their business activities.

Main recommendations by task force formed with Shri Kumarmangalam Birla as the Convenor, suggest upon simplification of labour issues, the issues of immediate concerns are:
(1) Populist stance taken by few State governments for abolition of the Contract labour system has caused widespread panic among industries. This has reduced of take of contract labour drastically, causing unemployment.
(2) Supreme Court’s interpretation of the law, favouring abolition as a general rule, and insisting that the abolished contract labour to be fully absorbed by the establishment has produced serious implications.
(3) Total disregard to economy’s need in the liberalized era of global competition where flexibility of work force is imperative.
(4) No clear policy directives from Central Government on the issue.

Authors contact info - articles The  author can be reached at: Shastree85@legalserviceindia.com

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Article Comments

Posted by Ramkrishna Sitaram Nafde on October 29, 2013
I have sent following mail to General Manager Reserve Bank Of India
Mumbai but no proper reply is received.I want Reserve Bank should to
modify the rule under which my cheque was sent back.If the cheque was
issued before putting restrictions should cleared.

304,Sudama pushp Co.Hsg.SO.Ltd.

Patharli Road,Near sarovar Bar

Dombivli East 421021
Dear Sir,
I had given a cheque No.216326 dated 01/09/2009 Of Suvarna mangal Mahila
Sahakari bank Ltd Dombivli East Dist. Thane (Later taken over by
Dombivli Nagari Sahakari Bank Ltd. Dombivli) to MSED co. Ltd. Receipt
No.2456580 dated 01/09/2009 For Rs.290/-which was dishonored & sent
back. The reason given was �Direction order 35(A) as per RBI. On
enquiring to bank on 15/09/2009 I was told that a notice was served to
bank on 02/09/2009 before starting the business of 02/09/2009. The
notice says that �We forward our Directive UBD.CO.BSD.NSB-L
NO.D-60/12.22.323/2009-10 dated AUGUST 31.2009 In the terms of the said
directive your bank is precluded with effect from the close of business
as on September 1.2009. The above notice details were published in
Lolsatta Mumbai on 15/09/2001.
The above cheque was dishonored, MSED Co. Ltd. had put me a penalty (as
per their rule) of Rs.327.74 & stopped the facility of paying bills by
Now I would like to know why should suffer with this loss of Rs.327.74.
I wrote letter to RBI Atten. Mr.B.B.Mohanty who had signed that letter.
Till today no reply is received. What was my mistake? RBI did not inform
to public not to issue any cheque. Had I known about this before I would
have not issued cheque of this bank.
Secondly if it has not been informed to the public, the cheques issued
before serving notice to bank should have been passed because it was
issued when the notice was not effective.
My question to you is who will pay me this Rs.327.74 7 if no one is
liable to pay why should I suffer?
I was searching for mail id to give my complaint which I got today.
Thanking you hopping early solution for above.
MOB: 9819 64 67 64

Posted by muzamil shaikh on October 15, 2013
workmen adv not presesnt award deliverd statining no claim n amount
writeen statment not place before lower court now wht is d remedy
reinststment 2 wrkmn pls imm rply thnx

Posted by S.K.Bakshi on September 28, 2013
The article is very informative.I would also like to draw the attention of the young contributor that in last year Maruti Manaser Plant. There were 250 Contract employees.After the Tragic end of the last year unforgetable IR problem, fortunately the State Govt. took a tough stand otherwise Maruti Udyog may had to pay through their nose. In short engaging contact labour in such a large proportion is fraught with its own dangers like the one staged at Manesar by Maruty udyog employees. Thx.

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