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5-6. The Contract Labour (Regulation and Abolition) Act 1970

Debi S. SainiProfessor of HRMManagement development InstituteGurgaon-122007

Contract Labour (R & A) Act 1970 (CLA)

This presentation discusses the following issues:

Background, Objectives, Features, Applicability, Definitions

Constitution & working of Central & State Advisory Boards

Registration of establishment; Licensing of Contractors

Prohibition of employment of Contract Labor

Welfare and health provisions for Contract labour

Wage Payment issues, administration of Act & Penalties

Obligations/rights of Principal employer & contract labour

Sham contract

Some important court judgements

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The Contract Labour (Regulation and Abolition) Act 1970

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Buying the part/service from market

Ancillary unit to exclusively work for you (Outworker)

Another unit outside to do that work (Suzuki engines)

Another own unit/deptt. inside the plant to do that work

Outsourcing to contractor to work inside your plant

Various Ways of Doing Parts of Work

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Vulnerability of contract labour

Royal Commission on Labour 1931 talked of CL

Standard Vacuum case (1960 SC) --Referred to CL as primitive and savage

National Commission on Labour, 1969

CLA passed in 1970: Regulation--AbolitionBackground to CLA 1970

6The Scheme of CLA

CLA incorporates ratio of Stand. Vacuum Case (1960 SC)

Objectives of the ActRegulate contract labour in some employmentsAnd provide for its abolition in certain circumstances

Contains 35 sections in all: Divided into 7 chapters

Rules by Appropriate Govt: Comprehensive Rules framed

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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Salient Features of CLA

1. Applies: Estabs. with 20 or+ WM as contract labour 2. Registration of estab. by principal employer

3. Obtaining licence from licensing officer by contractor Every contr/sub-contractor with 20 + WM to obtain this

4. Estab. of Central & State Advisory Board/s To advise adm. of Act; It can also constitute committees

9Salient Features of CLA contd5. App. Govt. can prohibit employment of contract labour In any operation; after consulting Central/State Adv. Board

6. Contractor to provide some welfare/health facilities Employer to provide these if contractor does not provide

7. Employers rep. to oversee wage payment by contractor Employer to pay wages if contractor doesnt

10Salient Features of CLA contd8. Appointment of Inspectors to administer the ActMaintenance of registers/records

9. Penalties for violation/obstruction

10. Applicability of other labour laws to contract labour: POW Act, MWA, ECA, ESI Act, PF Act, Factories Act

11Application of the Act [S. 1(4)]Applies to every establishment

with 20 or + WM employed as contract labour

on any day in past 12 months

&, to every contractor who employs/employed 20 or + WM

on any day in past 12 months

Provided:App. Govt. can extend CLA to any estab. or contractor

by giving not less than 2 months notice

Act does not apply: where work is intermittent/casual

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Definitions Under the CLA

13Definitions

Establishment means:

any office/deptt. of Govt. or a local authority, or

any place where is carried:

industry, trade, business, manufacture, occupation

e.g. Housing Society, temple, NGOs are not establishments

14Definitions:

Contract Labour

A WM is deemed to be contract labour

in or in connection with a work of an establishment

when he is hired in or in connection with such work

by or through a contractor

with or without the knowledge of principal employer

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Contractor means:

a person who undertakes to produce a result for estab.

other than a mere supply of goods/articles to such estab.

through contract labour

or who supplies contract labour for any work of estab.

and includes a sub-contractor

Definitions contd

Registration of Establishments &Licensing of Contractors

Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

17Registration of EstablishmentsApp. Govt. to appoint Registration Officerand define the limit of their exercise of power

Principal employer to apply for registration

within time prescribedprovided may entertain, after period specifiedif applicant was prevented by sufficient cause

He shall register estab, issue certificate of registration

Where application is complete, contains specified particulars

18Registration of Establishments contd

Can revoke registration after giving hearing

If misrepresentation or suppression material of facts, or

registration has become useless or ineffective

Also, he can do so with previous approval of App. Govt.

Effects of Non-registration/revocation

No principal employer to employ contract labour

19Licensing of Contractors

App. Govt. to appoint licensing officers (define limits) Licensing of Contractors

Contractors to undertake work through contract labourOnly if they obtain licenceSub-Contractor also to obtain licence (Salal Hydro Project v. State of J&K)

Licence may contain such conditions as

Hours of workWage Fixation & other essential amenities

Security deposit by contractor per WM (raised) (Rule 35)

20Licensing of Contractors

Grant of licence

-Apply in prescribed formParticulars of location -Nature of operation for which contract labour employed-Other prescribed particulars

Revocation/suspension by Licensing officer

-If obtained by misrepresentation or suppression of facts -If holder fails, without cause to comply with conditions

Provision of appeal in 30 days if a party aggrieved

21Important Points About Registration & Licence Registration

To be obtained by PE

Obtain only once

Requires fees only

Reg. Cert. need not be displayed LicenceObtained by contractor

Obtain every year

Requires fees+security

Licence to be displayed

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Prohibition of Employing Contract Labour

23Prohibition of Employing Contract Labour

App. govt. may prohibit employment of contract labour

in any process, operation or any other work

After consulting central/State Board

Before doing so Govt. shall have regard to:

Conditions of work

Benefits provided to contract labour in that estab.

24Prohibition of employing Contract Labour contdParticularly, Govt. will have regard to these:

Whether process is incidental or necessary to estab.

Whether of perennial nature

Whether ordinarily done by regulars in other estbs.

If sufficient to employ considerable no. whole time WM

Guidelines based on: Standard Vacuum refining Co. v. WM (SC) (Now in the CLA)

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Welfare and Health of Contract LabourUnder CLA

26Welfare & Health of Contract Labour

The following amenities are to be providedThey are basic responsibility of the contractor Canteen to be provided/maintained Where 100 or + WM ordinarily employed Restrooms Where in contract labour required to halt at nightin connection with workThese rooms be lighted, ventilated & kept clean

27Welfare & Health of Contract Labour contd Other facilitiesSufficient supply of wholesome drinking water Sufficient number of latrines & urinalsWashing facilities

First-aid boxBe equipped with the prescribed contentsso as to be readily accessible during work hours

If contractor does not provide amenitiesThe principal employer to provide these

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Obligations & Rights of Employers and LabourUnder the CLA

29CLA: Obligations of Principal employer

Get estab. registered with registration officer

Ensure that contractor has obtained licence And has complied with its terms & conditions

No employment of CL without registration/ licence

Health & welfare facilities to contract WM

Oversee payment of wages to WM as per CLA

30CLA: Obligations of Principal employer contd6. Cooperate with inspectorsInspect premises, documents, records; examine a person

7. Maintain registers/records about contract labour

8. Exhibit notices in estab.: Hours of work, wage rates

9. Send returns: Half-yearly returns to the licencing officer Yearly returns to the Registration officer Supply info. & statistics to Govt. from time to time

S. 21. Responsibility for Payment of Wages

1.Contractor responsible for wage payment to worker employed as CL

2. Employer to nominate rep. to be present when wages paid by contractor

3. Contractors duty to ensure: Wages paid in rep.s presence

4. If contractor fails to pay, PE shall be liableCan deduct from bills.31

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Precautions to be Taken by Principal Employer

CLA has proved to be one of the most difficult law to implement for employers

Need to take extreme caution In view of a large number of decided cases

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34 Effects of Some Practices of Employers Contractor Changing Contract WM not changingCan claim for permanency Keep Changing the workmenPEs Permanent WM & contract WM doing same or similar jobSame wages to bePaid to CL as to PEs WMMake changes in work ordont employ CL When own WM doing same workSupervision of Contract Workmen by principal employerCan claim for permanency Ask Contractorsperson to superviseEmploying a CL for jobs that are abolished by the actPrincipal employerCan be prosecuted Sign a Service Contract with people who do your workPE gives Instructions & takes Disciplinary action against contract WM Can claim for permanency Ask the contractor to Instruct & take action

issues

effects

Corrective action

Rule 25 (central) of CLA (Central) Rules provides:

In cases where the workmen employed by the contractor perform the same or similar kind of work as workmen directly employed by the principal employer of the establishment, the wage rates, holidays, 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 on the same or similar kind of work:

Provided that in case of any disagreement with regard to the type of work, the same shall be decided by the Chief Labour Commissioner (Central)

But it should be understood that these rules apply only to those cases where the appropriate government is the central Govt.

36 Important Points about Employment of CL 1. If contractor working without license? Lab Commr. will penalize contractor &/or employer

2. If interaction between employer WM & contract WM Contract can be declared shamWM can be treated employers

3. If contractor doesnt provide welfare measures Principal Employer will have to provide

37Important Points about employment of CL contd

CLA applies if PE engages CL inside estab. not outside

5. Sub-contractor included in definition of contractor --Pr. employer accountability for acts of sub-contractor is the same --It is So, even if sub-contractor engaged without PE knowledge

6. PEs right to engage contract labour in estab. --So long as it is expressly prohibited by app. Govt. this applies to core activities also (Except in AP)

Secretary, Haryana State Electricity Board v. Suresh & others 1999 LLR 924 (SC).Facts: the appellant supplied electricity in the state. The Board contracted out cleaning work; the contractor employed 42 cleaning workers. For this work, he was paid Rs. 32,000 per month. After completing 240 days of service these workers claimed permanency in the service of the Board.

S.C. Found: The contract had specified the number of workers to be engaged and the amount of money to be paid to the contractor for this work. The work was supervised by the state government officials. It was found that the overall control on these workers was of the Board. The contractor concerned was a mere name-lender; he had not even obtained a license nor did the Board register itself with the registration officer.

Held: The situation was held by the Supreme Court to be reflecting a sham contract. Consequently, the workers plea was accepted by the Court.

In the circumstances of this case the Supreme Court held that the contract system was a mere camouflage, a smoke-screen disguised in almost a transparent veil which could easily be pierced and the real contractual relationship between the Board and employees could easily be discerned.

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How to Avoid Problems under CLA

Principal Employers (PE) to ensure: No sham contract e.g. Principal Employer does not do main supervision of contract workers Principal Employer does not take disciplinary action Contract workers are the same, even though contractor has changed

PE should not bargain with contract workers

PE should comply with all regulations

Good news: If govt. abolishes contact labor in an operation under S.10, existing workers do not become PEs workers

CLA applies if employer engages contract workers inside the establishment, not outside

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Sham ContractSituation

CLA: Sham Contract is the key Thing

Many judgments have come after the SAIL; still sham contract is the key thing

SC has consistently said that this is more of a matter of fact: See the agreement

What are nitty Gritty details: Are they with the contractor

SC says: Is labor under the control of employer or contractor

Is contractual labour has been integrated into your business

Many times the same uniform is there for core and contract workers

Who sanctioned the leave; who gives the gate pass; Who gives the advance

If it is in the name of employer it will be presumed that they are employers people

APSCRTC v. G. Srinivas Reddy (AIR 2006 SC 1465)

Held: In view of the principles laid down in SAIL-I case, the Supreme Court held:

The High Court could not direct absorption of the respondents who were held to be contract labour, by assuming that the contract labour system was only a camouflage and that there was a direct relationship of employer and employee between the corporation and the respondents.

If the respondents want the relief of absorption, they will have to approach the Industrial Tribunal/Court and establish that the contract labour system was only a camouflage to avoid labour law benefits to them.

The High Court could not in exercise of its jurisdiction under article 226, direct absorption of respondents, on the ground that work for which respondents were engaged as contract labour, was perennial in nature.

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Penalties for Violation of CLA

44Offences and PenaltiesOffences

Obstructing an inspector or failure to produce registers/ documents before an inspector

Employing contract labour in contravention of the provisions of the Act or violating any condition of the registration or licence

Contravention of any other provision of the act or the rules made there underPenalties

Imprisonment up to 3 months, or fine up to Rs. 500 or both

Imprisonment up to 3 months, or fine up to Rs. 1000 or both--If continuing offence addl. fine up to Rs.100 per day

Imprisonment up to 3 months, or fine up to Rs.1000 or both

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Some Cases on Contract Labour

46Some Important Cases: CLA Standard Vacuum Ref. Co. v. WM (1960 SC) Contd

SC Held: abolition be done in these circumstances:

Work of perennial nature, must go on from day to day

Work is incidental and necessary for work of factory;

Work to employ considerable no. of whole time WM; & iv) In most concerns work is done through regular WM

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Facts:Asiad workers were paid Re. 1 less than the min. wage

which was deducted by the Zamaadars

PUDR moved the Supreme Court for full payment.

S.C Held:Violation of CLA is violative of Art. 21 of Constitution Also non-payment of min. wage violates Art. 21

If Art. 21 violated, writ could be even to pvt. people

CLA intends to ensure basic human dignity to WM2. PUDR v. Union of India (1982 SC)

Air India Statutory Corporation v. United labour Union (AIR 1997 SC 645)

Held: the question arises whether after abolition of the contract labour system those workmen should be left in lurch, denuding them of the means of livelihood and the enjoyment of the basic fundamental rights provided while the contract labour system is regulated under the Act?

..after the absorption of the erstwhile contract workmen by the principal employer on abolition of contract labour system under section 10, it is always open for the employer as an entrepreneur, in an appropriate case, if the excess working staff is not found to be required by him, to retrench such excess staff in accordance with the provisions of the Industrial Disputes Act 1947.

Issues:

1. Will there be automatic absorption of Contract workers on app. Govt.s Notice envisaging abolition of contract labour

Held: No implicit requirement of automatic absorption of contract labour on issuance of such notification under s. 10 (1)

2. The effect of this judgement on establishments affected in Air India case:

3. What if contract was found to be sham or camouflage?

Held: Such cases do not relate to abolition of contract labour: but involve piercing the veil & declaring the correct position as a fact

49 3. Steel Authority of India & Ors v. National Union Water front workers & Ors. (5 judge bench of SC) (SAIL Case)Only prospective

Held:

if contract is found to be not genuine but a mere camouflage, the so-called contract labour will have to be treatedas employees of the principal employer, who shall be directedto regularize services of contract labour in the concerned estab.

The court termed as extreme the plea of counsel for parties that by virtue of engagement of contract labour by the contractor in any work of or in connection with the work of an estab., the relationship of master and servant was created between principal employer and contract labour & rejected same 50 SAIL Case Contd

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Thanks! Have a Nice Day!!

The new employee has differentOutlook,Aspirations, & Skills!

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What the New Gen Employee is like? Positives

Seeks & likes challengeMore tolerant of diversityPressure for achievementTeam playerWants to fit in, not revolutionizeMore informed & Tech-savvyGrasps new conceptsMulti-tasker and efficientRespects meritConfident, optimistic, passionateLikes fun Reflects positivity

Not Positive in Employers view

Impatient: wants instantaneouslyBlunt, expressive, less tolerantLikes transparency, fairnessWork-life balance, peer interactionCommunicates through Texting Bored easily, want involvementLess respect to authority, seniorityLooks for meaningful workTends to be more job mobileNo rigid schedulesbe flexibleLacks inter-personal skillsHigh sense of entitlement

53N = 2731 for males, 6563 for females. Ns vary slightly by variable + 10.