The Contract Labour Act defines a contract labourer as a person appointed to perform work for an organisation by a principal employer (who is the company owner or management) through a contractor.
With the rapid pace of development, the global work and labour system has changed considerably. The global market changes have resulted in an era of liberalisation and globalisation, with considerable international investments in India. However, corporations are becoming increasingly anxious about the workforce. As a response, the employment and deployment of contract labour has attracted considerable attention.
The upsurge in liberalising laws have resulted in numerous economic upheavals. Employers are searching for a dynamic model to tie-in with employees. Appointing labour on a provisional or contractual basis and transforming them into contract labourers is a possible solution to these problems. Contractual labour has become a prevalent reliance, ranging from men who serve meals in canteens to security services.
The heavy reliance on labour attracts thousands of contractual workers, which increases the possibilities of maltreatment with easy disposal of labour contractors. Therefore, ‘Contract Labour Act’ or ‘CLRA act’ was formulated to protect the interest of such labour types.
Table of Contents
Table of Contents
Contract Labour – Definition
‘Contract labour’ differs considerably from ‘direct labour’ in terms of business and manner of wage payment.
When an individual is engaged in work temporarily or as “contract for service” of an enterprise by or via a contractor, he/she is termed to be contract labour. Such individuals can be indirect workers who are employed, overseen, and paid by a contractor who is paid by the organisation.
In any form, contract labour is neither borne on the payroll nor muster roll nor are earnings paid directly to labour.
The Contract Labour Regulation and Abolition Act 1970 protects contract labourers in India.
The legislation includes various provisions for the welfare of contract employees, such as minimum wage, social security benefits, and others. The Contract Labour Act governs contract labour in specific establishments and provides for its removal under certain conditions.
Contract Labour Regulation and Abolition Act
Contract labour frequently gets exploited by contractors who are intermediaries between labourers and actual employers. Contractors pay labourers lower salaries and expose them to terrible working conditions with no regard for their safety. Such intermediary contractors had few restrictions. Therefore, the Contract Labour Act 1970 was implemented to safeguard the rights of contract labourers. This act was a great stride forward by the government for contractual labourers.
However, although the administration passed the legislation, its execution remained poor.
This Contract Labour Act intends to safeguard the rights of contractual labourers and ensure their welfare. The act enacted several labour-friendly policies.
Contract Labour Act Applicability
The Contract Labour Act is primarily concerned with addressing the problems of contract labourers, safeguarding workers from victimisation, and ensuring their privileges. Furthermore, the act eliminates contact labourers from perineal activities and jobs in which regular labourers may be employed.
The act extends to any organisation:
- with a workforce of 20 or higher or
- that had a workforce of 20 or more on any day in the previous 12 months.
Contractors are subject to the same rules.
Contract Labour Registration
As per the terms of this Contract Labour Act, each organisation using contract labour should be legally registered and have a registering officer presiding over and administering the various procedures associated with the Contract Labour Act.
Mechanism for the registration of contract labour companies
Every company that hires contract labourers should get a registration certificate from the appropriate authority. The following steps delineate the method for registering such businesses:
- The employer should visit the registration office with the registration application in Form No. 1 along with the documentation evidencing settlement of the specified fee.
- If the application gets approved, the registration officer registers the business and issues a copy of the registered certificate in Form-II.
Specifications of the Registration Certificate
- The organisation’s name and address
- The total number of contract labourers that the organisation can employ
- Form of business as well as any other pertinent information
Labour Contract Agreement
The principal employer does not have any supervisory authority over the contractor’s personnel, and the technique and approach of the operation are to be monitored only by the contractor. Therefore, a direct employer–employee link would form between the principal employee and workers of the contractor.
The contractor is responsible for maintaining records about the individuals he employs, and the principal employer should not meddle in such affairs.
As employers, the contractors should comply with the terms of these acts, that is, the employer welfare laws, and the principal employer need not bear the burden of compliance on their behalf.
Obligations of the Principal Employer
The Contract Labour Act imposes liability on an organisation’s owners as an employer’s responsibility. Furthermore, the act protects contract labour against the non-payment of wages by providing them access to the employer in the event of a default by the contractor.
- Under the Contract Labour Act, the principal employer is vicariously responsible, that is, the Contract Labour Act provides relief to contract labour in the case of non-payment of wages by enabling them access to the principal employer in the event of a payment default.
- According to Section 21(2) of the Contract Labour Act, the representative should be present when the contractor pays contract labour.
- Section 21(4) states that if the contractor defaults to pay wages to the labour hired, the primary employer may be required to step in and make such payment. Therefore, the primary employer should be aware of the earnings of the contractor.
The principal employer can collect the equivalent amount paid by the contractor either through the contractor’s debt or by deducting it from any payment payable to the contractor, depending on circumstances.
The Contract Labour Act requires the contractor to offer specific facilities to the workers it employs.
The contractor should provide the following services:
- Provisions for a canteen
- A restroom
- First-aid services
In case the contractor fails to make the aforementioned amenities available, the primary employer must do so. By contrast, the principal employer can recoup any expenditures to provide these amenities from contract labour.
Contract Labour Regulation and Abolition Act 1970 Amendments
Amendment to Contract Labour Rules (CENTRAL)
- Sub-Rule (1) of Rule 1 of Rule 17 of the Contract Labour (Regulation and Abolition) Central Rules, 1971, was revised by the Central Government by replacing “Form 1” with “Form XIII” appended to Rationalisation of Forms and Reports under Central Labour Law Rules, 2017.
Sub-rule (1) of Rule 82, on the submission of Annual Returns, was replaced by the following:
“(1) Every principal employer and contractor shall file a Unified Annual Return online in Form XIV annexed to the Rationalization of Forms and Reports under Central Labour Laws Rules, 2017, in the Shram Suvidha Portal of the Central Government in the Ministry of Labour and Employment on or before the 1st day of February following the end of the year to which it relates.”
- Rule 82 sub-rule (2), as well as Forms XXIV and XV, have been eliminated. Attached is a copy of the notification modifying the Contract Labour (Regulation and Abolition) Central Rules, 1971.
- The revision to these rules will apply to organisations wherein the Central Government is the ‘Appropriate Government’.
- The Member Establishments, for whom the Central Government is the ‘Appropriate Government’, are requested to take note of the modification and submit the annual returns as specified.
Penalties Under Contract Labour Act
- An individual or contractor who breaches the terms of this act faces up to three months in jail and a fine of 500 rupees, or both.
- Any individual violating the requirements of this act will be sentenced to 3 months in prison and a fine of 1000 rupees, or both.
- If the firm violates or does any wrongful acts that violate the act, every individual in control or responsible for the company is held liable.
- A complaint will be submitted within 3 months of the day the offence was committed and brought to the inspector’s attention; only then may a court try these violations. The term can get extended for a maximum of six months.
Contract labour during the COVID period
The Covid-19 outbreak resulted in contract labour in India facing an unprecedented predicament. A large proportion of employees’ jobs and lives were adversely affected.
The COVID 19 pandemic pushed several organisations in the FMCG, banking, insurance, and retail sectors to lay off staff to decrease expenses, particularly contract labour.
Case Study Involving Contract Labour Act
State of Karnataka v. Uma Devi (2006) 4 SCC 1
The problem of prohibiting ambiguous employment came to the fore in a litigation in 2006. The court declined the case, holding that if uncertain employment is outlawed, people hired on a contractual, temporary, or casual basis will be denied an opportunity to work.
Such unpredictable or transient work would provide them with some relief. The court refused to grant permanent status to workers who have been contractually working for a long time. However, the court also emphasised that ‘equal pay for equal work’ is clearly stated in the Directive Principle of State Policy and is part of the principle of equality entrenched in the Indian Constitution.
The Contract Labour Act represents a great stride forward for contract labour. The Contract Labour Act contains many clauses that protect the status and ensure the welfare of contractual labourers to halt the exploitation contract labourers have been subjected to for many years. The act addressed and gratified the necessity to protect their rights and welfare measures, which had been unheard of for centuries.
As a result of the Contract Labour Act, contractual labourers now have a voice and a medium to express their grievances. The Contract Labour Act has come a long way from savagery and oppression and grants labourers the right to dignity.
FAQs on Contract Labour Act
What activities are forbidden under the Contract Labour Act?
Contract labour is not permitted in core activity.
Is it legal to use contract labour even for core activities under specific circumstances?
Yes. In the event of an increase in the workflow of the core activity that is required to get wrapped up in stipulated time, the major employer may hire contract labour in that core activity.
Does the legislation bind government agencies and local governments?
Yes. An establishment is a bureau or governmental department or an office of the local authority, or any place where any business, industry, commerce, production, or profession is performed. The law applies to any company employing five or more contract workers.
Who is eligible to apply for a licence?
The owner/partner/director/CEO or any other official lawfully authorised by the board of trustees of the contractor's establishment.
Where should an appeal be submitted?
An appeal can be submitted before the Labour Commissioner, Government of the National Capital Territory of Delhi, 5 Sham Nath Marg, Delhi-54