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Contract Employees in India


Table Of Content
1. Introduction Contract Labor 2. Contract Labor Act, 1970 3. Penalties and Procedure of Contract Labor Act. 4. Social and Ethical Issues.

Contract Employee?
A Person 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. Contract workmen are indirect employees; Persons who are hired, supervised and remunerated by a contractor who, in turn, is compensated by the establishment.
Contract labour has to be employed for work which is specific and for

definite duration.
If the employer prematurely terminates the services of the contract

employee, that individual in many instances will be able to collect the full amount agreed to under the terms of the agreement. The only exception is if the contract employee engaged in misconduct that led to his or her termination.

Characterstics Of Contract Labour

Inferior labour status Casual nature of employment Lack of job security Poor economic conditions

Contract Labour Act, 1970


Objective: Contract Labour Act, 1970

The Object of the Contract Labour Regulation and Abolition Act, 1970 is to prevent exploitation of contract labour and also to introduce better conditions of work. Where contract labour should not be employed The work is perennial and must go on from day to day; The work is incidental to and necessary for the work of the factory; The work is sufficient to employ considerable number of whole time workmen; and The work is being done in most concerns through regular workmen.

What is Contract Labour Act, 1970

The Contract Labour (Regulation and Abolition) Act, 1970 was brought

on the Statute Book to regulate the employment of Contract Labour in certain establishments and to provide for its abolition in certain circumstances.


The Act applies to the Principal Employer of an Establishment and the Contractor where in 20 or more workmen are employed or were employed even for one day during preceding 12 months as Contract Labour. It does not apply to establishments where the work performed is of intermittent or seasonal nature.

Contract Labour Act, 1970

The Act enjoins Joint and Several responsibity on the Principal

Employer and the Contractor.

The Principal Employer should ensure that the Contractor does the following: a) Pays the wages as determined by the Government, if any, or; b) Pays the wages as may be fixed by the Commissioner of Labour. c) In their absence pays fair wages to contract labourer. d) Provides the following facilities: Canteen , Rest rooms, Drinking water, First Aid, Creche e) Maintains various registers and records, displays notices, abstracts of the Acts, Rules etc. f) Issues employment card to his workmen, etc.


Obstructions Whoever obstructs an inspector in the discharge of his duties under this Act or refuses or wilfully neglects to afford the inspector any reasonable facility for making any inspection, examination, inquiry or investigation authorised by or under this Act in relation to an establishment to which, or a contractor to whom, this Act applies, shall be punishable with imprisonment for a term which may extend to three months, or with fine which may extend to five hundred rupees, or with both. Contravention of provisions regarding employment of contract labour Whoever contravenes any provision of this Act or of any rules made thereunder prohibiting, restricting or regulating the employment of contract labour, or contravenes any condition of a licence granted under this Act, shall be punishable with imprisonment for a term which may extend to three months, or with fine which may extend to one thousand rupees, or with both.


Offences by companies If the person committing an offence under this Act is a company, the company as well as every person in charge of, and responsible to, the company for the conduct of its business at the time of commission of the offence shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly Inspecting staff The appropriate government may, by notification in the Official Gazette, appoint such persons as it thinks fit to be inspectors for the purposes of this Act, and define the local limits within which they shall exercise their powers under this Act.

Social and Ethical Issues


The Allied Nippon factory Incident

On the fateful Saturday a mob of workers lynched the assistant general

manager of Allied Nippon, Yogendra Chaudhary. Sahibabad SHO Avneesh Kumar Goutam feels, "It stemmed from a sense of insecurity among the permanent laborers: what if they increase the number of contract laborers and fire us."

On the other hand, MS Chaudhry, VP-HR at Allied Nippon, said, "It

was the removal of five contract employees that triggered it. There were disciplinary issues as well. But we never thought the workers would take such an extreme step." about managed to escape". His hand was bruised and there were stitches on his head. Two of his other colleagues weren't as lucky; they were to be admitted to ICU.

Chaudhry, who was present in the factory on Saturday as well, "just

Contract Employees in India

As much as 30% of the labor force in India is on contract or as

temporary workers. Worse still, 99% of these 30% are in the unorganized sector. There is clearly a labor market emergency. contract workers.

Ideally, not more than 5-10% of the workers should be temporary or

One million people will join the labor force every month for the next 20

years. The labor laws need to be urgently reformed.

As Peruvian president Alan Garcia remarked, it's time, to eradicate and

eliminate slavery in the 21st century by giving employees of contractors more rights.

Unequal Rights
Workers employed on contract basis, left in the lurch by the

contractors, have no social security or compensation in case of job loss, accident and injury.

The management has been found to be cautious in making contract

labor permanent because of fluctuations in production schedule, as well as tremendous cost pressures.

It is a difficult task for a laborer to make a livelihood in an industrial

area. The inflation has been rising steadily. Moreover, a lot of disparity prevails in an industrial belt.

Unequal Rights Contd.

Violence was triggered by police atrocities. More often than not, they are indiscriminately terminated by the


They are not paid the minimum wages. They are not allowed to make a union; the basic right of association is

taken from them, their bargaining rights are curtailed.

The issue of dignity also counts a lot. They need social security like savings in the form of PF. Why should

they just be hired and fired

Way Out: Unequal Rights

There are three major issues that need to be urgently addressed.
1. 2.

Non-payment of minimum wages needs to be looked into seriously. Employers don't let workers register unions or join any trade union. Workers are sacked and harassed if the management comes to know that they are forming an association. Contract labor employment is rampant in non-standardized and atypical forms of employment. These need to be addressed on a priority by the government if we want to save ourselves from a possibly dangerous situation in the near future.


Inadequate Laws
The unions argue that the contract workers are dependent on middle

man or agents who hire out workers to employers, often in labor gangs.
Such workers are usually indebted to the contractors and this debt

bondage leads to exploitation of workers in various ways.

Way Out: Inadequate Laws

The rule book categorically says:

If the contract labor performs the same or similar kind of work as the workmen directly appointed by the principal employer, the wage rates, holidays, hours of work social security and other conditions of service of contract labor shall be the same as available to the regular workforce.
The problem also lies in the way the Contract Labor (Regulation &

Abolition) Act, 1970, is interpreted.

The Supreme Court, through its judgment in the Air India Statutory

Corporation case, regularized employees in the case of industries where the contract labor is prohibited, but subsequently over-ruled it in the Steel Authority of India Ltd case. There is a need to amend the Act in such a way that it cannot be challenged.

Govt. Role
In the conference of state labor ministers in January 2011, Anil Swarup,

director-general labor welfare (DGLW), proposed to amend the Act and add two provisions. 1. In case where the contract labor performs the same or similar kind of work as the workmen directly appointed by the principal employer, the wage rates, holidays, hours of work, social security and other conditions of service of contract labor shall be the same as available to the workmen on rolls of the principal employer. In case same or similar kind of work is not being performed by the workmen directly employed by the principal employer, the appropriate government will notify the wage rates, holidays, hours of work, social security and other conditions of service. 2. Whenever a contract is given to a contractor, the contract agreement between the principal employer and the contractor should clearly indicate the wages contribution towards social security schemes and other benefits that are to be paid by the contractor to the contracted workman. The Cabinet Secretariat had asked the National Institute of Labor to conduct a feasibility study of the two amendments mooted.

Collective Bargaining
Experts at the ILO (International Labor Organization) believe that

proper and regular communication and understanding between the management and workforce is something every enterprise should strive for and suggest collective bargaining as an efficient tool to arrive at an agreement that satisfies all stakeholders. In many countries, management, as well as workers, are not aware of the efficacy of collective bargaining as an instrument of improving workers' rights and also of improvement in the productivity of the company. It provides clarity in the working relationship between the labor and management and helps prevent and solve disputes. These written agreements between the employers and laborers and their representatives can go a long way in preventing small conflicts between the management and the workers from escalating and going out of hand to take the form of major disputes. Enterprises that do not have the capacity to reach collective agreements can set up mechanisms like committees, which can create communication channels between the management and the workforce.

Sharma Sukalp & Yadav Kiran. (2010). The Blue Collar Challenge.

Retrieved May 16, 2011, from http://www.financialexpress.com/news/the-blue-collar-challenge/713893/0 http://www.ehow.com/about_5144620_contract-employee.html http://labour.nic.in/annrep/files2k1/lab10.pdf