5-6.

The Contract Labour

(Regulation and Abolition)

Act 1970
Debi S. Saini
Professor of HRM
Management development Institute
Gurgaon-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
2

The Contract Labour

(Regulation and Abolition)

Act 1970

Various Ways of Doing Parts of Work

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

4

Background to CLA 1970

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--Abolition
5

The Scheme of CLA

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

Objectives of the Act

Regulate contract labour in some employments
And provide for its abolition in certain circumstances

Contains 35 sections in all: Divided into 7 chapters

Rules by Appropriate Govt: Comprehensive Rules framed
6

McGraw-Hill/Irwin

Copyright 2008 by The McGraw-Hill Companies, Inc. All

Salient Features of CLA

1. Applies: Estabs. with 20
2.

or+ WM as contract labour

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

Salient Features of CLA contd

5. 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
9

Salient Features of CLA contd

8. Appointment of Inspectors to administer the Act
Maintenance 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
10

Application 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
11

Definitions
Under the CLA

12

Definitions
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

13

Definitions:
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

14 employer

Definitions contd
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
and includes

for any work of estab.

a sub-contractor

15

Registration of Establishments

&
Licensing of Contractors

McGraw-Hill/Irwin

Copyright 2008 by The McGraw-Hill Companies, Inc. All

Registration of Establishments
App. Govt. to appoint Registration Officer
and define

the limit of their exercise of power

Principal employer to apply for registration

within time

prescribed
provided may entertain, after period specified
if applicant was prevented by sufficient cause

He shall register estab, issue certificate of registration

17
Where application is complete, contains specified
particulars

Registration of Establishments contd

Can revoke registration after giving hearing
If misrepresentation or suppression material of facts, or
registration has become useless
Also, he can do so with previous

or ineffective

approval of App. Govt.

Effects of Non-registration/revocation
No

18
principal employer to employ contract
labour

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

Licensing of Contractors
Contractors to undertake work through contract labour
Only if they obtain licence
Sub-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)

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Licensing 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

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Important Points About Registration & Licence

Registration
1. To be obtained by PE

Licence
1. Obtained by contractor

2. Obtain only once 2. Obtain every year

3. Requires fees only

3. Requires fees+security

4. Reg. Cert. need not be displayed

4. Licence to21be displayed

Prohibition
of Employing
Contract Labour
22

Prohibition 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.

23

Prohibition of employing Contract Labour

contd

Particularly, 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 24(SC)

(Now in the CLA)

Welfare and Health

of Contract Labour
Under CLA
25

Welfare & Health of Contract Labour

The following amenities are to be provided
They 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 night
in connection with work
These rooms be lighted, ventilated &26kept clean

Welfare & Health of Contract Labour contd

Other facilities
Sufficient

supply of wholesome drinking water

Sufficient number of latrines & urinals
Washing facilities

First-aid box
Be equipped with the prescribed

contents

so as to be readily accessible during work hours

If contractor does not provide amenities

27

Obligations & Rights of

Employers and Labour
Under the CLA

28

CLA: Obligations of Principal employer

1. Get estab. registered with registration officer
2. Ensure that contractor has obtained licence
And has complied with its terms & conditions

3. No employment of CL without registration/ licence

4. Health & welfare facilities to contract WM
5. Oversee payment of wages to WM as per CLA
29

CLA: Obligations of Principal employer

contd

6. Cooperate with inspectors

Inspect 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 time30to 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

Precautions to be
Taken by
Principal Employer
32

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
33

Effects of Some Practices of Employers

Can claim for
permanency
Contractor Changing
Contract WM not changing

PEs Permanent WM
& contract WM doing same
or similar job

Make changes in work or

dont employ CL When own
WM doing same work

Keep Changing
the workmen

Supervision of Contract
Workmen by principal
employer

Can claim for

permanency

Principal employer
Can be prosecuted
Employing a CL for jobs
that are abolished by the act

Ask Contractors
person to supervise

PE gives Instructions & takes

Disciplinary action against
contract WM

issues

Same wages to be
Paid to CL
as to PEs WM

effects

Sign a Service
Contract with people
who do your work
Can claim for
permanency
Ask the contractor to
Instruct & take action
34

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

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
36

Important Points about employment of CL contd

4. 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)
37

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
38 discerned.
relationship between the Board and employees could easily be

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

39

Sham Contract
Situation

40

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.

Penalties
for
Violation of CLA
43

Offences and Penalties

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

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

Employing contract labour in Imprisonment up to 3

contravention of the
months, or fine up to Rs.
provisions of the Act or
1000 or both--If continuing
violating any condition of the
offence addl. fine up to
registration or licence
Rs.100 per day

Contravention of any other Imprisonment up to 3

provision of the act or the
months, or fine up to
rules made there under
Rs.1000 or
both
44

Some Cases
on
Contract Labour
45

Some Important Cases: CLA

Standard Vacuum Ref. Co. v. WM (1960 SC)

Contd

SC Held: abolition be done in these circumstances:

i)

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

ii)

Work is incidental and necessary for work of factory;

iii) Work to employ considerable no. of whole time WM; &

iv)

In most concerns work is done through regular WM

46

2. PUDR v. Union of India (1982 SC)

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
47

CLA intends to ensure basic human dignity to WM

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.

3. Steel Authority of India & Ors v. National

Union Water front workers & Ors. (5 judge bench of SC)
(SAIL
Case)
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: Only prospective
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

SAIL Case Contd

Held:
if contract is found to be not genuine but a mere camouflage,
the so-called contract labour will have to be treated
as employees of the principal employer, who shall be directed
to 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 50& rejected same

Thanks! Have a Nice Day!!

51

The new
employee has
different
Outlook,
Aspirations,
& Skills!

What the New Gen Employee is like?

Positives

Seeks & likes challenge

More tolerant of diversity
Pressure for achievement
Team player
Wants to fit in, not revolutionize
More informed & Tech-savvy
Grasps new concepts
Multi-tasker and efficient
Respects merit
Confident, optimistic, passionate
Likes fun
Reflects positivity

Not Positive in Employers view

Impatient: wants instantaneously

Blunt, expressive, less tolerant
Likes transparency, fairness
Work-life balance, peer interaction
Communicates through Texting
Bored easily, want involvement
Less respect to authority, seniority
Looks for meaningful work
Tends to be more job mobile
No rigid schedulesbe flexible

Lacks inter-personal skills

High sense of entitlement