Article (July-2018)


The Contract Labour Conundrum in India

Sidhartha Mukherjee

Designation : -   ED (HR & CSR) Retd.

Organization : -  Indian Oil Corporation Ltd., New Delhi


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Recently, the Chief Minister of Delhi, on the occasion of International Labour Day, reportedly announced that his government would endeavor to end the contract labour system in Delhi. The obvious derivation which begs enquiry is what would happen to the existing contract labour? Are all of them to be absorbed wherever they are currently engaged? Any attempt at an answer would bring to centre stage, the vexed issue of Contract Labour System in India. Those who employ large number of labour on contract, whether by an accepted, well regulated, perfectly legal and established industrial practice or as an expedient dictated purely by transient financial considerations are both compelled to sit up and take note of such significant developments in the milieu. Contract Labour system, we all know, is not unique to India but the Indian practice is definitely quite distinct from others. It is also true that the system has brought untold misery to a section of workers and much infamy to employers including government departments and undertakings. In many corporates, confusion reigns large when the management is confronted with a call for absorption of a numerically significant section of labour, whom, more times than not, the management does not even consider its own. At the core of the rigmarole is a piece of central legislation namely, The Contract Labour (Regulation & Abolition) Act, 1970 which has contributed significantly to several thorny situations and countless litigation. Managements are caught in between a cleft stick of myriad regulations of the act which puts several onerous responsibilities, on one hand and the economics of labour market on the other. Consequently, there is a tendency to dither from taking reasoned choices till absorption of contract labour becomes virtually the wolf snapping at the organization's doorstep. It can also transform into a heady mix of simmering discontentment with potential to explode dramatically as was witnessed during year 2012, in a leading auto manufacturer's premises, in Gurugram, North India. Mercifully of late, such violent incidents are less frequent but the specter is far from being totally obliterated.
Organizations faced with the compulsion of absorption of contract labour either take the exit route of denial or grudgingly accept that contract labour absorption is a price to be paid for excessive industrial democracy that developing countries like India can ill afford. In both instances the results could be damning. Often, labour and unions finding that employment, however transient, is an extremely scarce commodity and are thus quite willing, in the initial stages of engagement, to make compromises. They tend to 'play along' with the employer/management regardless of suboptimal employment conditions. However, with a mere passage of time, perspectives and priorities tend to change drastically; resulting in an incessant clamor for absorption of contract labour as permanent workmen in the organization. The whole system gets tense and dysfunctional; bitterness coupled with protracted litigation becomes the norm. Such a scenario, time and again, unfolds in organization after organization making contract labour absorption the bane of effective human resources management. Reforms in Labour Legislations being a political quagmire for most governments, seemingly take ages to fructify and cannot come to the rescue of Individual organizations, complete industrial sectors and geographical areas mired in throes of a contract labour crisis which obviously does not auger well for the economy.
To understand the real politique of the absorption of contract labour and why practicing managers need to take a greater active interest in it, we need to explore a bit of the connected legislative history. The system of Contract Labour in organizations was in focus even before the passing of the central enactment in year 1970 and the implementation of the act itself has been rather checkered. We need to remember, that the Supreme Court of India in year 1960, in Standard Vacuum Refinery Company v. Their Workmen case, (1960 AIR 948, 1960 SCR (3) 466) had laid the purpose and foundation of the act. Immediately upon its passage, the act's constitutional validity was challenged in the apex court in Gammon India Ltd. Etc. vs. Union of India & Ors. (1974 AIR 960, 1974 SCR (3) 665), however the apex court upheld the validity of the act. The introduction, in the Act, through a legal fiction of the concept of PRINCIPAL EMPLOYER Vis a Vis the workers of the Contractor (the proximate or actual employer) was indeed a novel one. However, if one was to take some liberty, it could safely be said that this concept is quite contrary to the well established principle of Master - Servant relationship which was hitherto a well understood and accepted principle in labour relations. The introduction of the concept of Principal Employer led to fissures in industry and gave rise to a sort of intrinsic non acceptance of the doctrine by even the most benevolent of employers. In Dena Nath & Ors vs. National Fertilizers Ltd. & Ors. (1992 AIR 457, 1991 SCR Supl. (2) 401), the Supreme Court stated that the act basically provided for REGULATION of Contract Labour primarily and in certain cases, it's ABOLITION; however the act stopped short of suggesting automatic ABSORBTION. In fact, the sequence of the words themselves reflects the legislative intent. The Apex court however in one of the most hotly debated cases on Contract Labour to date; in Air India Statutory Corporation vs. United Labour Union & Ors. (AIR 1997 SC 645) on 6 November, 1996 took a diametrically opposite view to Dena Nath's case and ruled that upon notification being issued by the Appropriate Government for prohibition of contract labour in any process, operation or other work of an establishment; there ought to be, after abolition of the system of contract labour; their ABSORPTION. This interpretation of automatic absorption of contract labour upon abolition of the system of contract labour by Government Notification created history and many copy cat litigations came to the fore. Contract workers and unions started demanding automatic absorption based on the principle set down in this particular case. Many managements were in a quandary as large scale absorption of contract labour was inimical to the survival of an organization/particular industry. However, the clock turned a full circle again in year 2001 when the Supreme Court in Steel Authority Of India Ltd. & ... vs National Union Water Front; (LAB. I.C. 3656=2001 LLR 691 (SC) = 2002 (4) LLN 135 (SC) reversed the judgment of the Air India case prospectively. In Steel Authority Of India Ltd. vs. Union Of India & Ors. (2006 (12) SCC 233) it ruled; whether expressly or by necessary implication, the act does not provide for automatic absorption of contract labour on issuing of a notification by appropriate government. This came as a huge relief to many organizations however the lesson which organizations ought to have been learnt went a begging and large number contract labour continued to be engaged; often in violation of the provisions of the act. In another landmark judgment the Supreme Court in State Of Punjab And Ors vs. Jagjit Singh And Ors. (2016); ( doc/106416990) ruled that in case of contract labour, where all the relevant factors were fulfilled, the principle of EQUAL PAY FOR EQUAL WORK would apply. As such, the contract workers were to be given equal remuneration and conditions of service as that of permanent workmen.
The specter of large scale compulsory absorption of Contract Labour often daunts the best of managers and adds to the general sense of foreboding for anyone who deals with the subject on a daily basis. The convoluted path of the court judgments and government policies makes it difficult for organizations to prepare a clear roadmap for future. Interestingly, the issue of Contract Labour absorption which was primarily a concern of Government Departments and Public Sector Undertakings earlier seems to have slowly crept up to the doors of Private Sector as well. The stringent cry for absorption of contract labour in various PSUs and Govt. departments for reasons ranging from permanent & perennial nature of work being done by them, prolonged service, same and similar nature of job as that of permanent workforce etc. has now come to haunt the private employers too. Therefore, time has come for organizations, be they in Public Sector or Private Sector, to examine the matter of contract labour in entirety from the viewpoint of general administrative strategy, court pronouncements and current government dispositions. The compliance mode under which most organizations like to take shelter may not work; one needs to be sensitive to the legal imperatives and policy changes likely to be announced. Some of the issues which need immediate attention for the Contract Labour Management System to be really effective are : 1) a need for carrying out realistic manpower audit on the actual numbers of contract labour engaged. A roster of Regular, Badli, Casual, Contract, Sub Contract Workers etc. should be available at all times for knowing the accurate number engaged; lest the organization be made to face a bloated list once the matter of absorption comes to a head 2) Often, there is a general tendency in corporates to engage a sizeable number of labour on contracts under systems which go by varied nomenclature as Service Contracts, Maintenance Contracts, Annual Labour Contracts etc. which are essentially perennial jobs; the actual number required need to be worked out and kept to the bare minimum 3) In all instances of contract labour engagement a detailed manpower analysis and sanction of higher management needs to be undertaken 4) The mandatory ON BOARDING PRACTICES viz Rigorous Qualification Standards/Checks, Antecedent Verification, Medical checks and assessment of suitability prior to engagement is required to be carried out for contract workers also, as is routinely done in the case of intake of regular workforce. A workforce which is unsuitable for regular employment can become a huge unwanted  burden in case of their absorption necessitated by a legal process, union pressures, issuance of a government notifications, Parliamentary Committee Suggestions etc. In today's competitive environment, organizations can ill afford to ignore addressing these crucial factors. The numbers game has to be played with equal vigour in case of contract labour also as is done for permanent employees. The luxury of engaging large numbers of relatively unknown, untested, ill trained; contract labour force is well neigh over. Down to earth, practical, field level issues like ensuring receipt of payment of applicable Minimum Wages by the contract workers, extending the required medical facilities, welfare facilities, PF and ESI entitled services can go a long way to ensure optimal management of the contract labour system.
Best Strategies and extremely well laid long term plans can go for a six if organizations continue to treat contract labour management as an untouchable subject or an unfashionable pursuit. It is worthwhile to reflect whether the contract labour system in the organization is robust enough to stand up to the test of 'Lifting of Veil' and being within the permitted limits of legislations and their intent. Ensuring the desired employee engagement for contract labour is especially important and acquires a crucial significance during crisis situations lest it make the organization vulnerable from within, ready to disintegrate at the slightest hint of adversity. Most organizations today need to make optimal contract labour management a part of their operating DNA to survive and remain competitive.
Notwithstanding any political statements made, we must remember that in India contract labour system is permitted unless it is prohibited by a notification issued by the appropriate government after following the due process laid down under law or a new policy with necessary legislative or administrative authority is promulgated. In the interim, a more professional way of managing the system is the need of the hour. It is also extremely important to understand and make a clear distinction of OUTSOURCING of work from the contract labour system. Outsourced workers are, per se, not contract workers and are thus not the responsibility of a distant organization. As is the current position, a Principal to Principal Contract for products, services, jobs, assignments excludes the workers of organization providing such services from becoming the responsibility of the 'Principal Employer'. Use of separate premises to carry out the work, whether work is done exclusively for the Organization sought to be brought under definition of Principal Employer or for others also; would be important distinguishing tests. To cite some obvious examples - Courier Company Workers, Employees of Transporters, Drivers, Housekeeping Staff etc. if are not for exclusive use of an organization can fall within the purview of outsourced jobs. Another vital mode of employment of workers has assumed prominence lately, that of FIXED TERM EMPLOYMENT. Ministry of Labour & Employment vide notification dated 16.3.2017 has permitted fixed term employment on basis of a written contract of employment for a fixed term. Such a person would be entitled to all statutory benefits available to permanent workmen proportionately, according to the period of service. However, he will not be entitled to any notice or pay thereof, if his services are not renewed or he is terminated on expiry of such contract period. It is a significant step taken by the government towards reforms in labour legislations. The new developments in engagement of secondary and tertiary labour forces need to be fully understood and adopted by organizations. Job creation, skilling, employability, which is core thrust areas for the current government, is also inevitably linked to the forms of labour engagement, including contract labour system prevailing in Indian industries. The role of HR functionaries in industries, cannot be overemphasized in ensuring that the systems best suited are made known, suitably adapted, got formally approved and implemented for meeting the business goals of organizations.