Covered or Not Covered? Thats the question!

You will find my posts on liabilities of a principal employer and duties of a contractor here and here. This next part on contract labour legislation is intended to detail

a) Who or which category of workers is this legislation intended to benefit; and

b) What are the activities that are covered under the Contract Labour Act.

Persons who are intended to get the benefit of the Contract Labour Legislation

The definition of ‘workman’ excludes:

–            any person who is employed mainly in a managerial or administrative capacity;

–            a person who employed in a supervisory capacity draws wages exceeding INR 500 per month or exercises functions mainly of a managerial nature; or

–            an outworker.

Therefore, any other skilled, semiskilled or unskilled, manual, supervisory, technical or clerical employee would be covered under the definition of workman under the Act.

This definition only complicates the understanding of the persons who can get benefit under the Contract Labour Act. Does the monetary threshold of INR 500 per month apply only to employees engaged in a supervisory capacity?

One interesting question was raised in an online discussion forum, regarding whether employees of an Information Technology (IT) company should also be brought under purview of the Contract Labour Act. This question is legitimate since an IT professional is a technical or skilled labour supplied by the Contractor in incidental activities to the principal employer. In the absence of a specific prohibition by the Central Government or a clarification, can it be said that an IT company could fall within the definition of ‘contractor’ under the Act? Typically, IT companies do place their employees at the office or location of the client to provide certain services.

However, one needs to examine whether the employees of an IT company need the protection umbrella of the Contract Labour Act. It would be a huge burden on the machinery of the state to regulate the same. If one looks at the monetary thresholds for determining whether a person should be deemed a workman under the Contract Labour Act, it will become apparent that the persons sought to be benefitted are persons who do not earn even INR 500 per month!

Having stated that, if one were to look at the cost of living index today, such a low monetary threshold is not even realistic.

Permissible Activities

The Contract Labour Act defines “contract labour” as a workman (see definition above) who is employed in connection with the 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 the principal employer.

The Supreme Court has laid down in the Gammon India case (1974) that the expression ‘employed in or in connection with the work of the establishment’ does not mean that the operation assigned to the workmen should be part of, or incidental to, the work performed by the principal employer.

The Act does not apply to the following (See Section 1):

a)     where the establishment does not employ 20 or more workmen in the preceding 12 months as contract labour;

b)     where the contractor does not employ 20 or more workmen in the preceding 12 months;

c)     work of only a casual or intermittent nature is carried on by the establishment.

The appropriate government shall decide whether or not the establishment / industry is employed in carrying on work of causal or intermittent nature and such decision shall be final.

The explanation to this section provides that work performed in an establishment shall not be deemed to be of an intermittent nature –

a)     if it was performed for more than 120 days in the preceding 12 months;

b)     if it is of a seasonal character and is performed for more than 60 days in a year.

The Government of Maharashtra has added the following non-obstante clause expanding the scope of temporary and intermittent nature to Section 1. This Clause provides that work performed in a Special Economic Zone, which is ancillary in nature within the premises of a factory or establishment declared to be 100% export oriented units (EOUs) required to achieve the objective of a principal establishment in that area shall always be deemed to be of temporary and intermittent nature irrespective of the period of performance of the work by the workers in such ancillary establishments. Therefore all provision of labour for ancillary services to 100% EOU in a SEZ shall be outside the purview of the Contract Labour Act.

Services of “ancillary” nature have also been described in the said provision and include wide ranging activities such as canteen, gardening, cleaning, security, courier services, transport of raw materials and finished  products, loading and unloading within factory premises.

Additionally, pursuant to Section 10, the Central Government may by notification prohibit employment of contract labour in any process, operation or other work in any establishment.

The fourfold considerations of the Central Government prior to issuing such notification should be whether:

a)          such process is incidental to or necessary for the relevant activity of such establishment;

b)          it is of perennial nature;

c)          it is done ordinarily through regular employees of the establishment;

d)          it is sufficient to employ considerable number of whole time workmen.

The Maharashtra amendment to Section 10 makes the right of the Central Government subject to Section 1(5)(c) described above.

Over the years there have been many decisions of various courts, throwing light on which industries the Act applies to.

The courts have held that notifications under Section 10(1) can validly operate only against 1 establishment. A single notification can also prohibit contract labour being employed in various establishments where work carried on is of similar nature. For eg. Coal mines. This was upheld in the case of JP Gupta v. Union of India by the Patna High Court.

Where Central Government abolishes contract labour in an industrial establishment (whether on a finding that the work is of a perennial nature or otherwise), the Industrial Tribunal may direct the establishment to absorb such labour into its own work force.

A list of all industries where contract labour is prohibited is contained in several notifications. A consolidated list of 84 notifications can be found on the website of the Labour Ministry. Certain notifications have been quashed by the Supreme Court, which is mentioned therein.