Indian firms and industries depend a lot on contract operations. In fact, some of India’s largest private employers includes human resource workers and those in the business of providing or sending contract workers to their clients, in both industrial and commercial organizations.
Contract workers are employees employed within or in connection with the work of the institution “by contractor or through, or without the knowledge of the principal employer”. This arrangement received legal recognition when the Contract Labor (Regulation and Abolition Act), 1970 of India (CLRA) was established “to regulate the employment of contract workers in certain areas and to provide for their termination in certain circumstances.”
India has seen a dramatic increase in the number of contract workers involved in the formal and informal or unorganized sectors. According to data from the Annual Survey of Industries (ASI), there has been an outbreak of the use of labor contracts by a third-party contractor in the planned manufacturing sector. The share of contract workers in full-time employment has grown significantly from 15.5 percent in 2000-01 to 27.9 percent in 2015-16, which is the highest number given to India’s most active workers. Reportedly, staff agencies have seen a huge increase in employment in IT firms that work with banking and financial services, etc. over the past year.
In December 2020, thousands of contract workers hired by contractors working at Taipei-based Wistron Infocomm Manufacturing (India), which makes iPhones, continued to protest against non-payment of overtime pay and salaries. It is reported that the company has about 15,000 employees, with 1,400 still on the list, some of whom are contract workers hired by the employment agencies.
CLRA Background
CLRA provides the services of the principal employer and contractor agency, and in some cases restricts the use of contract workers in certain circumstances. According to CLRA, contract staff should not be employed in certain institutional activities that are permanent and are normally performed by regular staff at that institution. CLRA was set up primarily to regulate the employment of contract workers and protect them from exploitation.
The ‘head employer’ is required to obtain prior authorization of labor authorities (in the form of a registration certificate) in the event that he wishes to hire contract workers beyond the prescribed limit, currently 20 (50 in some Indian states). The basis of the certificate of registration of the principal employer is that the contractor agency required to obtain a license. This allows labor authorities to monitor the deployment and use of contract workers and to ensure that teams comply with their requirements under CLRA.
In the landmark case of the Supreme Court of India The Standard-vacuum Refining Co. of India Ltd. v. Its Workmen and Ors. A major issue raised before the SC was whether contract work done by labors is a kind of work which was also done by the regular employees or not, and whether it done throughout the year or not. The SC held that the work done by the contract workers was a production process and was necessary and lasts a long time in nature which should be done on a daily basis. In addition, the work is usually performed by a full-time employer and there should be no difficulty in having regular employees with such work. However, SC also held that the contract, in this case, was valid and that is why the court did not order the company to dismiss its employees.
In another notable SC judgment of Steel Authority of India Ltd. and Ors. v. National Union Water Front Workers and Ors., held that if contract workers work in the establishment and hiring of contract workers it is not permissible if the Court ordered the termination of contract workers or because the Government has been notified under CLRA, other than that there won’t be a termination of the jobs of the contract labors working in an organization.
The new draft formulates the following proposed changes:
CLRA has been implemented by the Occupational Health, Safety and Working Conditions Code 2020 (OSH Code), which has been drafted, but is yet to be implemented. The OSH Code introduced some new definitions and reviewed some of the existing provisions relating to the employment of contract staff.
- The hiring of contract workers for the core operations of any domain is not permitted. Unlike CLRA, the OSH Code defines ‘core function’. ‘Main function’ means any site-based work and includes any activity that is necessary or necessary for that job, other than specific tasks such as sanitation, clock and ward services, canteen cakes and cooking services, housekeeping and cleaning services, etc. provided that such services “may be regarded as essential or necessary, provided that the foundation is not built for that purpose”.
- The OSH Code imposes a certain obligation in respect of principal employers, which means that if any principal employer uses contract employees with a non-licensed contractor who is required to obtain a license under the OSH Code, such contract employment the employee will be deemed to be in violation of the OSH Code. penalty under the terms of the OSH code.
- The provision of employee contracts under the OSH Code is created if at least 50 employee contracts are distributed to any institution, as opposed to 20 contract employees under CLRA (subject to state amendments). Unlike CLRA, the OSH Code does not require a specific registration for a principal employer appointment where the performance limit is met, for hiring contract staff. The OSH code introduces the same registration at each facility employed by at least ten employees, regardless of the terms of the employee contract. Therefore, if any establishment in which the OSH Code operates has a valid registration that exists under any federal law that existed at the time the OSH Code came into force, that would apply for the purpose of hiring contract staff.
- The OSH code also allows the principal employer to hire contract workers for the contract of any principal employee if “a) the normal functioning of the institution is due to contract work, or b) such activities do not require full-time employees for most of the day or long hours, as it can be; c) any sudden increase in the amount of workload that needs to be done over a period of time.”
- The OSH code defines ‘contract work’ which is a detailed definition of the term ’employee’ as under CLRA. A new release has been introduced, in respect of an employee regularly employed by a contractor for any of his or her institutional work where that work is governed by standards accepted collectively in the conditions of employment (including permanent involvement) and the employee receives periodic increment.
- The OSH Code also introduces certain new obligations to contractors in respect of employee work. For example, there is a need to inform employee management about all work orders received from key employers, and to provide an employee contract with an experience certificate detailing the work done by them.
- Specific compliance with contract personnel can be done electronically under the OSH Code including keeping electronic registers in the prescribed forms, completing the forms with the Inspector-cum-Facilitator, informing the main employer electronically by the amount of remuneration paid to contract workers, in contrast to the employer’s obligation the principal under CLRA appoints a representative to ensure that the payment is made by the contact person.
- Non-compliance fines have been significantly increased under the OSH Code extending to INR 300,000 (approx. US $ 4000) compared to fines amounting to INR 1,000 (approx. US $ 15) under CLRA. Fortunately, no first-time offenders were arrested for violating the OSH Code.
- On November 19, 2020, the central government issued a draft central legislation called the Occupational Safety, Health and Working Conditions (Central) Rules, 2020 (OSH Rules) under the OSH Code. The OSH rules contain a chapter on contract work including the terms of the contractor / contractor terms and conditions that must be completed to obtain a license, contractor obligations and procedures and official forms for obtaining such license and renewal of the license.
Given that these contractual service providers are some of the biggest employers in the private sector and job creation remains at the top of the government’s agenda, we expect the government to continue to support this type of employee involvement in factories and commercial offices. However, once the OSH code is activated, there will be a need to reconsider the existing systems of hiring contract workers. With the definition of ‘core function’ under the new law, it should alleviate some confusion and hopefully it is the understanding of labor authorities. India’s new labor codes will help boost job creation and reduce existing unemployment rates.
