India’s Contract Labor Act and the Proposed Labor Adjustments

By Jason Wilson Last updated Aug 2, 2021

Several Indian companies rely heavily on contract labor. In fact, some of the largest private employers in India are labor and personnel services agencies that supply or provide agency work to their customers who are factories and trades.

Temporary workers are employees who are employed in or in connection with the work of a company “by or through a contractor with or without the knowledge of the main employer”.[1]. The agreement was legally recognized when the Regulation and Abolition Act, 1970 of India (CLRA) was enacted “to regulate the employment of contract workers in certain establishments and, in certain circumstances, to ensure their abolition”.

India saw a significant increase in the number of contract workers employed in both organized and unorganized sectors. Based on data from the Annual Survey of Industries (ASI), the use of agency workers employed by a third party in organized manufacturing has increased significantly.[2] The share of contract work in total employment rose sharply from 15.5 percent in 2000-01 to 27.9 percent in 2015-16[3]which is a large number given India’s labor intensive workforce. According to reports, over the past year recruitment agencies have seen a significant increase in the hiring of IT firms involved in banking and financial services, etc.[4]

In December 2020, thousands of contract workers hired by contractors from Taipei-based Wistron Infocomm Manufacturing (India), which makes iPhones for Apple, protested over non-payment of salaries and overtime.[5] The company was reported to have around 15,000 employees, 1,400 of whom were on their roles, the remainder being agency workers.[6]

Background from CLRA

The CLRA assumes the duties of the main employer and the contractor agency, including prohibiting the use of contract workers in certain situations. According to the CLRA, certain activities of the establishment which are of a multiannual nature and which are normally carried out by regular workers on the establishment should not be subject to contract work. The CLRA was primarily enacted to regulate the employment of contract workers and to protect them from exploitation.

The “primary employer” must obtain prior approval (in the form of a registration certificate) from the labor authorities if it wishes to employ temporary workers above the required threshold of currently 20 (in certain Indian states 50). Based on the certificate of registration from the main employer, the contractor agency is required to obtain a license. This enables labor authorities to monitor the deployment and use of contract labor and ensure that the parties are complying with their requirements under the CLRA.

In the landmark judgment of the Supreme Court of India (SC) in The Standard-vacuum Refining Co. of India Ltd. v. Its workmen and ors.[7] The main question raised before the SC was whether the work performed by the contract workers was of a multiannual nature and whether this work could have been done by the employer’s regular workers. The Supervisory Committee considered that the work carried out by the contract workers was ancillary to the manufacturing process and was necessary and of a duration that had to be carried out every day. In addition, this work was generally done by workers from the employer’s regular employees, and there should be no difficulty in having regular workers to do the work. However, the SC also found that the contract in this case was in good faith and therefore the court did not order the company to do the contract work.

In another landmark SC judgment by the Steel Authority of India Ltd. and Ors. v. National Union Water Front Workers and Ors.,[8] It has been found that when contract labor is employed in a branch and the employment of contract labor is prohibited, either because the industrial judge / court ordered the abolition of contract labor or because the relevant government issued a notice under the CLRA, it does not automatic takeover of the temporary workers working in the company.

Proposed changes

The CLRA was subsumed by the Code for Health, Safety and Working Conditions at Work 2020 (OSH Code), which has come into force but has yet to be put into effect. The OSH Code introduced some new definitions and revised some existing provisions on the employment of agency workers.

The contractual labor provisions of the Occupational Safety and Health Act are triggered when at least 50 temporary workers are employed in a company, as opposed to 20 temporary workers as in the CLRA (subject to state changes). Unlike the CLRA, the Occupational Safety and Health Code does not require any special registration for the primary employer’s branch once the applicability threshold is reached in order to employ contract workers. The occupational health and safety code introduces a common registration for every company that employs at least 10 workers, regardless of contractual labor agreements. If a facility to which the Occupational Safety and Health Code applies, has a valid registration under an existing federal law at the time the Occupational Safety and Health Act comes into force, this applies accordingly to the employment of temporary workers.[9]
The Occupational Safety and Health Code defines “contract labor” which is a more detailed definition of the term “worker” as used in the CLRA. A new exclusion from the definition has been introduced in relation to an employee who is regularly employed by a contractor for an activity in his establishment, if that employment is governed by mutually recognized standards of employment conditions (including hiring on a permanent basis) and the employee receives regular salary increases and social security protection in accordance with applicable labor laws.
The employment of temporary workers in core activities of a company is prohibited. In contrast to the CLRA, the occupational health and safety code defines “core activities”. “Core activity” refers to any activity for which the facility was established and includes all activities that are essential or necessary for such an activity, with the exception of certain activities such as hygiene work, guard and ward services, canteen and catering services, household chores and laundry services, etc. provided that these activities “are not to be regarded as essential or necessary activities if the establishment is not equipped for this activity”.
The Occupational Safety and Health Code also allows the primary employer to employ contract workers for any core activity if “a) the normal operation of the facility is such that the activity is normally performed by a contractor, or b) the activities are such that they do not require full-time employees for most of the working time in one day or for longer periods of time; c) any sudden increase in the volume of work in the core activity that has to be completed in a given time. ”
The OSH Code introduces a special obligation in relation to primary employers, that is, if a primary employer of an establishment employs contract workers through an unlicensed contractor who is required to obtain a license under the OSH Code, such employment of contract workers would be considered a violation of the OSH code, which may result in a penalty in accordance with the provisions of the Occupational Safety and Health Code.
The Occupational Safety and Health Code also introduces certain new obligations for contractors in relation to contract work. For example, there is an obligation to report all work orders from main employers to the labor authorities and to issue the temporary workers with a certificate of experience with details of the work they have carried out.
Certain obligations related to contract work can be carried out electronically under the Occupational Safety and Health Act, including the electronic keeping of registers in prescribed forms, the submission of returns to the inspector-cum-facilitator, the electronic information of the main employer by the contractor agency about the level of wages paid to the contract work, as opposed to the CLRA obligation of the main employer to appoint a representative to certify that the wages are paid by the contractor.
Penalties for violations have been increased significantly under the Occupational Safety and Health Act to up to INR 300,000 (approximately $ 4,000) compared to the CLRA fines of up to INR 1,000 (approximately $ 15). Fortunately, there is no prison sentence for first-time offenders for non-compliance with the provisions of the Occupational Safety and Health Act.

On November 19, 2020, the central government published the draft of the proposed central rules, referred to as Occupational Safety, Health and Working Conditions (Central) Rules, 2020 (OSH Rules) under the Occupational Safety and Health Act. The occupational health and safety regulations contain a chapter on contract work, including provisions on qualifications / criteria for the contractor and conditions to be met in order to obtain the license, responsibilities of the contractor and procedures and legal forms for obtaining such a license as well as the renewal of the license.

graduation

Given that recruitment agencies are some of the largest employers in the private sector and job creation remains on the government’s agenda, we expect the government to continue to support this form of worker engagement in factories and trade offices. However, as soon as the Occupational Safety and Health Code comes into force, these existing regulations on the employment of temporary workers must be reconsidered. With a definition of “core activity” in the new law, it should reduce some confusion and hopefully the discretion of labor authorities. Hopefully the new labor laws in India will help further increase the momentum of job creation and lower the current unemployment rate.

[1] Contract Labor (Regulation and Abolition) Act, 1970

[9] Notwithstanding any provision in this Code, if an entity to which this Code applies is already under a –

(a) Central Labor Law; or

(b) any other law which may be notified by the central government and which applies to the branch in existence at the time of the entry into force of this law,

is deemed to be registered in accordance with the provisions of this Code, provided that the registration holder notifies the registration officer concerned of the details of the registration within the prescribed period and in the prescribed form.