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A Case for Abolition of Contract Labour?


In the globalisation and post liberalisation era, India saw an upsurge in the number of industries as the demand for products increased. Many MNCs got attracted towards the market size and availability of the workforce. But these companies had to face and adapt to  the strict and rigid labour laws of the country, these laws were damaging the smooth and efficient functioning of the industries.[1]

In order to have more flexibility, these companies started to hire labourers on a contractual basis. This contractual hiring provided the companies with a more economically efficient work force and allowed them to make better utilization of resources. In the year 2000, there were only 14% of the employed people who were regular employees and more than 30% of the people were hired as contract labour.[2]

The contract labour market is controlled and regulated by the Contract Labour Regulation and Abolition Act, 1970 (‘Act’)[3]. The industries had to take permission before hiring a contract labour and the Act also had provisions which protected certain rights and interests of the workers. The Act also has provisions which made it mandatory for employers to provide similar wages and working conditions to the contractual workers as they would provide them to a worker directly hired by the employers. The Act provided for registration of the industries who hire such labour, it also provides for licensing of contract labour, the act puts various responsibilities upon the Principal Employer and the Contractor and also provides for the mode of the method of payment of the wages.[4] The Act also, through sections 10 also gave power to the Central and State Government to abolish the practice of Contract Labour in certain industries where the provisions of the Act are not being followed or in instances where industries have maliciously hired contract workers.[5]

Even after having such provisions the Act has often been subjected to criticism. It has been argued that the provisions of the acts are not implemented properly and it is also argued that the provisions of the Act are not sufficient in order to fulfill its purpose and objectives. Because of such criticisms and the problems faced by the contract labourers, many people suggest that the practice of contract labour should be completely abolished.


Issues with the Contract Labour Regulation and Abolition Act, 1970

The most apparent issue with the Act is that  the Act lacks implementation. The laborers have the resources and rights, but they are not able to reap its benefits.  Another major drawback of the Act is that the act needs to follow the minimum wage’s norms provided by the Minimum Wages Act, 1948.[6] In some cases we have seen workers being paid less than 100 rupees per month and this does not comply with the minimum wage criteria.[7] Contract labourers are rarely paid above the minimum wages norm. Paying well to an employee improves their morale and productivity. But since the contract labourers are not direct employees of the industry and they do not contribute to the productivity, the industries do not have any incentive to pay above the minimum wages.

Another issue with the Act is the provision of The Provident Fund. The Contractual workers are entitled to Provident Fund.[8] Although on paper it may seem that the provident fund is beneficial for the workers, but that is rarely the case.[9] When a worker leaves a contractor it is very difficult to claim that money back. The principal employer is reluctant to implement his duties and on top of that the workers need to have a bank account in order to avail such benefits. There are also many unregistered contract agencies which do not have to pay the provident fund and other benefits to the workers.

Another problem with the Act is that the courts do not have the power to abolish the practice of contract labour. As mentioned in section 10 of the Act, only the central and the state government has the power to enquire and abolish contract labour. In the case of BHEL Workers Association vs Union of India, it was reaffirmed by the Supreme Court that the Act clearly mentions that only the central and the state governments have the authority in section 10 and the court can merely direct the relevant authority. If a worker or an association has any grievances then they would have to go through the proper channel which takes a lot of time and the workers might suffer even more after raising any grievances. [10]

The issue of Absorption of employees after the abolition of contract labour is also another concern. A vast majority of scholars believes that in cases where the practice of contract labour is abolished in an industry the contract labour should automatically be absorbed by the principal employer. But in the case of Steel Authority of India vs. National union of Waterfront workers which overturned the Air India Statutory Corporation vs. United Labour union said that the abolition of contract labour can not automatically lead to absorption of the affected workers.[11] It said that such economical decisions which have a huge impact on the economics of the nation should be taken by the government and not the courts. If there is no uniform recourse for absorption, then the abolition of contract labour, which was done for the benefit of the workers would in turn become harmful and cause more damage to the workers.

After looking at all these issues it is quite obvious that the act is not as effective as it claims to be. But does that mean that we should abolish all the contract labour practices in the country? As we saw in the argument for absorption, if the abolition of this practice in one industry could cause so much damage to employers, then how can we justify a complete abolishment of this practice across the country?


Solution- The OHS Code, 2020?

The Occupational Health, Safety and Working Conditions Code, 2020 (OHS) will take over the Act.  This code has been enacted but has not been implemented yet. [12] Although most of the provisions of the Act have been adapted as it is, still the new code has made some additions and changes to the subsumed act.

One of the most important changes that have been made in this act is that, earlier in order for the provisions of Contract Labour to be implemented, the industry needed to have a minimum of 20 workers but now this limit has been raised to 50 workers. There is no need for separate registration for hiring contract labour, if an industry has more than 10 workers, it is mandatory to get registered.[13] Because of this provision all the industries will be registered and it will be easier to regulate them.

There have also been many changes to the definition mentioned in the Contract Labour Act. The new code provides for a new definition of ‘workmen’. The new code also describes the term ‘core activity’ which was missing in the previous legislation. The code also enables the principal employer to hire contract workers for a core activity in certain cases.[14] Such definitions and provisions bring more clarity and it also makes the code easy to implement.

The new code puts extra duties and obligations upon the principal employer and the contractor. For instance, if a principal employer hires an unlicensed contractor then he might be liable and could be fined and given a penalty for violating the new code. The contractors are obligated to notify the labour authority of all the work orders given by the principal employer. The act has also made certain compliances to be done electronically so that the authorities can have a proper record and surveillance and the code has also increased the fines and penalties which would make the principal employers and the contactors adhere to these provisions.


We have looked at the problems faced by the contract labourers and we also analyzed the provisions of the Act. Although the intent behind the former regulation was to provide the workers certain basic rights that they deserve and to regulate the contract labour market, the act lacked some provisions and clarity and it also had some issues with respect to its implementation. In order to solve these problems and to have a more efficient and encompassing regulation, the government enacted the Occupational Health, Safety and Working Conditions Code, 2020. The code has been enacted, but it is yet to be implemented. The OHS code is a welcoming regulation and could be more efficient than the Contract labour act. It is more inclusive and it has also simplified and  defined certain terms which were missing in the contract labour act. But the question that the new code will be as effective as it is claimed could only be answered with time

On the other hand, the idea that the concept of contract labour should be completely abolished is naive. It is evident that contract labourers are subjected to exploitation and are not provided basic rights that they need. It is precisely because of this reason that the contract labour market should be regulated more rigorously. Contract labour is needed for efficient and smooth running of an industry or an organisation and if regulated and implemented correctly then this practice of hiring contract labour could prove to be a major factor in contributing to the growth and development of the economy.


[1] Pavitra Ravindra alur, ‘Issues and Problems of contract Labourers in India’ [2020] 7(2) IJRAR

[2] N Karibasamma , ‘A Study on Contract Labours Practices in JSW Steel Company Pvt Ltd of Ballari District in Karnataka State’ [2016] 5(10) Indian Journal of Research 291-295

[3] Contract Labour Regulation and Abolition Act 1970.

[4] KR shyam sundar, ‘Contract Workers: The Need for ‘Community of Interest’ Perspective’ [2007] 50(4) The Indian Journal of Labour Economics 207-217

[5] Contract Labour Regulation and Abolition Act 1970 s 10

[6] Contract Labour Regulation and Abolition Act 1970 s 25

[7] Nagesh Sawant, ‘Contract Labour in India: Issues and Challenges’ [2015] 4(4) Global Journal for Research Analysis 1-12

[8] M/S. Pawan Hans Limited and ors. v. Aviation Karmachari Sanghatana and ors

[9] Paramita ray, ‘Contract Labour System in India: Issues and Perspectives, International Journal of Law and Legal Jurisprudence’ [2016] 3(4) ISSN 297-307

[10] BHEL Workers Association vs Union of India 1985 AIR (SC) 409

[11] Air India Statutory Corporation vs. United Labour, 1996

[12]Health, Safety and Working Conditions Code 2020

[13] Vikram Shroff, ‘India: Proposed Changes on The Law on Employing Contract Labor’ (The National Law Review , 21st August )

[14] Id.


Daksh Hemnani is a 5th Year law student from Jindal Global Law School.

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