Firstly we need to know, who is a ‘Contract Labour’? ‘Contract Labour’ can be distinguished from ‘direct labour’ in terms of employment relationship with the principal establishment and the method of wage payment. A workman is deemed to be a contract labour when he/she is hired in connection with the work or “contract for service” of an establishment by or through a contractor. They are indirect employees; persons who are hired, supervised and remunerated by a contractor who, in turn is compensated by the establishment. In either form, contract labour is neither borne on pay roll or muster roll or wages paid directly to the labour.

Contract labourers in India are protected by the Contract Labour Regulation and Abolition Act, 1970. A contract labourer is defined in the Act4 as one who is hired in connection with the work of an establishment by a principal employer (who is the firm owner or a manager) through a contractor. The act makes a number of provisions for the welfare of the contract workers including payment of minimum wages, social security benefits and others. The Act also regulates the employment of contract labour in certain establishment and provides for its abolition in certain circumstances.

Arrangement between contractor, principal employer and workmen/employees

The Principal Employer did not have any supervisory control over the workmen of the contractor and the method and manner in which the work was being executed will be supervised by the contractor only. Therefore no direct relationship of the employer and employee would emerge between the Principal Employee and the workmen of the contractor.

Maintenance of all types of record in respect of the employees employed by the contractor should be his own responsibility and the Principal Employer should not intervene in such matters.

The Contractors will be required to comply with the provisions of these Acts i.e. the employer welfare legislation as employers and hence you as the Principal Employer don’t have to take the pain of compliance on behalf of your Contractors.

Obligations of the Principal Employer

The obligations of an employer under the Contract Labour Act are that of vicarious liability on owners of establishments. The Contract Labour Act provides respite and recourse to contract labour from non-payment of wage by allowing them access to the employer in the occurrence of a default by the contractor.

A “principal employer” as defined under the Act covers any person responsible for the supervision and control of the establishment. In the case of a factory, such person would include the owner or occupier of the factory or a manager under the Factories Act, 1948. Any establishment where there were 20 or more workers employed as contract labour in any day of the preceding 12 months would be covered under the Contract Labour Act.

The primary duty of a principal employer or a contractor covered by the Act is that every principal employer of an establishment to which the Act applies must get his establishment registered under the Act for the purpose of employing contract labour and every contractor to whom the Act applies must obtain a license under the Act for the purpose of undertaking or executing any work through contract labour (Subsection 7 & 12).

Procedure for getting an establishment registered

If the Act applicable to an establishment the principal employer of the establishment has to make an application in the prescribed form accompanied by prescribed fees to the Registering Officer for registration of the establishment under the Act. If the application is complete in all respects the Registering Officer will register the establishment and issue a certificate of registration in the prescribed form to the principal employer (Section 7). In cases where the principal employer of an establishment who has not obtained the required registration under section 7 or whose registration has been revoked under section 8 is prohibited from employing any contract labour in his establishment (Section 9)

Procedure for obtaining a license

A contractor to whom the act is applicable has to make an application in the prescribed form accompanied by the necessary fees and security deposit to the Licensing Officer for grant of a license under the Act.

The Licensing Officer after making the necessary investigation may issue a license in the prescribed form containing the conditions subject to which the same is granted.

The license will be valid for the period specified therein and will have to be renewed from time to time (Section 13).

The principal employer is under the obligation to ensure that a representative be present while the contractor is making the payment to the contract labour (Section 21(2)). The Act is silent on what is the role of such representative. Subsection 4 of Section 21 provides that in the event of a default on the part of the contractor to make payment of wages to the labour employed, the principal employer may need to step in and make good such payment or deficit.

As a result, it becomes essential that, the representative of the principal employer fully understand the nature of his duties and be authorized to take necessary steps in the event of a default. The representative should be briefed / trained by the concerned department in the organization. Such steps could include issuing notice to the contractor and terminating the relationship, if required. Care should be taken while drafting the agreement with the contractor to ensure the same.

The Contract Labour Act prescribes that the contractor shall provide certain amenities to the labour employed by it. The rules prescribe time periods within which such amenities may be provided. These facilities include:

• Canteen provisions;
• Rest-rooms; and
• First aid facilities.

In the event that the contractor fails to provide the same, the obligation automatically falls upon the principal employer. The law also provides that it may be recoverable from the contractor.

While legal recourse to recover expenses incurred by the principal employer does offer some consolation, it would be prudent to establish and clearly define mutual rights, duties and obligations in an agreement executed with the contractor, within the confines of the law. Conditions may be imposed upon the contractor in the agreement to ensure compliance with the Contract Labour Act. Employers should provide for indemnity provisions that protect the principal employer in cases of default.

In cases of large corporates employing a vast number of persons under the Act (whether it be for housekeeping or security or for any other purpose), it would be cautious to obtain representations, in the nature of those provided below, from the contractor that in the past:

• the contractor has been in compliance with the relevant provisions of the Act;
• has a valid license / registration under the Act; and
• has not been in default of payment to labour provided by him to another principal employer.

A certain amount of due diligence may also be done to determine whether or not the contractor has been in default or in violation of the Contract Labour Act.

Due diligence would be of significance where contractual safeguards may not offer sufficient protection to principal employers. The law imposes very strict liabilities on the owners to ensure that the contract labour employed does not suffer in any manner. This needs to be kept in mind while drafting any agreement with a contractor for this purpose.

While there are monetary liabilities on corporates, additional liabilities are imposed on directors of companies. The penalty for non-compliance with provisions of the Contract Labour Act while employing contract labour is imprisonment for 3 months or fine or both. Though the quantum of fines imposed is not high, directors, particularly, the independent directors, would not want the dagger of criminal proceedings hanging over their heads. This alone should operate as sufficient thrust to ensure compliance with this Act.