This article is written by Mahelaka Abrar, a student of Faculty of Law, Aligarh Muslim University. In this article, she discusses the contract labour system in India, the impact of new economic policies on such contract labour and the sustainable solutions that could be provided to protect the interest of contract labourers.

Introduction

Contract labours refer to the workers who are hired for a specific purpose, project or time. These workers are not directly hired by companies but rather by contractors recruited by companies who then employ these workmen, sometimes even without the knowledge of the principal company. These workers perform a number of tasks without a specific payroll or employment system. They, hence, represent one of the most acute forms of unorganised and unregulated labour. It is being said, and rightly so, that the execution of such a system of contract labour was done in order to deprive the labour force of its due wages and privileges.

Contract labour in India

The system of contract labour is widespread in India. It is visible in the skilled as well as in the semi-skilled sector. It can also be seen in the agriculture and allied sector and to some extent in the service sector too. As stated earlier, contract labourers are indirect employees who are hired and remunerated by a contractor who is compensated by the principal company or the establishment. The major characteristics that define these contract labours are the inferior status of labour, casual nature of employment, no fixed payroll, lack of job security, poor economic conditions, etc. Viewing these circumstances, it is evident that such grim conditions of contract labour need to be addressed. For the same purpose, many committees and commissions were formulated to look into these matters and suggest the necessary changes. 

In the case of Standard Vacuum Refinery Company v. Its Workmen, the apex court looked into the challenging conditions in which the contract labours were engulfed in and, thereafter, laid down the rules and guidelines as to the circumstances and places in which the contract labour should not be employed. These are as follows :

1. Where the work is of perennial nature and goes on from day to day.
2. Where the work is incidental and mandatory to the working of the company.
3. Where the work is of such nature that it is sufficient to employ a substantial number of workmen for whole-time.
4. Where the work is being done in most concerns through regular workmen.

In spite of such regulating guidelines, the contract labourers continue to face challenges and exploitation. So much so that there was a popular demand to ban contract labour at one time.  There was also widespread agitation organised by workmen and their unions for the purpose of abolishing contract labour, specifically in certain areas where it was imperative that the terms and conditions of service employing such labour be regulated. Thus, viewing such state of affairs, the Contract Labour (Regulation & Abolition) Act 1970, was passed by the Parliament and enforced in September 1970.

The Contract Labour (Abolition & Regulation) Act, 1970

The Contract Labour Act of 1970 (hereinafter referred to as The Act) seeks to protect the contract labourers of India. The Act applies to all the firms and establishments situated within India. The Act applies to all those firms which have twenty or more than twenty workmen, presently employed or previously employed on any day of the past twelve months. It also applies to every contractor who employs or employed twenty or more than twenty workers on any day of the past twelve months. It does not, however, apply to firms wherein casual or irregular work is performed. Aside from that, every principal employer who is under the fold of this Act is required under the Act, to register his establishment in the specified manner for employing contract labour. In the industrial sector, there is a provision for establishments that remain unregistered. However, in all other establishments, there is no provision if a firm goes unregistered. But, if the Government at any juncture is dissatisfied with the functions or practices followed in a particular establishment, it may revoke its registration whenever it likes.

Moreover, inter-alia, it is required under the Act that the contract workers should be paid as per the provisions of the Minimum Wages Act. Some provisions have also been made necessary for the health and welfare of contract labourers by the Contract Labour Act such as first aid facilities, canteen facilities, safe drinking water, etc. Social security covers like the benefits of provident funds and medical facilities have also been made mandatory to be extended to contract employees. 

Further, Section 10 of the Act provides the Government with the power of abolishing Contract labour. This Section states that the Government after consultation with the Central Board or State board may prohibit the employment of contract labour in any establishment whether if it is under operation or any other work. The section also provides for the Government to give due regards to conditions such as the environment of work, benefits provided to the contract labour and other relevant factors before issuing any such notification to an establishment.

One interesting point of concern has been Section 10 of the Act. It was debated whether if the contract labour of an establishment is abolished under Section 10 of the Act by the government, what would be the consequences. Would the contract labour be automatically deemed as regular employees of the establishment? Or would they be treated as contract labourers itself? 

                   

Justiciability of non-absorption of contract labour on the abolition

In the case of  Steel Authority of India Ltd. v. National Union Waterfront Workers, the issue whether automatic absorption of contract labour working in an establishment of the principal employer as regular employees takes place in the aftermath of issuance of a valid notification under Section 10(1) of the Contract Labour (Abolition and Regulation Act), 1970 was addressed.

The five-judge bench overruled its previous judgement and held that the automatic absorption of contract labour on the issuance of Section 10 (1) as regular employees is not contemplated by the Act. The learned judges also elaborated the reason for the same. It is mentioned hereunder:

1967. Neither Section 10 nor any other provision of the said Act, either expressly or by necessary implication, provides for automatic absorption of contract labour upon issuance of a notification under Section 10(1) of the Act. The same is also not implied in the Report of the Joint Committee of Parliament convened on the Contract Labour (Regulation and Abolition) Bill, 1967. It was also not alluded to if looked at the  Statement of Objects and Reasons of the Act. 
1968. The Act does not elucidate the consequences of the abolition of the contract labour system. Therefore, it appears that Parliament intended to create a bar on engaging contract labour in the establishment covered by the prohibition notification, and thereby leave no option to the principal employer except for employing the workers as regular workers. 

III. There must be some reason why the Act does not specifically provide for automatic absorption of contract labour. The Act is intended to work as a permanent solution to the problem, rather than to provide a one-time measure by departmentalization of the existing contract labour, who fortuitously happened to be the employed contract labour on the relevant date over and above that contract labour employed for a long duration of time earlier. Therefore, it is not for the High Courts and the Supreme Court to read in some unspecified remedy on Section 10. Such an interpretation will go far beyond the principle of ironing out the creases and the scope of interpretative legislation and therefore is clearly impermissible. 

1. The principle that beneficial legislation needs to be construed liberally in favour of the class for whose benefit the Act is intended, does not extend to reading in its provisions something the legislature has not provided for, whether expressly or by necessary implication. 
2. It must be considered whether the contractor has been hired on a genuine contract or contract is a mere camouflage to evade compliance of various beneficial legislation so as to deprive the workmen of the benefits thereunder. If the contract is found to be a sham, the so-called contract labour will have to be treated as employees of the principal employer who shall be directed to direct the regularisation of the services of the contract labour. If, however, the contract is found to be genuine and the principal employer intends to employ regular workmen he shall give preference to the erstwhile contract labour, if otherwise found suitable, and if necessary, by relaxing the condition as to maximum age taking into consideration the age of the workmen at the time of their initial employment by the contractor and also relaxing the condition as to academic qualifications other than technical qualifications. 
3. It cannot be said that by virtue of the engagement of contract labour by the contractor for any work of an establishment, the relationship of master and servant is established between the contract labour and the principal employer. What is true for a workman need not be true for contract labour. A workman is a generic term, and contract labour is the species. In the absence of an express provision in the Act, a relationship of master-servant cannot be imputed between the principal employer and contract labour. Nor can such a relationship be implied from the issuing of a notification under Section 10(1) of the Act, much less can such a relationship be deduced from the rules or forms thereunder.

Even after doing all that was necessary, by the legislative as well as the judiciary, the contract labour faces injustice even today. The implementation of the Act might not be as effective as it seems. Moreover, the manner of exploitation of these workmen has not been constant. With the expanding & changing world, the problems faced by them have also changed and expanded. One important turning point in the life of these workers has been the New Economic Policy.

It has been explained in detail hereunder.

What was the New Economic Policy (NEP) and why was it needed

Economic policy refers to the actions that the government takes to handle the economy of the country. It covers everything from setting the level of taxation, money supply, interest rates to set up labour markets, national ownerships, etc.

Indian economy after Independence was based on the colonial experience. The prominent architects of the nations wanted to protect the local industries from competition in order to revive the national economy. They sought an alteration to the extreme forms of capitalism and socialism. Hence, they adopted a policy of protectionism with emphasis on import substitution, industrialisation under the monitoring of state, public and private sector regulation, etc. 

All such measures helped in reviving Indian industries initially but in the long run, they proved to be fatal. By 1985, India started having challenges of balance of payment due to the huge disparity between income and expenditure. By 1990 a serious economic crisis had engulfed the country and the government was close to default. Even the central bank of the country refused to lend new credit. Soon afterwards in 1991, the government faced another major blow-the rise of external debt. The government found itself incapable to lend back the vast amount of money it had borrowed from abroad. The foreign exchange revenues dropped to such low that they became incapable of lasting even a fortnight. The crisis was further compounded by the rising prices of essential goods.

In light of such circumstances, the government headed by PV Narasimha Rao and the then Finance Minister Manmohan Singh introduced the New Economic Policy on July 24, 1991, to deal with the crumbling economy and introduce initiatives to heal it.

Impact of economic liberalization and labour law reform in India

As developing economies liberalise their policies in an attempt to integrate with the rest of the world, one of the critical issues that need to be addressed by their governments is the social costs of liberalisation. A direct manifestation of these social costs is the impact of liberalisation on labour markets, which may work through its impact on wages and employment.

The liberalization process has impacted the conditions of Indian labour in the organized and unorganized sectors, both big and small, with regard to factors such as wages, labour welfare, trade unionism, social security, employability, labour utilization, job security, labour flexibility, employment growth and industrial disputes.

Impact on Employment

India’s labour force is growing at a rate of 2.5% annually, but employment is growing at only 2.3%. Thus, the country is faced with the challenge of not only absorbing new entrants to the job market (estimated at seven million people every year) but also clearing the backlog. Sixty per cent of India’s workforce is self-employed, many of whom remain very poor. Nearly 30% are casual workers (that is they work only when they are able to get jobs and remain unpaid for the rest of the days they have no job). Only about 10% are regular employees, of which two-fifths are employed by the public sector (Prachi and Utsav, 2008).

More than 90% of the labour force is employed in the “unorganised sector”, that is sectors which do not provide social security and other benefits of employment as in the “organised sector”. In rural areas, agricultural workers form the bulk of the unorganised sector. In urban India, contract and sub-contract, as well as migratory agricultural labourers, make up most of the unorganised labour force. 

Men’s participation was higher after liberalisation in both rural and urban India. It was higher irrespective of whether the reference period used to ascertain their work status was a year, a week or every day in the week. Female participation shows a slightly different pattern. Judged by their usual status, urban women were economically as active after liberalisation as before but rural women were less so after than before.  In other words, demand for labour did increase after liberalisation but the work on offer was intermittent, more casual and part-time than regular. In villages, the rate of unemployment for men and women was lower after liberalisation than before it.

Agriculture is yet to be liberalised. Hence, it would be wrong to expect the product, and much more, the labour market to be much affected both quantitatively and qualitatively by liberalisation. If at all, it would be affected indirectly by the impulses set in motion by the liberalisation of trade and industry. They were too weak to change the long-term (usual status) disposition of labour. The demand for labour did increase in both rural and urban India but the work offered was intermittent and casual, more likely to be captured in the weekly and daily status than in the usual status classification.

Liberalisation is expected to reduce wage employment and increase self-employment. Further, it is expected to reduce regular wage employment and increase casual employment. It is also evident that liberalisation did affect the distribution of rural and urban men workers and of rural women workers as expected. The self-employed among urban women workers held their own, regular wage or salaried women improved their share and the casual women workers lost theirs.

Feminisation

Liberalisation in south-east Asian economies led to a substantial increase in female participation. The relentless pressure of international competition in domestic and export markets prompted employers to substitute women for men workers in existing employment and prefer them to men in new employment. Increase in female participation prompted by the employers’ search for flexibility has been noted in developed and developing countries. Hence, the expectation that Indian employers would follow the same strategies on liberalisation. ent. In 1987-88, they formed 29 per cent of the urban workers 15+ defined by their weekly status. Five years later their share had increased to a little over 34 per cent. In rural India, it increased from 17 per cent before liberalisation to 21 per cent after it.

Concluding the effects of NEP

To conclude it could be said that:

1. Liberalisation affected workers defined by their current weekly status more favourably than when defined by their usual status. Employment of intermittent and casual workers increased faster than those who reported being employed for at least the greater part of the year and much faster than for regular wage/salaried work.
2. Liberalisation of trade, industry and finance had much greater relevance to the urban than the rural economy. Consequently, the demand for labour increased substantially after liberalisation in cities. The workforce. participation of men and women increased and the rate of unemployment declined. Numbers employed of regular wage/salaried and casual workers all increased substantially and so did their real earnings. This explains why urban poverty declined faster than rural after 1991. 
3. Rural women, classified as workers by their usual status, formed a smaller share of their population after liberalisation than before. Regular wage and salaried women workers in them, enumerated in the usual status, lost absolutely. Fewer of them were employed and mostly on wages that failed to buy for them the basket of goods they bought before liberalisation. They formed 4.9 per cent of the rural female workers in 1987-88 and 3.4 per cent in 1993-94. The losers were few and could have been caught in a safety net if one were in place and not only on paper. 
4. Gender-based wage differentials widened among regular wage/salaried rural and urban workers. Women were paid less than men both before and after liberalisation but much more so after than before. In all other types of work, gender-based wage inequality was reduced. Keeping gender constant, we found that the casual worker’s wage formed a higher share of a regular after liberalisation than before.

Why are Indian labour’s rejecting the new deal

After the major change of the New Economic Policy that surrounded the contract labours, the NDA government led by PM Narendra Modi is seeking to bring about another round of changes in the labour legislation. 

As of 2020, more than 90% of the labour force of India is working in the unorganised sector. Unemployment has soared to a 45 year high according to government data itself. The already employed workers face acute problems with wage increase steeping at its lowest. While there is a possibility of a 10% wage increase in the corporate sector, the agricultural labour market witnessed a major drop in real wages. Moreover, it is important to keep in mind that a large number of labour forces lie at the borderline of poverty and can slip into it if faced with even the smallest of contingency. In this regard, the proposed legislation of government and consolidation of labour reforms raise important questions as to the safety and rights of the labours.

The government intends to merge all the 40 different central labour laws and 100 state laws into four codes. The first of the proposed code would regulate the wages of the labour workforce. The second of these codes would determine the industrial relation. The third would inspect into occupational safety, working conditions, health conditions, etc. The fourth and probably, more importantly, it would regulate social security. All of these aim at achieving ease of business in India. 

The fourth code on the subject “ Security and Welfare” merges 15 of the central laws together and governs subjects such as provident funds, pensions, leave encashment and medical benefit. Its objective is covering all types of workers, including part-time workers, casual workers, fixed-term workers, domestic workers, and the home-based ones. In spite of being a step forward in including the informal economy, the move has faced criticism for trying to take away the right of states to make locally suited tweaks. The government has also raised tension in the labour force by cutting its expenditure on Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) while on the other hand, it has increased spending on subjects like insurance premiums, health benefits and direct cash transfers. Moreover, the government has also taken up the task to redefine some of the key terms like workman, employer and wages. In addition to that, the Centre has undertaken to administer the minimum wage that would be applicable to pan India, restate what is legitimate strike or shutdown and reorganise the functions and role of trade unions.

Further, the government has stated that firms employing more than 300 workers need the approval of the government to fire employees. This has been increased from the earlier limit of firms with 100 workers. It has rendered the labourers more vulnerable than ever before. To add more to their grievance, the legislation is also seeking to ban strikes with stringent provisions on notice periods and harsh penalties for the defaulters. The minimum wage of the workers is to be only revised once in 5 years. Moreover, the code is unclear on subjects such as interstate differences and on payment for overtime work.

Issues and challenges ahead

In the current context, there are a lot of issues and challenges that needed to be looked upon and addressed, in the light of social protection of workers. The first and foremost being the huge and increasing inequality as well as the regional differences related to work and employment opportunities available. For instance, Bihar has less than 28% workforce participation rate, while Andhra Pradesh has a participation of 52%. On the other hand, the minimum wage rate in Tripura is Rs.40 a day while in Kerala it’s Rs.300 per day. To talk about the medical cover given to the workforce, it makes sense in states such as Himachal Pradesh and Tamil Nadu where good quality of healthcare is provided by district hospitals, while it makes no sense at all in states like Uttar Pradesh or Madhya Pradesh with poor healthcare infrastructure and facilities. This brings us to ponder upon important questions as to what could be the possible solutions to bring uniformity and alleviate the rising inequality and regional differences, and more importantly what could be done to bring about a wave of change in the lives of contract labourers which would ensure their dignity and social protection.

                   

Other sustainable solutions

The problems of the markets are largely known. It is now important to look and devise solutions to cure the same.

• Most of all, serious reforms are needed in the labour market as crores of lives of poor labourers depend on it. The new economy lacks the potential to generate the amount of low-skilled jobs needed for millions of undereducated and reasonably skilled people. Even if the manufacturing sector dampens and is taken over by the service sector, advancements like automation, robotics and machine learning are likely to replace the need for labour and labour force. Therefore, the State needs to assume responsibility for not just creating jobs but rather to protect and take care of those who are unable to find jobs.
• The Indian economy, with low private capital investment and an unexplainable demand reduction, is not growing up to its potential. This is an addition to the complication that arose when two-thirds of the GDP was contributed by the service sector, which employs less than 30% of the total workforce of the country. The solution to the problem plainly lies in understanding the fact that the new workforce will need strong and long-term sustainable support. The central government has initiated the Pradhan Mantri Shram Yogi Maan-Dhan to pension the unorganized workers along with other schemes like Atal Pension Yojana and the latest Ayushman Bharat scheme for health insurance. Meanwhile, the Telangana government has also launched its Rythu Bandhu scheme to compensate its six million farmers for Rabi and Kharif seasons with Rs.5,00 per acre. The state of Sikkim has also initiated a universal basic income for its citizens. 
• New labour reforms are likely to be pushed in the Parliament soon, therefore the responsibility to provide social protection to vulnerable workers lies on these job-delinked innovations that rely on investments in the capital market, on private providers and large contributions from the state. It is important that the collapsing economy of the country must advance or innovate its programmes of cash transfer, system of public distribution, national employment schemes like MGNREGA, and on new concepts such as negative incomes in order to provide protection to contract labourers. 
• Eventually, a sustainable solution to labour law which can only be achieved if the government is successful in convincing the workers, unions of its intention. On the other hand, it should also be able to convince the corporate sector about the rigidity of legislation which is unlikely to hinder their ease of doing business. The government, hence, needs to assure the worker constituency of their improvement through its new policies in order to make the necessary headway.

Conclusion

Since 1970, the time when the Contract Labour (Regulation and Abolition) Act, 1970 was enacted till the Report of the Second Labour Commission, the economy of India has undergone a sea change from an era of protectionism to liberalisation or from restricted domestic competition to international competitiveness. The contract labour system and outsourcing by companies lessen the expenditure incurred by the government, provides a tremendous amount of opportunities related to employment and gives the employers the required flexibility in order to make choices as to what is best for them. This, in turn, boosts up the productivity as well as the service competitiveness of the company or firm. The negative aspect, however, is that the contract labour mostly consists of labourers from weaker and poorer sections of the society. In that case, these workers are often denied and are deprived of the perks and benefits generally enjoyed by regular employees. 

Therefore, in order to resolve such conflicting interests, it is mandatory that Section 10 of the Act must be made applicable to the core activities of the firms and establishments which are permanent in nature and contract labour in such activities is done away with. However, if the contract labour system is disallowed, industries will be bound to consider technological restructuring wherein a lesser number of workers are required. This, therefore, would lead to a reduction in jobs and employment. Nevertheless, this evidently inevitable tension between the pressures of a market economy and the protection offered to workmen appears to be resolving itself in the direction of allowing a reasonable balance between market imperatives and worker protection. Further, to protect the interest of contract labourers it is needed that other measures and solutions are also taken that prove to be advantageous to them. Some of the suggestions in that context can also be seen mentioned in this article. 

References

• https://www.livemint.com/news/india/why-india-s-labour-is-rejecting-a-new-deal-11578326474842.html

• http://www.supremecourtcases.com/index2.php?option=com_content&itemid=5&do_pdf=1&id=617

• https://academicjournals.org/journal/IJVTE/article-full-text-pdf/3853F49615

• https://vakilsearch.com/advice/contract-labour-act/ 

 

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