This article is written by Pratha Kotecha pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from Lawsikho.


India’s workforce belonging to the unorganized sector has been at the front of driving the economy’s extensive progress before the onset of COVID-19. However, despite the improved economic richness; exploitation, poverty, and lack of simple needs are still conventional. This article aims to deliberate on indirect flexible employment contract, the provisions in relation to laws of labour contract applicable in India, specifically the Contract Labour (Regulation and Abolition) Act, 1970, the problems faced in implementing these laws, and solutions recommended.

What are the unorganised sectors?

The operational and functioning force in industries is measured as a feebler section in comparison. But the progress of the economy has led to dual opposing demands for labour. Firstly, organised labour appears to have developed very strongly and is impeding the progress of liberalization. This move has led to restraining labour via amendments to labour laws like the industrial disputes act, the factories act, the trade unions act, or the manner of existing policy.

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Secondly, the blue-collar labour force is perceived as a weak and exploited group and there have been several demands for protection of such an organised labour force, for example, forces like child labour, garment workers, construction workers, and agricultural labour, etc. This uncharacteristic situation has arisen because of the division of labour into two categories;

  1. Organised labour: strongly protected by law and has its own auriferous trade unions and 
  2. Unorganised labour: unprotected and, more often than not, exploited before liberalization in the economy. 

Definition of unorganised sector

There is no scientific definition of the term “unorganised sector” and nor was there any real attempt to give a proper definition. The unorganized sector is also called the informal sector. 

Its definition is as follows: “the group of workers, who cannot be defined by definition but could be described as those who haven’t been able to organize in pursuit of a common objective because of constraints.”

The national commission on labour recorded and recognized the below-mentioned types of unorganised labour with the attribution above mentioned.

  1. Contract labour, including construction workers.
  2. Labour is employed in small-scale industries.
  3. Employees in shops and establishments.
  4. Child labour.
  5. Agriculture and rural workers.
  6. Casual labour.
  7. Bonded labour.
  8. Female labour.
  9. Handloom and power loom workers.
  10. Beedi and cigar workers.
  11. Sweepers and scavengers.
  12. Workers in tanneries.
  13. Tribal labour.

The groups mentioned above are the less privileged, whose socio-economic needs require special attention. 

Major characteristics of the unorganised workers

The major characteristics of unorganised workers are:

  • The unorganised labour is overpowering in terms of its numeral range and, therefore, it is omnipresent throughout our country.
  • There is no official employer-employee relationship. For example, small and marginal farmers, sharecroppers, and agricultural labourers perform the work together in a marginally favourable situation.
  • The workplace is spread and is fragmented into pieces. 
  • The unorganised labour force in rural areas is highly satisfied with caste and community considerations. In urban areas, such considerations are fewer, even though not completely absent, as the majority of the unorganized workers in urban areas are essentially from rural areas only. 
  • The unorganised workers suffer from a lack of attention from the trade unions and, as such, are in a disadvantageous position. 

What are contract labourers?

The labourers who are employed through a contract or an agreement to perform certain labour or work for a short-term. The Indian Contract Act, 1872 defines a “Contract” as an agreement enforceable in a court of law. In order to form a valid contract, there should necessarily be mutual obligations, consideration, free consent of the contracting parties, and competency to enter into a contract. The contract may be in the form of a ‘contract to hire’ wherein it could be for a fixed duration as between the employer and employee, or it could be for indirect flexible employment as seen between employer, employee, and third-party agent and contractor.

The employment relationships in our country, involving multiple parties are commonly mentioned as “contract labour”. The same is understood as workers who have been hired for work through a contractor. The term “contractor” here includes both those who have undertaken to supply workers for an institution and those who have undertaken any work in an institution with the help of some contract labour. The laws relating to Contract labour in India are regulated by the Contract Labour (Regulation and Abolition) Act, 1970, which standardizes the employment of contract labour, including but not limited to the provision of protection with reverence to minimum wages, overtime, and social security. This Act explicitly prohibits the use of contract labour in “core activities” which are of a perpetual nature. 

Generally, for white-collar workers, a term is fixed for contracts, and an indirect and flexible employment contract is used for blue-collar workers engaged in manual jobs, mostly seen in the unorganized sector. 

The laws relating to labour contracts in India

Among the several laws governing various aspects of labour, the following were the significant laws in the contractual labour laws department: 

The Ministry of Labour and Employment introduced 4 bills in the year 2019 with an understanding of harmonising and consolidating the numerous legislations relating to occupation, social security, wages and salaries, industrial disputes, and such other applicable labour/employment-related matters. The amalgamation of 29 central labour laws into bills has been codified and enacted as:

What are the problems in the unorganized sector?

When compared to the organized sector, the unorganized sector has not savoured the advantages or assistance of the organization. The majority of them become unseen victims. Although the unorganized sector plays a crucial role in the economy in terms of employment, a significant segment of the workforce was still neglected.

  • Problems of the workforce

The majority of the workforce in the vast informal sector, have little to no awareness of workplace hazards, their dwelling place lies close to working areas, they work for an extended period of time, exploitation is nothing new to them, they have no notion of occupational safety and services, lack of actual implementation of Health and Safety legislation, no concept of trade unions. 

  • Problems of workers in women’s category and “beedi” workers

They are paid desperately poor and low wages, they suffer due to fraudulent contractors, they work in disease-causing environments, child labour, and more than half of the female workforce work in deplorable social conditions. 

  • Problems faced by the government 

Identifying the unorganized workforce sector who are uneducated and unaware of the profits of the organized sector, the sprinkled nature of the sector and the difficulty of keeping tabs, problematic employers avoiding any form of regulation.

  • Problems faced from an organized sector

Unfair and prejudiced competition, low number of employment opportunities, legal “bullying”, the preference of buyers and customers for the better managed and visibly cleaner retail stores, unavailability of financial aid for the unorganised sector in order to easily compete.

What are the problems faced in implementing contractual laws? 

Chapter III rules 25(2)(v)(a) of the Contract Labour (Regulations and Abolition) Central Rules, 1971 states that where a worker is employed by a contractor who does the same kind of work as a worker does, and is directly employed by the principal employer, then, in such a case, the worker shall be entitled to receive the same hours of work, wage rate, holidays, and such other conditions of service as the worker employed by the principal employer receives. However, this provision has not yet been implemented because of a lack of adequate provisions ensuring the simultaneous performance of duties of the employer. The Act is also limited to employers who employ at least 20 or more workers or where the work allotted is less than that of 120 days of casual work or is less than 60 days of seasonal work. Along with that, the Act is silent on workers of less than 20 in total.

Section 10(2) (b) of the Act provides for the abolition of contract labour in an event where the work is of perennial or permanent nature. This provision envisages removing labour after the termination of the contract, but in the case of actual implementation, the workers are employed for an extended period and the enforcement officials are not capable of restricting the use of contract labourers even though it is not in accordance with the law in force.

The provision of ‘equal pay for equal work’ is only on paper and lacks implementation, as the majority of employers pay more for experienced people, and there are biases as to strength, gender etc. 

The new labour codes have focused on the part of an “Inspector-cum-Facilitator”, who has been assigned the responsibility of checking for compliance along with facilitating businesses in achieving that compliance. Nonetheless, this notion of an Inspector-cum-Facilitator has confused the industry with added questions rather than providing answers to its implementation. The “facilitator” role seems to be a new element that could clang with the customary responsibilities of an “inspector”. There could be a situation like the reappearance of the unfairness of some certain kinds of “Inspector Raj” under this new system. 

The implementation of employers’ obligations in pandemic-specific situations is vague and differs for different sectors in India. 

Solution for the contractual problems faced

The unorganized sector should be provided with benefits and welfare such as maternity allowances, relief in cases of accidents, natural death compensation, and education support for children for higher studies, pensions during the rainy season for relevant sectors, etc. should be made even for unorganized sector workers, and its implementation should be done properly. The government at both levels should frame certain specific schemes to support unorganized workers to fulfil their actual needs and requirements. The government should also encourage and motivate unorganised labourers to register their position, as voluntary registration of workers helps in the identification of genuine beneficiaries.

Role of judiciary in expanding the benefits of social security schemes to the unorganised sector

The judiciary of our country plays a pivotal role in the protection of the rights of the unorganized sector, especially in the event of the failure of proper implementation of legislation. Apart from this legislation, the Constitution of India also protects the fundamental rights of unorganized workers. According to Article 12 of the Constitution of India, bonded labour should be identified and efforts need to be made by the Government to complete the rehabilitation of the labourers. The Directive Principles of State Policy (DPSP) were enacted as the guidelines for the governments at both the level to provide a basic human dignity to bonded labour and in an event, it is not fulfilled, the result will be the infringement of Article 21 of the Constitution.

The court in the case of Daily Rated Casual Labour V. Union of India, held that the classification of employees into regular employees and casual employees for the purpose of payment of less than minimum pay is a  violation of Article 14 and Article 16 of the Constitution of India and it is also opposed to the spirit of Article 7 of the International Covenant of Economic, Social and Cultural Rights, 1966. Denial of minimum payment amounts to exploitation of labour. The court further held that the government cannot take advantage of its dominant position and should be a model employer.  

The Supreme Court in the recent case of Bandhua Mukti Morcha v. Union of India developed a direct relationship between Article 21, and directive principles such as Articles 39, 41, and 42 which encompasses the minimum necessities for a life with human dignity. This case also specifically dealt with informal forced labour under a debt bond system.

In another decision protecting informal workers’ right to work, Sodan Singh v. New Delhi Municipal Committee the Supreme Court held that street vending constitutes a profession, occupation, trade, or business (Article 19(1) (g)), and therefore is a fundamental right protected under a citizen’s right “to practice any profession, or to carry on any occupation, trade or business”.


The unorganised sector, which includes the agricultural sector, construction, street vendors, petty service providers, domestic workers, small industries like beedi industries, etc. encompasses the prodigious majority of workers in India. In the unorganised sector, labourers work in extreme circumstances deprived of any proper benefits. Protection, support, and welfare for workers in this unorganized sector are essential for socio-economic progress. The laws made by our government protecting these workers should be implemented in totality and those who exploit such workers must be penalized strictly in order to bring about actual development and progress in our country. 


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