Contract Labour

02/03/2010

Prohibition of employment of
contract labour
Section 10 of the Contract Labour Act :1.

Notwithstanding anything contained in this Act, the

appropriate Government may, after consultation with
the Central Board or, as the case may be, a State
Board, prohibit, by notification in the Official Gazette,
employment of contract labour in any process,
operation or other work in any establishment.

2.

Before issuing any notification under sub-section (1) in

relation to an establishment, the appropriate
Government shall have regard to the conditions of
work and benefits provided for the contract labour in
that establishment and other relevant factors, such as

Prohibition of employment of
contract labour .
a)

Whether the process, operation or other work is

incidental to, or necessary for the industry, trade,
business, manufacture or occupation that is carried on
in the establishment.

b)

Whether it is of perennial nature, that is to say, it is of

sufficient duration having regard to the nature of
industry, trade, business, manufacture or occupation
carried on in that establishment.

Prohibition of employment of
contract labour .
c) Whether it is done ordinarily through regular
workmen in that establishment or an establishment
similar thereto;

d) Whether it is sufficient to employ considerable

number of whole-time workmen.

 If it is shown in similar establishments that

this type of work is not done through
regular workmen, but by contract labour,
this will operate in favour of the Company

 The appropriate government should consult the

State Labour Advisory Board before issuing a
notification prohibiting employment of contract
labour
This will be based on the conditions of work,
benefit provided and other relevant factors
If there is a prohibition already in force, then
employment of contract labour will be illegal

Ratio
If the work for which Contract Labour is
employed is incidental to and closely
connected with the main activity of the
industry and is of a perennial and
permanent nature, the abolition of
Contract Labour would be justified.

Legal Compliance A Must

If the statutory requirements are not
fulfilled and the contract does not exist, it
will be concluded that contract labour
system was a camouflage, smoke screen
and disguised in almost a transparent veil
which could easily be pierced and the real
contractual relationship between the
Company, on the one hand, and the
employees, on the other, be clearly
visualised.

Rights and Obligations

Rights and Obligations of the Contractor:

a) To perform the job as per the assignment,
details of which are given in the agreement.

b) To receive the payment from the principal

employer for performance of the job.

Contd.
c)The Contractor shall decide the number of workmen
required for the completion of the job. He will review his
work as to the number of workmen required from time to
time i.e. decrease or increase the workforce of his job.
d) The Contractor shall decide the mode and manner of
work to be done by his workmen. The Contractor shall
exclusively supervise and control the work of all workmen
engaged by him.
e) The Contractor shall decide the working conditions of his
workmen and shall decide about their salary and other
service conditions and payment thereof.

Contd.

f) The Contractor also will decide and take

disciplinary action against the workman if he is
found to have committed any acts of misconducts
and take disciplinary action as deemed necessary
including discharge or dismissal after compliance
with the labour law. He shall also decide about the
retrenchment etc.
g) The Contractor shall pay wages to his
workmen on or before 7th of every month

Contd.

h) The Contractor shall comply with the following

acts or any other Labour Laws:
1.
2.
3.
4.
5.

Employees State Insurance Act;

Provident Fund Act;
The Minimum Wages Act;
The Factories Act;
The Payment of Wages Act;

Contd.

6.
7.

Maternity Benefit Act;

Contract Labour (Regulation & Abolition)
Act, 1970.
8.
Any other labour law.
i) In case Contractor contravenes any provisions of the law,
and the Company suffers any damage or loss or harm
due to any acts of commission or omission of the
Contract, the Contractor is bound to indemnify the
Company. The Contractor shall also be responsible for
the discharge of all legal liabilities towards the Company
and also for observing all laws and Government rules
relating to labour laws.

Contd.
j) The Contractor shall be responsible for damage or loss to
the Company caused due to the negligence of the
workmen employed by him and shall be assessed and
determined by the Company.
k) The Contractor shall submit the bills to the Company along
with documents of performance of work as per contract
and shall be paid on the basis of those documents.

Contd.
l) The Contractor shall not disclose to any one regarding the
information, formulae of the Company adversely affecting
the interest of the Company.
m) The Contractor shall, at the expiry or the termination of
the contract after completion of terms of extension, if any,
hand over the vacant possession of the premises to the
Company.
n) Ensure giving appointment letters to his employees
o) Ensure keeping of all records under the Contract Labour
Act.
p) Whenever inspection happens ensure all records are
verified by the Govt. Inspector.

Contd

q) The C&F Agent will be solely responsible for the terms and conditions of service of their
employees and shall comply with all laws and statutory notifications, rules, regulations etc.,
governing their employees as may be in force from time to time, such as the Contract Labour
(Regulations and Abolition) Act, 1970, Employee State Insurance Act, 1946, the Employees
Provident Fund and Miscellaneous Provisions Act, 1952, Minimum Wages Act, 1948,
Workmens Compensation Act,1923 and also extend to them all other statutory benefits,
whatsoever, to which they are entitled and the Company will not be responsible or liable for
such payments. The C&F Agent will ascertain and display all notices and extracts under all
applicable statutes. In the event of failure to comply with any of the statutory obligations by the
C&F Agent as aforesaid and if the Company is held responsible for the same, the C&F Agent
undertakes to make good the loss to the Company. The employees of the C&F Agent or any of
C&F Agents representative will have no claims, whatsoever, to employment with the Company
either during the tenure of this Agreement or after its termination and the C & F Agent will
engage its employees on this express understanding. There will be no privity of contract
between the Company and any employee of the C&F Agents. The C&F Agent agrees to
indemnify the Company against all claims from their employees and pay all expenses which
the Company may incur defending any proceedings pursuant to such claims and also shall
keep the Company indemnified at all times thereafter for any acts, matters or things done or
omitted or neglected to be done by the C&F Agent or any contraventions of any provisions of
any Acts, Rules, Regulations, Notifications issued by the Central or State Governments or
local authorities and thereby the C&F Agent absolves the Company from all liabilities arising
out of or in connection with the aforesaid contravention or acts, matters or things done omitted
or neglected to be done by the C& F Agent or on its behalf.

..Contd
r)

The C&F Agent shall neither engage in, nor be either directly or indirectly
involved in or connected with, the business of any other company
engaged in a similar or competing line of business without the prior
written consent of the Company. The assessment of whether any such
business is similar to the Companys business or whether it is a
competing business will be assessed solely by the Company.

s)

It is specifically made clear that this Agreement is executed on

the relationship of Principal to Principal basis. It is expressly agreed
and understood between the parties hereto that if for any reason the
employees of the C&F Agent or any of the C&F Agent's representative
are/is required to be treated as the Company's employees pursuant to
any statutes, rules and regulations enacted in that behalf, or pursuant to
any award or decision of the court or otherwise, this Agreement will
automatically stand terminated forthwith without any notice

Rights and Obligations of the

Company
i) To provide the Contractor articles agreed to
provide as mentioned in the agreement.
ii) To ensure payment to the Contractor on the
details given by him of the work done at the rate
agreed upon on or before.__________

Contd.
iii) To deduct the amount from the bills of the Contractor
proportionately to the defective job/work/performance.
iv) To check up whether the Contractor has paid salary to his
workmen and also have made payment in respect of
provident fund, ESI or any other statutory dues.

V) The Company will have right to deduct Income tax or TDS

as applicable from time to time.

FURTHER GUIDELINES
Guidelines for the Employer in respect of
genuine contractor.
1. An employee of the Company should not be
made as a contractor. be an independent
contractor. As far as possible, the preference
should be given to a contractor, who has got the
contract in similar concern of the same type.
Expertise should be the differentiator for giving
work on contract.

GUIDELINES FOR THE EMPLOYER

Contd.

2. If the contractor has similar type of contract in different

concerns, then he should try to transfer the employees
from one establishment to another establishment. Hence
the contract employees should be transferable. This is a
with a view that the contractor should not employ the
contract workmen in the same establishment for not more
than a certain stipulated period.
3. The contractor shall select and appoint the workmen
without any interference of the Company. The supervision
and control on the workmen of contractor will be solely by
the Contractor. Hence the Company will not have
supervision and control over the contractors workmen.

GUIDELINES FOR THE EMPLOYER

Contd.

4.
If the contract workmen are large in number, the
contractor should engage a supervisors and/or
supervisors for supervising, directing and controlling the
work of his employees.
5. The contractor shall determine the mode, method and
manner of working. The Company shall not interfere in
regard to the same.
6. The contractor shall employ the workforce according to
his requirement but he shall not in any case exceed the
number of workmen shown in the license or do any other
work what is not given in the license.

GUIDELINES FOR THE EMPLOYER

Contd.

7.

Similarly Employer shall register itself under the

Contract Labour (Regulation & Abolition ) Act, 1970

8. The Contractor shall submit monthly printed bill to the

Company for payment of the work done by him by 1st day
of following month and the printed bill should be signed
under the Rubber Stamp.
9. The Employer has to ensure that the Contractor is paying
the workmen minimum wages and the payment to them is
made on or before 7th of every month in presence of the
representatives of the Company who shall also sign on
the master/register.(Rule 21 of CLRA)

GUIDELINES FOR THE EMPLOYER

Contd.

10. The Contractor shall deduct the income tax as per

income tax act or any other law applicable from time to
time from payment made to his workmen
11. The Contractor shall pay his own taxes as per
provisions of statutory acts.
12. The Contract shall be given remuneration for the job
to be done and rates of job shall be paid to contractor as
per mutual agreed basis.

GUIDELINES FOR THE EMPLOYER

Contd.

13. The Company shall ensure while making payment to

the contractor that the contractor has paid the employees
provident fund and ESI contributions deduction both of
employees and the contractor on time (along with copy of
challan paid).
14. The Company shall check up that the Contractors
renews his license from time to time.
15. The Contractor shall decide about the disciplinary
action to be taken against his employees in case of any
acts of misconducts committed by his employees.

GUIDELINES FOR THE EMPLOYER

Contd.

16. The Company shall see that if possible the Contractor

has obtained separate code numbers of Employees State
Insurance and Employees Provident Fund under the
respective Acts.

17. It is preferable that the contractors have their own

ESI/PF Codes. However, in the absence of contractors
having ESI/PF codes, merely because the principal
employer remits ESI/PF contributions in respect of
contract labour, it cannot be construed that they are
employers of principal employer.

GUIDELINES FOR THE EMPLOYER

Contd.
18.
The Contractors shall maintain necessary records
such as identify card, attendance register and other
statutory registers through his staff and not by the staff of
the company.
19.
The Contract workmen shall do the specific work of
the contract and not any other work of the Company.
20.
Contract Labourers are not to be employed for doing
perennial and permanent nature of jobs of the Company.

GUIDELINES FOR THE EMPLOYER

Contd.

21.
Contract Labourers should not be employed for doing
any main activity of the Company.

22.
Employer should ensure that he should not engage
contract labour on the same operations on which he is
employing his own directly recruited labour, otherwise the
contract labour can claim the same wages on par with
regular workmen (Suppose in 1 machine, 4 are direct
workmen, and 2 are contract labourers, the 2 contract
labourers could claim the same wages drawn by regular
workmen.

GUIDELINES FOR THE EMPLOYER

Contd.

Rule 25 (V) (a) of CLRA Rules: In cases where the workman employed by the
contractor perform the same or similar kind of work as
the workmen directly employed by the principal
employer of the establishment, the wages rates,
holidays, hours of work and other conditions of service
of the workmen of the contractor shall be the same as
applicable to the workmen directly employed by the
principal employer of the establishment on the same or
similar kind of work.

GUIDELINES FOR THE EMPLOYER

Contd.

23. Rotation of contract Labour from one

establishment to another is preferable/ helpful to
employers. Contract Labourers cannot say that
they are directly recruited by Principal employer.
The Contractor is himself transferring workmen
from one establishment to another.
24. Have contractors/ specify in contracts that
contractor can take up work for other employers,
though not competitors

Risks involved in vendoring out

products/components:a. It should not be a sham arrangement.
b. Economically viable;

c. No direct Supervision should be done.

d. Should not be at the cost of keeping own labour idle,
e. Jobs requiring high skills and not possessed by our own
employees can be vendored out

CONCLUSIONS
1. No unreasonable restrictions can be placed on employers
to manage business in the best possible and economical
manner. (inherent right)
2. While engaging Contract Labour through Contractors,
there should be no exploitation of labour; fix minimum
wages, comply with Statutory requirements.
3. Owing to our economy being exposed to global
competition where MNCs are competing; there should be
least possible fetters on the freedom of employers to
manage its business in the best possible manner.