UPSC MAINS 2019: Facts and myths on rise of contract labour

Facts and myths on rise of contract labour


Topic: Facts and myths on rise of contract labour

Topic in Syllabus: General Studies Paper 1 : Indian Society


Facts and myths on rise of contract labour


Late last year, around 200 workers of a Chinese smart phone manufacturing unit, Hipad Technology India, were “sacked” without any prior notice. Reports suggest that the workers were employed on a contractual basis and due to the shortage of raw materials their contractor was asked not to supply workers. Thereafter, the agitated workers resorted to violence.


More about on news:

  • This and several such incidents of massive unrest and protests in India over the last decade are reflective of the pent-up anger of contract workers who find themselves in an increasingly precarious position.
  • Data from the Annual Survey of Industries (ASI), which covers establishments registered under the Factories Act, shows a surge in contract worker usage in the organised manufacturing sector.
  • Over half of the increase in total employment from 7.7 million to 13.7 million between 2000-01 and 2015-16 was accounted for by contract workers.
  • The share of contract workers in total employment increased sharply from 15.5 per cent in 2000-01 to 27.9 per cent in 2015-16, while the share of directly hired workers fell from 61.2 per cent to 50.4 per cent over the same period.
  • The rise in the use of contract workers who are not employed directly by the employer, but by an intermediary or contractor on short-term contracts, indicates significant informalisation of the organized workforce.
  • Data from the Labour Bureau’s Employment-Unemployment Survey (2015-16) show that contract and casual workers have higher shares of society’s vulnerable caste groups as compared to regular workers.
  • The proliferation of such informal alternative work arrangements not only deepen labour market segmentation but also have widespread ramifications for economic stability and social cohesion.


Contract Labour:-

  • Contract Labour is one of the acute form of unorganized labour. Under the system of contract labour workers may be employed through contractor on the contract basis.
  • Workmen shall be deemed to be employed as “contract labour” or in connection with the work of an establishment when he is hired in or in connection with such work by or through a contractor, with or without the knowledge of the principal employer.
  • In this class of labour the contractors hire men (contract labour) who do the work on the premises of the employer, known as the principal employer but are not deemed to be the employees of the principal employer.
  • The range of tasks performed by such contract workers varies from security to sweeping and catering and is steadily increasing.
  • It has been felt, and rightly too, that the execution of a work on contract through a contractor who deployed the contract labour was to deprive the labour of its due wages and privileges of labour class.
  • The contract worker is a daily wager or the daily wages are accumulated and given at the end of the month. The industries justify contract labour on the grounds that the requirement is temporary or seasonal.
  • Nonetheless, there are ready instances of contract labour being deployed for tasks as security, sweeping and cleaning, though it is difficult to comprehend how these tasks are temporary and do not justify full time regular employees.
  • The managements try to by-pass the provisions of social legislations unless they are legally trapped or forced by circumstances, while the judiciary has always upheld the concept of social justice, dignity of human rights and worker’s welfare.


Contract Labour in India:-

  • The system of employing contract labour is prevalent in most industries in different occupations including skilled and semi-skilled jobs.
  • It is also prevalent in agricultural and allied operations and to some extent in the services sector.
  • A workman is deemed to be employed as Contract Labour when he is hired in connection with the work of an establishment by or through a contractor.
  • Contract workmen are indirect employees; persons who are hired, supervised and remunerated by a contractor who, in turn, is compensated by the establishment.
  • Contract labour has to be employed for work which is specific and for definite duration.
  • Inferior labour status, casual nature of employment, lack of job security and poor economic conditions are the major characteristics of contract labour.
  • While economic factors like cost effectiveness may justify system of contract labour, considerations of social justice call for its abolition or regulation.
  • The condition of contract labour in India was studied by various Commissions, Committees, and also Labour Bureau, Ministry of Labour, before independence and after independence.
  • All these have found their condition to be appalling and exploitative in nature.


Status of Contract Labourers:-

  • The practice of employing labour through contractors and other agencies, thus, avoiding the direct nexus between the employers and their workmen, was very common.
  • Thus, entire factories were farmed out to contractors requiring them to produce the goods in such factories through machinery owned by the employers, and thereafter, the goods were marked under the employer’s brand name.
  • This ensured that the workmen were paid much lower wages than they would be entitled to under direct employment.
  • This system led to whole-scale exploitation of labour, and a series of demands were made before tribunals for the abolition of contract labour system.
  • The tribunals entertained the claims, and in many cases, granted the demands through their awards.
  • In case of Standard Vacuum Refining Co. of India Ltd. v. Workmen, a leading case on the subject, the Supreme Court upheld the right of workmen to seek abolition of contract labour on behalf of the contractors’ workmen, and enumerated some of the circumstances in which such abolition can be directed.
  • There was considerable agitation by the workmen and their unions for the abolition of contract labour, especially in certain cases where it was absolutely necessary to regulate the terms and conditions of service under which such labour could be employed.
  • Thus the Contract Labour (Regulation & Abolition) Act 1970, was passed by the Parliament and ame into force on September 1970.


The Supreme Court observations:

The Supreme Court of India in the case of Standard Vacuum Refinery Company Vs. their workmen observed that contract labour should not be employed where: —

  • The work is perennial and must go on from day to day
  • The work is incidental to and necessary for the work of the factory
  • The work is sufficient to employ considerable number of whole time workmen
  • The work is being done in most concerns through regular workmen.


Increase in contract worker intensity:

  • Contract workers receive roughly half the wages of those workers employed directly by firms.
  • Also, firms make significant savings by hiring contract workers as they receive far fewer employee benefits compared to regular workers. This enables firms to reduce costs and improve competitiveness.
  • No direct supervision is mandatory by Principle employer as per legal statues.
  • Easy hire and fire of contract labour for the completion of job within shortest time.
  • Employees can concentrate on core activities rather than non-core activities for taking a competitive advantage in market.
  • The presence of contract workers in the firms’ workforce acts as an alternative workforce to suppress the bargaining power of their regular unionised workers
  • Speedy completion of assigned work.


Why Contract Workers?

  • Cheaper
  • Easy to hire
  • Easy to remove
  • No short term / regular interval jobs
  • No long term commitment or cost
  • Lesser industrial unrest
  • No need for direct supervision
  • Speedy completion of assigned work
  • No need for looking after non-core things


Issues in Contract Labour in Contemporary Industrial Relation Scenario:

  • Potential threat of permanent job.
  • Favourable decisions from labour department and courts.
  • Poor qualification.
  • Poor Skill.
  • Poor loyalty and no long term commitment.
  • Extra cost of Service Tax, Service Charge to manpower supply agency.
  • Guilt-Exploitation
  • Legal protection at the workplace


Effects of Contract Labour:

  • Deprives workers of protections under national legislation and internationally accepted labour standards.
  • Denies workers of contractual rights such as overtime, sick and holiday pay.
  • Prevents workers acquiring continuity of employment and building experience.
  • Limit workers access to national insurances and social security benefits where available.
  • Denies workers access to redundancy payments and unemployment benefits.
  • Restricts worker’s ability to build up any form of work related pension.
  • Leaves workers with no recourse in the event of work related disease of industry training and apprenticeships.
  • Lowers industry standards of skill and quality.
  • Threatens workplace health and safety standards causing accident, absence and even death.
  • Allows the evasion of taxes and social contributions by both workers and employers.


The Contract Labour (Regulation & Abolition) Act 1970:-

  • In India, contract labourers are protected by the Contract Labour Regulation and Abolition Act, 1970.
  • A contract labourer is defined in the Act as one who is hired in connection with the work of an establishment by a principal employer through a contractor.
  • While a contractor is the supplier of contract labour for the organization, a principal employer is the person responsible for the control of the establishment.
  • This act applies to any establishment in which 20 or more workmen are employed on a contract basis on any day of the last one year and also to all contractors who employ or have employed 20 or more workmen on any day of the preceding twelve months.
  • Every principal employer to whom this act applies should register his establishment in the prescribed manner for employing contract labour.
  • Unlike the industry sector, generally, there is no provision for remaining unregistered. If the Government at any point of time is dissatisfied with the practices followed, it can revoke the registration of an establishment.


Constitutional Validity of the Act:-

  • The benefits conferred by the Act and the rules are in their nature, social welfare legislative measures.
  • There is a rational relation between the impugned Act and the objects to be achieved, and the provisions are not in excess of those objects.
  • There is no violation of Article 14. The application of the Act does not amount to an unreasonable restriction on the rights under Art 19(1)(g).
  • Moreover, the Contract Labour (Regulation & Abolition) Act 1970 is not a complete code on contract labour.
  • The Act serves two purposes that is-
    • Regulations of conditions of service of workers employed by the contractor who is engaged by a principal employer; and
    • the appropriate government abolishing contract labour altogether in certain Central Government or by any appropriate government, provide that upon the abolition of contract labour, the said labour would be directly absorbed by the principal employer.


Regulation of Contract Labour:-

  • For regulation of contract labour an appropriate government by an order notified in the Official Gazette may appoint persons being Gazetted officers of Government, as it thinks fit to be licensing officers for the purposes of this Act that is for the purpose of the regulation of contract labour.
  • The appropriate government also defines limit, within which a licensing officer shall exercise the powers conferred on licensing officers by or under the Act.
  • Further with effect from such date as the appropriate Governement may, by notification in the Official Gazette, appoint, no contractor to whom this Act applies, shall undertake or execute any work though contract labour except under and in accordance with a license issued in that behalf by the licensing officer.
  • The license given to the contractors includes in particular, conditions as to hours of work, fixation of wages and other essential amenities in respect of contract labour as the appropriate Government may deem fit to impose in accordance with the rules, if any, made under Section 35 and shall be issued on payment of such fees and on deposit of such sum, if any, as security for the due performance of the conditions as may be prescribed.



The need of the hour is a complete reformation of the Act so that it can be in tune with the current day and age. Government must carefully chalk out plan which not only ensure the welfare of the workers but also enable the gradual and effective abolishment of contract labour in the long run.


Sample Question:

The rise in the use of contract workers who are not employed directly by the employer, but by an intermediary or contractor on short-term contracts, indicates significant informalisation of the organized workforce. Comment.

Facts and myths on rise of contract labour - Info graphics - Mar20th