Contract Labour under the OSH Code: Licensing and Liability

Contract labour is work done for an establishment by workers hired and paid through a contractor. It offers flexibility, but it has also been used to keep workers outside the protection given to regular employees. The Contract Labour (Regulation and Abolition) Act, 1970 regulated it through registration, licensing and abolition. The OSH Code replaces that Act with a simpler scheme built on licensing, the principal employer's liability, and a ban on contract labour in core activities. This note covers each, and the leading cases.

1. The Scheme

Figure 1: Part I of Chapter XI

• Thresholds. The 1970 Act applied at 20 contract workers; the Code applies at 50. Safety and welfare provisions of the Code still apply to establishments with 10 or more workers, including contract workers.
• Intermittent work. Work done for more than 120 days a year, or seasonal work for more than 60 days, is not intermittent and is covered.
• Unlicensed contractors, s.54. Employing contract labour through a contractor who should be licensed but is not is a contravention by the principal employer.
• No fee. The contractor may not charge contract workers any fee or commission.
• Welfare. The principal employer ensures that welfare facilities such as canteens, rest rooms, drinking water and first aid are available to contract workers.

2. The Ban on Core Activities, Section 57

• Rule. Employment of contract labour in the core activities of an establishment is prohibited.
• Change from the 1970 Act. The old Act let the Government prohibit contract labour in particular processes by notification under s.10. The Code prohibits it in core activities directly, subject to stated exceptions.

Figure 2: Exceptions and their determination

3. Leading Cases

Figure 3: Contract labour in the Supreme Court

• Relevance today. The cases under the 1970 Act continue to guide two questions under the Code: whether a contract is genuine or sham, and whether contract workers have any claim to absorption.

4. Frequently Asked Questions

Is the principal employer liable for wages of contract labour?

Yes, as a fallback. Section 55 requires the contractor to pay wages within the prescribed time, through bank or electronic mode, and to inform the principal employer. If the contractor fails to pay in full or in time, the principal employer must pay the wages or the unpaid balance and may recover the amount from the contractor.

Can contract labour be engaged in core activities?

Ordinarily no. Section 57 prohibits it, but permits engagement where the normal functioning of the establishment is such that the activity is ordinarily done through contractors, where the activity does not require full-time workers for most of the day, or where there is a sudden increase in work that must be completed within a specified time.

5. Related Topics

• Topic 17: Fixed Term Employment. The direct alternative to contract labour.
• Topic 33: Inter-State Migrant Workers. Workers often engaged through contractors.