Future of Contract Labour



“What about those who are employed? Constitutional Lawyers assume that the enactment of Fundamental Rights is enough to safeguard their liberty and that nothing more is called for. They argue that where the State refrains from intervention in private affairs—economic and social—the residue is liberty. What is necessary is to make the residue as large as possible and State intervention as small as possible. It is true that where the State refrains from intervention what remains is liberty. But this does not dispel the matter. One more question remains to be answered. To whom and for whom is this liberty? Obviously, this liberty is a liberty to the landlords to increase rents, for capitalists to increase hours of work and reduce rate of wages. This must be so. It cannot be otherwise. For in an economic system employing armies of workers, producing goods en masse at regular intervals someone must make rules so that workers will work and the wheels of industry run on. If the State does not do it, the private employer will. Life otherwise will become impossible. In other words what is called liberty from the control of the State is another name for the dictatorship of the private employer.”


  • Dr. B. R. Ambedkar[1]


  1. Legislative background to the Contract Labour (Regulation and Abolition) Act, 1970:

During the early period of industrialization, the industrial establishments faced problems of labour recruitment on account of lack of labour mobility, caste and religious taboo, language, etc.. Unable to solve these problems led employers to depend on middlemen who helped them in recruitment and control of labour. These middlemen or contractors were known by different names in various parts of the country.


Contract Labourers were considered as exploited section of the working class mainly due to lack of organisation on their part. Due to this, the Whitley Commission (1860) recommended the abolition of contract labour by implication. Other Committees were:

  • The Bombay Textile Labour Enquiry Committee (1938) stated that “if the management of the mills” did not “assume responsibility for such labour”, there was “every likelihood of its being sweated and exploited by the contractor”; it also recommended the abolition of the “contract system of engaging labour” as soon as possible and “that workers for every department in a mill should be recruited and paid directly by the management”.
  • The Bihar Labour Enquiry Committee (1941) condemned the practice of recruiting labour through contractors because they said: “the contractors ordinarily lack a sense of moral obligation towards labour which the employers or the managers are expected to have, and, therefore, do not often hesitate to exploit the helpless position of labour in their charge”.
  • The Rega Committee (1946) found that the system of contract labour is very much in vogue.


In the case of Standard Vacuum Refinery Company Vs. their workmen [AIR 1960 SC 948] the decision of the Tribunal directing the company to abolish the contract system was called into question. This arose from a dispute raised by the regular workmen of the company with respect to contract labour employed by the company for cleaning/maintenance. The result of the contract system was that there was no security of service to the workmen who were in effect doing the work of the company. Besides, the contractors were paying much less to the workmen than the amount paid by the company to its unskilled regular workmen. Further, the workmen of the contractors were not entitled to other benefits and amenities such as provident fund, gratuity, bonus, privilege leave, medical facilities and subsidised food and housing to which the regular workmen of the company were entitled. The work was of a permanent nature, but the contract system was introduced to deny the workmen the rights and benefits which the company gave to its own workmen. The Supreme Court upheld the Tribunal’s judgment as follows:

“We now come to the question whether the tribunal was justified in giving the direction for the abolition of the contract system in the manner in which it has done so. In dealing with this question it may be relevant to bear in mind that industrial adjudication generally does not encourage the employment of contract labour in modern times…” 

The Supreme Court of India 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; and,
  • The work is being done in most concerns through regular workmen.


In the Second Five Year Plan, the Planning Commission stressed the need of improvement in the working conditions of contract labour and thus, recommended for a special treatment to the contract labour so as to ensure them continuous employment where it was not possible to abolish such type of labour.


It was discussed at various meetings of Tripartite Committees at which the State Governments were also represented and the general consensus of opinion was that the system of contract should be abolished wherever possible and practicable and that in case where this system could not be abolished altogether, the working conditions of contract labour should be regulated so as to ensure payment of wages and provision of essential amenities.


Based on these views “The Contract Labour (Regulation and Abolition) Act, 1970” was passed by both the Houses of Parliament and received the assent of the President on 5th September, 1970 and it came into force from 10th February, 1971.


The Contract Labour (Regulation and Abolition) Act 1970 prevent the exploitation of contract labour and also to introduce regulation of work. The Act provides for abolition of contract labour where practicable and regulation of their employment where it cannot altogether. It is, thus, clear that the Act does not contemplate the abolition of contract labour.


  1. Judicial murder of contract labour:
    1. Section 10 – abolition of contract labour:

The Supreme Court, in AIR India Statutory Corporation Vs United Labour Union and Others [1997 LLR 305 (SC)] ruled that by "necessary implication" the Principal Employer will be under statutory obligation to absorb the Contract Labour on abolition of the Contract Labour system.


This was overturned in SAIL Vs National Union Water Front Workers and others (2001 LAB. I.C. 3656] decided by the constitution bench of the Supreme Court. The Court ruled that in section 10 of the CLRA act there is no implicit requirement of automatic absorption of Contract Labour by the Principal Employer in the concerned establishment on issuance of notification by the appropriate Government under section 10(1) prohibiting employment of Contract Labour in a given establishment. However, the Court observed in case a contract between the Principal Employer and the Contractor is found to be not genuine but a mere camouflage, the so-called Contract Labour will have to be treated as employees of the Principal Employer and shall be directed by the industrial adjudicator to regularize the services of the Contract Labour in the concerned establishment. However, such cases will be dealt under the Industrial Disputes Act and not under the CLRA.  


    1. Rule 25(2)(v)(a):

In Hindustan Steelworks Construction Ltd. v. Commissioner of Labour [(1996) 10 SCC 599] the Supreme Court held that there was no provision under those rules which made the principal employer liable for payment if the contractor contravened that condition.


The casual approach of exploitation of the contract labour is something unbelievable. Rarely does a case of this nature reach the apex court for adjudication. Since it had reached it, the court should have seized the opportunity to do justice and should not have so easily let the principal employer off the hook. The reason behind the enactment of the contract labour Act was to regulate conditions of these vulnerable section of workers by regulating their working conditions with a view to progressively eliminating the system altogether.


  1. (Non)regulation: Indiscriminate issuance of licenses to contractors and registration of principal employers by the Labour Departments in all establishments. This is being done by the Labour department without assessing whether this stands contrary to the provisions in section 10 of CLRAA, 1970 or whether it amounts to employing “workmen casually or temporarily as ‘badlis’ and continue them for years, with the motive of depriving them of the privileges of permanent workers”, which is prohibited under unfair labour practice. Moreover, there is no political or bureaucratic will to oversee and ensure the compliance of the various provisions of the CLRAA, 1970 including those relating to welfare facilities to workers and their wage security.


  1. Resultantly institutionalisation of Contract labour in State and private establishments. This accelerates particularly so following the adoption of free market policy in the early nineties which saw the dawn of liberalization, privatization and globalization (LPG) in the country.


  1. Some hope – ONGC and sham contracts; Assam and Tamil Nadu conferment of permanent status Act


After the SAIL judgment, another decision which the proverbial final nail in the coffin of contract labour was the Uma Devi case of 2006. In this judgment, the Supreme Court held that regularisation of services of daily-wage workers amounted to back-door entry and hence was prohibited by the Constitution. Thus, as a consequence of this judgment, establishments continued to employ daily-wage employees free from the fear of being compelled to regularise them. In fact, in Uma Devi case, the Supreme Court effectively prohibited the High Courts and Supreme Court from directing the regularisation of such workers. This judgment also served as a weapon in the hands of the employers to deny any claims of regularisation by contract workers as well.


It in this situation that the judgment of the Supreme Court in ONGC Ltd vs Petroleum Coal Labour Union & Ors [(2015) 6 SCC 494], is of great importance since the Supreme Court clarified that:

“19. The provisions of Industrial Disputes Act and the powers of the Industrial and Labour Courts provided therein were not at all under consideration in Umadevi's case. The issue pertaining to unfair labour practice was neither the subject matter for decision nor was it decided in Umadevi's case."


In Oil and Natural Gas Corporation v. Krishan Gopal, 2020 SCC OnLine SC 150, decided on 07.02.2020]: The bench of Dr. DY Chandrachud and Ajay Rastogi, has called for the reconsideration of the abovementioned division bench verdict in Oil and Natural Gas Corporation Limited v Petroleum Coal Labour Union,  and has, hence, referred the matter to a larger bench, on, inter alia, the following question:

“The limitations, if any, on the power of the Labour and Industrial Courts to order regularisation in the absence of sanctioned posts. The decision in PCLU would, in our view, require reconsideration in view of the above decisions of this Court and for the reasons which we have noted above.”


It remains to be seen which way the Supreme Court decides this reference.


  1. Summarising:
    1. The first strategy par excellence, which has defined labour law, ever since its inception has been the startling discordance between the law on the books and the law in action. The fact is that this legislation was a dead letter and is responsible for the misery inflicted upon the contract workers who have been reduced to a condition of precarity.
    2. Gradual whittling away of labour protections through judicial interpretation. The locus classicus (among many others) in this hall of constitutional shame is the judgment in SAIL, which has effectively gutted the Contract Labour (Regulation and Abolition) Act.
  2. The last strategy has been the repeal of existing labour law protections. The Contract Labour Act will be repealed once the Occupational Safety, Health and Working Conditions Code, 2020 comes into force. This grants legal sanction to the existing exploitative system of contract labour – section 2(p) r/w 57
  3. Contract labour is nothing but modern day slavery and the Code grants official sanction for the same.


The Supreme Court has repeatedly held that the system of contract labour is nothing but an improved form of bonded labour[2] and that it is nothing but a new technique of subterfuge adopted by employers in recent years in order to deny the rights of the workmen under various labour statutes.[3] It is necessary that immediate steps be taken to  enact law on lines of the Assam Industrial Establishments (Conferment of Permanent Status to Workmen) Act, 1985 conferring permanent status to workmen who have been in continuous service, whether daily wage employees, contract or casual for a period of 180 days in a period of 12 months. 



[1] “States and Minorities: What are Their Rights and How to Secure them in the Constitution of Free India”, Memorandum on the Safeguards for the Scheduled Castes submitted to the Constituent Assembly on behalf of the All India Scheduled Castes Federation.

[2] Sankar Mukherjee And Ors vs Union Of India [AIR 1990 SC 532]

[3] Bhilwara Dugdh Utpadak Sahakari S. Ltd. Vs. Vinod Kumar Sharma and Ors.[ AIR 2011 SC 3546]