Contract labour under the OSH Code

1. Objects

Contract labour is cheaper for the principal employer because the contractor, not the establishment, is the employer in law. The workers are paid less, have no security of tenure and fall outside welfare and social security laws. The 1970 Act had two aims, both carried into the Code: to regulate the conditions of contract labour (licensing, welfare, wages) and to abolish it where the work is of a kind that should be done by regular employees. The constitutional basis is Articles 38, 39(d) and (e), 42 and 43. CLRA was upheld as a reasonable restriction in Gammon India Ltd. v. Union of India, 1974 INSC 62, (1974) 1 SCC 596.

2. Definitions and applicability

• Contract labour (section 2(1)(m)), contractor (section 2(1)(n)) and principal employer (section 2(1)(zz)) [CLRA s. 2(1)(b), (c), (g)]. Contract labour includes inter-State migrant workers; a contractor includes a sub-contractor and a mere supplier of manpower. The principal employer is the head of a Government office, the owner or occupier (or named manager) of a factory, the owner or agent of a mine, or the person in supervision and control of any other establishment.
• Threshold (section 45(1)) [CLRA s. 1(4): twenty]: every establishment in which fifty or more contract labour are or were employed on any day of the preceding twelve months, and every manpower supply contractor who employed fifty or more.
• Exclusion (section 45(2)) [CLRA s. 1(5)]: work of an intermittent or casual nature. Work is not intermittent if it was done for more than 120 days in the preceding twelve months, or, if seasonal, for more than sixty days in a year. Disputes are decided by the appropriate Government after consulting the National Board or a State Advisory Board, which now do the advisory work of the old Central and State Advisory Contract Labour Boards [CLRA ss. 3 and 4].
• The Code applies to contract labour in Government offices where the Government is the principal employer (proviso to section 1(3)).

3. Registration and licensing

Registration of the establishment. Under CLRA s. 7 the principal employer registered the establishment, and an unregistered establishment could not employ contract labour (s. 9). Now registration is the single electronic registration under section 3 of the Code, which must include details of contract and inter-State migrant workers. An unregistered establishment may not employ any employee (section 3(7)).

Licensing of contractors (sections 46 to 52, 119) [CLRA ss. 11–15]:

• No contractor to whom Part I applies may supply or engage contract labour, or execute work through it, except under a licence (section 47(1)). The licence states the number of workers and the security deposit, and may carry conditions on hours, wages and amenities (section 47(3)(a)).
• A contractor who does not meet the prescribed criteria may get a work-specific licence for a particular work order (section 47(2)).
• A contractor working in more than one State may take a single all-India licence from the Central authority (proviso to section 47(3)).
• Application is electronic (section 48(1)); the licence is valid for five years (section 48(3)); it is issued within 45 days or deemed issued (section 119(4)), and may be a common licence covering a factory and contract labour together.
• The contractor may not take any fee or commission from the workers (section 49), must report each work order (section 50), and his licence may be suspended or revoked for misrepresentation or breach of conditions after a show cause notice (section 51). Appeal lies within thirty days (section 52).
• If a principal employer engages labour through an unlicensed contractor, the employment is a contravention of the Code (section 54).

4. Welfare and wages

• Welfare and health (section 53) [CLRA ss. 16–20]: the health, safety and welfare facilities of sections 23 and 24 (drinking water, latrines, washing, canteen, rest rooms, first aid) must be provided to contract labour by the principal employer. Under CLRA the contractor provided them and the principal employer was liable only if he failed (s. 20).
• Wages (section 55) [CLRA s. 21]: the contractor pays wages within the prescribed time by bank transfer or electronic mode and informs the principal employer. If he fails or short-pays, the principal employer must pay in full and recover from the contractor (section 55(3)). The Government may also order payment from the contractor’s security deposit (section 55(4)).
• Experience certificate on demand (section 56).

5. Prohibition in core activities (section 57)

Section 57(1) prohibits employment of contract labour in the core activities of any establishment. A core activity is the activity for which the establishment is set up and anything essential or necessary to it (section 2(1)(p)). Support services are excluded unless the establishment exists for them: sanitation, security, canteen and catering, loading and unloading, support hospitals and schools, courier, civil works, gardening, housekeeping and laundry, transport, and any intermittent activity.

Contract labour may still be used in a core activity if (a) the activity is ordinarily done through contractors in that kind of establishment, (b) it does not need full-time workers for most of the day, or (c) there is a sudden increase in work that must be finished in a specified time. Whether an activity is core is decided by the appropriate Government on the advice of a designated authority (section 57(2)).

The old test for abolition under CLRA s. 10(2), which section 57 has largely codified, came from Standard Vacuum Refining Co. v. Its Workmen, 1961 INSC 15: the Court upheld an award abolishing contract labour for cleaning the refinery’s tanks because the work was perennial, necessary to the industry, and done by regular employees in comparable concerns.

6. Absorption: the case law

• Hussainbhai v. Alath Factory Thozhilali Union, 1978 INSC 118, (1978) 4 SCC 257. Where the work is done for the owner’s business and he has economic control, he is the real employer however many intermediaries are interposed.
• Dena Nath v. National Fertilizers Ltd., 1991 INSC 314, (1992) 1 SCC 695. Engaging contract labour without registration or through an unlicensed contractor attracts the penalties of the Act; it does not make the workers employees of the principal employer, and the High Court cannot order absorption.
• Gujarat Electricity Board v. Hind Mazdoor Sabha, 1995 INSC 354, (1995) 5 SCC 27. Abolition is for the appropriate Government; but the workmen may raise an industrial dispute that the contract is sham, and the adjudicator may then find them direct employees.
• Air India Statutory Corporation v. United Labour Union, 1996 INSC 1442, (1997) 9 SCC 377. On abolition the contract labour automatically became employees of the principal employer.
• Steel Authority of India Ltd. v. National Union Waterfront Workers, 2001 INSC 407, (2001) 7 SCC 1. A Constitution Bench overruled Air India prospectively. Nothing in CLRA provides automatic absorption. If the contract is a sham or camouflage, the workers were always employees of the principal employer, and that is for the industrial adjudicator. If the contract is genuine and labour is abolished, the principal employer must give the former contract labour preference in regular recruitment, relaxing age and qualifications where needed.
• International Airport Authority of India v. International Air Cargo Workers’ Union, 2009 INSC 483, (2009) 13 SCC 374. The tests of a sham contract are who pays the wages and who controls and supervises the work.

How this is examined

This is the most frequently set topic in the old Labour Law II papers. “Essential features of the Contract Labour Act” was the 10-mark essay in February 2025 and January 2026; “licensing of contractors” (February 2025), “Central Advisory Board” (January 2026), “registration of establishments” (August 2024) and “health measures of contract labour” (August 2024) were the short notes. Answer each under the Code with the CLRA section in brackets, and end the essay with the Air India to SAIL line on absorption.