Prohibition of Contract Labour in Core Activities

Non obstante clause is the opening "notwithstanding anything contained in" which makes a provision prevail over what it names.

Absorption is the claim that on abolition the contract workers become the direct employees of the principal employer.

Sham or camouflage describes a contract which is a paper arrangement only, the workers being in reality the principal employer's own.

Suo motu means on the authority's own motion, without an application.

Emergency, in section 58, is not defined.

Section 57(1): the prohibition

Notwithstanding anything contained in this Part, employment of contract labour in core activities of any establishment is prohibited.

Three features of that sentence carry the weight.

It is a statutory prohibition. It operates by itself. Contrast section 10 of the 1970 Act, where nothing was prohibited until the appropriate Government issued a notification in the Official Gazette after consulting a Board.

The unit is the "core activity", not the "process, operation or other work". The 1970 Act let the Government pick a process and prohibit contract labour on it. The Code asks a general question about the activity, answered by the definition in section 2(1)(p) with its eleven exclusions.

The non obstante is limited to "this Part". Section 57(1) prevails over Part I of Chapter XI. That is why a licensed contractor holding a valid licence under section 47 cannot rely on it to supply labour for core work.

A question the Code leaves open, and it is worth saying so plainly. Part I applies, by section 45, to establishments with fifty or more contract labour. Section 57(1) speaks of any establishment, and opens with a non obstante covering the whole Part, which includes section 45. So a smaller establishment might be caught by the prohibition although it is outside everything else in the Part. The contrary reading is that a section inside a Part cannot reach beyond the Part's own field of application. The Code does not resolve it, and an answer that notices the difficulty is worth more than one that picks a side without noticing.

The three provisos: when core work may still be contracted out

Provided that the principal employer may engage contract labour through a contractor to any core activity, if:

• (a) the normal functioning of the establishment is such that the activity is ordinarily done through contractor; or
• (b) the activities are such that they do not require full time workers for the major portion of the working hours in a day or for longer periods, as the case may be;
• (c) any sudden increase of volume of work in the core activity which needs to be accomplished in a specified time.

These three are the whole practical content of the section and each has a different justification.

Proviso (a), trade practice. Where the industry ordinarily does the work through contractors, the Code accepts the practice. This is the widest of the three and the one most open to abuse, because an establishment that has always used contract labour on its core work can point to its own practice as the reason it may continue.

Proviso (b), work that is not full time. Where the activity does not need full time workers for the major portion of the working hours, employing a permanent workman is not sensible, and the Code allows a contractor.

Proviso (c), a surge. A sudden increase in volume that must be completed in a specified time. Note the three ingredients: the increase must be sudden, it must be in the core activity, and it must be work to be finished in a specified time. A permanent expansion is not a surge.

Note also two drafting features. The provisos are joined by or after (a), so they are alternatives; any one of them is enough. And the permission is expressed as the principal employer may engage contract labour through a contractor, so the ordinary machinery of Part I, the licence and the liabilities, continues to apply to what the provisos permit.

Section 57(2): who decides whether an activity is a core activity

Clause (a). The appropriate Government may, by notification, appoint a designated authority to advise that Government on the question whether any activity of an establishment is a core activity or otherwise.

Clause (b). If such a question arises, the aggrieved party may make an application, in the prescribed form and manner, to the appropriate Government for decision.

Clause (c). The appropriate Government may refer any such question suo motu, or refer the application, to the designated authority, which, on the basis of relevant material in its possession or after such enquiry as it thinks fit, shall report to the appropriate Government within such period as may be prescribed, and thereafter the appropriate Government shall decide the question within such period as may be prescribed.

Four things to hold about this machinery.

The authority advises; the Government decides. The designated authority reports. The decision is the appropriate Government's.

The worker or the union can start it. The aggrieved party may apply, which is what section 10 of the 1970 Act never provided. Under that Act a union could ask for a notification but had no statutory right to a decision.

The Government can start it itself. The reference may be suo motu.

Both stages are timed, and both periods are prescribed. The authority reports within a prescribed period; the Government decides within a prescribed period. Neither period is in the Code.

And the decision is not declared final. Contrast the Explanation to section 10(2) of the 1970 Act, which made the Government's decision on whether work was of a perennial nature final. Section 57(2) contains no finality clause.

Section 58: the emergency exemption

The appropriate Government may, in the case of an emergency, direct, by notification, that, subject to such conditions and restrictions, if any, and for such period as may be specified in the notification, all or any of the provisions of this Code or the rules made thereunder shall not apply to any establishment or class of establishments or any class of contractors.

Read the width of that. The exemption is not confined to Part I or to contract labour; it reaches all or any of the provisions of this Code, which includes the health, safety and welfare Chapters. Its only conditions are that there be an emergency, that the exemption be by notification, and that any conditions, restrictions and the period be specified in the notification.

Emergency is not defined. Neither is any procedure required: no consultation with the National Board, no application, no report, no reasons.

But the notification must specify a period, so the exemption cannot be permanent on its face, and it must be published, so it can be seen and challenged.

The leading case, and what it decides

Facts. Steel Authority of India Ltd. v. National Union Water Front Workers, (2001) 7 SCC 1, was decided by a Constitution Bench of five judges on 30 August 2001. Steel Authority engaged contract labour to handle goods at its stockyards in Calcutta. The State of West Bengal issued a notification under section 10(1) of the Contract Labour (Regulation and Abolition) Act 1970 prohibiting the employment of contract labour in the stockyards. Some three hundred and fifty contract workers claimed that on the prohibition taking effect they became the regular employees of Steel Authority and had to be absorbed. The Calcutta High Court, following an earlier decision of the Supreme Court in the Air India case, directed absorption.

Held. The direction to absorb was set aside, and the Air India decision was expressly overruled. Neither section 10 nor any other provision of the Act alluded to automatic absorption. The consequences of contravening the registration and licensing provisions were the penalties the Act itself prescribed, and a court could not read an unspecified remedy into section 10 or substitute a different consequence for the penalties Parliament had chosen. The rule that beneficial legislation is construed liberally does not extend to reading in what the legislature has not provided. In the Court's own words, it is difficult to accept that Parliament intended absorption of contract labour on the issue of an abolition notification. But where the contract is found to be a sham or a camouflage, the position is different: there the workers are in fact and in reality the employees of the principal employer all along, and that is a question of fact for the industrial tribunal rather than for a writ court.

Why it still governs, and the one thing that has changed. The 1970 Act is repealed by section 143(1)(h) of the OSH Code. But the reasoning in the case was not about the wording of section 10; it was about silence. Absorption was refused because the statute said nothing about it. The OSH Code likewise contains no absorption provision, so the same reasoning applies with the same force: a prohibition under section 57(1) stops the employment of contract labour on core work; it does not convert the contract workers into the establishment's employees.

What has changed is the mechanism, and an answer must say so. Under section 10 of the 1970 Act the prohibition arrived by notification, and the argument for absorption was built on the moment the notification took effect. Under section 57(1) the prohibition is imposed by the statute itself, so there is no notification and no moment. The claim to absorption is therefore weaker under the Code than it was in the case that rejected it.

And the sham exception survives untouched, because it never depended on the Act at all. If the contract is a camouflage, the workers were always the principal employer's, and the industrial tribunal decides that as a question of fact.

A worked example

Konkan Ceramics is set up to manufacture sanitary ware. It employs three hundred and twenty workers of its own. Through a licensed contractor it engages: eighty workers on the glazing line, which is part of manufacture; twenty two security guards; thirty in the canteen; and, for six weeks before a large export shipment, a further sixty on the glazing line.

Is glazing a core activity? Yes. It is an activity for which the establishment is set up, within section 2(1)(p), and none of the eleven exclusions in the proviso covers manufacture.

So may the eighty be engaged on glazing? Not unless a proviso to section 57(1) applies. On these facts none obviously does. Glazing is not shown to be ordinarily done through contractor in the industry, it plainly requires full time workers for the major part of the day, and the eighty are permanent, not a surge.

What about the sixty taken on for six weeks before the shipment? They may well be within proviso (c): a sudden increase of volume of work in the core activity which needs to be accomplished in a specified time. The shipment date supplies the specified time.

And the security guards and canteen staff? Neither is a core activity. Item 2 of the proviso to section 2(1)(p) excludes watch and ward services including security services, and item 3 excludes canteen and catering services, in each case because the establishment is not set up for that activity. A ceramics works is not.

The union says glazing is core and wants a ruling. Under section 57(2)(b) the aggrieved party may apply to the appropriate Government in the prescribed form for a decision. The Government may refer the question, or take it up suo motu, to the designated authority appointed by notification under clause (a), which reports within the prescribed period, and the Government then decides within the prescribed period.

The Government decides that glazing is a core activity and no proviso applies. Do the eighty become employees of Konkan Ceramics? No. The Code contains no absorption provision, and on the reasoning of Steel Authority of India Ltd. v. National Union Water Front Workers, (2001) 7 SCC 1, absorption is not to be read into a statute that does not provide for it. The employment of contract labour on glazing must stop; the workers are not thereby absorbed.

The union then proves that the contractor keeps no independent establishment, that Konkan's own supervisors direct the eighty daily, that Konkan fixes their wages and that the contractor is paid a per head commission. That is the sham or camouflage case, and it is a different case. If it is made out, the eighty were in fact and in reality Konkan's own employees throughout, and the question is one of fact for the industrial tribunal.

Konkan's licensed contractor argues that his licence under section 47 permits the supply. It does not. Section 57(1) opens notwithstanding anything contained in this Part, and the licensing sections are in that Part.

A cyclone destroys part of the plant and the State issues a notification under section 58. Then, in the case of an emergency, and subject to the conditions, restrictions and period specified in the notification, all or any provisions of the Code or the rules may be directed not to apply to the establishment or a class of establishments or contractors.

What this does NOT mean

The prohibition is not conditional on a notification. Section 57(1) prohibits by itself. Section 10 of the 1970 Act required one.

It does not prohibit contract labour generally. Only in core activities, as defined in section 2(1)(p) with its eleven exclusions.

The three provisos are not cumulative. They are alternatives; any one suffices.

A licence is no answer to section 57(1). The non obstante covers the whole of Part I, including sections 47 to 52.

Prohibition does not mean absorption. Neither the 1970 Act nor this Code provides for it, and the Constitution Bench refused to read it in.

The sham contract case is not affected. Where the contract is a camouflage the workers were always the principal employer's, and that is decided as a question of fact by the industrial tribunal.

Section 57(2) does not give the designated authority the decision. It advises and reports; the appropriate Government decides.

Section 58 is not limited to this Chapter. It reaches all or any of the provisions of this Code.

Limits and criticism

Proviso (a) can swallow the prohibition. An establishment that has always contracted out its core work may say that its normal functioning is such that the activity is ordinarily done through contractor. The very practice the section exists to stop becomes the reason for permitting it.

Item 11 of the section 2(1)(p) proviso is a second hole. It excludes any activity of intermittent nature even if that constitutes a core activity, so intermittent core work is outside the prohibition altogether.

Nothing follows for the worker when the prohibition bites. The employment must stop. The Code provides no absorption, no compensation, no preference in recruitment and no retrenchment benefit, so a worker who wins the argument may simply lose the work.

Every period in section 57(2) is prescribed rather than stated, so a decision that a worker needs quickly is timed by rules that may or may not exist.

Section 58 is the widest exemption power in the Code. An undefined emergency, no consultation, no reasons required, and a reach extending to all or any of the provisions of this Code, including the safety and health Chapters. Compare section 127, which allows exemptions for particular purposes with stated safeguards.

The interaction with section 45 is unresolved. Whether the core activity prohibition reaches an establishment employing fewer than fifty contract labour is left to the courts.

Quick revision

• Section 57(1): notwithstanding anything in this Part, employment of contract labour in core activities of any establishment is prohibited.
• Three provisos, alternatives: (a) the normal functioning of the establishment is such that the activity is ordinarily done through contractor; (b) the activities do not require full time workers for the major portion of the working hours in a day or for longer periods; (c) a sudden increase of volume of work in the core activity to be accomplished in a specified time.
• Section 57(2): (a) the appropriate Government may by notification appoint a designated authority to advise it whether an activity is a core activity; (b) the aggrieved party may apply for a decision; (c) the Government may refer suo motu or refer the application, the authority reports within a prescribed period, and the Government decides within a prescribed period.
• Section 58: in an emergency, the appropriate Government may by notification direct that all or any provisions of the Code or the rules shall not apply to an establishment, class of establishments or class of contractors, subject to specified conditions, restrictions and period.
• Contrast section 10, Act of 1970: prohibition by notification after consulting the Central or State Board, having regard to whether the work was incidental or necessary, of a perennial nature, ordinarily done through regular workmen, and sufficient to employ a considerable number of whole time workmen; the decision on perennial nature was final.
• Steel Authority of India: abolition brings no automatic absorption, because the statute does not provide for it; Air India overruled; the sham or camouflage contract is the exception and is a question of fact for the industrial tribunal. The Code's silence on absorption is the same silence.

Test yourself

1. State section 57(1) and explain how it differs from section 10 of the 1970 Act. Notwithstanding anything contained in Part I, the employment of contract labour in the core activities of any establishment is prohibited. Under section 10 of the Contract Labour (Regulation and Abolition) Act 1970 nothing was prohibited until the appropriate Government issued a notification after consulting the Central or a State Board and having regard to the four factors in section 10(2). Section 57(1) prohibits by the force of the statute itself, with no notification and no Board.

2. Name the three provisos, and say whether they are cumulative. That the normal functioning of the establishment is such that the activity is ordinarily done through a contractor; that the activities do not require full time workers for the major portion of the working hours in a day or for longer periods; and that there is a sudden increase in the volume of work in the core activity which must be accomplished in a specified time. They are alternatives, joined by "or", so any one suffices.

3. Who decides whether an activity is a core activity, and who may set the process going? The appropriate Government decides. A designated authority appointed by notification advises it and reports on a reference. The process may be begun by an application from the aggrieved party, or by the Government suo motu.

4. Contract labour is prohibited in an establishment's core activity. Are the workers absorbed? No. In Steel Authority of India Ltd. v. National Union Water Front Workers, (2001) 7 SCC 1, a Constitution Bench held that neither section 10 nor any other provision of the 1970 Act provided for automatic absorption, that the consequence of contravention was the penalty the Act prescribed, and that a court cannot read in a remedy the legislature has not provided. Air India was overruled. The OSH Code contains no absorption provision either, so the same reasoning applies.

5. What is the exception to that, and who decides it? Where the contract is a sham or a camouflage, the workers are in fact and in reality the employees of the principal employer all along. That is a question of fact for the industrial tribunal, not for a writ court.

6. State the width of section 58 and two criticisms of it. In an emergency the appropriate Government may by notification direct that all or any of the provisions of the Code or the rules shall not apply to any establishment, class of establishments or class of contractors, subject to the conditions, restrictions and period specified. Emergency is not defined, and the power is subject to no consultation, no reasons and no confinement to Part I, so the health and safety Chapters may be lifted by the same notification.

7. Why might proviso (a) be said to defeat the section? Because it permits contract labour in a core activity where the establishment's normal functioning is such that the activity is ordinarily done through contractor. An establishment that has long contracted out its core work can point to that very practice as the ground for continuing it, so the practice the prohibition is aimed at supplies its own exception.