Evaluer.

Simplifying Human Resource Documentation

Contract Labour (Regulation

& Abolition) Act, 1970
Legal compliance

Handbook

Evaluer on  What the Contract Labour Act

means and its applicability.

Employment Law  The concept of employing

workers on contract basis and
procedure.

 Checklist and do’s and don’ts for

an establishment.

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1. INTRODUCTION
The Contract Labour (Regulation & Abolition) Act, 1970 (the “Contract Labour Act”) was
enacted to regulate the employment of contract labour and also to introduce better
conditions of work. Under the Contract Labour Act, an establishment is permitted to hire
workers through an intermediately called a contractor. In doing so, the establishment is
relinquished from the obligation of them being permanent workers of the organization.

The concept of contract labour can be understood from the following example: suppose an
establishment wants to build a factory. For this, the establishment hires a person B to get
the job done. This person B hires other people X, Y and Z to build the factory. Now, it is not
necessary that X, Y and Z should be hired by B with the permission of the establishment. It
may not even know about this contract but B acting as a mediator has got into a contract
with other people to get the work done on behalf of the establishment. These people X, Y
and Z who have no direct contact or relationship with the establishment are the contract
laborers.

The Contract Labour Act is an important piece of social legislation which seeks to regulate
the employment of contract labour and where necessary to abolish the same. The primary
object appears to be there should not be exploitation of the contract laborers by the
contractors or the principal employer. For achieving that object, statutory restrictions and
responsibilities have been imposed on the contractor as well as on the principal employer.
Of course, if any expenses are incurred for providing any amenity to the contract laborers or
towards the payment of wages by the principal employer, the same can be deducted from
the bill of the contractor. As per the Contract Labour Act it is the duty of principal employer
to secure full compliance in respect of the workers engaged through a contractors or sub-
contractor.

1.2 APPLICABILITY
The Contract Labour Act applies both to a principal employer and a contractor, whereby the
principal employer will seek registration under the Contract Labour Act and the contractor
will obtain a license. Additionally, the said Act also applies to every establishment in which
20 (twenty) or more workers are employed or were employed on any day of the preceding
12 (twelve) months as contract labour. In case there is more than one contractor and none

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of them is employing more than 20 (twenty) workers, but the total number happens to be
more than 20 (twenty) for an establishment, then in that case the principal employer will
seek registration but the contractors (since none of them individually have hired more than
20 workmen) will not be required to obtain the license.

1.3 DEFINITION OF WORKMEN UNDER THE ACT

An essential ingredient of contract labour is that the persons employed through a contractor
must be workmen as defined in section 2 (i) of the Contract Labour Act1. Workman means
any person employed in or in connection with the work of any establishment to do any
skilled, semiskilled or un-skilled manual, supervisory, or clerical work for hire or reward, but
does not include any such person who is employed mainly in a managerial or administrative
capacity or (b) exercises, either by the nature of the duties attached to the office or by
reason of the powers vested in him, functions mainly of a managerial nature; or (c) who is an
out-worker, that is to say, a person to whom any articles or materials are given out by or on
behalf of the principal employer to be made up, cleaned, washed, altered, ornamented,
finished, repaired, adapted or otherwise processed for sale for the purposes of the trade or
business of the principal employer and the process is to be carried out either in the home of
the out-worker or in some other premises, not being premises under the control and
management of the principal employer.

1.4 APPLICABILITY OF OTHER LABOUR LAWS ON CONTRACT LABOUR

1.4.1 THE FACTORIES ACT, 1948 (THE “FACTORIES ACT”)
Contract labour employed shall be entitled to all privileges and benefits applicable to the
workers in a factory as per the Factories Act, for example weekly holidays, compensatory
holidays, extra wages for overtime, leave with wages etc subject to such conditions as are
prescribed in the relevant sections of the Factories Act.
1.4.2 EMPLOYEE PROVIDENT FUND AND MISCELLANEOUS PROVISIONS ACT, 1952
The term ‘employee’ used in section 2 (f) of the EPF Act includes any person employed by or
through, thus a contract laborer will get advantages of the scheme framed under the EPF
Act, including appropriate EPF contributions. The prescribed contributions have to be made

1Gammon India Limited vs. Union of India, 1974 (I) LLJ 489: AIR 1974 SC 960: (1974) 1 SCC 596; Ker Civil Aviation General
Workers Co-op. Society vs. Union of India, 1984 (II) LLJ 314

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in respect of the contract labour in the same manner and at the same rates as applicable to
the employees directly employed by the concerned establishment. The principal employer
has to pay the contributions in respect of contractor’s employees as well as his own
employees in the first instance, but the amount paid on behalf of the contractor is
recoverable from the latter.
1.4.3 EMPLOYEE STATE INSURANCE ACT, 1948
In factories and such other establishments to which the ESI Act applies, contract labour will
be eligible for the benefits as conferred under the ESI Act to the employees so long as they
meet the requirements of the expression “employee” as defined in section 2(9) of the ESI
Act which reads as follows: "Employee means any person employed for wages in or in
connection with the work of a factory or establishment to which this Act applies and (i) who
is directly employed by the principal employer on any work of, or incidental or preliminary to
or connected with the work of, the factory or establishment whether such work is done by the
employee in the factory or establishment or elsewhere; or (ii) who is employed by or through
an immediate employer on the premises of the factory or establishment or under the
supervision of the principal employer or his agent on work which is ordinarily part of the work
of the factory or establishment or which is preliminary to the work carried on in or incidental
to the purpose of the factory or establishment; or (iii) whose services are temporarily lent or
let on hire to the principal employer by the person with whom the person whose services are
so lent or let on hire has entered into a contract of service.”

In view of the above and also as per a judgment of the Kerala High Court in Employee
2
State Insurance Corporation vs. Vijayamohini Mills the employees engaged by the
contractor in an establishment will be covered under the ESI Act.

1.4.4 PAYMENT OF BONUS ACT

Neither the Contract Labour Act not Bonus Act provides that the Bonus Act will be applicable
to contract labour. In Cominco Benani Zinc Limited Vs Pappachan,3 the Kerala High Court has
held that bonus will not be payable by the principal employer to the workers engaged by
contractors, since bonus does not come within the preview of wages. The only responsibility
of principal employer is to make sure that wages are paid to contract labour and if the

2 1990 LLR 305: 1990 (1) LLN 902 (Ker HC)

3 1989 LLR 123 (Kerala HC)

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contractor fails to make this payment, the principal employer can be held responsible for the
same.
1.4.5 PAYMENT OF GRATUITY ACT, 1972
Neither the Contract Labour Act nor Gratuity Act, 1972 provides that the employees
engaged through the contractor will be entitled to gratuity from the principal employer. The
Kerala High Court however has clarified that the principal employer will not be liable to pay
gratuity to the employees engaged through the contractor. 4
1.4.6 THE MINIMUM WAGES ACT, 1948
Sub-rule IV of rule 25 of the Contract Labour (Regulation & Abolition) Central Rules, 1971
(the “Contract Labour Rules”) provides that the principal employer must ensure that the
workers as engaged through the contractor will be paid wages not less than the minimum
rate of wages as fixed under the Minimum Wages Act, 1948 from time to time.

1.4.7 WORKMEN’S COMPENSATION ACT, 1923

Section 12 of the Workmen’s Compensation Act, 1923 (the “Workmen’s Compensation
Act”) deals with the liability for payment of compensation to a contract labour for personal
injury caused by accident arising out of and in course of employment. The Bombay High
Court in Surjeras Unkar Jadhaw Vs Gurinder Singh5 has held that the principal employer
cannot escape from his liability to pay compensation to the workers of the contractor. In
another case, it has been held that principal employer will be liable to pay compensation in
an accident covered under the Workman’s Compensation Act even when the employee is
engaged through the contractor whereas recovery can be made by the principal employer
from the contractor for the compensation as paid.6

1.5 STEP-BY-STEP PROCEDURE FOR OBTAINING LICENSE AND REGISTRATION

4 Cominco Benani Zinc Limited vs. Pappachan, 1989 LLR 123 (Ker HC)
5 1991, 62 FLR 315 (Bombay): 1991 Lab IC 689: 1992 (II) LLJ 156
6 Dean Agricultural College and Research Institute, Killikulam, Vallanad vs. S. Sakilabanu, 2004 (I) LLJ 741 (Mad HC)

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Establishment to
Contractor to
obtain
obtain licence
registration

Principal
employer to Duty to maintain
provide certain registers and
amenities to records
workers

STEP 1 PRINCIPAL EMPLOYER TO OBTAIN REGISTRATION

Every principal employer of an establishment who employs 20 (twenty) or more

contract workers has to register under this Contract Labour Act. Therefore, an
establishment must ensure that it has obtained a registration certificate before
employing contract labour.

STEP 2 PROCEDURE FOR REGISTRATION

i. An establishment should make an application in triplicate in Form I at the

office of the district labour officer having jurisdiction over the area.
ii. The aforesaid application shall be accompanied by a demand draft showing
payment of prescribed fees for registration.
iii. If the above mentioned application for registration is complete in all aspects,
the registration officer shall register the establishment and issue to it a
certificate of registration which will be in Form II.
iv. The registering officer shall maintain a register in Form III showing the
particulars of establishment in relation to which certificates of registration
have been issued.

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Note: If the establishment notices any change, in the particulars specified in the
registration (Form I), it should intimate to the registering officer, within 30 (thirty)
days from the date when such change takes place, the particulars of such change.

STEP 3 CONTRACTOR TO OBTAIN LICENSE

Every contractor of an establishment who employ 20 (twenty) or more contract

workers has to obtain at license under this Contract Labour Act. In a situation where
each contractor engages less than 20 (twenty) workmen but together they engage
more than 20 (twenty) workers, the principal employer will be under legal obligation
to obtain registration but individual contractors having less than 20 (twenty)
workmen will not be required to obtain license. If however, the contractor employs
20 (twenty) persons on any day during the preceding 12 (twelve) months, then the
Contract Labour Act will need to apply for a license.

STEP 4 PROCEDURE TO OBTAIN LICENSE

i. Principal employer shall issue a certificate in Form V to the effect that the
contractor has been engaged by the establishment.
ii. The contractor shall then apply for license in Form IV in triplicate, to the
licensing officer of the area in which the establishment is located. The
application shall be accompanied with Form V. The application shall also be
accompanied by a demand draft showing the deposit of security calculated at
the prescribed rate for each of the workman to be employed as contract
labour. The amount is refundable at the expiry of the period of license.
iii. Where the applicant for the license was holding a license in regard to another
work and that license had expired, the licensing officer, if he is of the view
that any amount out of the security deposited in respect of that license is to
be directed to be refunded to the applicant, may, on an application made for
that purpose in Form VA by the applicant adjust the amount so to be
refunded towards the security required to be deposited in respect of the
application for the new license and the applicant need deposit, only the
balance.

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iv. The amount of security required to be deposited shall be paid in the local
treasury under the Head of Account “Section T – Deposits & Advances – Part
II Deposits bearing interest – (c) Other Deposit Accounts – Departmental and
Judicial Deposits – Civil Deposits – Deposits, under Contract Labour
(Regulation and Abolition) Act, 1970 (Central).”7
v. The license officer will then grant a license in Form VI.

STEP 5 VALIDITY AND RENEWAL OF LICENSE OF CONTRACTOR

i. Every license granted to the contractor shall be valid for a period of 12

(twelve) months from the date it is granted or renewed. Renewal of license
can be made in Form VII in triplicate and shall be made not less than 30
(thirty) days before the date on which the license expires.
ii. The fee chargeable for renewal of the license shall be the same as for the
grant of license.
iii. If application for renewal is not made within the time specified above, a fee
of 25 % (percentage twenty five) in excess of the fee ordinarily payable for
the license shall be payable for such renewal.

STEP 6 TEMPORARY REGISTRATION AND TEMPORARY LICENSE

i. Were employment of contract labour is estimated to last for not more than
15 (fifteen) days then the principal employer or the contractor, as the case
may be may apply for temporary certificate of registration or license (in
triplicate) in Form VIII (temporary registration for principal employer) and
Form X (temporary license for contractor) respectively.
ii. The application shall be accompanied by a demand draft showing the
payment of appropriate fees and in the case of license the appropriate
amount of security also.
iii. Temporary registration certificate shall be granted in Form IX.
iv. Temporary license will be granted in Form XI.
Note: on expiry of temporary registration certificate principal employer shall cease

7 Rule 24 (2) of the Contract Labour Rules.

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to employ contract labour in respect of which certificate was granted. The same
shall apply to a contractor.

STEP 7 PRINCIPAL EMPLOYER TO ENSURE DISBURSEMENT OF WAGES

The principal employer has to ensure the presence of an authorized representative

of the establishment at the place and time of disbursement of wages by the
contractor and it shall be the duty of the contractor to ensure the disbursement of
wages in the presence of such authorized representative. The authorized
reprehensive of the principle employer shall record under his signature a certificate
at the end of the entries in the register of wages or the register of wages-cum-
muster roll as the case may be, the following form:

“Certificated that the amount shown in column number ………. Has been paid to the
workman concerned in my presence on ……… at ………”.

STEP 8 EMPLOYMENT OF FEMALE EMPLOYEES

No female employee, except women contract laborers employed in pithead baths,

crèches, canteens, or as nurses and midwives shall be employed by the contractor or
principal employer before 6:00 a.m. or after 7:00 p.m.

1.6 RETURNS, FORMS, RECORDS, TO BE MAINTAINED AND SUBMITTED

DEADLINE FOR
S.NO COMPLIANCE REQUIREMENT FORMS
SUBMISSION

OBLIGATIONS OF THE COMPANY / PRINCIPAL EMPLOYER

1. Register of contractors: Principal Form XII As soon as the

establishment decides

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employer must maintain a register of to employ contract

contractors. labour.

[Rule 74 of Contract Labour (Regulation

and Abolition) Central Rules, 1971]

2. Notice of commencement / Form VI-B Within 15 days of

completion of contract work: Principal commencement or
employer shall submit a return to the completion of contract
Inspector, intimating the actual dates work, as the case may
of the commencement or, as the case be.
may be, completion of work under each
contractor.

[Rule 81 (3) of Contract Labour

(Regulation and Abolition) Central
Rules, 1971]

3. Annual return: Principal employer shall Form XXV To reach the

send annually a return so as to reach registering officer not
the registering officer not later than later than February
February 15th following the end of the 15th following the end
year to which it relates. of the year to which it
relates.
[Rule 82(2) of Contract Labour
(Regulation and Abolition) Central
Rules, 1971]

OBLIGATIONS OF CONTRACTOR

4. Notice of commencement / Form VI-A Within 15 days of

completion of contract work: The commencement or
contractor shall send a return to the completion of contract
Inspector intimating the actual date of work, as the case may
commencement or, as the case may be, be.
completion of contract works.

[Rule 25 (2) (viii) of Contract Labour

(Regulation and Abolition) Central
Rules, 1971]

5. Half yearly return: Contractor to Form XXIV To reach the licensing

regularly send half yearly returns so as officer concerned not

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to reach the licensing officer not later later than 30 days

than 30 days from the close of the half from the close of the
year. half year.

Half year means a period of 6 months

commencing from January 1 and July 1
of every year.

[Rule 82 (i) of Contract Labour

(Regulation and Abolition) Central
Rules, 1971]

REGISTERS AND RECORDS TO BE MAINTAINED AND FILED BY CONTRACTOR

6. Register of persons employed by Form XIII As soon as the

contractor: Contractor must maintain contractor decides to
in respect of each registered supply contract
establishment where he employs labour.
contract labour a register of workmen
employed.

[Rule 75 of Contract Labour (Regulation

and Abolition) Central Rules, 1971]

7. Employment card: Contractor shall Form XIV Within 3 days of the

issue an employment card to each employment of the
worker. worker.

[Rule 76 of Contract Labour (Regulation

and Abolition) Central Rules, 1971]

8. Service certificate: On termination of Form XV On termination of

employment for any reason employment of the
whatsoever, the contractor shall issue worker.
to the workman whose services have
been terminated, a service certificate.

[Rule 77 of Contract Labour (Regulation

and Abolition) Central Rules, 1971]

9. Muster-roll: The contractor shall Form XVI When contract labour

maintain a muster-roll in respect of is employed.
each work on which contract labour is

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engaged.

[Rule 78 (1) (a) (i) of Contract Labour

(Regulation and Abolition) Central
Rules, 1971]

10. Register of wages: the contractor shall Form XVII When contract labour
maintain a register of wages in respect is employed.
of each work on which contract labour
is engaged.

[Rule 78 (1) (a) (i) of Contract Labour

(Regulation and Abolition) Central
Rules, 1971]

11. Combined register-cum-muster roll: If Form XVIII When contract labour

the wage period is fortnight or less, the is employed.
contractor shall maintain a combined
register of wages-cum-muster roll

[Rule 78 (1) (a) (i) of Contract Labour

(Regulation and Abolition) Central
Rules, 1971]

12. Wage slip: Where the wage period is Form XIX When contract labour
one week or more, the contractor shall is employed.
issue wage slips to the workmen at
least a day prior to the disbursement of
wages.

[Rule 78 (1) (b) of Contract Labour

(Regulation and Abolition) Central
Rules, 1971]

13. Register of deductions: The contractor Form XX When contract labour

shall maintain a register of deductions is employed.
for damage or loss.

Where no deductions have been made

during any wage period, a ‘NIL’ entry
shall be made across the body of the
register.

[Rule 78 (1) (a) (ii) of Contract Labour

(Regulation and Abolition) Central

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Rules, 1971]

14. Register of fines: The contractor shall Form XXI When contract labour
maintain a register of fines. is employed.

Where no fine has been imposed

during any wage period, a ‘NIL’ entry
shall be made across the body of the
register.

[Rule 78 (1) (a) (ii) of Contract Labour

(Regulation and Abolition) Central
Rules, 1971]

15. Register of advances: The contractor Form XXII When contract labour
shall maintain a register of advances. is employed.

[Rule 78 (1) (a) (ii) of Contract Labour

(Regulation and Abolition) Central
Rules, 1971]

16. Register of overtime: The contractor Form XXIII When contract labour
shall maintain a register of overtime, is employed.
recording therein the number of hours,
and wages paid for overtime work.

Where no overtime has been worked

during any wage period, a ‘NIL’ entry
shall be made across the body of the
register.

[Rule 78 (1) (a) (iii)] of Contract Labour

(Regulation and Abolition) Central
Rules, 1971]

17. Wage slip: Where the wage period is Form XIX When contract labour
one week or more, the contractor shall is employed.
issue wage slips to the workmen at
least a day prior to the disbursement of
wages.

[Rule 78 (1) (b) of Contract Labour

(Regulation and Abolition) Central
Rules, 1971]

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WELFARE FACILITIES TO BE PROVIDED BY CONTRACTOR

Note: if any of the following amenities are not provided by contractor, such amenities shall
then be provided by the principal employer. However, the expense so incurred by the
principal employer in providing the amenities may be recovered from the contractor by
deduction from amount payable to the contractor. (Section 20)

18. Rest Rooms: Contractor shall provide NA To be provided within

rest rooms in case the contract labour 15 days of the
is required to halt at night in commencement of
connection with the work of the employment of
establishment and in which the contract labour.
employment is likely to continue for 3
months or more. These rest rooms shall
be sufficiently ventilated and lighted
and shall be maintained in a clean
condition.

(Section17 & Rule 41 of Contract Labour

(Regulation and Abolition) Central
Rules, 1971]

19. Canteen Facility: Contractor shall NA To be provided within

provide an adequate canteen in case 60 days of
employment of contract labour is likely commencement of
to continue for 6 months and if 100 or employment of
more contract labour is ordinarily contract labour.
employed. The charges of foodstuff,
beverages and any other items served
in the canteen shall be based on no-
profit, no loss and shall be
conspicuously displayed in the canteen.

(Section 16 & Rule 42and 47 of Contract

Labour (Regulation and Abolition)
Central Rules, 1971]

20. Latrines and urinals - Contractor shall NA To be provided within

provide latrines for its contract labour, 7 days of
in the ration of 1 for every 25 women commencement of

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workers and 1 for every 25 male employment of

workers. contract labour.

(Section 18 (B) and Rule 51 of Contract

Labour (Regulation and Abolition)
Central Rules, 1971]

21. Washing and screening facilities: NA To be provided within

Contractor shall provide to its contract 7 days of
labour separate and adequate washing commencement of
and screening facilities for its women employment of
and male workers. contract labour.

[Rule 57 Section 18 (c) of Contract

Labour (Regulation and Abolition)
Central Rules, 1971]

22. First aid box: Contractor shall maintain NA To be provided within

and provide first-aid boxes at the rate 7 days of
of not less than one box for 150 commencement of
contract labour. employment of
contract labour.
(Section 19 and Rule 58 & 59 of
Contract Labour (Regulation and
Abolition) Central Rules, 1971]

DISPLAY OF NOTICES

23. Principal employer or contractor shall NA When the Contract

display a notice showing the wage Labor Act becomes
period, rates of wages, hours of work, applicable.
wage periods, dates and place of
payment of wages, name and
addresses of the inspectors having
jurisdiction, date of payment of unpaid
wage to be displayed in Hindi and
English conspicuously in the
establishment.

[Rule 81 (1) (i) of Contract Labour

(Regulation and Abolition) Central
Rules, 1971]

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PENALTIES

24. Contravention of the Contract Labour NA NA

Act leads to imprisonment of 3 months
or fine up to Rs 1,000 or both.

25. Obstructing the inspector or failing to NA NA

produce registers etc will lead to 3
months of imprisonment or fine up to Rs
500, or both.

1.7 FAQ’s

1.7.1 LIABILITY OF PRINCIPAL EMPLOYER IN CASE OF SUB-CONTRACTING

Liability of a principal employer is same as in the case of contractor. This because, as per
provisions of the Contract Labour Act, sub-contracting is covered in the definition of the
contractor.

1.7.2 RESPONSIBILITY OF PAYMENT OF WAGES TO CONTRACT LABOUR

A contractor is required to pay wages and a duty is cast upon him to ensure its
disbursement. In case of failure on the part of the contractor to pay wages either in part or
in full, the principal employer is liable to pay the same. The principal employer is authorized
to recover the amount from the contractor. This has also been stated by the Supreme Court
8
in Senior Regional Manager, Food Corporation of India, Calcutta Vs Tulsi Das Bauri.
According to Rule 25 (2) (iv) of the Contract Labour (Regulation & Abolition) Central Rules,
1971, the rates of wages payable to the workmen of the contractor shall be not less than the
rates prescribed under the Minimum Wages Act for such employment.

1.7.3 TERMS AND CONDITIONS OF EMPLOYMENT OF CONTRACT LABOUR VIS-À-VIS REGULAR

EMPLOYEES

8 1997 LLR 601 (SC): AIR 1997 SC 2446: 1997 AIR SCW 2364

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The Rules framed under the Contract Labour Act [Rule 25 (2) (v) (a)] carry a condition that
where the workmen employed by the contractor perform the same or similar kind of work as
the workmen directly employed by the principal employer, the wage rates, holidays, hours
of work and other conditions of service of the workmen of the contractor shall be the same
as applicable to the workmen directly employed by principal employer on the same or
similar kind of work. Additionally, the Madhya Pradesh High Court in Steel Authority of India
Limited Vs Authority under the Minimum Wages Act9 has also held that in case where the
type of work done by the workmen engaged by the contractor is the same as done by the
workmen directly employed by the principal employer, the workmen employed by the
contractor would be entitled to same wages.

1.7.4 RATIO OF REGULAR EMPLOYEES AND WORKERS THROUGH CONTRACTOR

There is no guideline provided under the Contract Labour Act about this ratio. However, 100
% (percentage hundred) contract labour can’t be engaged unless the whole industry is
leased out to someone else. The ideal ratio of contract labour should be around 70:30 (70 %
engaged by principal employer and 30 % through contractor).

1.7.5 LAWS, AGREEMENT OR STANDING ORDERS INCONSISTENT WITH THE CONTRACT LABOUR
ACT
Unless the privileges in the contract between parties are more favorable than those
prescribed in the Contract Labour Act, such contract will be invalid and the workers will
continue to get more favorable benefits.

1.7.6 PAYMENT OF WAGES

The contractor shall be liable for payment of wages to each worker employed by him as
contract labour. In case the contractor fails to make payment of wages within the prescribed
period or makes short payment, then the principal employer shall be liable to make payment
in full or the unpaid balance due, as the case may be, to the contract labour employed by the
contractor and recover the amount so paid from the contractor. The Company must ensure
that the contract laborers are paid minimum wages.

9 2007 LLR 79 (MP HC)

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1.7.7 WAGE RATE FOR CONTRACT LABOUR AND PERMANENT WORKERS

Though Rule 25 (2) (a) and (b) of the Contract Labour (Regulation and Abolition) Central
Rules, 1971 carry a condition that where the workmen employed by the contractor perform
the same or similar kind of work as the workmen directly employed by the principal
employer, the wage rate, holidays, hours of work and other conditions of service of the
workmen of the contractor shall be the same as applicable to the workmen directly
employed by the principal employer, on the same or similar kind of work but if, but if there is
disagreement with regard to the type of work, it shall be decided by the concerned labour
commissioner. Additionally, the Madhya Pradesh High Court has clarified that workers
engaged through contractor under the Contract Labour Act will be entitled to equal wages
which were being paid to regular employees for similar work.10

1.7.8 LICENSE NOT RENEWED BUT CONTRACTOR CONTINUES TO WORK – LEGAL IMPLICATION
Even if the license of the contractor is not renewed but continues to work, contract labour
can’t claim permanency with the principal employer merely on this ground. However,
contractor can be prosecuted for violating the Contract Labour Act for not getting the license
renewed. The Punjab & Haryana High Court has also clarified that when a contractor does
not possess valid license, only penal provisions would be attracted and it is no where
provided that such contract labour would become employees of principal employer.11

1.7.9 WHAT IS THE LEGAL IMPLICATION OF A CONTRACTOR CHANGING BUT CONTRACT LABOUR
NOT CHANGING?
The situation where contractor has changed but the contact labour remains same may be
viewed against the principal employer as it reflects against the spirit of the Contract Labour
Act unless the shift of labour from one contractor to other is properly documented. This may
lead to a sham contract. The Supreme Court in R.K.Panda vs. Steel Authority of India has held
that workers working under different contractor for last ten years will be absorbed by the
principal employer.12

10 Steel Authority of India vs. Authority under Minimum Wages Act, 2007 LLR 79: 2007 (5) LLN 237 (MP HC)
11 Food Corporation of India vs. Presiding Officer, Central Government Industrial Tribunal-Cum -Labour Court 1, Chandigarh
2008 (116) FLR 69 4 (P&H)
121994 (69) FLR 256 (SC)

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1.7.10 WHAT HAPPENS TO CONTRACT LABOUR WHEN THE CONTRACT BETWEEN A CONTRACTOR
AND PRINCIPAL EMPLOYER IS TERMINATED DUE TO UNSATISFACTORY PERFORMANCE?
In this situation the contract labour cannot claim permanency in the organization. The
moment contract is terminated, the workers employed by such contractor lose the right to
enter into the premises of the principal employer to work as it is the responsibility of the
contractor to either keep such labour under his employment or clear their accounts. If
principal employer allows such contract labour to work in the premises without any tag /
identification, in all probabilities such contract labour will be deemed as the workmen of the
principal employer.

1.7.11 WHAT IS THE LIABILITY OF PRINCIPAL EMPLOYER IF CONTRACTOR RUNS AWAY LEAVING
BEHIND HIS WORKFORCE?
It is for the contractor to discharge his responsibility as employer towards his workmen. If he
runs away leaving behind his workforce, in no way principal employer is responsible for
taking care of them in strict legal sense except payment of wages, if not paid by the
contractor. Principal employer should not involve himself in the conciliation reference.

1.7.12 WHO IS RESPONSIBLE FOR PAYMENT OF WAGES TO CONTRACT LABOUR?

A contractor shall be responsible for payment of wages to each worker employed by him as
contract labour. Principal employer shall nominate a representative duly authorized by him
to be present at the time of disbursement of wages by the contractor and it shall be the duty
of such representative to certify the amounts paid as wages. It shall be the duty of the
contractor to ensure the disbursement of wages in the presence of the authorized
representative of the principal employer.

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Simplifying Human Resource Documentation

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