Whether law permits automatic absorption of contract labour: (16 October 2024)

In this article automatic absorption of contract labour in absence of any specific provision under the Contract Labour (Abolition and Regulation) Act, 1970 ("CLRA") and recent decision of Supreme Court in this regard will be discussed.

Introduction:

Parliament has enacted the CLRA with an objective to regulate employment of contract labour in certain establishments and to abolish the same in certain establishments. CLRA came into force with effect from 1 February 1971. CLRA is applicable to every establishment where twenty[1] or more contract labours are employed or were employed and to every contractor who employs or employed twenty or more contract labour during the preceding twelve months.

Under CLRA every employer, to whom CLRA applies, is required to obtain registration as principal employer, before engaging contract labour and every contractor who breaches the threshold of twenty is required to obtain a contractor license.

Going further, Sec 3 of CLRA talks about the constitution of Central advisory board and Sec 4 explains about constitution of state advisory board. Sec 10 of the CLRA discuss about the prohibition of employment of contract labour. As per the Sec 10 the appropriate government in consultation with the Central advisory board or State advisory board, as the case may be, by issuing notification in official Gazette prohibit the employment of contract labour.

Decision of Supreme Court: Kirloskar Brothers Limited Vs Ramcharan and ors, CA Nos. 8446 8447 of 2022.

A question came up before the Supreme Court to decide, whether in absence of any specific provision, is it mandatory on the part of the principal employer to absorb the contract labour, employed through the contractor. Brief facts of the case are, respondents 1 to 6 are contract labours, of the respondent 7, who is a contractor. Said contractor was engaged by the principal employer. Contract between the contractor and principal employer is renewed from time to time till it got ended on 7 October 1996. Respondent contract labours approached the labour court, seeking reinstatement contending that they are employees of the principal employer. Labour court vide judgement and order dated 14 March 2022, held that respondents are the employees of the contractor not employees of principal employer. On appeal to the industrial tribunal, industrial tribunal ordered reinstatement holding that contract labour automatically become employees of the principal employer considering the definition of employee and employer under the Madhya Pradesh Industrial relations Act, 1960 (MPIR Act). The order of the industrial tribunal was confirmed by the single judge bench and division bench of the Madhya Pradesh High Cout, which was finally appealed to the Supreme Court by the Kirloskar, the principal employer.

Appellants contended that in absence of any notification under Sec 10(1) of the CLRA and contract being not sham, respondents could not have been held to be employees of the appellant’

Supreme Court relying on decision of constitutional bench in Steel authority of India Ltd and ors Vs National Union water front workers and ors[2] wherein it held that" neither Sec 10 of the CLRA nor any other provision in the Act, whether expressly or by necessary implication provides for automatic absorption of contract labour, on issuing the notification by the appropriate government.

In the instant case, neither any notification was issued under sec 10(1) of the CLRA nor there were allegations or even finding that contract labour is sham and bogus and/or camouflage. Supreme Court reversed the decision of high court and held that contract workers are not employees of the appellant.

[1] Certain State Governments enhanced the threshold, while Telangana Government reduced the threshold to five or more than five.

[2] AIR 2001 SC 3527