Key Reforms Impacting Contract Labour Under Code on Occupational Safety, Health and Working Conditions, 2020

The Contract Labour (Regulation and Abolition) Act, 1970 (“CLRA”) was enacted 50 years ago to regulate the working conditions of contract labour and ensure payment of wages and provision of basic amenities to them. Time has shown that the CLRA fails to provide even basic protections to the class of workers that it seeks to protect. For instance, requiring contractors to provide welfare facilities, such as restrooms and canteens, for contract labour at the principal employer’s establishment, at their own cost, is impractical and, therefore, ineffective.  

Further, the registration-cum-licensing structure envisaged under the CLRA is establishment-specific and not entity-specific. As such, a principal employer needs to obtain a separate registration for each of its establishments. Likewise, a contractor also needs to obtain a separate licence for each establishment to which it supplies contract labour, after obtaining certification from the principle employer. Till such time that the contractor obtains a licence and the principal employer obtains a corresponding registration, the workers in question cannot be onboarded as contract labour.  

The inadequacies under the CLRA often dissuade businesses from engaging contract labour, encourage sham contract labour arrangements, fail to insulate principal employers from contractor’s non-compliances, and fall short of providing contract labour the basic rights and privileges of being an integral part of the organized workforce, and the protection that comes with such rights and privileges.  

The Code on Occupational Safety, Health and Working Conditions, 2020 (“Code”), which received President’s assent on September 28, 2020, seeks to amalgamate, simplify, and rationalize the relevant provisions of 13 Central labour law enactments, including the CLRA. It sets the stage to effectively address the various shortcomings of the CLRA while accommodating the changing needs of businesses, and balancing the rights and interests of contract labour through the following key reforms: 

• Expanding the definition of ‘contract labour’ to include inter-State migrant workers and workers in a supervisory capacity who receive wages above INR 500 and less than INR 18,000, thereby affording protection to a greater number of contract labourers. 

• Increasing the applicability threshold from 20 to 50 contract labour and thereby deregulating smaller establishments/contractors employing less than 50 contract labour.  

• Removing the registration requirement for principal employers by introducing a common registration for every establishment employing 10 or more workers, irrespective of contract labour arrangements. 

• Replacing the existing multiple licence requirement with a single licence that has a five-year validity and is de-linked from the principal employer for contractors who satisfy the prescribed criteria.  

• Prescribing a ‘work-specific licence’ for contractors who do not satisfy the prescribed criteria.  

• Introducing a single pan-India licence for contractors supplying contract labour to private sector establishments in more than one state or all over India. 

• Making principal employers solely responsible for the provision of welfare facilities for contract labour as also the maintenance of health, safety, and working conditions for them, and thereby making contract labourers’ access to such amenities more realistic. 

• Treating the engagement of unlicensed contractors (who require a licence under the Code) as a contravention on the part of principal employers, subjecting them to stiff penalties. 

• Formalizing contract labour employment by mandating the issuance of appointment letters and experience certificate to them by the contractors, and thereby ensuring transparency in the terms of offer while safeguarding future job prospects of contract labour. 

• Imposing a duty on contractors to notify the concerned authority about all work orders received from principal employers, failing which the licence already issued could be suspended/cancelled. 

• Empowering appropriate Government to pass orders for payment of pending wages due to contract labour from the security deposit furnished by the contractor. 

• Defining “core activities of establishments” where contract labour engagement will be prohibited, except in certain specified circumstances.  

• Eliminating the current penalty of imprisonment while significantly enhancing the monetary penalty for any contravention of compliance with contract labour regulations. 

By eliminating the extraneous and unnecessary compliance requirements, the Code gives a certain degree of operational independence to principal employers and contractors. In so doing, it answers the specific need of businesses for a dynamic workforce. Further, it seeks to remove the intrinsic vulnerabilities associated with contract labour, rendering contract labour regulations altogether more effective and efficient.