Acceptability of Manpower Contracts and to Job-Contracts in Government & Public Sector

Author -
Sourish Roy; Student of LL.B. at Rajiv Gandhi School of Intellectual Property Law, IIT Kharagpur


The usage of Contract Labour in the form of manpower or job contracts has been preferred by private sector employers in India for a long time now. The tendency now seems to be percolating in the government departments and public sector units as well. In view of natural waning of permanent employees over a span of 10 – 15 years where manual labour is involved, instrumentalities of the state have of late, been resorting to outsourcing a major part of their non-core activities. In the present scenario, contractors’ workmen are engaged in almost all major areas of such operations such as cleaning, data-entry, office-support services etc. Even core areas of production in PSUs like production are gradually getting into this practice. In this piece, we take a look at the legal validity of this growing phenomena.


In early judicial decisions as well as government policy of India, there is a subtle disapproval towards the contract employment, as against permanent employment. It is clear that the legislature is aware of the possible negative ramification of contract employment in the form of meager working amenities and the potential of exploitation of the workers through reduced wages and other facilities. It can also deprive them of collective bargaining power. The judicial decisions also show a clear tilt towards this view. But with liberalization of economy and increased competition in the market, instrumentalities of the state are also veering away from this line slowly but steadily. We shall take a look at the change that has set in, through a case study.

The Contract Labour (Regulation and Abolition) Act, 1970 was brought in to regulate this form of employment. But the legislative intent behind it is apparent from the preamble which says –
“An Act to regulate the employment of contract labour in certain establishments and to provide for its abolition in certain circumstances and for matters connected therewith.”.

In the judgment in Gammon India Ltd. and Ors. vs. Union of India (UOI) and Ors. (20.03.1974 - SC) : 1974 (1) SCC 596, 1974 SCR (3) 665; the appellant had challenged the validity of Act - they contended that Section 28 conferred arbitrary power to Government as it allowed Government to appoint persons it thought fit as inspectors. Inspector had power under Section 28 to enter all reasonable hours of premises where contract labour is employed; for examining any register or record. The appellant contended that this amounted to arbitrariness. The Hon’ble Supreme Court held that various powers conferred are in consonance with object of Act and not violate provisions of Constitution.

The petitioner (a construction company) had contended “that they are not contractors within the definition of the Act for two reasons –
First, the work of the petitioners is not any part of the work of the principal employer nor is it the work ‘in connection with the work of the establishment’, namely, principal employer.

Second, the work of the petitioners is normally not done in the premises of the ‘establishment’ of the principal employer”[].
The Hon’ble Apex Court had held – “The contention of the petitioners is unsound……. Therefore, the work at the site as understood in the definition is the work of an establishment. The establishment is understood as including the worksite. The construction work which the contractor undertakes is the work of the establishment”.


The constitutional scheme envisages employment by the Government as a model employer and its instrumentalities should not resort to irregular employment methods. The courts have also followed this line.
In SAIL’S case reported in (2001) 7 SCC 1 it was held that by definition the term “contract labour” is a species of workman. A workman shall be so deemed when he is hired in or in connection with the work of an establishment by or through a contractor, with or without the knowledge of the principal employer. A workman may be hired by the principal employer through a contractor, who merely acts as an agent so there will be master-and-servant relationship between the principal employer and the workman. But where a workman is hired in or in connection with the work of an establishment by a contractor, either because he has undertaken to produce a given result for the establishment or because he supplies workmen for any work of the establishment, a question might arise whether the contractor is a mere camouflage. If the answer is in the affirmative then the workman shall be held to be the employee of the principal employer. Whereas if the answer is in the negative the workman shall be held to be contract labour.
Similar is the refrain in Umadevi’scase [(2006) 4 SCC 1]. This case further spells out and supplements this position. Thus, a job contract has a lesser chance of being considered as a camouflage as compared to a man-power supply contract where the workman is under the direct supervision and control of the principal employer and the contractor may not be liable for producing a certain pre-assigned result or productivity. This of course needs to be considered alongwith with other extant factors in each class of work/job assigned or required to be executed.
Thus, any public employment has to be in terms of the constitutional scheme, the applicable recruitment rules and other extant rules for procurement of services including PSUs or the like.

The manpower contract being discussed here falls within the category of Contract Labour. The Supreme Court of India in the case of Standard Vacuum refinery Company Vs. their workmen 1961 AIR SC 895 ascertained that contract labour shouldn’t be used where:
·        The work is perennial and should press on from day to day;
·        The work is concomitant and necessary for the work of the factory;
·        The work is decent to use sizable variety of whole time workmen; and
·        The work is being drained most issues through regular workmen.
The cleaning, data-entry, office-support services are perennial in nature, and hence the manpower contract is not applicable in those fields. It is thus suggested that precautions are taken in regard to the same.
The manpower contract may also attract liability in regard to Section 10(a) to 10(d) of the Contract Labour (Regulation and Abolition) Act, 1970, since the activities in question are perennial in nature.
The intent of the legislature is also aptly interpreted by the Calcutta High Court in IBP Co. Ltd. Thika Sramik Union vs Indian Oil Corporation Ltd. & Ors on 10 January, 2019 - MAT 1818 of 2017; where the Court observed –
The CLRA Act having been enacted in the light of the baneful effects of such practice and to regulate the same wherever abolition is not possible, no principal employer employing contract labour through a contractor can legitimately claim that it has a legal right to continue to employ contract labour, and that an order/notification prohibiting employment of contract labour should be preceded by a hearing before the Board. In our view, any step taken by the appropriate Government in the direction of abolishing contract labour, which is in tune with the Constitutional scheme, cannot impact the principal employer so adversely or prejudicially that the provisions thereof have to be given a strained interpretation to include a right of hearing to the principal employer before the relevant Advisory Board makes its recommendation to the appropriate Government for issuance of a section 10 notification”.

In view of the fact that PSUs are now expected to survive on their own and there is no state support, they have very few options and there is a need to balance the usage of contract labour against any direct violation of law. The following steps may be considered by them to find a working way, at least for the time being, till clear and effective government policies come out.
1.         To assess and classify regular posts/vacancies concerning jobs of perennial nature as opposed to work of casual nature.
2.         To avoid recruitment of contract labour against regular posts/ vacancies. Regular posts/vacancies to be filled up through prescribed rules and regular mode in keeping with the extant recruitment rules.
3.         To use contract labour only as a supplement preferably through an independent contractor who is made responsible for the result/execution of the job/work assigned rather than being a mere camouflage.
4.         To engage contract labour only by adhering to the relevant rules, GFRs, tender norms, if any, and/or other applicable rules/norms and not by private treaty.
5.         To address the One-Time Measure and Cut-off Date as postulated in Umadevi’s case.
6.         No past regularization to be re-opened, if the same is not sub-judice.
Real life ground reality thus seems to have moved on a lot from the days of the Gammon India case that we had begun with. Exigencies of competing enterprises and challenges thrown up by globalization and cheaper imports have resulted in all-round cost cutting. The warp in the approach of industry, even PSUs, towards contract labour is noticeable and an appropriate policy is required to balance the legal aspects. But to escape the ambit of legal restrictions, many PSUs are now thinking of shifting to manpower contracts instead of job contracts.

View Expressed are writers' work The topic discussed here is a brief of the subject matter and should not be substituted as proper legal advice. If a matter comes up under this topic then it is strictly advisable to consult a professional for advice and for the procedure and practice to be followed.


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