Exploitation of Contract Workers Under Labour Laws

By-Saijeet Mohanty


People and corporations have increased their production rates to maximize their profits in today's world of broad globalization. As a result, firms have been vigilant to decrease costs, supporting contract labour. In India, contract employees make up a significant portion of the entire workforce.

Contractual labours fall under this topic and jurisdiction when it comes to salaried workers. However, few people are aware that, like permanent employees working for a reputable company, contractual employees have some rights under the Contract Labour Act of 1970. At a time when even large corporations are turning to contract workers, the said paid workers must understand their rights under the Contract Labour Act of 1970 to avoid being exploited.

The majority of these individuals are employed on a seasonal or ad hoc basis as and when they are needed. Contractors who operate as a link between the actual employers and the workers are typically used to recruit contract labourers. However, such contractors are increasingly engaging in large-scale power abuse and misuse. Workers are abused in particular by being paid less than agreed-upon salaries, being coerced into work that is hazardous to their bodily or mental health, and so on. The central government's primary obligation is to ensure the well-being of the nation's labour sector. As a result, the Central Government has implemented several laws targeted at ensuring the welfare of the working class. The rights granted to contract workers under the Constitution and other labour regulations, on the other hand, are rarely enforced. Although trade unions exist to protect workers' rights and welfare, they mostly serve the vested interests of trade union officials. The situation is considerably worse in small and medium enterprises, where there is a complete chaos and people are left to their own.

Contract Labour (Regulation and Abolition) Act 1970

As a result, the Government thought it necessary to pass the Contract Labour (Regulation and Abolition) Act 1970[1], to protect contract labourers' rights and welfare.

The Contract Labour (Regulation and Abolition) Act of 1970 was enacted as a federal law to control the working conditions of contract labourers and ensure that the contract labour system is phased out as soon as feasible.

The Act was made applicable to all establishments operating throughout the country, and both the federal and state governments were given authority to implement it in their respective areas. The Act aims to reduce labour exploitation and improve contract workers' working circumstances.

Objective: The Contract Labour (Regulation and Abolition) Act's main goal is to prevent contract employees from being exploited and to abolish the contract labour system in circumstances where:

  • The work has a long-term character to it.

  • The work is either incidental or essential to the establishment's operation.

  • The work is of such a character that it can accommodate a large number of full-time workers.

  • Contract workers are not required to complete the work; regular labourers can do so.

Applicability: Under section 1(4) of the Act, it applies to every establishment in which 20 or more workers are employed or were employed as contract labour on any day in the preceding 12 months, as well as every contractor who employs or employed 20 or more workers on any day in the prior 12 months.

According to Section 2(1)(e), an establishment is any government office or department, a local government, or any place where any industry, trade, commerce, manufacture, or vocation is carried out. The fact that a worksite may or may not belong to the major employer does not exclude the Act's applicability or the conclusion that a specific location or worksite where industry, trade, business, production, or employment is carried on is not an establishment.

As a result, a ship or vessel that is undergoing repairs is both a place and an establishment. A ship moored or berthed in a port is a worksite, and the workers needed for cargo loading and unloading, security, and ship repairs are all related to the business or trade.

The Act does not apply to establishments where work is performed only on an occasional or casual basis, according to Section 1(5). Work performed at a business place is not considered intermittent, according to the explanation:

  1. if it was done for more than 120 days in the previous 12 months, or

  2. if it is periodic and is conducted for more than 60 days every year.

Issues in the act

Although the Act tries to regulate contract work, its ultimate goal is to abolish it, as previously indicated. This raises various concerns about persons who are now receiving benefits under the Act's work status and opportunities. The elimination of contract labour would result in job loss, which would be a far worse situation than working as a contract worker. This question, on the other hand, has been addressed in practically every instance involving contract workers. It has been stated unequivocally that after contract labour is abolished, workers who were employed in this capacity will be incorporated into the establishment's core staff. It was also claimed that job losses would not be a possibility because this would go against the entire purpose of the Act, which is to provide people with secure employment.

The Supreme Court of India held in RK Panda v. Steel Authority of India[2], where the identical issue was raised, that the major goal of the Act was to safeguard contract workers against abuse. The employer, on the other hand, has a sole choice over whether to reintegrate them into the workforce or terminate their job. There have been various situations that have resulted in differing viewpoints over time. However, the majority of them have maintained that the employer should be the only decider on whether to absorb or terminate employees.

The Act additionally imposes some obligations on business owners, such as providing basic amenities and meeting the requirements of contract workers. This was contested on numerous grounds, including that because the worker is just temporary, such a large expenditure on them is unnecessary and must not be compelled. It was argued that such coercion was a breach of Article 19(1)(g).

Several clauses and restrictions under the contract labour statute of 1970 were read widely by the court in Gammon India Ltd. vs. Union of India[3]. Various facilities, wage payment methods, contractors, and major employer responsibilities were all construed liberally. In addition, the constitutional legality of the contract labour statute was established in this case. It was decided that it was the employer's responsibility to provide all the workers with essential amenities to safeguard their safety and wellness. Expenses incurred in the process of this are tax-free and are not a waste of money in any manner.

Rights of the Contractual Employee

  • Working Hours

A contractual employee may be required to work for no more than 48 hours per week and 9 hours per day. He or she is entitled to a wage that is double the regular rate if he or she works overtime. The duration of work hours must be communicated to the employees. A contractual worker who has worked for 240 days or more is entitled to paid yearly leave, with one day of leave for every 20 days worked.

  • Health and Safety

As previously stated, contractual factory workers have the right to i) get information about health and safety at work and ii) receive training in health and safety at work, in accordance with the employer's responsibilities.

  • Social Security

Contractual workers are protected by the Employees' State Insurance Act, 1948[4], and are eligible for social security coverage if their monthly salary exceeds Rs.15,000/-. The employers are responsible for ensuring the workers and must enroll with the Employee State Insurance (ESI) corporation. The company contributes 4.75 percent of employee wages to the ESI plan, while the employee contributes 1.75 percent of his or her salary. Workers who make less than Rs.137/- per day are free from paying their portion of the contribution. Health benefits, sickness benefits, maternity pay, incapacitation benefits, and dependant benefits are all available to workers under the system. The Unorganized Workers' Social Security Act,2008[5]ensures that contractual workers in the unorganized sector have access to welfare such as the Indira Gandhi National Old Age Pension Scheme, Janani Suraksha Yojana, and others. However, because registration under the Act is not required, the Act has not been adequately implemented.

  • Other benefits

If a person gets seriously injured on the job but isn't covered by the ESI plan, he or she might receive redress under the Workmen's Compensation Act, 1923[6].Similarly, if a female contractual worker is not covered by ESI, she could use the Maternity Benefit Act, 1961[7]to claim maternal leave (up to 26 weeks for the birth of the first two children) and earnings (assuming she performed in a business for at least 80 days that year preceding her projected date of delivery).

Dealing with COVID, what challenges do Worker face?

The Ministry of Labour and Employment published a recommendation in response to the pandemic, urging employers not to dismiss contractual workers and to guarantee that their salaries be paid. Corporations are still perfectly within their rights to terminate a contractual worker because it is a piece of nonbinding advice.

As a result, the COVID situation has exacerbated the uncertainty that characterizes contract work. This is exacerbated by the fact that protection provided to these workers is merely "basic" in comparison to the security net of safeguards available to permanent staff.

Contractual workers, for example, are unable to bring a claim for regularization of labour because they do not meet the description of "workmen" as defined under the Industrial Disputes Act of 1947[8].Contractual workers, under such situations, resume the work with a greater sense of insecurity, both in terms of health and income, as many states imposed the lockdown. To correct the problem, more protections that guarantee their health, safety, and economical situations must be adopted.


Without a question, the Contract Labour (Prohibition and Abolition) Act represents a significant effort on behalf of the National Government to promote the interests and wellbeing of the working class. Yet, the Act's flaws and loopholes leave a lot of room for improvement.

A full modification of the Act along with more prevailing rights of the workers are urgently required for it to be relevant in today's pandemic-struck world where workers especially of the contractual class are more prone to lose their job and are more insecure. The flaws in the system are dragging it behind the schedule and are hindering it from attaining its ultimate aim. A more comprehensive reform with a well-thought-out strategy would not only assure the well-being of workers but will also pave the way for the progressive and successful abolition of contract labour in the long term.

[1] Contract Labour (Regulation and Abolition) Act 1970, No. 37, Acts of Parliament, 1949 (India). [2] RK Panda v. Steel Authority of India,1994 SCC (5) 304 [3] Gammon India Ltd. vs. Union of India,1974 AIR 960 [4] Employees' State Insurance Act, 1948, No. 34, Acts of Parliament, 1949 (India). [5] Unorganized Workers' Social Security Act,2008, No. 33, Acts of Parliament, 1949 (India). [6] Workmen's Compensation Act, 1923, No. 8, Acts of Parliament, 1949 (India). [7] Maternity Benefit Act, 1961, No. 53, Acts of Parliament, 1949 (India). [8] Industrial Disputes Act of 1947, No. 14, Acts of Parliament, 1949 (India).

Author: Saijeet Mohanty

Course: BBA-LLB, 2nd year,

College: Xavier Institute of Management University

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