Under the contract labour system, the principal employer entrusts certain assignments to a contractor. The labour engaged by the contractor is contract labour. This device can be misused by the principal employer (owner of business) as an instrument of exploitation to deprive persons who would have normally been regular employees, the benefits, entitlements and incidence of regular service. The main tactic would be to engage a contractor as a camouflage when, for all practical purposes, the workers are the owners employees.
In such a situation, the State can, under Section 10 of the CLRA Act, prohibit employment of contract labour in any operation of any particular type of establishment or industry. For that, the State has to take into account relevant factors such as whether the work involved is perennial and requires the deployment of a regular and considerable workforce. The State can then issue a notification prohibiting employment of contract labour in particular areas of operation in a department of industry. The question which was argued at great length in the present case is whether Section 10 carries with it the inherent power of absorption of the existing contract labour as a consequence of the issue of such a notification.
The counsels for Oil and Natural Gas Corp, Sail, and Food Corporation of India contended that the Act did not provide for this consequence. The Court had considered the issue of abolition under Section 10 of the CLRA Act in various instances, but the absorption of the existing contract labour was not dealt with in the earlier Constitution Bench judgement of Gammon India. It was in the Air India case that the issue directly came up for consideration and the Court held that though there was no express provision in the CLRA Act for absorption of contract labour by the principal employer, the spirit of the Act did not intend the workman to be denuded of the benefit of employment. The fact that contract labour was being abolished being regarded as perennial in nature implied a direct relationship between the workers and the principal employer who was obliged to absorb them. Otherwise, the contract labour had no recourse since it was unlikely that the Union would espouse their cause under Section 10 of the Industrial Disputes Act.
While the concern for the plight of the displaced worker is entirely justified, this judgement did not address the changing economic scenario where a strong service sector was emerging, the concept of reduction of overheads was gaining recognition as a cost control measure, and that, in many situations, automatic absorption could create more problems than resolving them. The biggest example is the economic malaise in public sector undertakings due to over staffing, created in many cases by automatic absorption. The bottom line is that the employer has to remain healthy to sustain workers. Legislation and judicial approach has to consider promoting development of the services sectors. The emphasis should be on regulation of service conditions of contract labour.
The present judgement has held that the principle of beneficial legislation does not extend to read into the Act what the legislature has not provided, either expressly or by necessary implication. The Court has concluded that there can be no inference of automatic absorption. But the Court has clarified that industrial adjudicators will have jurisdiction to consider in a given case whether the contract for supply of contract labour was genuine or a ruse to deprive workers of benefits of employment, in which case their services would have to be absorbed. This implies a defence being available to the employer against a case for absorption.
For the industry, this view is a welcome breather, till the next Court decision comes. The Sail judgement does not address the categorical finding in the Air India case of no redressal mechanism being available under the ID Act. Nor does it deal with the workmans means of subsistence during the pendency of the industrial dispute. On these and many more issues, there are bound to be further rounds of litigation. But till then, the industry can breathe freely.
Kumkum Sen is a practicing corporate lawyer and a partner of Khaitan & Khaitan, a Delhi law firm