Contract Labour under the OSH Code — Labour Law II Notes

Contract Labour under the OSH Code

A factory does not hire its own canteen staff, cleaners or loaders — it calls a contractor, who brings a gang of workers who cook, clean and load inside the factory but are on the contractor’s payroll. When their wages go unpaid or the canteen has no clean water, who is answerable? The law’s answer — that the factory owner cannot hide behind the contractor — is what this topic is about.

The triangle, and how the law regulates it

Contract labour is a three-cornered arrangement:

the principal employer — the establishment where the work is done;
the contractor — who employs and pays the workers and supplies them to the principal employer;
the contract labourer — the worker, on the contractor’s rolls, working in the principal employer’s premises.

The mischief is exploitation: insecure work, low pay, no benefits, and no one clearly responsible. The Contract Labour (Regulation and Abolition) Act, 1970 — now Part I of Chapter XI of the OSH Code, 2020 — tackles it two ways.

Objectives. (1) Regulate the employment of contract labour, and (2) provide for its abolition in certain circumstances (where the work is perennial and of a kind ordinarily done by regular workers).

Essential features / the regulatory spine:

Registration of the establishment (of the principal employer) — a principal employer engaging contract labour must register the establishment; engaging contract labour without registration is prohibited.
Licensing of contractors — a contractor must obtain a licence to supply contract labour, on conditions (wages, hours, welfare).
Welfare and health facilities — canteens, rest-rooms, drinking water, latrines/urinals, washing and first-aid must be provided; if the contractor fails, the principal employer must provide them and may recover the cost. This is the key accountability rule.
Payment of wages — the contractor pays wages; if he defaults, the principal employer is liable to pay and recover from the contractor.
Advisory Board — a tripartite advisory board (the old Central Advisory Contract Labour Board, now performed through the OSH Code’s National/State Occupational Safety and Health Advisory Boards) advises the Government on contract-labour matters and on prohibition of contract labour in particular operations.

Chapter XI Part I, OSH Code 2020 (in brief): no principal employer shall engage contract labour “except in accordance with the … registration”, and no contractor shall supply contract labour “except under and in accordance with a licence”; welfare facilities not provided by the contractor “shall be provided by the principal employer”.

In Simple Terms: Register the establishment, licence the contractor, provide welfare and pay wages — and if the contractor fails on welfare or wages, the principal employer must step in. A tripartite board advises on regulation and on abolishing contract labour where the work is really regular.

🧩 WORKED EXAMPLE — the contractor who skips welfare

Facts. A contractor supplying loaders to a factory provides no drinking water or rest-room; the principal employer says “that is the contractor’s job”.

Rule. Welfare facilities (drinking water, rest-rooms, first-aid) must be provided; if the contractor fails, the principal employer must provide them and may recover the cost.

Apply. The contractor’s default shifts the welfare duty to the principal employer, who cannot disclaim it.

Conclusion. The principal employer must provide the facilities — the law makes him the ultimate guarantor.

flowchart TD
    ROOT["Contract labour triangle (OSH Ch XI Pt I)"]:::root
    ROOT --> PE["Principal Employer — registers establishment"]:::leaf
    ROOT --> C["Contractor — licensed; pays wages, welfare"]:::leaf
    ROOT --> CL["Contract labourer — works in PE's premises"]:::leaf
    C -->|"contractor defaults"| PE2["Principal Employer must provide welfare/wages"]:::pay
    ROOT --> AB["Tripartite Advisory Board — regulation & abolition"]:::leaf
    classDef root fill:#FFF8DC,stroke:#000,stroke-width:1px,color:#000;
    classDef leaf fill:#E6F3FF,stroke:#1E3A8A,color:#000;
    classDef pay fill:#E7F6E7,stroke:#217a21,color:#000;
    linkStyle default stroke:#888,stroke-width:1px;

Case Laws

[C-8] Steel Authority of India Ltd v National Union Waterfront Workers (2001) — abolition of contract labour under the Act does not automatically make the workers employees of the principal employer; absorption is not automatic.
Standard Vacuum Refining Co. v Workmen (1960) — courts may direct abolition of contract labour where the work is perennial and incidental to the industry.
Gammon India Ltd v Union of India (1974) — upheld the registration/licensing scheme as a valid regulation of contract labour.

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