When the law needs to catch up with reality

An article in Business Standard, talks about on growing contract workforce in India and the need to revamp the laws governing them; along with inputs from Rituparna Chakraborty.

The size of the contract labour force in India’s largest carmaker Maruti Suzuki is reflective of how the corporate world is responding to the changed dynamics of the labour market. The share of contract workers in the automobile company’s total workforce has grown from 32 per cent in 2013-14 to 42 per cent in 2015-16.

Around 55 percent of the 537 million tonnes of coal mined by public sector behemoth Coal India during 2015-16 was done by 65,000 contractual workers. This ratio is poised to increase to at least 58 per cent in the current financial year.

The Centre remains one of the biggest employers of contract labour. According to the Seventh Pay Commission, the Centre spent Rs.300 crore in 2012-13 on contract or temporary workers.

The growing demand for contract workers is in line with the global trend of seeking employment flexibility. Over the past 25 years unionisation has Men across the world. Job outsourcing and dispersal of the workforce in multiple countries have become commonplace even for medium-sized companies in developed countries. As developing countries like China, Bangladesh, Egypt, Brazil and Colombia are changing their labour laws to permit flexible hiring, developed nations with strong trade unions have been forced to make regulations favouring temporary hiring.

Take, for instance, the concept of zero-hour contract, where the employer has no obligation to provide any stipulated hours of work but the employee is required to be available when the employer needs his service. This is the latest example of flexible hiring in Britain.

In India, companies, particularly those in labour-intensive sectors like automobiles, construction and mining, usually refrain from hiring permanent workers for project-based requirements, as termination requires issuing a notice, payment of compensation, and intimation to the government.

India’s temporary workforce is governed by the Contract Labour (Regulation & Abolition) Act, 1970. An establishment that employs 20 or more workmen on any day of the preceding 12 months can employ temporary workers upon obtaining a valid certificate of registration.

Trade unions say companies prefer the use of contract workers because of the cost arbitrage. Contract workers are paid much less than regular workers. This year’s Economic Survey estimates wages are on an average 20 times higher in the formal sector than in the informal sector.

“When the work in an automobile factory is of perennial nature, why should a company be allowed to hire contract workers?” asks D L Sachdeva, general secretary, All India Trade Union Congress. Sachdeva says there should be no difference between a permanent employee and a contract worker who is equally experienced and does the same job with equal efficiency.

Industry executives point out that the presence of the word “abolition” in the Act sends a wrong message. “We employ people in ground-handling services according to our need. You can’t expect pay parity between workers with experience of 12 years and those with one year,” says an executive with an airline company.

Legal experts point out lacunae in the law and the fact that the judiciary has interpreted the law in various ways. The Supreme Court in its judgment in the RK Panda vs Steel Authority of India case said workers continuing in employment for 10 years should be absorbed as regular employees. But in a separate case, Steel Authority of India vs National Water Front Workers, the court ruled there was no provision in the law implying absorption of contract workers.

Experts say the archaic law forces many companies to subvert it, denying adequate legal protection to contract workers. “When this law was made, only the bipartisan nature of negotiation was kept in mind. It has to change in the current scenario,” says Rituparna Chakraborty, senior vice-president of staffing company TeamLease.

Moreover, the process of hiring contract workers is a tedious one. An organisation with offices across the country has to seek registration by declaring the number of vendors who supply contract workers in each office, based on which forms are issued by separate states. Every vendor in every premise has to seek a licence on that basis. Many companies find ways to subvert the law by hiring contract workers through third-party agents. “The government should make licensing for staffing firms compulsory to weed out fly-by-night operators,” says Chakraborty.

The government is waking up to the reality of flexi-staffing. It recently allowed temporary workers in the garment industry. The decision to set the minimum wage of 110,000 a month for contract workers is another step in that direction. “Contract work is now a reality; the government understands that, and is working towards facilitating it,” noted Shankar Agarwal, secretary in the labour and employment ministry.


  • Industry wants simplification of the Act for easy compliance
  • Register staffing firms to weed out fly-by-night operators
  • Labour unions want pay parity between regular and contract workers
  • Amendment of the Act to remove the word “abolition”

This article was published in Business Standard


Rituparna Chakraborty

Co-Founder & EVP
TeamLease Services Ltd

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