Contract Labour Deployment in India - Demystifying the Future Conceived by the Code on Occupational Safety, Health & Working Conditions, 2020

The business of human resource deployment by contractors for their clients has grown and evolved globally. In India, the contractor-sourced industrial workforce grew by about 293% between 2002-03 and 2021-22.[1] Recently, India has unfurled four labour codes that revamp its existing labour laws to meet the needs of the Indian workforce such as contract labour deployment.

The Contract Labour (Regulation and Abolition) Act, 1970 (“CLRA”) predominantly constitutes the applicable law on contract labour in India. It will be replaced by the Code on Occupational Safety, Health and Working Conditions, 2020 (“OSH-Code”) from a date, pending to be notified (“Effective Date”). This article seeks to evaluate the material reforms introduced by the OSH-Code regarding contract labour deployment:

a. Revised Applicability Threshold: The OSH-Code has increased the applicability threshold of contract labour related compliance to engagement of at least 50 contract labour personnel, as opposed to 20 under the CLRA, in the preceding 12 months. Thus, all contractors supplying, or establishments engaging, up to 49 contract labour personnel in the said tenure will be exempt from contract-labour specific compliance under Chapter XI of the OSH-Code.

b. Contract Labour: The OSH-Code has included the following in the scope of “contract labour”: (i) inter-state migrant workers, (ii) working journalists, (iii) sales promotion employees, and (iv) any person employed in an operational capacity. Further, any person regularly employed by the contractor for its establishment on mutual terms and drawing standard labour-like benefits will not qualify as “contract labour” (“Contractor Employees”). The said scope may change the status of certain personnel to contract labour from the Effective Date.  Accordingly, all contractors should revisit their existing and potential arrangements with their clients as well as personnel and vice versa (“Relevant Arrangements”), to ensure that the Relevant Arrangements are OSH-Code compliant from the Effective Date.

c. Core Activity: In line with the historical intent to permit contract labour deployment only in non-permanent roles of a temporary nature, the OSH-Code expressly prohibits contract labour deployment in the “core activity of an establishment” subject to the Permissible Activities. Core activity means any activity for which the establishment is set up and includes any activity which is essential or necessary to such activity (“Core Activity”). Simultaneous with the aforesaid general prohibition, the OSH-Code identifies the following activities in which contract labour deployment is / may be generally permissible (“Permissible Activities”):

(i)support services to the Core Activity such as sanitation, catering, courier, civil works, gardening, housekeeping, transportation, etc.;[2]

(ii) Core Activity, if it is an activity of intermittent nature;

(iii) Core Activity, if the normal functioning of the establishment is such that the Core Activity is ordinarily done through the contractor;

(iv) Core Activity, if it does not require full time workers for the major portion of the working hours in a day or for longer periods, as the case may be; and / or

(v) Core Activity, in case of sudden increase of volume of work in the Core Activity which needs to be accomplished in a specified time.[3]

The above construct materially changes the position under the CLRA. Instead of notification-imposed prohibition under the CLRA, the OSH-Code provides for a general prohibition thereby limiting governmental interference to in determining whether any Core Activity is a Permissible Activity. This clarity will be instrumental in helping establishments to effectively structure their human resource requirements. Accordingly, relevant contractors and establishments should revisit the Relevant Arrangements such that their operations are undertaken within the scope of Permissible Activities.

(d) Principal Employer: The OSH-Code has increased the onus on persons in control of establishments engaging contract labour (“Principal Employers”) to ensure that they are sourcing contract labour from a duly licensed contractor.  The OSH-Code further expressly states that the Principal Employers may engage contract labour in the broadly phrased Permissible Activities, set out in (iii), (iv) and (v) of paragraph (c) above. This suggests that the Principal Employers have functional knowledge about their business practices and are in a better position to assess and interpret whether any activity is a Permissible Activity. The said reference may be instrumental in risk allocation between the contractor and the Principal Employers in their inter se arrangements / contracts for determining responsibility of ensuring that the relevant activity is a Permissible Activity.

In addition to the said key reforms, the OSH-Code has introduced various other changes including electronic licensing and payments, single licensing, security deposits, the abolishment of registration for Principal Employers, and inter-state migrant workers related obligations. Thus, all affected stakeholders should commence re-assessing their business operations and the Relevant Arrangements using the OSH-Code kaleidoscope to ensure compliance from the Effective Date.

References:

[1] “The Contractualisation of Workforce in India’s Factories Continues”, The Wire, July 19, 2024, Available at: https://thewire.in/labour/the-contractualisation-of-workforce-in-indias-factories-continues#google_vignette

[2] Section 2(p) of the Code on Occupational Safety, Health & Working Conditions, 2020

[3] Section 57 of the Code on Occupational Safety, Health & Working Conditions, 2020