Contract Labour Vs Casual Labour - Which option is better and why?

Hi Friends,
Can some one tell me, in a factory set up, from legal perspective....to engage additional labourers,one should go for Contractual Labourers OR go for casual labourers?
Which option is better and why? also if I am running factory with the help of casual labourers then is there any merit on going for CLRA?
Thanks in advance.
Regards,
Amit

There is no merit in working a factory with contract labour alone. At the same time, you are not expected to engage contract labours in such operations which are perennial in nature and wherein regular workers directly employed by the company can be considered.

There are companies who do not follow laws but claims to be perfect in legal side and employ contract labour even in permanent or regular nature of operations. The CLRA Act is an Act which is not properly enforced and therefore, even if you engage contract labours in core functions no body is going to question unless and until something happens similar to what happened in Maruti. That will also get wiped out in a month or two once the TV and media get something else hot.

If you require additional manpower temporarily, you can employ temporary employees and once the work is over ask them to go. There is no law which says that employment is permanent and you should regularise all casual labours. You need not regularise any casually employed labour. Casual employment is some thing that is given when there is additional work for a limited period or when there is a leave by a regular employee. Therefore, please do not think of running the show with only casual labours. Another important thing is that these casual employees are also eligible for statutory rights like PF/ESI etc.

Madhu.T.K

Thanks Madhu, for quick reply.
Can you please elaborate on Maruti Case, you are referring to.
Also, would like to know, what legal action can be taken by Labour Department, if we do not take CLRA regsitration and continue to work with our regular workmen and casual labour.
Thanks.
Amit

As discussion was started with the query of Mr. Amit regarding Casual Workmen vs Contract Workmen.

Over and above what Madhu Sir has shared, I would like to share few points as a part of value addition to the subject.

It is important to understand the legal concepts, utilization mode of workmen, statutory obligations, statutory consequences in case of emergencies for both of these categories. Because generally speaking, there is no wide difference between Casual and Contractual workmen. But when there is any emergency situation or fatal incidents at workplace then problems arise. In such case, it leads to lot of confusion and dilemma to comply with the statutory requirements. Hence, considering gravity of extreme situation, we must set our manpower as per requirements of business operations.

As per legal provision, Casual Workmen means a workmen who is employed for any work which is not incidental to, or connected with main work of manufacturing process carried on in the establishment and which is essentially of casual nature.

As per Contract Labour Act, contract workmen means any person employed in or in connection with the work of any establishment to do any skill, semi skilled or unskilled manual, supervisory, technical or clerical work for hire or rewards, whether the term of employment be expressed or implied, but does not include employee mainly managerial and administrative capacity or employee who are in supervisory capacity drawing wages exceeding 500 per month or performing their duties by nature of supervisory or who is an out worker..........

With this background and explanation, following points may be noted as take aways.
1. In both the cases, we have to pay minimum wages.
2. Both categories are entitled for PF, ESIC etc..
3. Both the categories will have limitations of being engaged in main manufacturing process.
4. One of the very important point that there is no limitation on period for contractual workmen, whereas casual workmen can be employed only for specific period of time.
5. In both the cases, we have to maintain records
6. In case of any emergency or fatal accident, we have to submit accident report under The Factories Act. In such situation, we can have scope to present accident scenario based on legal requirement and by doing so we just will be responsible for compliance. But responsibility of other settlement will be share with the Contract Agency.
7. Last but not the least, both categories can not claim for permanent employment.

In nutshell, if we thoroughly understand the scope for above 2 types of workmen, it is always better to go with Contractual Workmen. Because, these labors are engaged through registered contract agencies and their ultimate responsibility is shared.

Regards.

There are a number of agencies who take these (contract) workers on their rolls and allow them to work in the clients plants. When the number of employees so engaged is less, there may not be much problem but when it becomes large in number, you will be inviting troubles. In respect of these workers, the agency under whose roll these workers are enrolled is the employer. Therefore, you cannot take any action against these workers when you find a misconduct. Certainly, you can ask the contractor not to send this person for work and take action for the misconduct noticed. In case of an accident , it will be the contractor who will be sending the accident reports etc to the concerned officials. But in practice it will be the Principal employer who will have to do all these things. If they are not happy with the pay and service conditions, they will raise an industrial dispute and the contractor will always be happy to increase the pay because it will not cost to him but will benefit him since his service charges are always based on what he pays to his workers. If you, the principal employer, wants to keep your costs low, you will have to step into at least informally. I have used the words informally because the involvement of principal employer in wage negotiations will cause to make the contract sham one and this may even lead to regularise the workers.

It is true that in a genuine contract there will not be any risk but you have risk when the workers are engaged in core activities and when they are supervised by the officers of the principal employer. As already told there are even large organisations who are managing the show with contract labour. They are also engaging these contract labour in core activities. It is unfortunate that the Labour Department is not enforcing their rights under section 10 of the CLRA Act which has given them powers to abolish the engagement in core activities.

In most of the cases the principal employer only interview the candidates and give the list to contractors and they will give offers from their end. When an issue like wage hike demand comes, it should be the principal employer who will direct the contractor what to do. Then what is the need of such arrangements? Just paying service charges or finding way for some contractors?

Now regarding permanency, contract workers have all the rights to get regularised if they are doing the work similar to that of regular workers and if the contract is sham or just for a name.

Madhu.T.K

Learned friends Madhu and Ghorpade Raju have clearly explained the managerial and legal consequences of engaging contract labour in a factory excessively or exclusively. Therefore, I don't think it needs any more elaboration. If additional labour force is an occasional requirement necessitated by contingencies like the leave of absence of the regular workmen or certain incidental but intermittant works like loading and unloading etc., well, you can go in for casual labour. Unlike regular employment, casual employment creates no substantial employment relationship and it is purely adhoc.On the contrary, though yet another form of indirect labour, contract labour has certain legal restrictions in respect of operations/ activities of engagement as explained by Madhu apart from the imposition of vicarious liability on the part of the Principal Employer in respect of matters like payment of wages, compensation for employment accidents etc. Which one of the two, contract labour or casual labour, is better depends upon the nature, duration and periodicity of the activity or work in which such indirect labour is to be engaged.

Dear Amit,

The thread has already elaborate almost all points (legal, statutory, practical, cost optimized, preferance almost all aspects). The more important point is Madhu sir and Umakanth sir have share their practical, legal and logical views on the subject. Mr Ghorpade has also suggested his views in depth.

Now it is your choice which option you choose. I would just like to add, in case of casual labours issue proper appointment letter (specific format for Casual Labour) which claim that the appointment is casual in nature for a certain period of time. Also check if there is any notice required at time of completion of period. If so, issue the notice letter well in time.

In case of Contractual labour, you have to negotiate/instruct the contractor to comply all legal and statutory obligations. You have to check the authenticity of records time to time.

In case you deploy 20 or more contractual labour, you have to apply for Registration Certificate and the contractor has to apply for Labour Licence from the DLC Office of the area. After obtaining the RC and Labour Licence the PE and the contractor required to submit Labour Returns (Half yearly / Annual) as well.

I would like to interfere by saying that casual labour is employed for a short period and without following the general procedures of recruitment and selection and therefore, I would like to say that in such cases it is always better not to give any formal letter of appointment. but they should be subjected to ESI and PF deductions. In most of the cases wherein casual workers' demands for regularisation were declined by the courts, the main focus point was their appointment. The courts have found that these casual labourers were employed not by following the recruitment procedures like publishing the vacancy in the news paper, calling the candidates for interview, sending appointment orders, candidates joining the establishment, induction etc, and as such they cannot claim regularisation even if they have worked for years. But they can claim retrenchment benefits as per law.
For an academic interest please go through a verdict from the Supreme Court of India.
Madhu.T.K

Casual labor can be engaged only for intermittent work or for gardening , painting etc, The work should be purely of casual nature you can not take permanent nature of work form a casual
employee, where as you can engaged contractual labors for loading un-loading, gardening etc. or as per contractual license approved by the labor department.

Good Evergreen Resources which i can refer at all times. I thank all for their valuable Contributions.