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

Hi Friends,

Can someone tell me, in a factory setup, from a legal perspective, to engage additional laborers, should one go for Contractual Laborers or opt for casual laborers? Which option is better and why? Also, if I am running a factory with the help of casual laborers, is there any merit in going for CLRA?

Thanks in advance.

Regards,
Amit

There is no merit in working at a factory with contract labor alone. At the same time, you are not expected to engage contract laborers in operations that are perennial in nature and where regular workers directly employed by the company can be considered.

There are companies that do not follow laws but claim to be perfect on the legal side and employ contract labor even in permanent or regular operations. The CLRA Act is not properly enforced; therefore, even if you engage contract laborers in core functions, nobody is going to question it unless something happens similar to what occurred in Maruti. That will also be forgotten in a month or two once the TV and media find something else hot.

If you require additional manpower temporarily, you can employ temporary employees and once the work is over, ask them to leave. There is no law stating that employment is permanent and you must regularize all casual laborers. You need not regularize any casually employed labor. Casual employment is something that is given when there is additional work for a limited period or when a regular employee is on leave. Therefore, please do not rely solely on casual laborers. Another important point is that these casual employees are also eligible for statutory rights like PF/ESI, etc.

Madhu.T.K

Thanks, Madhu, for the quick reply.

Can you please elaborate on the Maruti case you are referring to? Also, I would like to know what legal action can be taken by the Labor Department if we do not obtain CLRA registration and continue to work with our regular workmen and casual labor.

Thanks,
Amit

As the 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 a 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, and statutory consequences in case of emergencies for both of these categories. Generally speaking, there is no wide difference between Casual and Contractual workmen. However, when there is an emergency situation or fatal incidents at the workplace, problems arise. In such cases, it leads to a lot of confusion and dilemma to comply with the statutory requirements. Hence, considering the gravity of an extreme situation, we must set our manpower as per the requirements of business operations.

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

As per the 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 is expressed or implied, but does not include an employee mainly in a managerial and administrative capacity or employees who are in a supervisory capacity drawing wages exceeding 500 per month or performing their duties by the nature of supervisory or who is an outworker.

With this background and explanation, the following points may be noted as takeaways:

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

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

Regards.

There are a number of agencies that 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 of a problem. But when it becomes a large 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 misconduct. Certainly, you can ask the contractor not to send this person for work and take action for the noticed misconduct. 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 him but will benefit him since his service charges are always based on what he pays to his workers. If you, the principal employer, want to keep your costs low, you will have to step in at least informally.

I have used the word "informally" because the involvement of the principal employer in wage negotiations will cause the contract to seem sham, and this may even lead to regularizing the workers.

It is true that in a genuine contract there will not be any risk, but you have a risk when the workers are engaged in core activities and when they are supervised by the officers of the principal employer. As already mentioned, there are even large organizations that are managing the show with contract labor. They are also engaging these contract laborers in core activities. It is unfortunate that the Labor 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 cases, the principal employer only interviews the candidates and gives the list to contractors, and they will provide offers from their end. When an issue like a wage hike demand arises, it should be the principal employer who directs the contractor on what to do. Then, what is the need for such arrangements? Just paying service charges or finding a way for some contractors?

Now, regarding permanency, contract workers have all the rights to get regularized if they are doing 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 labor in a factory excessively or exclusively. Therefore, I don't think it needs any more elaboration. If additional labor force is an occasional requirement necessitated by contingencies like the leave of absence of the regular workmen or certain incidental but intermittent works like loading and unloading, etc., well, you can go in for casual labor. Unlike regular employment, casual employment creates no substantial employment relationship and it is purely ad hoc.

On the contrary, though yet another form of indirect labor, contract labor 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 labor or casual labor, is better depends upon the nature, duration, and periodicity of the activity or work in which such indirect labor is to be engaged.

Dear Amit,

The thread has already elaborated on almost all points (legal, statutory, practical, cost-optimized, preference in almost all aspects). The more important point is that Madhu sir and Umakanth sir have shared 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 the case of casual labor issues, a proper appointment letter (specific format for Casual Labor) which claims that the appointment is casual in nature for a certain period of time. Also, check if there is any notice required at the time of completion of the period. If so, issue the notice letter well in time.

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

If you deploy 20 or more contractual laborers, you have to apply for a Registration Certificate, and the contractor has to apply for a Labor License from the DLC Office of the area. After obtaining the RC and Labor License, the PE and the contractor are required to submit Labor Returns (Half-yearly/Annual) as well.

I would like to intervene by stating that casual labor is typically employed for a short period without following the general procedures of recruitment and selection. Therefore, in such cases, it is advisable not to issue any formal letter of appointment. Instead, these workers should be subjected to ESI and PF deductions. In many instances where casual workers' requests for regularization have been denied by the courts, the primary focus has been on their method of appointment. The courts have determined that these casual laborers were hired without adhering to proper recruitment procedures, such as publicly advertising the job vacancy, conducting candidate interviews, issuing appointment letters, facilitating candidate onboarding, induction processes, etc. Consequently, even if these workers have been employed for an extended period, they are not entitled to claim regularization. However, they may still be eligible for retrenchment benefits as mandated by law.

For those interested in further academic exploration, I recommend reviewing a ruling 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 a casual nature. You cannot expect permanent work from a casual employee. However, you can engage contractual laborers for tasks such as loading, unloading, gardening, etc., as per the contractual license approved by the labor department.

Thank you!

Good Evergreen Resources which I can refer to at all times. I thank all for their valuable contributions.