The relationship between contract workers and principal employers is regulated by the provisions of the Contract Labour (Regulation & Abolition) Act, 1970 (referred to as the “Act” hereafter). A fundamental aspect of this relationship revolves around the demand for automatic absorption of contract workers into the workforce of principal employers. Over the decades, this issue has been a subject of prolonged disputes between contract workers, trade unions (unions) and principal employers. This article spells out the current dichotomy between the principal employer and the contract workers regarding the claim of automatic absorption.
Section 10 of the Act and why a claim for automatic absorption arises
The demand for automatic absorption stems from Section 10 (Prohibition of employment of contact labour) of the Act.
Section 10 empowers the Government, whether at the state or central level, to restrict the engagement of contract workers through official notification in specific processes, operations, or tasks within any establishment after consulting with the respective Advisory Board.
This has led contract workers to assert the concept of automatic absorption, as the notification effectively removes the contractor from their employment equation. By eliminating the contractor’s involvement, the principal employer takes centre stage in the employment relationship, leading to the assumption that the principal employer holds full authority over all responsibilities and benefits offered to contract workers. Nevertheless, Indian courts have not endorsed this rationale put forth by trade unions and contract workers.
The Dichotomy between the Principal Employer and Contract Workers
The major dichotomy is the implication of Section 10 notification on the status and livelihood of contract workers. In most contested matters, the trade unions have argued that it implies automatic absorption of the contract labourer engaged by the principal employers.
Until 2001, in most contract labour issues, the courts have passed judgements basis the precedent set by the Hon’ble Supreme Court in the case of Air India Statutory Corporation v. United Labour Union (Air India) in 1996 [AIR 1997 SC 645]. The Hon’ble Supreme Court held that with the issuance of notification under Section 10 of the Act, the intermediary contract between the principal employer, contractor and contract workers vanishes and so does the term ‘principal’. Hence, only two parties remain, that is, the employer and the contract workers. Further, it was held that though there was no express provision for the absorption of contract workers in the Act, the moment the principal employer is prohibited from engaging a contract worker, a direct relationship gets established between the workmen and the principal employer. It was also relied by the Hon’ble Court that within the provision of Section 10, there is an implicit legislative intent that on the abolition of contract labour, the erstwhile contract workmen would become direct employees of the employer on whose establishment they were earlier working and were enjoying all the facilities under the Act in that very establishment.
In 2001, the Constitutional Bench of the Hon’ble Supreme Court in the case of Steel Authority of India Ltd. v. National Union Waterfront Workers(SAIL) [AIR 2001 SC 3527] held that even in the Standard Vacuum case, which laid the foundation to the Act, did not direct automatic absorption by the principal employer on the abolition of the contract labour. It was opined in the SAIL case that the concept of automatic absorption of contract labour as a consequence of issuing notification under Section 10 by the appropriate Government, is not alluded to either in Section 10 or at any other place in the Act and the consequences would be penalty as prescribed under the Act. Therefore, the Hon’ble Supreme Court overruled the Air India judgement prospectively.
 AIR 1960 SC 948
Current Regime in the Matter of Automatic Absorption
The Constitutional Bench of the Hon’ble Supreme Court through the SAIL judgement in 2001 has cemented the contention of automatic absorption of contract labour. However, the Hon’ble Court has been on qui vive regarding the contract workers. The Hon’ble Court has opined that in case Section 10 of the Act is enforced in any establishment and the employer intends to employ regular workmen, in such a situation, the employer shall give preference to the erstwhile contract workers, if found suitable, and if necessary, by relaxing the conditions of appointment.
Yet, the battle between principal employers and contract workers is unabated. Numerous cases remain on record in which contract workers continue to assert their status as employees of the principal employer even after the issuance of a prohibition notification.
– Keerthanaa B,
Advocate & Associate