By Rakshit Assudani 





Introduction


For decades, the Indian labour industry has been characterised by the prevalence of contract labour. It was a frequent practice by the employers to hire contract labourers in place of regular workers, thereby acquiring labourers at a cheaper rate and escaping all the legal obligations relating to the regular workers. This led to a precarious position; the contract labourers were performing the work that a regular workman was supposed to perform at a minuscule monetary compensation.[1] Moreover, the contract labourers did not get the benefits available to regular workers as they did not qualify as workman. Consequently, with a view to remedy the situation, the Contract Labour (Regulation and Abolition) Act, 1970 (“Act”) was enacted to abolish contractual labour wherever possible and to regulate it at other places.[2] However, despite being operative for more than 50 years, the Act was not effective in achieving the intended outcome.[3] In other words, the Act was neither able to abolish contract labour nor efficiently regulate it. This can be attributed to three major reasons: firstly, the issue of abolition suffered from red tapism and bureaucracy as the primary authorities under the Act were the appropriate state governments. Secondly, the Act did not provide for regularisation of contract labour i.e., what would happen to the labourers who lost their jobs because of abolition of contract labour. Thirdly, even though the Act made comprehensive theoretical provisions for regulation, in practice, they were never implemented due to the absence of any supervisory authority. Moreover, due to a majority of the contract labourers being illiterate and poverty stricken, they were not aware of their rights and even otherwise, they were not in a position to demand enforcement from the employers. Accordingly, with the introduction of the Occupational Safety, Health and Working Conditions Code (“Code”) in 2020, it was expected that a comprehensive framework that eliminates contract labour would be developed.


This paper argues that although the Code brings about prominent changes in the provisions relating to contract labour, the practical operation of such changes potentially gives legal backing to the employers to employ contract labourers. In essence, the rights of workers are hampered, and the employers are able to fulfil their business requirements at a marginal cost. To demonstrate the operation of this lacuna, Section 57 of the Code is analysed in light of the Informational Technology (“IT”) and IT Enabled Services (“ITES”) industries, which have seen a sudden surge in the employment of young professionals on contractual basis.[4] The reason for choosing this particular industry is that the IT industry is in demand and has seen a significant boom and growth even after the Covid-19 pandemic.[5] Moreover, a plethora of teenagers and young professionals are showing interest in working in this industry. Accordingly, it is imperative that their rights are well protected by the law.


This paper is divided into three parts. The first part analyses the relevant provisions of the Code vis-à-vis their applicability to IT and ITES industries. The second part highlights that despite being enacted to improve the situation, the enactment of the Code is a negative departure from the erstwhile regime. Lastly, the third part concludes by emphasising that such a framework can lead to devastating outcomes for the workers, wherein the legal framework gives a way to bypass their rights.




Analysing the Position Under OSHW Code, 2020


With the introduction of the Code in 2020, the Act stands repealed.[6] Hence, contract labour would be governed by the provisions of the Code. Upon a bare perusal of these provisions, it seems that the Code promotes the rights of the employees by curbing contract labour. However, the entire legal framework is highlighted only after conducting an in-depth analysis.


In this regard, it is pertinent to consider Section 57 of the Code. According to this Section, the employment of contract labour is prohibited in the core activities of any establishment.[7] However, such prohibition is not absolute; it is limited by the proviso. The proviso to this Section provides three instances wherein contract labour can be engaged even in the core activity of any establishment.[8] In essence, the Code provides that employers cannot engage workers on a contractual basis for performing the core activities of the establishment except when either (i) the normal functioning of the activity is such that it requires contractual employment, or (ii) the activities do not require full-time workers for long periods, or (iii) there has been a sudden surge in the workload for a specific time period.[9]


In light of the above-mentioned legal framework, the position of the young professionals employed on a contractual basis in the Indian IT and ITES industries would be considered. To do so, the following elements of Section 57 are analysed:




1. IT and ITES Industries as Establishments


The primary consideration for the application of Section 57 is whether a particular business industry qualifies as an establishment or not. According to Section 2(v)(i), any place where industry, trade, business, or occupation is carried on, having ten or more workers, is considered as an establishment.[10] Furthermore, according to Section 45, Part I of Chapter XI, which deals with contract labour, will be applicable to establishments in which 50 or more contract labour are employed.[11] In this light, majority IT or ITES companies would qualify as an establishment because due to their market size and demand, it is highly likely that such companies would fulfil the requirements of Section 2(v)(i) and 45.  Even otherwise, the blanket exemption from applicability of labour laws to IT industries that were earlier provided has been revoked.[12] Hence, the IT industries are considered as establishments and they are not outside the ambit of the labour laws.




2. Core Activities of IT and ITES Industries


As IT and ITES industries qualify as establishments, the subsequent consideration is the determination of their core activity. The reason is that contract labour is prohibited in the core activities.[13] According to Section 2(p) of the Code, the core activity of any establishment means the activities for which the establishment has been set up and furthermore, it includes any activities that are essential or necessary to such activity.[14] However, the proviso to this Section provides an exhaustive negative list of activities that cannot be considered as the essential or necessary activities unless the establishment is set for those activities itself.[15] This list includes basic activities such as sanitation works, security services, canteen services, transport services, and so on. For example, considering a banking establishment, security services (and others mentioned in the list) would not be considered as essential or necessary activities. Thus, they would be outside the ambit of core activities of the banking establishment. However, if the establishment itself is of security services, then they would be included within the ambit of core activities. In essence, the Code lays down that the primary activities that the establishment is set up for and the activities essential or necessary to such primary activities (excluding the activities mentioned in the proviso) are the core activities of an establishment.


Considering the IT and ITES industries, the core activities can have a wide and diverse range depending upon the particular service being offered. In the digital age, almost all industries are looking for innovative IT solutions to streamline their businesses. This, in turn, creates a demand for ITES companies that can digitalise the businesses.[16] From a practical perspective, it is difficult to imagine or contextualise the diversity of this industry. This is because almost all other industries, viz. finance, marketing, banking, telecommunication, and so on, are becoming dependent on IT and ITES industries. With the increase in demand leading to the growth of these industries, the core activities would depend upon the specific service being provided. However, to cater to a majority of these services, activities such as BPOs, KPOs, LPOs, and call centres come to the forefront. In essence, the core activities of the IT and ITES establishments would be to digitalise the activities of other industries. For example, activities such as medical transcription, content development, knowledge services, customer interaction services, and so on are included within the scope of these industries.[17]


Accordingly, contract labour would be prohibited in all such core activities of these establishments as per Section 57.




3. Normal Functioning of IT and ITES Industries


Although Section 57 prohibits contract labour in the core activities, the proviso carves out an exception wherein contract labour can be engaged by the employers even in core activities. The first exception is relating to the normal functioning of the establishment.[18] This essentially means that if the nature of the establishment is such that its normal functioning would ordinarily involve contract labour, then the employer is allowed to engage contract labour even in core activities.


It is pertinent to note that the Code neither defines nor provides any criteria to determine as to what constitutes the normal functioning of an establishment. In this light, the normal functioning of IT and ITES establishments would be considered on the basis of the nature of the work and the prevalent market practice. As regards the nature of work, it has already been highlighted above that these establishments provide a catena of diverse services depending upon the particular business industry.[19] Consequently, it is not possible for a select group of individuals to provide all the services themselves. Accordingly, to cater to these diverse industries, these establishments must engage different professionals. However, it is a prevalent market practice that these professionals are not employed on a permanent basis; rather they are employed on a contractual basis.[20] Since it is not feasible for the establishments to permanently employ professionals that can cater to all the diverse services. Hence, although these establishments generate a plethora of jobs in the country, albeit on a temporary basis, the normal functioning of these establishments is such that they engage professionals through contractors. In addition, as these establishments also cater to the needs of foreign clients, they have flexible working hours wherein an option of work from home is also available.


Accordingly, as the normal functioning of the IT and ITES establishments warrants engaging workers through contractors due to diversity of services, the employer can engage contract labour even in the core activities.  Consequently, the rights of the young professionals working in these industries are hampered.


From the analysis of Section 57 above, it is apparent that certain establishments such as the IT and ITES establishments can surpass the prohibition on contract labour by resorting to the proviso to Section 57 depending upon their normal functioning. Moreover, in the absence of any definition, criteria, or supervisory authority to determine as to what constitutes normal functioning, the Code provides a scope of interpretation. Hence, the establishments can interpret the provisions in a manner that suits their needs and engage contract labour for core activities as well.




Negative Departure from the Erstwhile Regime


Considering the legal framework governing contract labour as envisaged under the Code, the primary focus is merely on prohibition of contract labour in core activities. This acts as a serious departure from the Act because the primary object of the Act was to abolish contract labour altogether.[21] Only in situations wherein it was not possible to abolish contract labour, the Act sought to regulate it.[22] Despite the Code being enacted to improve the existing regime, this change in the primary objective highlights the attitude of the legislature, which has lowered the pedestal to eradicate the menace of contract labour altogether.


Furthermore, the Code unnecessarily introduces the concept of core activity of an establishment. Such introduction, which is a departure from the Act[23], leads to two problematic outcomes. Firstly, the Code makes it explicit that contract labour is prohibited only in the core activities. Thereby allowing employers to engage contract labour in non-core activities; the determination of which is upon the interpretation of the employer. Moreover, the proviso to the definition of core activity explicitly excludes activities such as sanitation works, watch and ward services, canteen services, and so on from the ambit of core activities. This essentially means that the employer is authorised by law to engage contract labour in the non-core activities, including the activities mentioned in the proviso. Thus, rendering the entire exercise of abolishing contract labour futile. More importantly, as these activities constitute a major portion of any establishment, the engagement of contract labour will see a significant increase.


Secondly, in addition to authorizing contract labour in non-core activities, the proviso to Section 57 allows engagement of contract labour in core activities as well in exceptional situations. The practical implications of the first exception (normal functioning) have already been analysed above. Considering the second and the third instance, the employer can easily demonstrate the hiring of contract labour due to an increase in workload or by arguing that the core activity does not require full-time workers. This is because these are subjective constructions depending upon the specific nature of the business and the employer. Moreover, it is a well-settled position that the employer or owner of a business, by virtue of being an expert in the field, is the foremost authority to take business decisions. In such scenarios, endless litigation is the only option to determine the accurate application of the proviso as it would depend on a case-to-case basis. More importantly, the contract labourers would not be able to seek recourse to the relevant authorities directly as they would not qualify as workmen or employees. 


Furthermore, the Code makes a distinction between contract labour and regular workers in such a manner that they do not operate on an equal pedestal and contract labourers do not get the same treatment despite performing a similar nature of work.[24] Thereby ensuring that the contract labourers do not get any basic benefit or protection from the employer.[25]


Accordingly, the provisions of the Code governing contract labour are a negative departure from the provisions of the Act. Instead of improving the situation for the workers, the Code has created a legal framework that hampers the rights of the workers.[26] In addition, the creation of various concepts such as core activity, normal functioning, and so on would lead to endless litigations as these concepts are subject to differing interpretations.




Conclusion


By analysing the framework of the Code in light of the IT and ITES establishments, this paper highlighted that the framework essentially allows employers to engage contract labour. This leads to a problematic outcome, especially while dealing with the IT and ITES establishments. The rights of the workers are seriously hampered in several ways. Firstly, the workers that are engaged as contract labour do not get sufficient monetary compensation for their work. Secondly, the rights of such workers, including proper working hours, facilities, and so on are not protected. This is because these workers do not qualify as workmen or employees within the legal framework and hence, they cannot approach the relevant authorities in case of grievances. This problem is particularly prominent in IT and ITES establishments as their employees work round the clock. Thirdly, it becomes difficult to discern the employer-employee relationship between the workers and the employers due to the existence of contractors. This makes it difficult to attribute responsibility and liability in case of any unintended outcomes. Fourthly, it renders the regular workers jobless and futile as the work to be performed by them is carried out by the contract labour. Fifthly, it allows the employer to escape the legal burden of compliances and obligations by not hiring regular workers. Furthermore, it leads the employers to reduce their costs and as a result, maintain sufficient profit margins.


It has been established that the Code does not protect the rights of the workers by allowing employers to engage contract labour. However, it is pertinent to analyse the reason behind such a framework being enacted. In this regard, there can be two possible reasonings; either the operation of the framework is purely due to careless draftsmanship, or the framework is a deliberate outcome because the perspective on contract labour has changed over the years. If the framework has been created in the Code merely due to careless draftsmanship, then it will be rectified over the years when the actual difficulties faced by workers will be highlighted. However, from a practical perspective, it is highly unlikely that such prominent labour reforms would be enacted in such a manner. Therefore, it can be concluded that the enactment of this framework is a deliberate outcome because the perspective on contract labour has changed over the years. The reason being that even though contract labour is detrimental for the workers, it is highly beneficial for the employers. This coupled with the focus of the government in recent years, which has been towards attracting multinational corporations to set up businesses in India[27], provides a justification for the enacted framework. In this light, allowing workers to be employed on a contractual basis would attract foreign businesses to India as it would provide diversified labour at a cheap rate, reduce labour law compliances, and provide unfair bargaining power to the employers. Thereby streamlining the establishment of new businesses in India.


In conclusion, by allowing contract labour to be engaged, it is apparent that the legislature has enacted the Code by giving more importance to the betterment of the economy of the country over and above the rights of the workers and the authority of labour laws.




The author, Rakshit Assudani, is an undergraduate law student at Jindal Global Law School (JGLS), Sonipat.






[1] Ministry of Labour and Employment, ‘Report of the National Commission on Labour’ (2002).


[2] Gammon India v Union of India,  AIR 1974 SC 960.


[3] Subir Mitra and Piyali Ghosh, ‘Engaging Contract Labour: Learnings from Landmark Judgments’ (2021) Management and Labour Studies, https://doi.org/10.1177%2F0258042X211026166; Meenakshi Rajeev, ‘Contract Labour Act in India: A Pragmatic View’ (2009) Indian Institute of Management Bangalore, http://www.igidr.ac.in/pdf/publication/PP-062-33.pdf.


[4] ‘Demand for Contractual Staff in IT Sector sees a sharp increase: People Prime Worldwide’ The Economic Times (12 March 2021), https://economictimes.indiatimes.com/jobs/demand-for-contractual-staff-in-it-sector-sees-a-sharp-increase-people-prime-worldwide/articleshow/81471549.cms?from=mdr.


[5] Pankaj Jayswal, ‘How the IT industry is shaping the future of India?’ The Times of India (Aug 17, 2021), https://timesofindia.indiatimes.com/readersblog/youth2020/how-the-it-industry-is-shaping-the-future-of-india-36519/.


[6] The Occupational Safety, Health and Working Conditions Code, 2020 (“Code”).


[7] ibid, s.57.


[8] ibid.


[9] ibid.


[10] ibid, s.2(v)(i).


[11] ibid, s.45.


[12] Drishti Miglani, ‘Applicability of Labour Law in IT Sector’ (2020) International Journal of Law and Management, https://ilsijlm.indianlegalsolution.com/applicability-of-labour-law-in-it-sector-drishti-miglani/; Bageshree S, ‘IT industry has to adhere to labour laws now’ The Hindu (March 10, 2012), https://www.thehindu.com/news/cities/bangalore/it-industry-has-to-adhere-to-labour-laws-now/article2978689.ece.


[13] cf Code (n 5) s.57.


[14] ibid, s.2(p).


[15] ibid.


[16] Ashok Desai, ‘The Dynamics of the Indian Information Technology Industry’ (2003) London Business School, 24, 35, https://assets.publishing.service.gov.uk/media/57a08d1640f0b64974001634/drc20.pdf.


[17] KPMG, ‘Information Technology’ (2006) India Brand Equity Foundation, https://www.ibef.org/download/IT_sectoral.pdf.  


[18] cf Code (n 5) s.57.


[19] cf Ashok (n 16).


[20] ibid.


[21] Contract Labour (Regulation & Abolition) Act, 1970; cf (n 2).


[22] ibid.


[23] Aditya Gaggar, ‘Deconstructing the Occupational Safety, Health and Working Conditions Code, 2020’ (2020) SCC Online, https://www.scconline.com/blog/post/2020/10/25/deconstructing-the-occupational-safety-health-and-working-conditions-code-2020/.


[24] Working People’s Charter, ‘Why the new labour codes leave India’s workers even more precariously poised than before’ Scroll (Sep.23, 2020), https://scroll.in/article/973877/why-the-new-labour-codes-leave-workers-even-more-precariously-poised-than-before.


[25] Paramveer Singh and Dr. Vijay Dahiya, ‘Labour Law Reforms a Critical Analysis’, (2020) 3(2) Journal of Applied Research, https://msi-ggsip.org/msijr/pdf/MSIJAR_VOL03_ISSUE02.pdf#page=51.


[26] Atul Sood, ‘The Silent Takeover of Labour Rights’ (2020) The India Forum, https://www.theindiaforum.in/article/silent-takeover-labour-rights.


[27] Manas Chakravarty, ‘The growth rate of contract workers has been far higher than that of directly employed workers’ Livemint (March 22, 2018), https://www.livemint.com/Money/in820rBafIqhkbesEyBJoI/The-growth-rate-of-contract-workers-has-been-far-higher-than.html.