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Applicability of Contract Labour for outsourced services - if serviced by whole time employees

Well, Many stalwarts managing staffing agencies or the compliance agencies has a misconstrued view on the applicability of the Contract Labour (Regulation & Abolition) Act, 1970. 

While this law was enacted with the objective of regulation of the contract labour and abolition in certain spheres to prevent exploitation, the contract labour system was engaged either in the construction or manufacturing industry. Hence the contract labour were working either in a site or premises of the principal employers. 

As the retail industry evolved with majestic business models into self servicing outlets, Malls and hypers, the entire contract labour system has under gone a sea change. Typically, the following business models have come into stake:

FMCG/Durable Products > Outsourcing the promotions, managing Point of Sales Materials (PoSM) execution at the Point of Sale, viz. Retail Outlets (Shoppers Shop, Big Bazzar, Reliance,,,) to a specialist service, technology and staffing OR simple staffing industries

Where A= FMCG, B = Business Support Services, C= Staffing Contgractors, D = contracted associates and E, the Retail Outlets where the associates are deployed. 

In the light of the above scenario, let us analyse the key provisions of the CLRA Act.
Section 2

Definitions.- (1) In this Act, unless the context otherwise requires,-
(a) "appropriate Government" means,-
(i) in relation to an establishment in respect of which the appropriate Government under the Industrial Disputes Act, 1947 (14 of 1947), is the Central Government, the Central Government;
(ii) in relation to any other establishment, the Government of the State in which that other establishment is situated;
(b) a workman shall be deemed to be employed as "contract labour" in or in connection with the work of an establishment when he is hired in or in connection with such work by or through a contractor, with or without the knowledge of the principal employer;
(c) "contractor", in relation to an establishment, means a person who undertakes to produce a given result for the establishment, other than a mere supply of goods of articles of manufacture to such establishment, through contract labour or who supplies contract labour for any work of the establishment and includes a sub-contractor;
(d) "controlled industry" means any industry the control of which by the Union has been declared by any Central Act to be expedient in the public interest;
(e) "establishment" means-
(i) any office or department of the Government or a local authority, or
(ii) any place where any industry, trade, business, manufacture or occupation is carried on;
(f) "prescribed" means prescribed by rules made under this Act;
(g) "principal employer" means--
(i) in relation to any office or department of the Government or a local authority, the head of that office or department or such other officer as the Government or the local authority, as the case may be, may specify in this behalf,
(ii) in a factory, the owner or occupier of the factory and where a person has been named as the manager of the factory under the Factories Act, 1948 (63 of 1948) the person so named,
(iii) in a mine, the owner or agent of the mine and where a person has been named as the manager of the mine, the person so named,
(iv) in any other establishment, any person responsible for the supervision and control of the establishment.
Explanation.--For the purpose of sub-clause (iii) of this clause, the expressions "mine", "owner" and "agent" shall have the meanings respectively assigned to them in clause (j), clause (l) and clause (c) of subsection(1) of section 2 of the Mines Act, 1952 (35 of 1952);
(h) "wages" shall have the meaning assigned to it in clause (vi) of section 2 of the Payment of Wages Act, 1936 (4 of 1936);
(i) "workman" means any person employed in or in connection with the work of any establishment to do any skilled, semiskilled or un-skilled manual, supervisory, or clerical work for hire or reward, whether the terms of employment be express or implied, but does not include any such person-
(A) who is employed mainly in a managerial or administrative capacity; or
(B) who, being employed in a supervisory capacity draws wages exceeding five hundred rupees per mensem or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature; or
(C) who is an out-worker, that is to say, a person to whom any articles or materials are given out by or on behalf of the Principal employer to be made up, cleaned, washed, altered, ornamented, finished, repaired, adapted or otherwise processed for sale for the purposes of the trade or business of the principal employer and the process is to be carried out either in the home of the out-worker or in some other premises, not being premises under the control and management of the principal employer.


 In the above scenario, not every connecting entities need to come under the purview of the CLRA as this chain of structure has intricate relations, applying various laws including CLRA - to an extent

Service Model 1
The arrangement between A & B is a contractual arrangement under the Contract Act and if B is engaging whole time employees in its payroll for managing the contracted services, CLRA does not apply as the relationship is principal to principal. However, if B is a staffing industry and engage contract labour under the Fixed Term employment, the CLRA comes to apply and A becomes the Principal Employer and B becomes the Contractor under CLRA, even if the contract between them states otherwise.

Service Model 2
The arrangement between A & B is a contractual arrangement under the Contract Act and if B is engaging whole time employees in its payroll for managing the contracted services, CLRA does not apply as the relationship is principal to principal.  B, for effective execution of the services being flexi staffing requirement, has contracted out that part of  staffing  to a staffing entity and such staff are engaged under fixed term contracts,  CLRA comes to apply to this specific contract and B becomes the Principal Employer and C becomes the Contractor under CLRA, 








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