The implementation of four (4) labour codes, which encompassed nearly twenty-nine (29) central labour codes, has changed the Indian labour law landscape. This legislative change aims to simplify labour regulations in India, but it also imposes additional criteria that industrial establishments still need to understand and implement.
The Contract Labour (Regulation and Abolition) Act, 1970 (“CLRA“) and twelve (12) other labour laws are incorporated into the Occupation, Safety, Health and Working Conditions Code, 2020 (“OSH Code“), which has fundamentally altered contract labour management by placing primary employers at the centre of compliance and assigning responsibility for the welfare, safety, and working conditions of contract labour.
OSH Code establishes a single, uniform threshold of fifty (50) or more contract labourers for the application of codes pertaining to contract labour, both for contractors and principal employers.
One of the many significant modifications introduced by OSH Code is that it now forbids industrial establishments from using contract labour for their core or essential business operations. There are, however, sporadic exceptions, such as when a contractor typically handles core or essential tasks, when full-time employees are not needed for the bulk of working hours, or when the quantity of work that must be completed in the allotted time unexpectedly increases.
These exceptions appear to recognise legitimate business models without the core or essential business operations prohibition impeding core or essential business operations, though it should be noted that it is up to the designated authorities to be appointed by the appropriate government to determine whether a particular exception would apply to an activity or whether the activity would qualify as core or essential business operations. There is a lot of opportunity for uncertainty until market and enforcement patterns provide some clarity on how these exceptions should be understood.
In contrast to the previously acknowledged idea under CLRA that principal employers have a secondary obligation to provide welfare facilities to contract labourers in the event that their immediate employer / contractor fails to do so and to recover related costs from the contractor, OSH Code now places the obligations as the primary responsibility of industrial establishments being the principal employer and is silent on any statutory recourse to recover related costs.
Jurisprudence Under Old Regime
Although service provision arrangements were not covered by CLRA due to nationwide practices and judicial guidelines under the previous labour laws regime, this principle is now explicitly codified under OSH Code by excluding employees who are regularly employed by the contractor and receive benefits and wages from them from the definition of “contract labour.” The “Control or Supervision” of the industrial establishments being principal employer over the contract labour is a crucial criterion in determining whether or not the contract labourers will be regarded as the industrial establishment’s direct employee being the principal employer.
The Supreme Court has clarified in the case of ‘International Airport Authority of India v. International Air Cargo Workers’ Union and Anr.’ (1), that if the contract is for the supply of labour necessarily, the labour supplied by the contractor will work under the guidance, supervision and control of principal employer but that would not make contractual labourer, the direct employee of the principal employer. Additionally, the other factor to be considered while considering control and supervision is whether the contract for the employment of a contractual labour is ‘contract of service’ or a ‘contract for service’ on the part of the principal employer and contractor.
In Balwant Rai Saluja Vs. Air India Ltd. (2), the Supreme Court has determined the relevant factors to be taken into consideration to establish an employer-employee relationship which would include i) Who appoints the workers; ii) Who pays the salary/ renumeration; iii) Who has the authority to dismiss; iv) Who can take disciplinary action; v) Whether there is continuity of service; and vi) Extent of control and supervision i.e. whether there exists complete control and supervision.
Even though the Supreme Court’s these guidelines are still in effect, there is a strange paradox when “Contract Labour” is engaged indefinitely by a “Contractor” and performs the same duties as regular employees of “Principal Employer.”
In ‘Municipal Council, Nandyal Municipality, Andhra Pradesh v. K. Jayaram & Ors.’ (3), wherein while adjudicating upon the issue of whether workers hired through contractors can claim equal status as regular employees, Supreme Court observed that test which would actually would be relevant is to determine whether the relationship, which is direct between two parties in “whatever manner”, can be differentiated with a relationship which had no direct connection with the two parties who are contesting, but rather the relationship is through a third-party which was the Contractor.
Apart from the above context, contractual labourers are engaged through contractors, their service conditions are governed by the contracts between them and they work with the principal employer through the contractor, for the contract period. After the contract period is over, their contractor may enter into a contract with another industrial establishments and shift them to work there. From that view, it can be concluded that contract labour cannot be treated like permanent employees of industrial establishments being the principal employer.
In ‘R. K. Panda Vs. Steel Authority of India’ (4) (1994 SCC (5) 304, 12 May 1994), the Supreme Court observed that contract labour who had been initially engaged through contractors but have been continuously working with the principal employer for a long time on different jobs assigned to them in spite of the replacement and change of the contractors, a direct link is to be established between the contract labour and principal employer, eliminating the contractor from the scene.
The way in which the industrial establishments are trying to circumvent this position by ensuring proper documentation of termination and re-employment, and also by creating an artificial cooling-off period between employments under different contractors can be considered a ‘sham’ and ‘camouflage’.
PRACTICAL STEPS FOR INDUSTRIAL ESTABLISHMENTS:
- Assess Applicability and Exposure: conduct a comprehensive audit of all third-party contract arrangements to identify the total number of contract labourers engaged; and map OSH Code against CLRA to identify any gaps including welfare facilities. By conducting the audits and getting a gap analysis, industrial establishments will gain complete visibility as to applicability, which will aid in preparing a compliance plan for immediate execution.
- Core vs Non-Core Activities: industrial establishments should methodically classify its functions into core and non-core activities based on the guidelines provided in OSH Code. ‘Core’ vs ‘Non-Core’ classification will help industrial establishments clearly demarcate the areas of work for which contract labour can be engaged and areas for work for which guidance or exemptions may need to be sought.
- Review Agreements And Allocate Liabilities: Review agreements with third party contractors to include: (i) unification of definition of “Wages” under the Code on Wages, 2019 may lead to an increase in fees payable by industrial establishments being principal employer; (ii) reevaluated revised CTC structure proposed by third party contractors, if any; (iii) responsibility to provide welfare facilities has been shifted onto industrial establishments being the principal employers. This allows industrial establishments to renegotiate agreements with third party contractors and clearly allocate responsibilities while minimizing disputes.
- Implement Welfare and Safety Provisions: industrial establishments should identify the number of contract labourers engaged and accordingly, provide welfare facilities such as canteens, first-aid stations, washroom facilities, and creche facilities, if needed. This will ensure that industrial establishments achieve full compliance with the requirements under OSH Code.
- Monitor and Track State Rules: the State Rules will provide for mechanism to obtain registrations or work specific licenses. Industrial establishments should track the rules and ensure that contractors obtain required registrations and licenses. Ensure that industrial establishments do their due diligence before engaging third party contractors to avoid any penalties.
- Train Stakeholders and Build Oversight: train relevant teams on the new liability landscape and ensure that third party contractors are audited on a regularly basis (quarterly preferably). Training internal teams and conducting contractor audits will ensure sustained contractor’s compliance with OSH Code.
- Establish Core Activity Compliance Monitoring: Create internal mechanism to track quarterly re-validation of core and non- core classifications and monitor contractor ratios per activity type. Comprehensive documentation should be prepared for examination and flag any core activity creep should be addressed immediately. Establishing these internal systems, along with solid documentation will prevent any legal challenges for industrial establishments.
- Maintain a clear organizational distinction: contract workers should wear different ID badges, use separate attendance systems, and report to the contractor’s supervisor, not to your managers. Conduct annual internal audits of all contract labour arrangements, checking for indicators of sham contracts and verifying compliance with licensing, wage, and welfare provisions.
In conclusion, OSH Code tackles the vulnerabilities that contract labourers face in order to balance the dual goals of safeguarding “social rights” and “safe working conditions” for contract labourers, despite the fact that they cannot be compared to regular employees who undergo a proper recruitment process because of established legal precedents on the matter. As “Principal Employers,” industrial establishments must create a plan to ensure timely and effective adherence to these new labour laws.
Notes:
1 ((2009) 13 SCC 374, paras 36, 37 to 40, 53.13, 56)
2 (AIRONLINE 2013 SC 652)
3 (2026 (SC) 38, 16 December 2025)
4 (1994 SCC (5) 304, 12 May 1994)
