Workers performing work of permanent and perennial nature cannot be regarded as contract workers

Recently, the Supreme Court in the case of Mahanadi Coalfields Ltd. Vs Brajrajnagar Coal Mines Workers’ Union[1] has reiterated that workers engaged to perform work of regular and perennial nature cannot be treated as contract labour.

This case reiterates a well settled judicial position that contract labour cannot be engaged to perform work which is of perennial nature in an establishment. Typically, while dealing with a claim of regularization, the court lifts the veil of the contractual arrangement and assess the nature of the work performed by the contract labour. In this context, the courts inter-alia take the following factors into consideration – (i) whether work performed by contract labour is necessary and incidental to the core operations of the establishment; (ii) whether such work is of perennial nature; and (iii) whether such work is performed by regular workmen at other establishments engaged in similar operations.

In this regard, it would be relevant to note that the Contract Labour (Regulation and Abolition) Act, 1970 (“CLRA”) prohibits engagement of contract labour in any process, operation, work of an establishment as notified by the appropriate government in consultation with the Central or State Advisory Board (as the case may be). Also, prior to issuance of any notification in this regard, the appropriate government must take into account that: (a) whether the process, operation or other work is incidental to, or necessary for the operations carried on in the establishment; (b) whether it is of perennial nature; (c) whether it is ordinarily performed by the regular employees in the establishment or establishments engaged in similar operations; (d) whether it is sufficient to employ considerable number of regular full-time employees.

State governments of Andhra Pradesh and Telangana have enforced the relevant section of CLRA, as discussed earlier, to prohibit engagement of contract labour in ‘core activities’ of an establishment.

Core activity of an establishment is understood as any activity for which the establishment is set up for and includes any activity which is essential or necessary to the core activity of the establishment. Certain activities are excluded from the purview of the definition of the ‘core activity’ provided such excluded activity itself is not the core activity of the establishment.

However, contract labour may be engaged in core activity of an establishment if:

1.     The functions of the establishment are ordinarily performed through contractors; or

2.     There is no requirement of full-time employees for the majority portion of the day or for longer duration (as the case may be) to perform the activities; or

3.     There is an increase in the volume of the work in the core activity which is required to be achieved within a stipulated time period.

Therefore, while engaging contract labour, employers (and employees) must keep in mind the considerations discussed above.

Brief summary of the case

In the instant case, 32 workers were engaged by the appellant company (i.e., Mahanadi Coalfields Ltd.) as contract workers for removal of spillage on the railway siding, bunker and coal plant and operation of chutes in the bunker.

The respondent union (i.e., Brajrajnagar Coal Mines Workers’ Union) supported the cause of workmen and claimed regularization of 32 workers. The respondent union placed reliance on the National Coal Wage Agreement which prohibited the engagement of contract labour by the employer in jobs which are of permanent and perennial in nature. Pursuant to the representation made by the respondent union, the conciliation process was initiated and the same culminated into a settlement. As per the settlement, only 19 out of 32 workers were regularized. It was observed that the work of the said 19 workers was of regular and perennial nature whereas the services performed by the remaining 13 workers was of ‘casual’ nature and hence, were denied the benefit of regularization. Since the settlement was limited only to 19 workers, the central government referred the dispute to the industrial tribunal.

Based on the examination of the witnesses and evidence adduced by the appellant company, it was observed by the tribunal that the work performed by all 32 workers was of similar nature. Therefore, distinction between the two sets of workers was not justified. Further, it was also observed that the services of all 32 workers were of regular and perennial nature and hence, the tribunal directed regularization of remaining 13 workers. Being aggrieved by the tribunal’s judgement, the appellant company challenged the same before the Orissa High court. The Orissa High Court also affirmed the findings of the tribunal. Further, review petition filed by the appellant company was also dismissed. Consequently, the matter reached the Supreme Court and the Supreme Court concurred with the decision of the tribunal and observed that the work performed by the remaining 13 workers was also of regular and perennial nature and was similar to the work performed by the other 19 workers. It was also observed that the distinction created between the two sets of workers was an artificial one and had no reasonable justification. Therefore, it upheld the tribunal’s finding with respect to regularization of such workers and only the direction with respect to calculation of back wages was modified by the Supreme Court due to the long-drawn litigation and in the interest of both the parties. The Supreme Court confined the calculation of back wages from the date of Tribunal’s order (i.e., 23 May 2002) and not from the date of their employment.

Anhad Law’s Perspective

While the decision in the instant case was pursuant to the prohibition contained in the National Coal Wage Agreement -IV, it reiterates the settled judicial principle that contract labour should be avoided to be engaged for performing work of regular and permanent nature.

Nishtha Narang, Associate can be reached at delhi@anhadlaw.com

[1] (MANU/SC/0192/2024). The case was decided on 12 March 2024.