How India’s Contract Labour Framework Is Changing Under the OSH Code

India’s framework governing contract labour is undergoing a significant transition, shifting from the traditional regulation of worker engagement to a structured examination of whether core business activities can legally be performed through contract labour. A recent notification issued under the Occupational Safety, Health and Working Conditions (OSH) Code, 2020, introduces a formal mechanism to classify core activities within establishments under Central Government jurisdiction.

What Happened

The notification under the OSH Code, 2020, establishes a process for employers, contractors, workers, trade unions, and other relevant stakeholders to seek formal determinations on whether specific business operations constitute core activities. Under this mechanism, submitted applications are reviewed by a designated authority before the appropriate Government issues a final decision while adhering to principles of natural justice.

While the notification currently applies strictly to establishments under Central Government jurisdiction, it reflects a broader legal evolution. Under the OSH Code, engagement of contract labour in core activities is generally prohibited, subject to defined statutory exceptions where business realities justify the practice.

Key Highlights

• Process for Core Activity Determination: Stakeholders can apply to a designated authority to determine if an operational task is a core activity.
• General Prohibition with Exceptions: The OSH Code generally restricts contract labour in core activities while permitting specific statutory exceptions.
• Historical Legal Precedent: The Supreme Court’s decision in Steel Authority of India Ltd. v. National Union Waterfront Workers (2001) established that prohibiting contract labour does not lead to automatic absorption by principal employers.
• Preserving Workforce Flexibility: Provisions for fixed-term employment and specific statutory exceptions demonstrate that workforce flexibility remains a key policy element alongside regulation.
• Impact on Corporate Governance: Decisions regarding contract labour outsourcing are moving from purely operational concerns to matters of legal sustainability and corporate governance.

Why This Matters

When the Contract Labour (Regulation and Abolition) Act (CLRA Act) was established in 1970, India was largely an industrial economy, and the law focused on regulating contract labour while enabling prohibitions based on statutory criteria, such as whether the work was perennial. Economic liberalisation subsequently led to widespread outsourcing across service sectors, including banking, insurance, telecommunications, and information technology.

The transition from the CLRA Act to the OSH Code alters the starting point of labour regulation. Rather than focusing solely on the consequences of engaging contract workers, the legal framework now evaluates the legitimacy of outsourcing core functions. Consequently, organisations affected by core activity determinations may need to restructure existing workforce arrangements unless explicit statutory exceptions apply.

What to Watch Next

sectors such as banking and insurance are anticipated to be among the early testing grounds for this framework, given historical questioning of operational outsourcing by national trade unions. Observers will monitor how designated authorities evaluate incoming applications and how establishments under central jurisdiction align their workforce models with the decisions.

Frequently Asked Questions

What does the new notification under the OSH Code, 2020 do?

It establishes a procedure for stakeholders to seek official determinations on whether an establishment’s activity is considered a core activity under Central Government jurisdiction.

Does the OSH Code completely ban contract labour in core activities?

The OSH Code generally prohibits contract labour in core activities, but it explicitly provides specific statutory exceptions where such engagement remains permitted.

Does prohibiting contract labour force employers to absorb contract workers?

No. Based on the Supreme Court ruling in Steel Authority of India Ltd. v. National Union Waterfront Workers (2001), the prohibition of contract labour does not automatically result in direct absorption by the principal employer.

Source: The Hindu Business Line