The new definition of contract labour leaves out a contractor's “regular” staff. Unless its conditions are strictly enforced, the exception could become the easiest way around the law

A security guard has stood at the gate of the same factory for ten years. His uniform carries the name of a security agency, not the factory. If the agency shuts down owing him three months' wages, can he ask the factory to pay? Under India's new labour law, the answer turns on a single definition, and on whether the agency can show that he was its “regular” employee.

Questions like this are no longer marginal. About 42 per cent of workers in India's organised factories are now contract workers, the highest share in over 25 years. Since 21 November 2025, their rights come from the Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code), which replaced the Contract Labour Act, 1970 and the Inter-State Migrant Workmen Act, 1979.

Most discussion of the Code has focused on two headline changes: the contract labour rules now apply only to larger establishments, and contract labour is banned in core work. A quieter change deserves as much attention. The Code has redrawn who counts as contract labour at all, and it now leaves out a contractor's “regular” employees. Applied loosely, this exception could strip protection from many workers without anyone noticing.

The old rule

Section 2(1)(b) of the Contract Labour Act, 1970 said:

“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;”

In simple terms, anyone hired through a contractor to work for a company was contract labour. The law said nothing about the contractor's own permanent staff. So officials often treated every person on a contractor's list as contract labour at the client's site.

The court that drew a line

In Basanta Kumar Mohanty v. State of Orissa, (1992) II LLJ 190 (Ori), a security agency was prosecuted for sending guards to the Talcher Thermal Power Station without a contract labour licence. The Orissa High Court set aside the conviction. Justice A. Pasayat explained:

“A permanent employee who during his employment can be placed at different establishments at the choice of the contractor cannot be called to be a contract labour because he is not hired in or in connection with the work of any particular establishment.”

The guards were full-time staff of the agency and could be moved to any of its units. They were not hired for the power station's work. So they were not contract labour.

The new rule

Section 2(1)(m) of the OSH Code keeps the old words but adds an inclusion and an exclusion:

““contract labour” means a worker who shall be deemed to be employed 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 and includes inter-State migrant worker but does not include a worker (other than part time employee) who is regularly employed by the contractor for any activity of his establishment and his employment is governed by mutually accepted standards of the conditions of employment (including engagement on permanent basis), and gets periodical increment in the pay, social security coverage and other welfare benefits in accordance with the law for the time being in force in such employment;”

So a worker is not contract labour only if all of these are true:

1. the worker is not part-time;

2. the worker is regularly employed by the contractor;

3. the job has agreed terms, such as a permanent appointment;

4. the worker gets regular pay increases; and

5. the worker gets social security, such as PF and ESI, and other welfare benefits required by law.

This is stricter than Mohanty. The court mainly asked whether the guards could be transferred. The Code does not ask about transfer at all. It asks for proof of real, stable employment. A worker who can be transferred but gets no pay rise or PF is still contract labour. A contractor's permanent employee who has worked at one client for ten years can be left out, if every condition is met.

Where the exception can be misused

The idea is fair. Security, housekeeping and engineering firms often have genuine permanent staff, and treating them as contract labour of every client adds cost without adding protection. The danger lies in three gaps.

The conditions are vague. The Code does not say how often increments must be given, or how large they must be. PF and ESI are compulsory anyway, so “social security coverage” may be easy to show. A contractor paying minimum wages, a small yearly raise and compulsory PF could call its whole workforce “regular”. Those workers would then lose the protections of the contract labour chapter, including the principal employer's duty to provide welfare facilities and to pay wages if the contractor fails to.

No one is told who must prove it. The Code is silent on this. The records that prove the exception, such as appointment letters, pay-rise records and PF histories, are with the contractor. So the contractor should have to prove it, with documents, not a simple statement. In Mohanty itself, the inspector had not checked the guards' service conditions at all.

It can push establishments below the threshold. The contract labour chapter now applies only where 50 or more contract labourers were engaged on any day in the past year. Under the old Act the number was 20. Every worker labelled “regular” reduces this count. A company near the limit could step outside the chapter just by relabelling workers, while the work stays the same.

Migrant workers: a welcome change with a limit

The definition now expressly includes inter-State migrant workers. Section 2(1)(zf) defines them this way:

“…a person who is employed in an establishment and who— (i) has been recruited directly by the employer or indirectly through contractor in one State for employment in such establishment situated in another State; or (ii) has come on his own from one State and obtained employment in an establishment of another State … and draws wages not exceeding the amount of rupees eighteen thousand per month or such higher amount as may be notified by the Central Government from time to time;”

The old 1979 Act mostly protected workers recruited through a contractor. A worker who travelled alone and found a job, for example through a walk-in interview, was usually left out. Clause (ii) now covers such workers. That is a real gain.

But the ₹18,000 limit is already too low in some places. In Delhi, the minimum monthly wage for even unskilled work is above ₹18,000. The Central Government's minimum wage for unskilled work in central sector jobs is also higher. So a migrant worker earning only the legal minimum in these places may fall outside the definition. The migrant worker provisions also apply only where ten or more such workers are employed, up from five earlier.

What the definition does not do

Being contract labour does not make a worker the company's own employee. In Steel Authority of India Ltd. v. National Union Waterfront Workers, (2001) 7 SCC 1, the Supreme Court held that contract workers are not automatically absorbed by the principal employer. They must prove that the contract is a sham. In Premium Transmission Pvt. Ltd. v. Kishan Subhash Rathod, the Supreme Court said this is a question of fact for industrial courts, not High Courts in writ cases. The OSH Code has no absorption rule, so this position is likely to continue.

Three simple fixes

First, the rules under the Code should list the documents a contractor must show to claim the exception, and inspectors should check them. Second, courts should insist that every condition is met, since exceptions in welfare laws are read narrowly. Third, the ₹18,000 limits in the definitions of “inter-State migrant worker” and “worker” should rise with wages automatically, instead of waiting for occasional notifications.

Mohanty recognised that a genuine agency with permanent staff is an employer, not just a supplier of labour. The Code rightly turns that idea into law. But the guard at the factory gate should not lose his claim against the factory simply because his contractor has filled in the right forms. The exception should cover workers whose jobs are secure in fact, not only on paper. How strictly its conditions are checked will decide whether the Code protects the thēkā mazdoor or quietly writes him out of the law.

Author is an Advocate practicing at Supreme Court of India. Views are personal.