The definition of an “employer’ as given in section 2(x) of the IRO 2002, declaring a contractor who undertakes to procure labour or services of workmen for use by another person or in another establishment as an employer has given rise to a good deal of controversy in the concerned quarters.

Some people are of the view that the contractor referred to in that section is the job contractor i.e. contractor who has taken some job of the establishment on contract, while others are of the view that it is the contractor who supplies workers or through whom workers are engaged declared as employers in relation to workers supplied by or, engaged through, him.

Before coming to the actual issue, it will be appropriate to explain that currently we have two systems of contract operating in the labour field. One is, when the employer of an establishment employs or engages workers through a contractor. Workers so engaged remain under the control and supervision of the principal employer i.e. the employer of the main establishment, while at work, although they are paid wages by the contractor through whom they are engaged. Payment to the contractor is made by the principal employer on the basis of the number of persons engaged through him.

This system is recognized by law in Pakistan as in almost every enactment a worker or employee is defined as a person employed directly or through a contractor or any other person or agency. But since control and supervision over such persons is exercised by the principal employer and not by the contractor, the former is treated as an employer in relation to such persons for the purpose of every such law. It does not, however, mean that after employment, such workers become the regular employees of the principal employer as it happens in the case of workers engaged through an employment exchange.

Nor, merely because the principal employer is treated as an employer in relation to such workers for the purpose of some laws, they are to be treated as the regular employees of such employer. Section 23-C of the IRO, 1969 (now repealed) inter alia authorised the Joint Management Board to fix minimum facilities for such of the workers employed through contractor as were not covered by the laws relating to the welfare of workers.

From the said section it was clearly evident that the status of workers engaged through a contractor had to remain the same, otherwise there was no need for authorizing the Joint Management Board to regulate some aspects of their employment. If they were to be absorbed among the regular employees of the principal employer, their terms and conditions of service had obviously to be governed by the rules of the principal employer or by the settlements arrived at between such employer and the CBAs and not by the joint management bard.

The situation under the IRO, 2002 is exactly the same. A workman is defined as any person engaged directly or through a contractor and under section 24 thereof the Joint Works Council has been authorised to regulate some welfare aspects of the workers employed through a contractor. In short they are not treated as regular employees of the principal employer.

The other contract system currently prevailing in Pakistan is the job contract system. Under this system the principal employer contracts out some job of the establishment to a contractor and for the performance of that job the contractor employs workers. The jobs usually given on contract are loading and unloading, bagging, running of canteen and transport, horticulture, janitorial services and construction and maintenance of buildings etc. The workers engaged by the contractor for doing such jobs remain under the control and supervision of the contractor and not of the principal employer who is concerned only with the results achieved by the contractor.

Payment to the contractor is made on the basis of job done and not on the basis of the number of persons engaged by the contractor. In such a case the contractor is treated as the employer in relation to the workers engaged by him for all purposes except for the payment of social security contribution responsibility for which ultimately devolves on the principal employer. In the Indian Contract Labour (Regulation and Abolition) Act, 1976 a job contractor is defined as the one who undertakes to produce a given result for the principal employer. However in one case the Supreme Court of India went to the extent of holding the principal employer as an employer in relation to workers engaged by a job contractor as well (1978) 2 LLJ 397. But the situation in Pakistan is quite different.

In Pakistan, the job contract system is not only recognised by law but the job contractor is also treated as an independent employer. Section 2(e) of the W.P. Standing Orders Ordinance, 1968 defines the employer as the owner of an industrial and commercial establishment while section 2(f)(iv) thereof defines an industrial establishment inter alia as “the establishment of a contractor who directly or indirectly employs workmen in connection with the execution of a contract to which he is a party and includes the premises in which, or the site at which, any process connected with such execution is carried on”. Since, contractor is the owner of such establishment, he is, therefore, treated as an employer in relation to the workers employed in such establishment.

Now coming to the actual issue, a plain reading of section 2(x) of the IRO, 2002 shows that the contractor referred to therein is the person who undertakes to procure labour or services of workmen and not a person who undertakes to do any job or to provide any service. And the labour or services of workmen are procured for use by some one else or in the establishment of some one else and not by the contractor himself in connection with the doing of any job contracted out to him. In almost every dictionary, the word “labour” is defined to mean “bodily work” as well as “those engaged in bodily work considered as a group or class, or the workers collectively”.

This being the position, the procurement of labour for use by another or in another establishment would mean the procurement of manual workers for use by another person or in another establishment which could obviously mean the supply of workers by contractor to the employer of an establishment or employment of workers by the employer of an establishment through contractor. The procurement of services of workmen would mean the supply of such workers who render some kind of service, instead of doing some manual work, like clerks, typists, security guards, etc.

Thus, the contractor referred to in section 2(x) of the IRO, 2002 could only be the contractor who supplies workers or through whom workers are engaged or employed who has been treated as an employer in relation to the workers engaged through him. A job contractor is not included in the definition probably because he is already considered as an employer in relation to the workers engaged by him on the basis of the universally recognised principle of control and supervision. He has also been treated as an employer under section 2(e) read with section 2(f)(iv) of the West Pakistan Standing Orders Ordinance, 1968.

The holding of contractor as an employer in relation to the workers employed through him will have several implications. First, the law does not provide for the registration of such contractor. It will therefore, be very difficult for the labour department to carry out effective inspection to ensure that the workers employed through contractors get the benefits allowed to them under various laws. Second, the workers employed through contractor will have the right of association and to bargain collectively with the contractor in regard to the terms and conditions of their service.

Section 59(1)(c) of the new ordinance provides that a settlement arrived at in the course of conciliation proceeding or otherwise shall be binding on the employer and his successors or assigns. But contracts for the supply of labour are usually for one year or so. Therefore, the first question that will arise in such a case will be as to whether the succeeding contractor will be bound to employ the same persons who were employed by his predecessor. An Indian High Court has answered this question in negative (1984) 2 LLJ 314. The second question will be as to whether the succeeding contractor will be bound by the terms of the settlement arrived at between his predecessor and the CBA if he employs none of the persons employed by his predecessor.

Besides, the contractor through whom workers are engaged has been declared, as an employer under the IRO, 2002. But Standing Orders 20 of the W.P. Standing Orders Ordinance, 1968 still holds the principal employer responsible for the faithful observance of the Standing Orders in respect of workers employed through contractor. Therefore, unless these issues are properly addressed, the holding of contractor through whom workers are engaged as an employer will give rise to manifold problems in the field of industrial relations.