Pave Passage to India with Refined Laws on Outsourcing

Published: 11th April 2015 10:00 PM  |   Last Updated: 11th April 2015 11:30 AM   |  A+A-

Outsourcing in the global economy is a much wider term now. Not just the non-core and incidental activities, but even the core and basic ones are being delegated to smaller firms and factories outside. Over a decade ago, outsourcing implied only the call centres and BPOs. Whereas now even companies and brands like Apple, Facebook, WhatsApp, Alibaba are outsourcing their jobs to various firms across the world.

Not only does this save time of these big brands but it also makes a powerful impact on growth of smaller firms, thereby generating more employment.

The outsourcing contracts are on principal-to-principal basis. One of the key reasons for entering into such contracts is to get rid of employee-related issues, apart from saving on various other counts. But the Indian laws need to be made more compatible to today’s era of outsourcing. The grey area which needs to be covered is distinction of  genuine principal-to-principal arrangements, where the total manufacturing or the service is outsourced, from the age-old contract labour system of the country.

Under the contract labour system, a part of the process, such as finance, administration, human resources,  housekeeping, security, catering etc., is outsourced. It is a tripartite arrangement where there is a principal employer for whom the work is being done, a contractor who undertakes to carry out the work, and the workers of the contractor who carry out the task. In such an arrangement, courts may have to dive deep and examine the nature of arrangement in case of employee-related claims. Courts in such cases are required to see that the arrangement is not sham and camouflage, meant only to flout laws, especially the termination-related procedures. In modern-day outsourcing, however, where complete product manufacturing is outsourced, such contracts should be clearly clarified to be outside the purview of these   litigations. There is no reason for a company, which is not involved in the

process, to be held responsible.

Under the Indian laws, the key question in most of the litigations pertaining to outsourced contracts is whose baby is the employee? Cases are generally filed by employees seeking reinstatement after termination and also regularisation, higher pay scales, etc.

To come to a conclusion, courts have been given the power to lift the veil and see the real nature of arrangement. Some of the major factors considered by the courts are who is the appointing authority, who is paying salary, who takes disciplinary action, who has the power of supervisions and control, etc. The party which is seen to be taking care of these factors is saddled with the responsibility. Further, it is also seen if the particular company is catering to only one company or is it catering to a number of them.

These kind of litigations fear the outside companies to outsource and invest in India. Laws are ambiguous and the judgments are conflicting. Therefore, it becomes crucial to clarify in black and white, keeping the brand outsourcing complete, immune from such litigations.

Even with respect to compliance of provisions such as minimum wages, provident fund, employees’ state insurance and other statutory benefits, as is the case of the three-tier contract labour system, the law is clear that even during non-compliance by the contractor, the principal employer shall be responsible. In the case of complete outsourcing, however, there is no reasonable justification for the brands to face such liabilities, when they are not even remotely connected with the employee.

The crux of the issue is that if our laws are clarified, we can surely expect more foreign investments and growth of business houses, thereby generating income and creating large source of employment.

Birbal is an advocate specialising in labour, civil, litigation and corporate laws


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