Supreme Court lays down Test to Determine Position of Contractual Employee

December 9, 2019
1T Industry

By Rupin Chopra and Reetika Wadhwa

A contract labour is employed through a contractor and their work tenure is affixed on a contractual basis. The contractor provides labour to the principal employer by way of a contract. The employment of these labours can either be regulated by the contractor or the principal employer. However, the contract labors are susceptible to an irregular working environment and are unable to avail the benefits like those given to a permanent worker. In a recent case of Bharat Heavy Electricals Limited (BHEL) vs. Mahendra Prasad Jakhmola & Ors[1], the Hon’ble Supreme Court addressed the aforesaid issue. The Apex Court has laid out, and even applied, the test to determine whether contract labors are direct employees.

Brief Facts –

  • BHEL entered into an agreement with a contractor to involve contract labour in Haridwar.
  • The contract was abruptly terminated by BHEL, following which the contract labors approached the Labour Court.
  • The Labour Court passed an order in favor of the contract labours stating that the BHEL was responsible for supervision, superintendence and administrative control over them.
  • Further, in an appeal filed by BHEL in the Uttrakhand High Court, the High Court upheld the decision of the Labor Court.
  • BHEL subsequently approached the Supreme Court

Observations by the Supreme Court –

The Supreme Court in the above case applied the test laid out in the case of Bengal Nagpur Cotton Mills, Rajnandgaon v. Bharat Lala and Another[2] which are mentioned below:

  • whether the principal employer pays the salary instead of the contractor; and
  • whether the principal employer controls and supervises the work of the employee.

In the above case though the principal employer can control and direct the work to be done by such contract labor, but it is ultimately the contractor who decides if such contract worker is to be assigned to the principal employer or is to be used otherwise.

Therefore the ultimate supervision and control lies with the contractor as he decides location, duration and conditions of employment.

The court has determined the factor of primary and secondary control, by stating that in the above scenario, though the contract labor’ s work is controlled and supervised by the principal employer, it is only secondary control. The primary control remains with the contractor.

The Apex Court the present case stated that even when the principal employer was maintaining control and supervision, the salaries to those employees were paid by the contractor. Therefore, BHEL was exercising only secondary control as it did not satisfy the second test to determine nature of employment.

Conclusion –

When contract labours are hired by the principal employer, their terms of employment are often left ambiguous. Due to the lack of clarity they are often denied benefits which are provided to permanent employees of the principal employer. This test laid out by the Hon’ble Supreme Court clears the air on such ambiguity and provides a proper method to determine the position of contract labours.

[1] (Civil Appeal No. 1799-1800 of 2019)

[2] (2011) 1 SCC 635

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