Mismanagement Of Contract Workers Leads To Their Absorption With The Principal Employer

• January 29, 2025

INTRODUCTION

In the past, businesses primarily relied on permanent workmen for stability in skills and behavior, despite facing challenges like unionization and industrial disputes. The liberalization of India’s economy brought about a significant shift towards employing contract workmen instead.

We, at Prompt Personnel, aim to educate HR professionals on navigating these complexities through a series focused on pivotal court rulings and practical guidelines for managing contract workmen effectively in today’s industrial landscape.

CASE OVERVIEW

In this case law, we examine the key issues concerning the Haryana Electricity Board’s employment of contract workers. The case was contested all the way to the Apex Court, which ultimately did not grant relief to the management. The court’s order is presented here in simplified language, offering valuable insights for employers who heavily rely on contract labor. This information can help them understand important regulatory measures to avoid potential backlash.

CASE OVERVIEW & BACKGROUND

The Haryana State Electricity Board (HSEB) is a statutory Board with one of its primary functions being the supply of power to urban and rural areas in the State of Haryana through its various plants and stations. It is the responsibility of the Board to keep the plants and stations clean and hygienic which it does by deploying contract workmen for the said work. The contractors with their workmen undertake the work of maintaining hygiene and health at the plants.

One such contract was awarded to one Kashmir Singh, for proper complete and hygienic cleaning, sweeping and removal of garbage from the main plant building at Panipat at the rate of Rs. 33,000 per month with a stipulation to engage minimum 42 sanitation workers (safai karamcharis) with effect from 15th May, 1987 for a period of one year and in terms therewith the Contractor took over the work and performed it by utilizing the services of the sanitation workers. These workers were subsequently terminated on completion of the contract between the Board and the Contractor.

The Labour court, subsequently, on consideration of the facts and evidence on record passed award inter alia recording that the workmen are entitled to reinstatement with continuity of service along with 10% back wages. The Board moved 37 Writ Petitions in the High Court of Punjab & Haryana, which were however, disposed of by a common judgement and order dated 24th January, 1995, inter alia, recording that there existed a relationship of employer and workmen between the Board and the workers. The High Court directed reinstatement of the sanitation workers with continuity of service though, without back wages.

It is pertinent to note that both the High Court and the Hon Apex Court gave a short shrift to the contention of the Board that it had entered into agreements with the intermediate contractors who had hired the workers and so no direct employer-employee vinculum juris existed between the board and the sanitation workers (safai karamcharis).

The real test for identifying the actual employer lies in examining the direct relationship between workers and the business they serve. If workers produce goods or services for a business, and that business controls their income, skills, and job security, then that business is the true employer. This remains true even if there are contractors acting as intermediaries. If the business shuts down, the workers lose their livelihood, revealing who truly holds control. Courts should focus on the reality of the situation, not just the formal agreements or legal structures, to ensure the law serves its purpose and avoids being manipulated by appearances.

Salient Learning Points Of The Case: Precautions For The Employers While Employing Contract Labour

1. A mere contract between the employer and the contractor is not enough.
2. The party who has economic control over the contract workmen matters the most
3. When the contract workmen produce goods or service for the business of someone, then that someone is the real employer
4. In industrial jurisprudence, lifting of the veil is important to know who is the real employer
5. Finding of the facts by the labour court based upon appreciation of evidence cannot be set aside by superior courts
6. In case of abolition of contract, the principal employer is under statutory obligation to absorb the contract labour
7. In the case of contract labour employed for seasonal work the question of abolition of contract does not arise.
8. The number of workmen employed by the contractor should not exceed the number mentioned in the contractor’s license.

Factors Considered By The Labour Court, High Court And Supreme Court To Order Absorption Of Contract
Workmen With The Board

1. The contract workmen had completed work of 240 days in the year
2. The contract workmen were directly supervised and controlled by the Principal Employer
3. Attendance, discipline, discharge of duties controlled by the Principal Employer
4. Contract labour system in the Board was not genuine
5. The Contractor Kashmira Singh had procured labour from the open market for the Board i.e. the contractor did not have any laid down recruitment process for shortlisting, evaluating and selecting workmen. Thus he was only a broker for the Board to obtain labour from the open market.
6. The management was not aware if the contractor Kashmira Singh had procured license under the Contract Labour Act – but according to workmen there was no license
7. The Board’s failure to provide evidence of its license to employ contract labor, despite agreeing to submit it to the court, indicates that it does not qualify as a Principal Employer under the provisions of the CLRA.

Conclusion

The case underscores the importance of recognizing the true employer-employee relationship in contract labor situations, emphasizing that mere contractual arrangements do not absolve the principal employer of responsibility.