Whether Contract Labourers are Direct Employees, Tests to Find Out: Supreme Court

Posted On - 17 June, 2019 • By - Deiya Goswami

The bench of Justices R F Nariman and Vineet Saran was dealing with an appeal filed by Bharat Heavy Electronics Ltd, which contended that the workers were not its direct employees but were contract labourers, and hence were not “employees” within the meaning of the UP Industrial Disputes Act, 1947. Tests to ascertain whether Contract Labourers are Direct Employees or not were applied.

Facts of
the case

The dispute arises as to the termination of 64 employees by M/s
Bharat Heavy Electricals Ltd. by the reference notification dated 24.04.1990
issued under the Contract Labour (Regulation and Abolition) Act, 1970 and was referred to the
Labour Court at Haridwar, by an award dated on 01.11.2009 the Labour Court held
that based on documentary evidence in the form of gate passes, the workmen, who
were otherwise employed by a contractor, were directly employed by the
appellant and all 64 workers were entitled to be reinstated with immediate
effect but without backwages. From this Labour Award, a review petition was
filed by the appellant. On 18.05.2011, this review was dismissed by the Labour
Court. From this Labour Award, a review petition was filed by the appellant
i.e. BHEL. On 18.05.2011, this review petition was dismissed by the Labour
Court. A writ petition was filed, being W.P. No. 1021/2011, against the
aforesaid orders. This writ petition was dismissed by the first impugned order
dated 24.04.2014 in which the High Court recorded that “undisputedly” all petitioners,
i.e., workmen, were performing the duties which were identical with those of
regular employees. Therefore, it can be said that they were under the command,
control, and management of the BHEL and, concomitantly, the contractor has
absolutely no control over the workmen in performing such duties. It was, therefore,
held that the alleged contract with the contractor was “sham” and,
consequently, the Labour Court Award was correct in law and was upheld. Against
this order, a special leave petition was filed before the Supreme Court and was
disposed of by the Supreme Court. The appellant then filed a review petition
before the High Court and was disposed of accordingly. Further, an Appeal
(Civil) has filed before division bench of the Supreme Court.

Issue  – Whether Contract Labourers are Direct Employees?

Contract Labourer is a Direct Employee according to the UP Industrial Disputes
Act, 1947

Appellant’s Contention

behalf of Appellant, it was contended that notification dated 24.04.1990 could
not have applied, as his client was excluded from such notification, and being
excluded from such notification, there was, consequently, no prohibition on
employment of contract labour.


behalf of Respondents, it was contended that although the contractors were
changed many times, the labourers remained the same. However, the Court found
that there was no evidence to effect that contractors were frequently changed.


The Court in order to decide the dispute relied
on the test laid down by the SC in General
Manager, (OSD), Bengal Nagpur Cotton Mills, Rajnandgaon v. Bharat Lala and
(2011) 1 SCC 635, which is as follows :

“Two of the well-recognized tests to find out
whether the contract labourers are the direct employees of the principal
employer are: (i) whether the principal employer pays the salary instead of the
contractor; and (ii) whether the principal employer controls and supervises the
work of the employee.”

Further, to explain the expression “control
and supervision” in the context of contract labour was explained by this
Court in International Airport Authority
of India v. International Air Cargo Workers’ Union
(2009) 13 SCC 374 as follows :

“If the contract is for supply of labour, necessarily, the labour
supplied by the contractor will work under the directions, supervision and
control of the principal employer but that would not make the worker a direct
employee of the principal employer, if the salary is paid by a contractor, if
the right to regulate the employment is with the contractor, and the ultimate
supervision and control lies with the contractor.

The principal employer only controls and directs the work to be done by
a contract labour, when such labour is assigned/allotted/sent to him. But it is
the contractor as employer, who chooses whether the worker is to be assigned/
allotted to the principal employer or used otherwise. In short, worker being
the employee of the contractor, the ultimate supervision and control lies with
the contractor as he decides where the employee will work and how long he will
work and subject to what conditions.
Only when the contractor assigns/sends the worker to work under the principal
employer, the worker works under the supervision and control of the principal
employer but that is secondary control. The primary control is with the

It was held that test No. 1 is not met as the
contractor pays the workmen their wages. Secondly, the principal employer
cannot be said to control and supervise the work of the employee merely because
he directs the workmen of the contractor ‘what to do’ after the contractor
assigns/ allots the employee to the principal employer. Supervision and control
of the principal employer is secondary in nature, as such control is exercised
only after such workman has been assigned to the principal employer to do a
particular work. Therefore, the bench held that the workers were not direct


It was therefore, held by applying tests laid down by precedents for determining whether a contract labourer is a direct employee, the Supreme Court has set aside the award of a Labour Court which had directed reinstatement of retrenched workers.

Contributed By – Deiya Goswami
Designation – Associate

King Stubb & Kasiva,
Advocates & Attorneys

Click Here to Get in Touch

New Delhi | Mumbai | Bangalore | Chennai | Hyderabad | Kochi
Tel: +91 11 41032969 | Email: info@ksandk.com