From Control to Contracts: Supreme Court Recalibrates the Test for Employment Status

Introduction

The Supreme Court of India’s ruling in Joint Secretary, CBSE & Anr. v. Raj Kumar Mishra & Ors. (SLP(C) No. 19648/2023) marks a pivotal moment in labour jurisprudence. By elevating contractual documentation over the long-standing “control and supervision” benchmark, the Court has fundamentally altered how claims of direct employment will be assessed. This doctrinal shift has far-reaching implications for companies, manpower agencies, employees, and the lawyers advising them.

Background and Case History

The case stemmed from the engagement of Mr. Raj Kumar Mishra as a Junior Assistant via M/s Man Power Services & Security, a third-party contractor supplying personnel to the Central Board of Secondary Education (“CBSE”). When his services were discontinued, Mishra alleged that CBSE was, in reality, his employer because it exercised day-to-day control over his duties.

 The Labour Court accepted this contention, leaning heavily on the traditional control test to conclude that an employer–employee relationship existed. The High Court later remanded the matter for further inquiry. CBSE challenged this before the Supreme Court, arguing that such a finding could not stand without formal employment records linking Mishra to the Board.

Supreme Court’s Findings

On 17 March 2025, the Supreme Court set aside both the Labour Court’s determination and the High Court’s remand. Four key principles emerged from the decision:

1. Control Is Not Conclusive: Oversight or direction from the principal entity does not, by itself, convert contract labour into direct employees when the arrangement is contractually outsourced.
2. Documentary Proof Is Essential: Appointment letters, salary slips, HR files, and other official records originating from the alleged employer are now the decisive evidence in proving direct employment.
3. Properly Structured Outsourcing Contracts Stand Firm: Where agreements clearly identify the contractor as the employer, and the contractual framework is consistently applied, the classification of the workers as contract labour will be upheld.
4. No Remand Without Documentary Basis: In the absence of credible written evidence, further factual investigation is unnecessary and inefficient.

Shift in Legal Approach

For decades, Indian courts assessed employment relationships primarily through the control test, considering factors such as authority over work methods, the power to hire or fire, and the worker’s integration into the organisation. While these indicators remain relevant, the present ruling places contractual documentation at the forefront, effectively creating a “documentation-first” approach.

This shift reflects the realities of modern workforce models, where outsourced workers often operate under some degree of client supervision without being direct employees.

Implications for Stakeholders

A. Employers and HR Teams

• Draft manpower agreements with precise allocation of recruitment, payroll, and compliance responsibilities to the contractor.
• Avoid practices that could be misconstrued as evidence of direct employment, such as issuing company ID cards or including contract workers in internal HR policies.
• Maintain a clear paper trail: invoices from contractors, payment records, and statutory compliance reports in the contractor’s name.
• Conduct regular internal reviews to verify that documentation and actual practices remain aligned.

B. Contract Workers

• Understand that supervisory control alone will not suffice to claim direct employment.
• Secure and retain written evidence—such as appointment orders or wage records from the principal—before asserting employment rights.

 C. Legal Practitioners

• Build litigation strategies around documentary exhibits rather than relying solely on workplace conduct.
• Advise clients proactively on the importance of formalising every aspect of the labour engagement.

Statutory Context and Alignment with Trends

The decision indirectly engages provisions of the Industrial Disputes Act, 1947, particularly in relation to termination and retrenchment. By prioritising documentation, the Court aligns with a growing judicial trend—both in India and abroad—that emphasises written proof over subjective assessments of workplace realities.

Compliance Framework

Key Measures for Employers:

Conclusion

The Supreme Court’s judgment is more than a procedural outcome—it is a recalibration of the evidentiary burden in employment classification disputes. While control and supervision still form part of the equation, they are no longer determinative without the backing of formal records. For employers, this highlights the need for meticulous contractual drafting and consistent HR practices. For workers, it signals that rights must be anchored in documentation, not merely in operational reality. For the legal fraternity, it marks the dawn of a documentation-driven era in Indian labour law.