Difference between a ‘Contract Labour’ and an ‘Employee’

What does the term ‘contract labour’ means?

The term ‘contract labour’ under Contract Labour (Regulation and Abolition) Act, 1970 (“CLRA“) means a workman who is hired in or in connection with the work of an establishment by or through a contractor. It is important to note that the word, ‘hire’, as used in the Act, has a significant connotation and it is not equivalent to an employer-employee relationship.

How do we differentiate between a ‘contractor-contract labour’ relationship and an ‘employer-employee’ relationship?

There are several factors that a Court looks into before it decides whether there is a contractor-contract labour’ relationship or an ‘employer-employee’ relationship. The answer to this question decides the applicability of some of the important labour law legislations in India. These factors are-

Scope of Work

A workman is deemed to have been employed as contract labour when he is hired in, or in connection with a particular work of the principal employer. The determinative factor, here, is whether a workman was hired in or in connection with work of an establishment. Where a workman is ‘hired’ specifically for the work of an establishment, his scope of work does not extend beyond the work of that establishment and he is considered to be a contract labour.

Unlike the scope of work of a contract labour, the scope of work of an employee extends beyond the completion/execution of any specific work of a particular establishment for which his employer may be working. This means that while the engagement of a contract labour is always co-terminus with the particular work of the principal employer, the term of an employee is continuous in nature. Therefore, all contracts undertaken by one for another would not necessarily imply a contract of contract labour. Merely because a contractor undertakes to render any particular service and engages its employees, it does not ipso facto lead to engagement of contract labour, unless persons who are engaged were hired for any particular job.

In State of Gujarat vs. Vogue Garments and Ors.[1], where workers of a firm were doing considerable work for other concerns as well, and not only for the (alleged) principal employer, the Hon’ble High Court of Gujarat held that such workers were not ‘contract labour’.

Supervision and Control

In Dhrangadhra Chemical Works Ltd. v. State of Saurashtra[2], Supreme Court held that the test of supervision and control can be taken as prima facie test for determining the relationship of employment. The greater the amount of direct control exercised over the persons rendering services by the persons contracting for them, the stronger would be the presumption for holding it to an employer-employee relationship.

The test for establishing an employer-employee relationship as laid down by the Apex Court in Balwant Rai Saluja vs. Air India Ltd.[3] is, complete administrative control, which is decided by several factors, including, among others-

  1. who appoints the workers;
  2. who pays the salary/remuneration;
  3. who has the authority to dismiss;
  4. who can take disciplinary action;
  5. whether there is continuity of service; and
  6. extent of control and supervision i.e. whether there exists complete control and supervision.

In Vogue Garments[4], Gujarat High Court observed that the employer firm had the complete supervision and control over the workers who were working on the employer’s premises. The Court used this as one of the factors to eventually decide that the workers were not contract labour. Similarly, in Silver Jubilee Tailoring House vs. Chief Inspector of Shops and Establishments[5], Supreme Court observed that the employer had the right to reject the end product of the workers if such work product did not conform to the instructions of the employer and direct them to rework on those products. The Apex Court then implied that control and supervision was in the hands of the employer and used it as one of the factors to conclude an employer-employee relationship. Supreme Court in this case thus held that if an ultimate authority over the worker in the performance of his work resides in the employer and such worker is subject to the employer’s direction, it is sufficient to conclude an employer-employee relationship. Similarly, if it is the principal employer who has the right of supervision and control on the workers, it can be one of the important considerations for deciding whether a workman is a ‘contract labour’ or ’employee’.

Work Site

The ‘work site’ is an establishment and belongs to the principal employer who has a right of supervision and control, who is the owner of the premises and end product and from whom the contract labour receives its payment either directly or through a contractor. It is the place where the establishment intends to carry on its business, trade, industry, manufacture, occupation. One general presumption is that if the work is being executed by the workers at the ‘work site’ for the principal employers, the workers are ‘contract labour’. However, working premises alone cannot be the only criteria to decide whether a workman is engaged as a contract labour or as an employee. One good example in this regard is judgment of Orissa High Court in Basanta Kumar Mohanty vs. State of Orissa[6]. In this case, the contract between the contractor and the principal employer was for rendering security service and the profession charge payable was for deployment of several named categories of employees. The Court in this case held that-

“A permanent employee who during his employment can be placed at different establishments at the choice of the contractor cannot be called to be a contract labour because he is not hired in or in connection with the work of any particular establishment. The logic behind this conclusion is that where employment of a person is unrelated with any specific work of any establishment, he is not a contract labour, because his employment has no nexus with any particular work of any establishment.”

Therefore, any determination as to whether a worker is a ‘contract labour’ or an ‘employee’ will depend on interplay of these factors in the particular facts and circumstances of a case.

Image from here

[1] (1982)2GLR449

[2] AIR 1957 SC 264

[3] MANU/SC/0732/2014

[4] (1982)2GLR449

[5] AIR1974SC37

[6] (1992)IILLJ190Ori

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