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The ambit of labour contracts

M J Antony | July 23, 2003

Though the judgement of the Constitution bench of the Supreme Court in Steel Authority of India vs National Union of Waterfront Workers in 2001 apparently ruled in favour of managements, which could deny liability to absorb contract labour, the stance of the court in the subsequent appeals has not been so favourable to them.

In several cases, the court has told the employers that the status of such workers depended on the terms of the agreement between the contractor and the principal employer, the nature and length of service and other factors.

Therefore, the court had sent most of the cases for examination of the facts and circumstances in each case by the labour court in the respective places.

On Monday, the Supreme Court decided a case, Bharat Heavy Electricals

Ltd (BHEL) vs State of UP, in which the gardeners, sweepers and cleaners won their case against the public sector giant.

These workers were employed to work in the factory premises and residential complexes of the company through agents. Their services were abruptly terminated by the company.

The workers raised an industrial dispute before the labour court. The company took up the plea that it had never employed these workers and it was not liable to reinstate them or pay compensation.

However, the labour court ordered it to re-employ them and pay Rs 15,000 as compensation to each of them, apart from payment of cost of Rs 500 for the litigation.

The company moved the Allahabad high court, without success.

The high court held that the workers were under the direct employment, supervision and control of the company. It observed that some employers, with a view to getting over the stringent provisions of the labour law, resorted to engaging workers through some intermediary and such arrangements were artificial and a veil.

BHEL put forward a new argument that the work done by the labourers were not an integral part of the industry concerned as they were gardeners and cleaners.

The Supreme Court, however, stated that even if they were not engaged in the primary functions of the unit, they could still be employees. It reiterated the view expressed in earlier judgements that one of the tests was whether the employer has economic control over the workers' subsistence, skill and continued employment.

The presence of the immediate contractors with whom alone the workers have a direct relationship was of no consequence when, on lifting the corporate veil, "the naked truth, though draped in different paper arrangements" is that the real employer is the management of the unit.

"Myriad devices, half-hidden in fold after fold of legal form depending on the degree of concealment needed, the type of industry, the local conditions and the like may be resorted to when labour legislation casts welfare obligations on the real employer. The court must be astute to avoid the mischief and achieve the purpose of the law and not be misled by the Maya of legal appearances," the judgement said.

It also emphasised that the livelihood of the workers depended upon the labour rendered. The absence of direct relationship or the presence of dubious intermediaries or the make-believe trappings of detachment from the management cannot snap the real-life bond, according to the court.

The Supreme Court remarked that in the Steel Authority case, the workers took the extreme stand that the engagement of contract labour by the contractor in any work of, or in connection with the work of the establishment, created the relationship of master and servant.

The Constitution bench rejected this far-fetched contention in that case. However, it did not upset the rulings of the Supreme Court in other aspects. The test of control is one of them. The length of service and the interdependency of the unit and the workers are other circumstances, which are relevant.

Therefore, despite the initial euphoria of the employers following the Steel Authority of India judgement, the legal position regarding contract labour remains much the same, at least in law.

Legislation to make the engagement of such workers easier for the employers has meanwhile been caught in political quagmire for too long.


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