Current Trends In Law: Tests to adjudge “direct employee”

           Justice Rohinton Fali Nariman and Justice Vineet Saran, at the Supreme Court have, through the judgment of the case – Bharat Heavy Electricals Ltd. v. Mahendra Prasad Jakhmola  & the cases of 63 others, delivered on February 20, 2019, set aside the Award of a Labour Court, which had directed reinstatement of retrenched workers.

          The Court reached this decision in these cases by applying tests laid down in precedents for determining whether contract labor is a direct employee.

          According to the Apex-Court, it is clear that the Labour Court, Haridwar arrived at a conclusion which no reasonable person could possibly arrive at and ought, therefore, to have been set aside.

            Apart from the Labour Court dismissing a review from its own order, the SC found that the Uttrakhand HC, in the first impugned judgment of April 24, 2014, has also arrived at findings which are contrary to the evidence taken on record.

          First and foremost, it could not have said that “undisputedly”, the labor that was employed through contractors were performing identical duties as regular employees and that, therefore, without any evidence, it can be said that they were under the control, management, and guidance of BHEL.

          Secondly, when it said that alleged contracts that were awarded in favor of contractors and how many laborers, in what type of work, etc. were asked for, were not furnished, is also directly contrary to the evidence laid on behalf of BHEL, in which such documents were specifically provided.

          Equally, the review judgment apart from being cryptic draws an unsustainable conclusion after setting out paragraph 3 of the written statement of BHEL in the Labour Court. It was stated by BHEL in para 3 that the workmen were only engaged by the contractor and were not their employees.

          Further, striking a speculative note, it has been stated in the written statement that it appears that a workman might have been engaged as an employee by a particular contractor. A plain reading of this written statement would certainly not suggest that BHEL is not sure as to whether workmen were or were not supplied by a contractor, or engaged by BHEL. What is clear from the written statement is that BHEL has denied that the workmen were engaged by BHEL or that the workmen were BHEL’s workmen. From this to conclude that the transaction seems to be ‘sham’, is again wholly incorrect.

          Apart from this, it is also incorrect to state that BHEL has not placed on record any material to demonstrate that under the alleged labor contract, payment was ever made in favor of Madan Lal, the alleged contractor.

          In its decision – General Manager, (OSD), Bengal Nagpur, Cotton Mills, Rajnandgaon  v. Bharat Lala and Another –[2011 (1) SCC 635] , it was held that the well-recognized tests to find out whether contract laborers are direct employees are as under:

          “10. It is now well settled that if the industrial adjudicator finds that the contract between the principal employer and the contractor to be a sham, nominal or merely a camouflage to deny employment benefits to the employee and that there was, in fact, a direct employment, it can grant relief to the employee by holding that the workman is the direct employee of the principal employer.

        “Two of the well-recognized tests to find out whether the contract laborers 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. In this case, the Industrial Court answered both questions in the affirmative and as a consequence held that the first respondent is a direct employee of the appellant.”

          From the judgment – International Airport Authority of India v. International Air Cargo Workers’ Union – (2009) 13 SCC 374, it is clear that the test No. 1 is not met on the facts of this case 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/allows the employee to the principal employer.

          This is precisely what paragraph 12 explains as being supervision and control of the principal employer that 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. The Labour Court’s award being perverse ought to have been set aside in exercise of jurisdiction under Article 226.

          In the opinion of the Supreme Court when it is found that the findings of the Labour Court are perverse, it is difficult to accede to the argument that since no back wages were granted but the only reinstatement was ordered the Court should not set aside the award while exercising its jurisdiction under Article 136.

          Equally, the argument, that the so-called employer has not complied with the Labour Court’s Award, despite there being no stay, has been also rejected by the SC. Though a contempt petition could have been filed on behalf of the workmen for implementation, no such thing has been done in these cases.

          These cases arose from a judgment delivered on April 24, 2014, and a review dismissal from the said judgment on September 11, 2014, by which the Uttarakhand HC dismissed a writ petition against a Labour Court Award.

          Through the Reference Order of November 9, 2004, under section 4(k) of the U.P. I.D. Act, 1947, a dispute was referred to the Labour Court: “ Whether termination of services of workman Shri Mahendra Prasad Jakhmola, Helper by the employer w.e.f. November 13, 2001, is justified and /or as per law? If not, what benefit/ relief the concerned workman is entitled to and with what other details?”

           Similar Reference Orders were made in 63 other cases.

          The Labour Court held all these 64 workmen were entitled to be reinstated with immediate effect but without back wages. The Labour Court rejected a review petition against this Award. The HC also dismissed the writ petition filed against this Award by the Labour Court. The SC disposed of special leave petitions and granted liberty to approach the HC for review of its judgment and if that is dismissed, the appellant was given liberty to approach the SC.

          In conclusion, the SC has stated that there is nothing on facts to show that the contract labor that is engaged, even de hors a prohibition notification, is in the facts of this case ‘sham’. In view of this, the SC set aside the impugned judgments of the HC and the Labour Court’s Award and allowed the appeals.

Adv. R.S. Agrawal

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