Supreme Court Clarifies Employer-Employee Relationship in Contract Labour Disputes: Bharat Heavy Electricals Ltd. vs. Mahendra Prasad Jakhmola & Ors. (20 February 2019)

Introduction

Date of the Judgment: 20 February 2019

Citation: (2019) INSC 148

Judges: R.F. Nariman, J. and Vineet Saran, J.

When does a contract worker become an employee of the principal employer? The Supreme Court of India, in a recent judgment, addressed this critical question in the context of contract labour disputes. The case involved Bharat Heavy Electricals Ltd. (BHEL) and its dispute with contract workers who claimed to be direct employees of BHEL. The core issue was whether the workers, though hired through a contractor, were effectively employees of BHEL due to the nature of their work and the control exercised over them. This judgment clarifies the tests to determine the true employer in such situations. The judgment was delivered by a two-judge bench comprising Justice R.F. Nariman and Justice Vineet Saran, with the opinion authored by Justice R.F. Nariman.

Case Background

The dispute originated from a reference made by the Uttar Pradesh Government to the Labour Court regarding the termination of services of several workmen. These workmen, though ostensibly employed by a contractor, claimed that they were, in fact, employees of Bharat Heavy Electricals Ltd. (BHEL). The Labour Court, after considering the evidence, ruled in favor of the workmen, ordering their reinstatement but without back wages. BHEL challenged this decision, leading to a series of appeals and reviews, ultimately reaching the Supreme Court.

The Labour Court’s decision was primarily based on a notification issued under the Contract Labour (Regulation and Abolition) Act, 1970, and the perceived control BHEL had over the workmen. The High Court initially upheld the Labour Court’s decision, stating that the workers were performing identical duties as regular employees of BHEL. However, the Supreme Court, finding discrepancies in the High Court’s observations, directed a review. The High Court then dismissed the review, leading to the present appeal before the Supreme Court.

Timeline

Course of Proceedings

The Labour Court at Haridwar, after receiving the reference, conducted hearings where both BHEL and the workmen presented their arguments and evidence. The Labour Court, relying on a notification dated 24.04.1990 under the Contract Labour (Regulation and Abolition) Act, 1970, and documentary evidence like gate passes, concluded that the workmen were directly employed by BHEL. The Labour Court also noted a concession made by BHEL’s representative, which BHEL later denied.

BHEL filed a review petition, which was dismissed by the Labour Court. Subsequently, BHEL filed a writ petition before the High Court of Uttarakhand, which was also dismissed. The High Court stated that it was “undisputed” that the workmen were performing duties identical to regular BHEL employees. This led to BHEL filing a special leave petition before the Supreme Court. The Supreme Court, noting the disputed factual position, directed BHEL to file a review petition before the High Court. The High Court dismissed this review petition, leading to the current appeals before the Supreme Court.

Legal Framework

The case primarily revolves around the interpretation of the Contract Labour (Regulation and Abolition) Act, 1970, and the Uttar Pradesh Industrial Disputes Act, 1947. The key provision is Section 2(i)(iv) of the Uttar Pradesh Industrial Disputes Act, 1947, which defines ’employer’ to include:

“where the owner of any industry in the course of or for the purpose of conducting the industry contracts with any person for the execution by or under such person of the whole or any part of any work which is ordinarily part of the industry, the owner of such industry;”

This extended definition of ‘employer’ was crucial in determining whether BHEL could be considered the employer of the contract workers. The notification dated 24.04.1990, issued under the 1970 Act, was also central to the dispute. However, the Labour Court’s application of this notification was contested by BHEL, as the notification exempted BHEL’s operations in Haridwar.

Arguments

Appellant (BHEL)’s Arguments:

• ✓ The Labour Court erred in applying the notification dated 24.04.1990, as BHEL was specifically exempted from it. This exemption meant there was no prohibition on employing contract labour.
• ✓ BHEL had agreements with contractors, who were responsible for paying the workers. The workers were employees of the contractors, not BHEL.
• ✓ No concession was made before the Labour Court that the workers were direct employees of BHEL. The Labour Court and the High Court wrongly recorded such a concession.
• ✓ Gate passes issued to the workers were for security and administrative purposes, not to establish a direct employer-employee relationship.
• ✓ The High Court incorrectly stated that it was undisputed that the workers performed identical duties as regular employees and were under BHEL’s control.
• ✓The extended definition of ’employer’ under the Uttar Pradesh Industrial Disputes Act, 1947, does not automatically apply. Evidence must be led to show that the work performed by contract labour is ordinarily part of BHEL’s industry.

Respondent (Workmen)’s Arguments:

• ✓ The Labour Court Award was fair as it only ordered reinstatement without back wages.
• ✓ BHEL, a government company, had not reinstated the workers despite no stay on the Labour Court’s order.
• ✓ The concession made before the Labour Court was valid. BHEL’s review petition did not include a statement from the authorized representative denying the concession.
• ✓ Gate passes were not the sole basis for the Labour Court’s decision. The workers’ continuous service despite changes in contractors indicated a direct relationship with BHEL.
• ✓ The contractor received only a 10% profit, indicating that they had no real control over the labour.
• ✓ Even if the workers were employees of the contractor, the extended definition of ’employer’ under the Uttar Pradesh Industrial Disputes Act, 1947, applies, making BHEL the employer.

Issues Framed by the Supreme Court

The Supreme Court considered the following key issues:

1. Whether the Labour Court’s application of the notification dated 24.04.1990 was correct given BHEL’s exemption.
2. Whether the Labour Court’s finding of a direct employer-employee relationship between BHEL and the workmen was based on sufficient evidence.
3. Whether the extended definition of ’employer’ under Section 2(i)(iv) of the Uttar Pradesh Industrial Disputes Act, 1947, was correctly applied.
4. Whether the High Court’s findings were in accordance with the evidence on record.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

The Court also considered Section 2(i)(iv) of the Uttar Pradesh Industrial Disputes Act, 1947, which defines ’employer’ to include the owner of an industry who contracts out work that is ordinarily part of the industry.

Judgment

The Supreme Court, after considering the arguments and evidence, set aside the judgments of the High Court and the Labour Court. The Court held that the Labour Court’s award was perverse as it misapplied the notification dated 24.04.1990 and incorrectly inferred a direct employer-employee relationship based on gate passes and a disputed concession.

The Court also found that the High Court had erred in its findings, particularly in stating that it was undisputed that the workers performed identical duties as regular employees of BHEL and were under BHEL’s control. The Supreme Court emphasized that the extended definition of ’employer’ under the Uttar Pradesh Industrial Disputes Act, 1947, does not automatically apply and requires evidence to show that the work performed by contract labour is ordinarily part of the industry.

How each authority was viewed by the Court?

• ✓ The Court relied on Basti Sugar Mills Ltd. v. Ram Ujagar and Ors. [(1964) (2) SCR 838]* to explain that the extended definition of ’employer’ requires evidence that the work is ordinarily part of the industry.
• ✓ The Court distinguished the facts of the present case from Steel Authority of India Ltd. And Ors. v. National Union Waterfront Workers and Ors. [(2001) 7 SCC 1]*, stating that there was no evidence to show that the contract labour was a ‘sham’.
• ✓ The Court cited Swami Krishnanand Govindananad v. Managing Director, Oswal Hosiery (Regd.) [(2002) 3 SCC 39]* to emphasize that concessions on disputed facts cannot bind a party.
• ✓ The Court cited C.M. Arumugam v. S. Rajgopal [(1976) 1 SCC 863]* to highlight that concessions on mixed questions of fact and law do not preclude a party from re-agitating the point in appeal.
• ✓ The Court relied on General Manager, (OSD), Bengal Nagpur Cotton Mills, Rajnandgaon v. Bharat Lala and Another [2011 (1) SCC 635]* to explain the tests for determining direct employment, noting that the contractor paid the wages and BHEL’s control was secondary.
• ✓ The Court referred to International Airport Authority of India v. International Air Cargo Workers’ Union* to clarify that the principal employer’s control is secondary to the contractor’s control.
• ✓ The Court cited Balwant Rai Saluja and Another v. Air India Limited and Others [2014(9) SCC 407]* to reiterate the factors to establish an employer-employee relationship.
• ✓ The Court stated that the judgments in Calcutta Port Shramik Union v. Calcutta River Transport Association and Others [1988 (Supp) SCC 768]*, Pepsico India Holding Private Limited v. Grocery Market and Shops Board and Others [2016 4 SCC 493]*, and Harjinder Singh v. Punjab State Warehousing Corporation [(2010) 3 SCC 192]* on the limits of judicial review were not applicable to the facts of the present case.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• ✓ Misapplication of Law: The Labour Court’s incorrect application of the notification dated 24.04.1990, which exempted BHEL, was a significant factor.
• ✓ Lack of Evidence: The Labour Court’s finding of a direct employer-employee relationship was based on insufficient evidence, primarily gate passes and a disputed concession.
• ✓ Secondary Control: The Court emphasized that BHEL’s control over the workmen was secondary, as the contractor assigned the workers and paid their wages.
• ✓ Extended Definition of Employer: The Court held that the extended definition of ’employer’ under the Uttar Pradesh Industrial Disputes Act, 1947, requires evidence that the work is ordinarily part of the industry, which was lacking in this case.
• ✓ High Court’s Errors: The High Court’s findings were contrary to the evidence on record, particularly the statement that it was undisputed that the workers performed identical duties as regular employees.

The sentiment analysis of the reasons given by the Supreme Court indicates a strong focus on legal correctness and factual accuracy.

The ratio of fact to law shows that while the factual aspects of the case were considered, the legal considerations and the correct application of the law were the predominant factors in the Court’s decision.

The Court considered alternative interpretations, such as the argument that the workers were effectively employees of BHEL due to the nature of their work and the control exercised over them. However, this interpretation was rejected due to the lack of evidence and the fact that the contractor paid the wages. The Court also rejected the argument that the extended definition of ’employer’ automatically applied, emphasizing that evidence must be led to show that the work performed by contract labour is ordinarily part of BHEL’s industry.

The Court’s decision was based on a step-by-step analysis of the evidence and the applicable legal provisions. It emphasized the importance of factual accuracy and the correct application of the law.

The Supreme Court’s decision was unanimous, with both judges concurring on the judgment.

The Court’s reasoning was based on a thorough analysis of the evidence presented, the applicable legal provisions, and the precedents set by previous judgments. The Court emphasized that the Labour Court’s award was perverse because it was based on a misapplication of the law and insufficient evidence. The High Court’s findings were also found to be erroneous as they contradicted the evidence on record.

The Court clarified the tests to determine the true employer in contract labour disputes, emphasizing that the payment of wages and the nature of control are key factors. The Court also clarified that the extended definition of ’employer’ under the Uttar Pradesh Industrial Disputes Act, 1947, does not automatically apply and requires evidence to show that the work performed by contract labour is ordinarily part of the industry.

Key

Key Takeaways

The Supreme Court’s judgment in Bharat Heavy Electricals Ltd. vs. Mahendra Prasad Jakhmola & Ors. provides several key takeaways for understanding employer-employee relationships in contract labour disputes:

• Exemption from Notifications: If a principal employer is specifically exempted from a notification under the Contract Labour (Regulation and Abolition) Act, 1970, the notification cannot be applied to them.
• Evidentiary Requirements: Establishing a direct employer-employee relationship requires more than just gate passes or a disputed concession. The Labour Court must consider all evidence.
• Extended Definition of ‘Employer’: The extended definition of ’employer’ under the Uttar Pradesh Industrial Disputes Act, 1947, does not automatically apply. Evidence must be led to show that the work performed by contract labour is ordinarily part of the industry.
• Control and Supervision: The principal employer’s control over contract labour must be primary, not secondary to that of the contractor. The contractor’s role in assigning workers and paying their wages is crucial.
• Concessions: Concessions on mixed questions of fact and law cannot be the sole basis for a decision. The evidence as a whole must be weighed.
• Judicial Review: High Courts must ensure their findings are in accordance with the evidence on record.
• Burden of Proof: The burden of proof lies on the contract workers to demonstrate that they are effectively employees of the principal employer.

Implications

The judgment has significant implications for both employers and contract workers:

• For Employers: Employers need to ensure that their contracts with labour contractors are genuine and that the contractors are responsible for paying the workers and exercising primary control over them. If the principal employer has no direct control and the contractor pays wages, the workers will not be considered direct employees of the principal employer.
• For Contract Workers: Contract workers must present sufficient evidence to demonstrate that they are effectively employees of the principal employer. Gate passes and disputed concessions alone are not enough to establish a direct employer-employee relationship. They must demonstrate that the work they perform is ordinarily part of the industry and that the principal employer exercises primary control over them.
• Legal Certainty: The judgment provides clarity on the tests to determine the true employer in contract labour disputes, reducing ambiguity and potential litigation.
• Labor Law Compliance: The judgment underscores the importance of compliance with labor laws and the need for genuine contracts with labour contractors.
• Judicial Scrutiny: The judgment highlights the importance of judicial scrutiny of Labour Court awards and High Court decisions, ensuring they are based on evidence and the correct application of the law.

Conclusion

The Supreme Court’s judgment in Bharat Heavy Electricals Ltd. vs. Mahendra Prasad Jakhmola & Ors. is a significant ruling that clarifies the tests to determine the true employer in contract labour disputes. The Court emphasized that the extended definition of ’employer’ under the Uttar Pradesh Industrial Disputes Act, 1947, does not automatically apply and requires evidence to show that the work performed by contract labour is ordinarily part of the industry. The Court also clarified that the principal employer’s control over contract labour must be primary, not secondary to that of the contractor.

The judgment underscores the importance of factual accuracy and the correct application of the law in labor disputes. It also highlights the need for employers to maintain genuine contracts with labour contractors and for contract workers to present sufficient evidence to demonstrate that they are effectively employees of the principal employer. This judgment provides a clear framework for resolving similar disputes in the future, promoting fairness and clarity in the employer-employee relationship in contract labour situations.

This case serves as a reminder that the substance of the relationship between the parties matters more than the form, and that the Courts will look beyond the label of ‘contract labour’ to determine the true nature of the employment relationship.