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Examining Reforms Affecting Contract Labour in Core Activities

Anmol Pareek
Anmol Pareek

Published on: Aug 3, 2022

Deepesh Sharma
Deepesh Sharma

Updated on: Mar 29, 2024

(81 Ratings)

One of the key factors to decide whether a contract worker will be considered as the direct employee for the principal employer or not, totally depends upon the “Control or Supervision” of the principal employer over the contractual worker. The Supreme Court has clarified the same in the case of International Airport Authority Vs International Air Cargo Worker’s Union, it was observed that if the contract is for the supply of labour necessarily, the labour supplied by the contractor will work under the guidance, supervision and control of principal employer but that would not make contractual worker, the direct employee of the principal employer.

Additionally, the other factor to be considered while considering control and supervision is whether the contract for the employment of a contractual worker is ‘contract of service’ or a ‘contract for service’ on the part of the principal employer and contractor.

Further, some courts have followed an approach to identify whether the contract laborer’s are the direct employees of the principal employer or not by using the Two-Fold test or Twin Approach, and the same was discussed in the case of Bengal Nagpur Cotton Mills Vs Bharat Lal, which states as follows:

  • Whether the principal employer pays the salary to the contractual employee; and,
  • Whether the principal employer controls and supervise the work of the contractual employee.

Thus, from the above-mentioned approach it’s clear that there must be a direct relationship between the principal employer and the contractual worker.


The case of Secretary, State of Karnataka And Others vs Umadevi And Others is concerned with the public employment in the government sector and the Hon’ble Supreme Court held that contractual labour will be considered the permanent employee if the following conditions are fulfilled:

  • There should be a sanctioned post in the institution
  • The workers shall be working at such post for more than 10 years
  • The appointment of such employees shall not be illegal, even if it is irregular
  • The employee shall not be working under the umbrella of any order, permanent of interim, by any court of law in India.

Apart from the above context, Contractual employees are engaged through contractors, their service conditions are governed by the contracts between them. The appointment orders to the contractual employees are not given by the principal employer but are given by the contractor. They work with the principal employer through the contractor, only during the contract period. After the contract period is over, their contractor may enter into a contract with another establishment and shift them to work there. From that view, we can conclude that contract labour cannot be treated like permanent employees of the principal employer.


Mere engaging a contract labour for a longer interval of time, doesn’t necessarily become a ground for regularization of contractual labour.

The Hon’ble Supreme Court in the case of R.K Panda Vs. Steel Authority of India observed that contract labour who had been initially engaged through contractors but have been continuously working with the respondent for a long time on different jobs assigned to them in spite of the replacement and change of the contractors, a direct link is to be established between the contract labourer and principal employer, eliminating the contractor from the scene. The way in which the establishments are trying to circumvent this position by ensuring proper documentation of termination and re-employment, and also by creating an artificial cooling-off period between employments under different contractors can be considered a sham and camouflage.

This is important for the industrial establishment, which operates in remote areas as the workforce locally available would more or less remain the same and every contractor will recruit the workforce from these existing pools, hence such establishments are always under a risk.


If the principal employer is hiring a contractual labour, irrespective of whether he is engaged in core and non-core activities and after the contractual period is over the principal employer is hiring the contractual workers again, through a different contractor for the same work/task by creating an artificial cooling-off period, it will be a sham and camouflage and there will be a threat on principal employer regarding the same.

Lastly, the employer must be aware of the legal obligations of the contractor and the contractual worker as mentioned in the contract and should act in accordance with the two-fold test, to avoid the legal consequences.


The information provided in this article is intended for general informational purposes only and should not be construed as legal advice. The content of this article is not intended to create and receipt of it does not constitute any relationship. Readers should not act upon this information without seeking professional legal counsel.

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