Supreme Court sets precedent on employment status

When is a contract worker deemed to be a “direct employee” of the principal employer?

In General Manager (OSD), Bengal Nagpur Cotton Mills Rajnandgaon v Bharat Lal & Anr, the Supreme Court said two tests to decide if a contract employee is a direct employee of the principal employer are: whether the employee receives his or her salary from the principal employer; and whether the employee works under the control and supervision of the principal employer.

The appellant, Bengal Nagpur, had a service agreement with the second respondent, a contractor, who appointed the respondent, Bharat Lal, as a security guard on Bengal Nagpur’s premises. Subsequently, the contractor dismissed Lal and five years later Lal filed an application in the Labour Court for his termination to be declared illegal under section 31(3) of the Madhya Pradesh Industrial Relations Act, 1960.

Alleging that he was unemployed and without income he also sought all the benefits extended to the employees of Bengal Nagpur, from the date of his termination.

The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.