The importance of creation of jobs in the economy cannot be emphasized enough in today’s world. Especially in India, with the ever increasing population of the country, it is important that enough jobs are created in order to ensure people can sustain themselves and their families. People can work for others in the form of an employee or be self-employed or operate as independent workers, depending upon their choice.
Employment does not only ensure monetary income, but entails with it several other benefits in different forms, House Rent Allowance, Medical Insurance, Gratuity, to name a few. A company will only provide such benefits to its employees and not to its independent workers. Due to this, disputes have arisen time and again between a party and the company regarding the status of the party.
Conventionally, an organization will consist of 2 different types of people, who are responsible to carry out the work, which are:
The line of distinction between these workers is very thin and this often leads to misclassification of employees by the organization. As the name suggests, it refers to the practice of wrongful inclusion of employees under the second category, i.e. independent workers or contractors.
Before we move on to the tests for determining the status of a worker, it is important to note that at the outset, every worker is classified as an employee, unless proven otherwise, which means that the burden to prove the same is on the employer. Now let us move to the tests which have been expounded by the Supreme Court to determine the status of employment.
The first and foremost test to establish the status of employee is the control test. This test was held to be the primary test to distinguish a contract of service (employer-employee relations) from a contract for service (independent worker/contractor) in the case of Shivnandan Sharma v Punjab National Bank. It is important to note that the scope of this control and supervision is not just limited to directing the nature of work to be carried out but also the manner in which the same is being done. Due to the distinct natures of each industry, it is difficult to lay down an exhaustive definition to determine the exercise of control and thus the same depends upon the particular organization and the work it engages in.
However, the SC in General Manager, Bengal Nagpur Cotton Mills, Rajnandgaon v. Bharat Lala and Another, held that in addition to the authority of the principal employer to direct the worker regarding the work and manner of carrying it out, it is also important to determine if the contractor pays the salary, holds the right to regulate the employment or holds ultimate control over the worker, as it would mean that the worker is an independent contractor.
In International Airport Authority of India v. International Air Cargo Workers’ Union, this principle was reiterated and the court held that, since the independent contractor are carrying out duties for someone else, it is inevitable that this other party will direct the worker toa small degree in performing their duties. Such control is just incidental and would not be sufficient to establish employer-employee relations.
In BHEL vs. Mahendra Prasad Jakhmola & Ors, the SC found that the salaries were being paid by the contractor and since he also had the ultimate supervision and control over the allocation of the workers, BHEL merely had secondary control in the form if directing the work to be done and the manner of doing it. Thus, the labourers cannot be said to be employees of BHEL.
Lord Denning in Bank Voor Handel v. Slatford, laid down that the abidance to the orders of the employer by the person, with respect to the essential services, provided by the organization, will show that the worker is a constituent or part of the organization and will thus establish employer-employee relations. It means that it needs to be seen whether the services being provided are important, integral and essential to the business, or supplementary and incidental to the business.
This test examines whether the person is fully integrated and committed towards the organization of the employer or has other similar work interests in other organizations. The second thing to be looked into is if the person receives their remuneration, from the principal employer or the contractor. If the answer to both these questions is affirmative, then they will be classified as an employee.
The court laid down an important question to be considered before determining the status of a worker as an employee, if the person performing the services has taken up the job on his own volition. If the answer to this question is negative, only then they will be considered to be an employee. Further, in order to determine the status of a person as an employee, the following 3 criteria were laid down by the court in Ready Mixed Concrete Ltd. v. Minister of Pensions and National Insurance:
In Hussainbhai, Calicut v. The Alath Factory Thenzhilali Union, Kozhikode, the court said that it would be incorrect to just see the text of the contract and not the raw social realities. It is important to lift the veil of the contract, and discover the true relations between the principal employer and the workmen. The determining factor is the economic dependence of the worker on the employer, relating to subsistence, skill and continued employment, which will make him an employee.
An increase in professionals and the number and variety of services provided by them is seen in recent times. The kind of services provided by them requires an expertise in the field. For instance, there is a limit upto which control can be exercised over a doctor, who may just be told the health problems of the patient and then he will use his diagnosis and apply his mind, which will be unique to him to treat the patient. Similarly, a teacher can merely be told the syllabus but he may impart the knowledge in his own way.
The growth of professionalism has put holes in the control and supervision test and the interpretation of ‘control’ as authority to direct the employees has become outdated. The earlier belief that the employer will possess the technological knowledge in the field, so as to direct the employees regarding the manner of carrying out their work was no longer holding to be true in the modern world.
We have seen a positive step towards addressing of this issue by the SC in Sushilaben Indravadan Gandhi v. The New India Assurance Company Ltd. and Ors. Here, instead of choosing one superior test, the court held that in order to arrive at the correct result, the various tests which have been developed will have to be applied simultaneously upon the facts, especially in complex situations. Thus, the duty of the Court will be to measure the factors pointing towards existence of employer-employee relations and those against it to take the correct decision. It is important to note that although test is slipping away from control and supervision, it still remains an important factor in determining employment relationship.
In this manner, the Court makes a shift from the strict control tests and rather proposes a flexible approach for determination of employment relationship, which is important in today’s world.
The courts took a holistic approach of applying all of these tests together, instead of replacing the previous one with a new one. Further, the courts also showed flexibility with respect to the degree of applicability of these tests, depending upon the facts of the situation.
As much as these the path followed by the courts and the tests it developed in the journey are appreciable, it is again, time for the courts to reassess the efficiency of these tests and make some changes. This is due to the rise in the number of professionals in recent times. As we know that the work they carry out requires a degree of expertise, which not everyone possesses, it becomes difficult for big conglomerates, expanding into any and every field, hiring these professionals to provide services, to supervise the working of their employees, which necessitates the judiciary to come up with some newer tests to determine the employment status of professionals.