Tests To Determine Employer-Employee Relationship In Cases Under Industrial Disputes Act, Factories Act Etc : Supreme Court Explains

In a significant judgment clarifying the principles governing the determination of employer–employee relationships, the Supreme Court discussed the tests to be applied while adjudicating disputes under legislations such as the Industrial Disputes Act, 1947 and the Factories Act, 1948.A Bench of Justice JB Pardiwala and Justice Sandeep Mehta discussed the tests to determine employer-employee relationship to be kept in mind while deciding matters arising from legislations like Industrial Disputes Act, 1947, the Factories Act, 1948 etc. They are, the Control Test, Organisation (Integration) Test, Multifactor Test, and the Refined Multifactor Test, which have been evolved over various precedents.The Court explained that the existence of an employer–employee relationship is a mixed question of fact and law and depends on the degree of control, supervision, integration, and economic dependence in each case. TESTS TO DETERMINE EMPLOYER EMPLOYEE RELATIONSHIP TO BE KEPT IN MIND WHILE DECIDING MATTERS ARISING FROM LEGISLATIONS LIKE INDUSTRIAL DISPUTES ACT, 1947, THE FACTORIES ACT, 1948 ETC1. Control TestThe earliest and most traditional method, the control test, examines whether the hirer has control over not only what work is to be done, but also how it is to be done.Tracing its roots to common law principles of vicarious liability, the Court cited Shivanandan Sharma v. Punjab National Bank Ltd. (AIR 1955 SC 404), where the Bank was held to be the real employer despite the engagement of staff through an intermediary.The test was further refined in Dharangadhara Chemical Works Ltd. v. State of Saurashtra (1957), where it was held that control must exist both over the nature of the work and the manner in which it is carried out. The Court clarified that the true distinction between a worker and an independent contractor lies in whether the work is performed for oneself or for another, and that the existence of external assistance does not negate an employment relationship."The control test postulates that when the hirer has control over the work assigned and the manner in which it is to be done, an employer-employee relationship is established. The control test is derived from common law application in vicarious liability claims," the Court said.However, over the years, the control test was expanded to mean "due control and supervision." The degree and level of control required would depend on the facts and circumstances of each case.2. Organisation (Integration) TestRecognising that the control test alone is insufficient in modern, specialised workplaces, the Court referred to the Silver Jubilee Tailoring House v. Chief Inspector of Shops and Establishments (1974) 3 SCC 498, which introduced the integration test.This approach considers the degree to which a worker's role is integrated into the principal business of the employer. The greater the integration, the stronger the indication of an employment relationship. The Court noted that this test is particularly relevant for professional and skilled workers where direct supervision may not be feasible.By blending the control and integration tests, the Court acknowledged the shift from a master–servant framework to a more nuanced, multifactorial analysis.3. Multifactor TestMoving beyond single-criterion approaches, the Court endorsed the multifactor test, which examines a combination of indicators such as:a) Controlb) Ownership of the toolsc) Integration/Organisationd) Chance of profite) Risk of lossf) the master's power of selecting his servantg) the payment of wages or other remunerationh) The master's right to control the method of doing the work, andi) The master's right of suspension or dismissal.Referring to Workmen of Nilgiri Coop. Marketing Society Ltd. v. State of T.N. (2004) 5 SCC 514, the Court stressed that no single factor is determinative. Instead, the totality of circumstances must be considered to discern whether a contract of service exists.The Bench also reiterated that where sham or camouflage arrangements are found, designed to disguise real employment under a contractor, courts are empowered to pierce the veil and recognise the workers as employees of the principal establishment.In Bengal Nagpur Cotton Mills v. Bharat Lal reported in (2011) 1 SCC 635, the Court laid down two factors to be considered to determine the true nature of the hiring entity, i.e., whether it is the principal employer or contractor:(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?4. Refinement Of The Multifactor TestIn recent years, the Court noted, Indian jurisprudence has evolved towards a refined multifactor approach, exemplified by Sushilaben Indravadan Gandhi v. New India Assurance Co. Ltd. (2021) 7 SCC 151.The following factors are considered :a) Control over the work and manner in which it is conductedb) Level of integration into employers' businessc)...

Tests To Determine Employer-Employee Relationship In Cases Under Industrial Disputes Act, Factories Act Etc : Supreme Court Explains

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