Test of Control, Work of The Employee, integrated in The System, Other Elastic Factors Determine the Nature of “Contract for Service” Or “Of Service” -?
Karma Management Global Consulting Solutions Pvt. Ltd. one of the top 5 labour law consulting firms in the country, has recently hit upon yet another significant milestone in the journey of tying up SUNDEEP PURI ASSOCIATES AND ADVOCATE, where both these Firms have formally joined hands together to collaborate and create a bigger alliance by scaling up its business on Pan India basis and Internationally to give greater reach of its services together, to its hundreds of clients all over.
Sundeep Puri & Associates (S D Puri & Co.) with 55+ years of existence and helmed by Advocate Sundeep Puri & Advocate Ravi Paranjpe is one of the largest retainer firms in India specializing in “Employment Laws” advising the Corporate Sector. The Firm boasts of some clients being associated for the last 55+ years and the majority for the last 30-40 years. They have extensive experience in counseling Foreign MNCs and Indian MNC Clients having multi-locational Factories &/or Offices Pan-India on a daily basis on a wide range of “Employment & Labour” issues, keeping in view the cultural diversity of the workforce such as Acquisitions, Mergers, Consolidations, Reductions in the workforce, Maintaining union-free environment by not undermining the principles of collective bargaining & also preserving operational flexibility in unionized settings, providing tailor-made models for conflict-free productivity that is conducive Industrial Environment, as also in respect to the applicability of the various labour laws. They believe in Solution oriented Practical Advice backed by Law.
On the other hand, Karma Management Global Consulting Solutions Pvt. Ltd. since 2004 is backed by 25 years of prior experience since 1979, operating on Pan India basis and Internationally in the Americas and EMEA, helmed by Pratik Vaidya, is a leading giant in payroll management, compliance and governance, human resource services, professional employment staffing, and onboarding, recruitment and talent acquisition, advisory and consultations thereby offering a plethora of services with quick turn-around solutions including in-house flagship AI/ML based tech solutions so as to help organizations of different types and stature to perform better in Human Resource ensuring Risk Management, Compliance and Governance across Environmental, Social and Corporate laws and grow bigger.
So in this regard, besides the business profile of Karma Global relating to labour laws, it will now focus whole time also on legal and paralegal issues and matters with the collaboration of Sundeep Puri & Associates who are already into legal matters such as disputes, litigation, arbitration, layoffs, retrenchment, and court cases.
Before We Go into The Legitimacy of “Contract for Service” And “Contract of Service”, Let Us Broadly Take a Look at Previous Judgements On This Subject!
“CONTRACT OF SERVICE” or “CONTRACT FOR SERVICE”!
PRECEDENTS ANALYZED BY THE SUPREME COURT
The Supreme Court examined the earlier tests formulated by the Court (from as far back as 1957) for determining whether persons who supply different kinds of goods or services could be said to be in the employ of the employer. These judgments by and large dealt with cases relating to labour legislations such as the Industrial Disputes Act, 1947.
Some of the tests, which the Supreme Court took note of, are extracted below.
(1) In Dharangadhara Chemical Works Ltd. v. State of Saurashtra:
A four-judge bench of the Supreme Court held that the prima facie test for the determination of the relationship between a master and servant is the existence of the master’s right to supervise and control the work not only by directing what work the servant is to do, but also the manner in which the servant shall do his work. However, the nature or extent of control that is requisite to establish the relationship between an employer and his employee must necessarily vary from business to business and is by its very nature incapable of a precise definition.
(2) In Silver Jubilee Tailoring House v. Chief Inspector of Shops & Establishments,
A three-judge bench of the Supreme Court held that an employer-employee relationship existed between a tailoring shop and persons employed by the owner of the shop for stitching. The fact that machines on which sewing took place were supplied by the proprietor, as well as his right to reject sub-standard work, were found to outweigh the fact that such persons did not have to work exclusively for the owner of the shop and that they were not obliged to work for the full day.
The Supreme Court also held, in Silver Jubilee (supra), that in many skilled employments, applying the test of control over the manner of work, to establish a master-servant relationship, would be unrealistic. There can be no single or magic formula to decide whether a contract is one for service or of service. The court can only perform a balancing operation by weighing up the factors that point in one direction and balancing them against those pointing in the opposite direction.
(3) Supreme Court in Hussainbhai v. Alath Factory Thezhilali Union
The economic reality of control test was recognized by a three-judge bench of the Supreme Court in Hussainbhai v. Alath Factory Thezhilali Union wherein it was held that the true test is where a worker or a group of workers, labours to produce goods or services which are for the business of another person, then he is the employer of such worker/ group of workers. The Supreme Court found that such an employer has economic control over the workers’ subsistence, skill and continued employment and they would be virtually laid-off if the employer ceased to use their goods or services for any reason. The presence of intermediate contractors with whom alone the workers have an immediate or direct relationship ex-contract was held to be of no consequence when it could be discerned upon lifting the veil that the contractor was not the real employer.
WHAT IS THE PRESENT CASE ALL ABOUT – In Sushilaben Indravadan Gandhi v. The New India Assurance Company Limited
FACTS OF THE CASE–
The petitioner, Sushilaben Indravadan Gandhi had moved to court for claiming the insurance that she was to be given due to the demise of her husband, Dr. Alpesh Gandhi who worked as an honorary Ophthalmic Surgeon at the Rotary Eye Institute, Navsari. The deceased was on duty and was traveling on the bus which was owned by the hospital along with other medical staff who were on board. Unfortunately, due to the rash driving the minibus met with an accident, and the deceased was severely injured and later succumbed to his injuries. The hospital had its insurance covered by the New Insurance Company Limited which is the defendant in the present case. A few months prior to the incident the hospital had availed a policy from the defendants in which it was stated that the policy shall not cover those who are employed by the hospital. The hospital also had an agreement with the company through IMT-5 endorsement which required the company to pay compensation for unnamed passengers other than those who are covered under the Workmen Compensation Act of 1923. Mrs. Gandhi approached the Motor Accident Claims Tribunal demanding compensation of Rupees 1 crore. The tribunal observed that the deceased had a contract for service with the hospital and thus was not an employee of the hospital, therefore, holding the defendants liable to pay compensation. This was appealed by the defendants before the Gujarat High Court which observed the opposite and stated that the contract between Dr. Gandhi and the hospital was that of a Contract of service and thus the respondent could claim a compensation of Rs. 50,000 and the rest of expenses shall be borne by the Hospital. The case was further appealed by the respondent in the Supreme Court demanding for the compensation to be enhanced.
ISSUES OF THE CASE–
The issue of the case that was noted by the Supreme Court are as follows:
- A) Whether the deceased had a “contract of service” or “contract for service” with the said hospital, i.e., whether he could be considered as an employee of the hospital
- B) Whether the policy between the company and the hospital will cover the deceased on the basis of the contractual agreement shared by the deceased and the hospital.
LEGISLATION APPLIED IN THE PRESENT CASE–
Section 2(n) of the Workmen Compensation Act of 1923
Section 2 (i) of the Factories Act of 1948
Section 2 (s) of the Industrial Disputes Act of 1947 and previous judgments to compare the definition of “workman”
ARGUMENTS PRODUCED BEFORE THE COURT
The counsel for the appellant emphasized through the case of Dharangadhara Chemical Works Ltd. v. State of Saurashtra that the contract between the deceased and the hospital was that of a “contract for service” and thus the deceased was not an employee of the hospital. The deceased was given an honorarium of Rs. 4000 for his services by the hospital and also that he was not a regular employee and the contract did not allow him to avail any financial benefits which were given to other employees as far as the leave policy of the hospital was concerned.
The counsel for the respondent supported the decision of the High Court and thus stated that the contract was that of the contract of service making the deceased an employee of the hospital and further stated that the deceased shall not come under IMT-5 either but IMT-16. However, the hospital has not paid for the endorsement of IMT-16 thus the deceased will not be insured by the defendant company.
DECISION OF THE COURT ALONG WITH REASONS
The Supreme Court came to its decision on the basis of comparing the test for defining the term “workman” under various legislations and previous judgments. The Court noted that there cannot be a universal test that can help define what “workman” constitutes. It further emphasized that it also depends upon the amount of control that an employer has over the work of the employee and thus as society and technology progress the control and definition of who can be considered as an employee also changes.
In the present case, it is disputed whether the deceased came under the hospital or not, as per the contract that the deceased had with the hospital, he was not a regular employee and was given an honorarium of Rupees four thousand a month for his services and thus it is necessary to establish the test where a person employed is integrated into the employer’s business or merely functions as an accessory. The court also noted that the tests that were laid down in many English judgments depend upon the matter of economic reality, “the degrees of control, opportunities of profit or loss, investment in facilities, permanency of relations and skill required in the claimed independent operation. As mentioned before, technology and control over employees’ work have changed over time and therefore the test of control does not always help in determining whether the employee comes under the control of the employer. There are often tests that determine whether the person who has engaged himself to perform service performs them as a person in business on his own account. Thus the Supreme Court observed that the determination of “contract of service” and “contract for service” depends upon different factors and scenarios and the application of all the mentioned tests.
Finally, to come to its conclusion the Supreme Court observed through previous case laws that when, if the context of the case is dependent upon one of beneficial legislation being applied to weaker sections of society, the balance tilts in favour of declaring the contract to be ‘Contract of Service’ and the opposite if it is ‘Contract for Service’. Upon these factors Court finally came to the conclusion that in the present case, the contractual agreement between the deceased and the hospital was that of a ‘Contract for Service’ and also that as per the terms of the contract that it was evident that the doctor was in control of his own work and was practicing individually and not as an employee of the hospital. The Supreme Court overruled the High Court’s decision and restored the decision of the Tribunal and asked the defendant company to pay the compensation to Mrs. Gandhi.
CONCLUSION:
LANDMARK JUDGMENT IN RELATION TO DETERMINING CONTRACT FOR SERVICE AND CONTRACT OF SERVICE …!
The following case is an important judgment for determining the difference between a ‘Contract of Service and a ‘Contract for Service’. The Court helped determine that there are often times that legislations overlap each other which leads to exclusion of an individual from the compensation that they deserve to get. The Court helped determine that there can never be a universal test to determine a workman. Also, it takes other factors to determine whether the person in fact is an employee and thus one should not always depend upon the ‘Test of Control’. The case emphasized the socioeconomic factors and states that often when faced with ambiguity in the law, socio-benefit legislation should be applied to ensure compensation to those who require them the most. The Supreme Court in this case encourages broadening the factors for the determination of the test and the definition itself which can be seen as a welcoming move with respect to social welfare and benefit of the society and indeed sets a good precedent for future cases in the same matter.
Karma Global has been at the forefront of rendering yeomen services to its hundreds of clients and often makes it a point to sound them on the various acts especially the Industrial Disputes Act, The Employees Compensation Act, The Maternity Benefit Act, The Industrial Employment Standing Orders Act, as well as the clauses contained in the latest new labor codes and its impact.
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