Case Study: Regularisation of Contract Workers

Case

Emerson Climate Technologies (India) Pvt. Ltd. (now Copeland India Pvt. Ltd.) v. Bharatiya Kamgar Karmachari Mahasangh
Writ Petition No. 3761 of 2025

Court and Date

Bombay High Court (Hon’ble Mr. Justice Sandeep V. Marne)
Decision: 5 May 2025
(Impugned Industrial Tribunal Award dated 30 March 2024)

Relevant Law

• Industrial Disputes Act, 1947 — s. 2(s) (definition of “workman”)
• Contract Labour (Regulation & Abolition) Act, 1970 (CLRA) — s. 30(2) (more favourable agreements permissible)
• Key precedents discussed
  • Balwant Rai Saluja v. Air India (2014) 9 SCC 407 — six-factor test for employer–employee relationship
  • Steel Authority of India v. National Union Waterfront Workers (2001) 7 SCC 1
  • Tata Iron & Steel Co. Ltd. v. State of Jharkhand (2014) 1 SCC 536 — tribunal confined to scope of reference
  • Workmen of FCI v. FCI (1985) 2 SCC 136 — contract workers not workmen of principal employer absent more
  • Others cited and distinguished in argument: Pottery Mazdoor Panchayat, Mahendra L. Jain, etc.

Background

• The respondent-union (unrecognised under MRTU & PULP) espoused demands of 131 workers engaged through contractor Mangal Enterprises at the employer’s Atit/Satara facility.
• Reference (I.T.) No. 5/2013 sought permanency on the basis of 240+ days’ continuous service.
• The Industrial Tribunal (Satara) on 30 March 2024 ordered permanency retrospectively from 20 September 2013 (date of reference), excluding those already permanent, deceased, resigned, or who took VRS.
• Employer challenged the award in writ, denying employer–employee relationship and alleging the tribunal exceeded the reference.

Legal Issue

1. Scope/Jurisdiction: Did the Industrial Tribunal travel beyond the terms of the reference by examining whether the contract was sham and bogus and by determining employer–employee relationship?
2. Merits: Whether, on facts, the workers were employees of the principal employer warranting permanency/regularisation.

Key Legal Findings

• Employer precluded from attacking the reference after participating: Having not challenged the reference order and participating in proceedings, the employer couldn’t later question its sustainability.
• Use of “principal employer” in the reference is telling: The reference expressly used “principal employer”, signalling contract labour context; therefore, issues of sham/bogus contract and employer–employee relationship were within scope.
• Tribunal’s role and limits reaffirmed: Tribunals must stay within the reference; however, here, the framed issues (relationship; sham contract) flowed from the reference and parties’ pleadings.
• Six-factor test (from Balwant Rai Saluja) applied:
  1. Appointment: Appointment letters from the contractor were dubious (mass-dated, unsigned/blank terms). There was no contract in place when many appointments allegedly began.
  2. Payment/Remuneration: Crucially, VRS/ex-gratia payments were funded by the principal employer, pointing to acceptance of liability for future wages.
  3. Authority to dismiss/discipline: No credible pre-dispute record of the contractor disciplining/dismissing; termination/VRS decisions showed principal employer’s involvement.
  4. Continuity of service: The same workers retained across changing contractors demonstrated continuity under the principal employer.
  5. Control and supervision: Skill matrices and inspection records showed day-to-day supervision by the principal employer’s staff.
• CLRA s. 30(2): It is permissible for a principal employer to contract directly for better terms (e.g., pay higher salary or pay directly); such agreements are valid but do not negate the inference of an employer–employee relationship when the Balwant Rai factors point that way.
• PF/ESIC routing not decisive: PF/ESIC contributions routed through the contractor “do not cut any ice” given the salary “re-routing” model.
• Evidence burden & representational proof: In a union-run reference, not all workers must testify; evidence of some workers can suffice.

Judgment

• Employer–employee relationship affirmed. The “contract” with Mangal Enterprises was sham/bogus on the evidence.
• Relief modified (financial tempering):
  • Only the 64 workers still in service are to be made permanent.
  • Effective date: from the Tribunal’s award date — 30 March 2024 (not from 20 September 2013).
  • Arrears: Pay difference in wages from 30 March 2024 within 8 weeks.
• Result: Writ petition partly allowed—findings on relationship upheld, but retrospective permanency scaled back to curb undue financial burden.

Conclusion

The High Court upheld the Tribunal’s core finding that the workers were, in substance, employees of the principal employer. The standout evidentiary anchor was the principal employer’s direct participation and funding of VRS/ex-gratia for alleged contract workers—strongly signalling an employer–employee link. Yet, the Court balanced equities by limiting permanency benefits to current workers and making them effective prospectively (from 30 March 2024).

Key Learning

• Words matter in references: When a reference uses “principal employer,” tribunals can examine sham/bogus contract claims and the real relationship.
• Participate with caution: Participating in reference proceedings without challenging the reference order can waive objections to its sustainability.
• Substance over form: VRS/ex-gratia paid/engineered by the principal employer to “contract” workers is powerful evidence of a real employment relationship.
• CLRA doesn’t bar better terms: Direct, more favourable agreements between principal employer and contract workers are valid, but may support (not defeat) an inference of direct employment on the Balwant Rai test.
• PF/ESIC paperwork isn’t dispositive: Routing contributions via contractors won’t, by itself, defeat a case for regularisation where control, supervision, appointment, and termination indicia point to the principal employer.
• Representative evidence is okay: In union-led disputes, select witness testimony can prove the case for the wider cohort.

Download the PDF copy of this Case:

Join the community that’s changing the way businesses handle compliance in India.