Contractor-Supplied Workers Cannot Claim Parity Benefits As Regular Employees: Supreme Court
Kiran Raj
The Supreme Court of India Division Bench of Justice Ahsanuddin Amanullah and Justice Vipul M. Pancholi allowed an appeal by a municipal council, set aside the High Court’s direction to extend time-scale pay and annual increments to workers supplied through contractors, and restored the tribunal’s denial of that relief. The dispute involved contractual personnel deployed for municipal duties through third-party service providers who sought benefits at par with regular employees. The Court held that contractor-supplied workers cannot claim equivalent employment benefits of direct recruits, noting that parity would legitimise an arbitrary, contractor-controlled selection process with no prescribed, transparent recruitment method beyond basic qualifications. It also asked the municipality to consider regularisation on the case’s special facts, without it operating as a precedent.
The appeals arose from a common judgment of the High Court directing a municipal council to grant workers engaged through third-party contractors the minimum time scale of pay applicable to regular employees, along with annual grade increments. The workers had been engaged since the mid-1990s through successive contractors for performing municipal functions and had continued to work without interruption despite changes in contractors. They approached the administrative tribunal seeking regularisation and parity in pay with regular employees.
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The tribunal rejected their claims, holding that there was no direct employer–employee relationship between the municipal council and the workers. On challenge, the High Court reversed the tribunal’s decision and granted the reliefs sought. The municipal council contended before the Supreme Court that the workers were never directly employed by it, that payments were made only to contractors under contractual terms, and that statutory obligations were borne by the contractors. The workers argued that denial of minimum pay scale was discriminatory and relied on parity principles applicable to similarly situated workers.
The Court examined the nature of the relationship between the municipal council and the workers and observed that “the moot point on which the issue revolves is the nature of employment/relationship of the appellant with the respondents.” It recorded that “it is not in dispute that the appellant had engaged the respondents … through a contractor,” and that payments were made to the contractor, who in turn paid the workers.
The Bench noted that although the workers had continued for long periods, “a deeper probe would reveal that the matter cannot be dealt with in such a simplistic way.” It stated that the decisive test was “whether the relationship … can be differentiated with a relationship which had no direct connection with the two parties … but rather the relationship is through a third-party.”
The Court further recorded that “the appellant had no direct connection with the actual persons who were employed by the contractor,” and that the obligation of the appellant was limited to paying the agreed contractual amount. Addressing the contention of camouflage, the Court observed that “the answer may not be in clear black and white terms and is still a grey area,” noting that continuity of workers across contractors could occur for practical reasons.
On parity of pay, the Court stated that while the concerns raised were relevant, “the mode of contractual employment, that too, by a contractor and not directly by the employer will have to be seen in a different light in the eyes of law.” It recorded that if distinctions between regular and contractor-engaged workers were erased, “the basic concept of hiring through various modes … would lose its purpose and sanctity.” The Court also observed that public employment required transparent procedures, which were absent in contractor-driven engagement.
The Court ordered that “the appeals are allowed. The impugned order dated 23.08.2018 passed by the High Court is set aside and the orders of the Tribunal stand restored. The appellant to look into whether the jobs which were being done by the respondents, in the background that they have not been disengaged or returned to the contractor on the ground of being unsatisfactory, having uninterrupted service under the appellant for decades can be regularized on posts, which prima facie appears to be perpetual in nature. This direction is limited for the purposes of the present case only,” and that it “shall not be treated as a precedent in any other case. The present appeals are de-tagged from the batch matters,” and that “pending application(s), if any, shall also stand disposed of.”
Advocates Representing the Parties
For the Petitioners: Mr. Y. Raja Gopala Rao, AOR; Mr. Dhuli Gopi Krishna, Advocate; Mr. Akshay Singh, Advocate; Ms. Sanjana Jain, Advocate; Mr. N. Rajaraman, AOR; Ms. Prerna Singh, Advocate; Mr. Guntur Pramod Kumar, AOR; Mr. Keshav Singh, Advocate.
For the Respondents: Mr. L. Narasimha Reddy, Senior Advocate; Mr. P. Raghavender Reddy, Advocate; Mr. C. Raghavendren, Advocate; Mr. Ch. Leela Sarveswar, Advocate; Mrs. C. Rubavathi, Advocate; Mr. Nandi Kiran Kumar, Advocate; Mr. Saurabh Gupta, Advocate; Mr. M. A. Chinnasamy, AOR; Mr. D.V.S.S. Somayajulu, Senior Advocate; Mr. Goli Rama Krishna, Advocate; Ms. Vandana Sharma, AOR; Mr. Koppula Gopal, Advocate.
Case Title: The Municipal Council, Nandyal Municipality v. K. Jayaram and Others
Case Number: Civil Appeals arising out of SLP (Civil) Nos. 17711–17713 of 2019
Bench: Justice Ahsanuddin Amanullah, Justice Vipul M. Pancholi
