Staffing and recruiting industry -legal updates

Dear All

IMMEDIATE LEGAL QUESTIONS FOR INDIAN STAFFING COMPANIES

Can the Temporary Employee of a Staffing Agency question his/her termination,/ retrenchment by an Appeal under the State Shops and Establishments Act ?


A:Yes.It can be questioned.Because the termination under the Shops and Establishments Act has to be for reasonable cause after conducting enquiry In such Shop Act Appeals the Staffing Agency has to take a pro-active action for settling such disputes out of Court.

With Regards

V.Sounder Rajan
VS Rajan Associates,
Advocates & Notaries -Legal Consultants for the Indian Staffing and Recruiting Industry
No.27, Ist Floor, Singapore Plaza,
No.164, Linghi Chetty Street,
Chennai - 600 001.
E-mail : rajanassociates@eth,net,
Off : 044-42620864, 044-65874684,

Dear All

IMMEDIATE LEGAL QUESTIONS FOR INDIAN STAFFING COMPANIES


In our earlier post the following question came up:

Can the Temporary Employee of a Staffing Agency question his/her termination,/ retrenchment by an Appeal under the State Shops and Establishments Act ?

Now let us see the Appeal provisions to question his/her termination,/ retrenchment in each State enactment starting with-

ANDHRA PRADESH SHOPS AND ESTABLISHMENTS ACT, 1988

First the termination provision -

47. Conditions for terminating the services of an employee, payment of service compensation for termination, retirement, resignation, disablement, etc., and payment of subsistence allowance for the period of suspension :- (1) No employer shall, without a reasonable cause terminate the service of an employee who has been in his employment continuously for a period of not less than six months without giving such employee at least one month s notice in writing or wages in lieu thereof and in respect of an employee who has been in his employment continuously for a period of not less than one year, a service compensation amounting to fifteen days average wages for each year of continuous employment:

Provided that every termination shall be made by the employer in writing and a copy of such termination order shall be furnished to the Inspector having jurisdiction over the area within three days of such termination.

(2) The services of an employee shall not be terminated by the employer when such employee made a complaint to the Inspector regarding the denial of any benefit accruing to him under any labour welfare enactment applicable to the establishment and during the pendency of such complaint before the Inspector. The services of an employee shall not also be terminated for misconduct except for such acts or omission and in such manner as may be prescribed.

(3) Every employee who has put in a continuous service of not less than one year shall be eligible for service compensation amounting to fifteen days average wages for each year of continuous employment, (i) on voluntary cessation of his work after completion of 60 years of age, (ii) on his resignation, or (iii) on physical or mental infirmity duly certified by Registered Medical Practitioner, or (iv) on his death or disablement due to accident or disease:

Provided that the completion of continuous service of one year shall not be necessary where the termination of the employment of an employee is due to death or disablement:

Provided further that in a case of death of an employee service compensation payable to him shall be paid to his nominee or if no nomination has been made to his legal heir.

(4) Where a service compensation is payable under this section to an employee, he shall be entitled to receive his wages from the date of termination or cessation of his services until the date on which the service compensation so payable is actually paid.

(5) The payment of service compensation under this section shall not apply in cases where the employee is entitled to gratuity under the Payment of Gratuity Act, 1972 (Central Act 39 of 1972) and gratuity has been paid accordingly consequent on the termination or cessation of service.

(6) Where an employee is placed under suspension pending enquiry into grave misconduct the employer shall pay a subsistance allowance equivalent to fifty per cent of the last drawn wage for the first six months and at seventy five per cent of the last drawn wage beyond six months during the period of suspension. The total period of suspension shall not however exceed one year in any case. If the misconduct is not established or the total period of suspension exceeds one year, the employee shall be entitled to full wages during suspension period and the period of suspension shall be treated as on duty.

Explanation :- (1) For the purpose of this section :

(a) the term employee shall include part time employee also;

(b) the expression average wages means the daily average of wages for the days an employee actually worked during the thirty days immediately preceding the date of termination or cessation of service;

(c) the expression wages does not include over time wages;

(d) an employee in an establishment shall be deemed to have been in continuous employment for a period of not less than six months if he has worked for not less than one hundred and twenty days in that establishment within a period of six months immediately preceding the date of termination or cessation of the service of that employee.

(e) where the total continuous employment is for a fraction of a year or extends over a fraction of a year in addition to one or more completed years of continuous employment, such fraction, if it is not less than a half year shall be counted as a year of continuous employment in calculating the total number of years for which the service compensation is to be given;

(f) the service compensation of an employee whose services have been terminated for any act, wilful omission or negligence causing any damage or loss to, or destruction of property belonging to the employer, shall be forfeited to the extent of the damage or loss caused;

(g) disablement means such disablement which incapacitates an employee for the work which he was capable of performing before the accident or disease resulting in such disablement.

(2) An employee who has completed the age of sixty years or who is physically or mentally unfit having been so declared by a Registered Medical Practitioner or who wants to retire on medical grounds or to resign his service may give up his employment after giving to his employer notice of atleast fifteen days and where no such notice is given, the service compensation payable to him shall be forfeited to the extent of fifteen days in lieu of the notice.

Now the Appeal section-

48. Appointment of authority to hear and decide appeals arising out of termination of services :- (1)(a) The Chief Inspector may, by notification, appoint for any area as may be specified therein, any authority to hear and decide appeals arising out of the termination of service of employees under Section 47:

Provided that the Chief Inspector may on administrative grounds transfer any appeal arising in the territorial jurisdiction of any authority to the file of another authority for disposal, and such authority to whom the appeal is transferred by the Chief Inspector shall dispose of the appeal so transferred.

(b) Any employee whose services have been terminated may, appeal to the authority concerned within such time and in such manner as may be prescribed.

(2) The appellate authority may, after inquiry in the prescribed manner, dismiss the appeal or direct the reinstatement of the employee with or without wages for period he was kept out of employment or direct payment of compensation without reinstatement or grant such other relief as it deems fit in the circumstances of the case:

Provided that the authority concerned shall, without delay, hear such appeal and pass such orders within a period of three months from the date of receipt of such appeal:

Provided further that where any such authority considers it necessary or expedient so to do, it may, for reasons to be recorded in writing, extend such period by such further period as it may think fit:

Provided also that no proceedings before such authority shall lapse merely on the grounds that any period specified in this sub section had expired without such proceedings being completed.

(3) Against any decision of the authority under sub section (2), a second appeal shall lie to such authority as may be notified by the Government within thirty days from the date of communication of the decision and the decision of such authority on such appeal shall be final and binding on both the employer and the employee and shall be given effect to within such time as may be specified in the order of that authority:

Provided that the second appeal shall not be entertained unless the employer deposits the entire amount of back wages as ordered by the appellate authority under sub section (2) or the amount of compensation ordered as the case may be:

Provided further that if the second appeal is against the order of reinstatement given by the appellate authority under sub section (2), the employee shall be entitled to wages last drawn by him during the pendency of the proceedings before appellate authority.

(4) Where in any case, an appellate authority by its award directs reinstatement of any employee and the employer challenges such award in any Court of Law, the employer shall be liable to pay such employee during the pendency of such proceedings, full wages last drawn by him, if the employee had not been employed in any establishment during such period and an affidavit by such employee had been filed to that effect in such Court:

Provided that where it is proved to the satisfaction of the Court that such employee has been employed and has been receiving remuneration during any such period or part thereof the Court shall order that no wage shall be payable under this section for such period or part, as the case may be.

(5) Any amount directed to be paid under this section may be recovered :

(a) if the authority appointed under sub section (1) is a Magistrate, by the authority, as if it were a fine imposed by him as Magistrate; and

(b) If the authority is not a Magistrate, by any Magistrate to whom the authority makes application in this behalf as if it were a fine imposed by such Magistrate.


Therefore the power under Section 48 is wide .Staffing Companies operating /employing Temporary Employees in the State of Andhra Pradesh need to take absolute precautions while firing their Temporary Employees.

With Regards

V.Sounder Rajan
VS Rajan Associates,
Advocates & Notaries -Legal Consultants
No.27, Ist Floor, Singapore Plaza,
No.164, Linghi Chetty Street,
Chennai - 600 001.
E-mail : rajanassociates@eth,net,
Off : 044-42620864, 044-65874684, .

Dear All

IMMEDIATE LEGAL QUESTIONS FOR INDIAN STAFFING COMPANIES


In our earlier post the following question came up:

Can the Temporary Employee of a Staffing Agency question his/her termination,/ retrenchment by an Appeal under the State Shops and Establishments Act ?

Now let us see the Appeal provisions to question his/her termination,/ retrenchment in each State enactment starting with-

TAMILNADU SHOPS AND ESTABLISHMENTS ACT

First the termination provision -

Section 41 of the Act reads as follows:

"41. Notice of dismissal: (1) No employer shall dispense with the
services of a person employed continuously for a period of not less
than six months, except for a reasonable cause and without giving
such person at least one month's notice or wages in lieu of such
notice, provided however, that such notice shall not be necessary
where the services of such person are dispensed with on a charge of
misconduct supported by satisfactory evidence recorded at an enquiry
held for the purpose.

(2) The person employed shall have a right to appeal to such
authority and within such time as may be prescribed either on the
ground that there was no reasonable cause for dispensing with his
services or on the ground that he had not been guilty of misconduct
as held by the employer.

(3) The decision of the Appellate Authority shall, be final and
binding on both the employer and the person employed".

The termination of a Temporary Employees in the State of Tamilnadu if it is on the ground of misconduct it is to supported by satisfactory evidence recorded at an enquiry held for the purpose.

Staffing Companies need to be careful when their clients make the request for termination.

With Regards

V.Sounder Rajan
VS Rajan Associates,
Advocates & Notaries -Legal Consultants
No.27, Ist Floor, Singapore Plaza,
No.164, Linghi Chetty Street,
Chennai - 600 001.
E-mail : rajanassociates@eth,net,
Off : 044-42620864, 044-65874684, .

Dear All

IMMEDIATE LEGAL QUESTIONS FOR INDIAN STAFFING COMPANIES


In our earlier post the following question came up:

Can the Temporary Employee of a Staffing Agency question his/her termination,/ retrenchment by an Appeal under the State Shops and Establishments Act ?

Now let us see the Appeal provisions to question his/her termination,/ retrenchment in each State enactment :
Goa, Daman, Diu Shops-Establishment Act1973

39. Conditions for terminating the service of an employee and payment of gratuity.— (7) No employer
shall without a reasonable cause and except for misconduct, terminate the service of an employee who has been in his employment continuously for a period of not less than six months without giving such employee, at least one month's notice in writing or wages in lieu thereof and a gratuity amounting to fifteen day's average wages for each year of continous
employment.

Explanation.— For the purpose of this sub-section:
(a) the expression "wages" does not include over time wages;
(b) the expression "wages" means the daily average of wages for the days an employee actually worked during the thirty days immediately preceding the date of termination of service;
(c) an employee in an establishment shall be deemed to have been in continuous employment for a period of not less than six months, if he has worked for not less than one hundred and twenty days in that establishment within a period of six months immediately preceding the date of termination of the service of that employee;
(d) where the total continuous employment is for a fraction of a year or extends over a fraction of a year in addition to one or more completed years of continuous employment, such fraction, if it is not less than half a year shall be counted as a year of continuous employment in calculating the total number of year for which the gratuity is to be given. (2) Where a gratuity is payable under sub-section (1) to an employee, he shall be entitled to receive his wages from the date of termination of his service until the date on which the gratuity so payable is actually paid subject to a maximum of wages for two months.
(3) An employee, who has completed the age of sixty years or who is physically or mentally unfit having been
so declared by a medical certificate or who wants to retire on medical grounds or to resign his service, may give up his employment after giving to his employer notice of at least one month and every such employee and the dependent of an employee who dies while in service, shall be entitled to receive a gratuity amounting to fifteen days' average wages for each year of continuous employment calculated in the manner provided in the Explanation to sub-section (1). He shall be entitled to receive the wages from the date giving up the employment until the date on which the gratuity so payable is actually paid, subject to a maximum of wages for two months.


(4) The services of an employee shall not be terminated for misconduct except, for such acts or omissions and in such manner, as may be prescribed.

Explanation.— For the purpose of this section, the term "employee" shall include part-time employee also.


Now the Appeal provision

40. Appointment of authority to hear and decide appeals arising out of termination of service.—

(a) The Government may, by notification, appoint an authority to hear and decide appeals arising out of the termination of service of employee under section 39.
(b) Any employee whose service has been terminated may appeal to the authority concerned within such time and in such manner as may be prescribed.
(2) The authority may, after inquiring in the prescribed manner, dismiss the appeal or direct the reinstatement of the employee with or without wages for the period he was kept out of employment or direct payment of compensation without
reinstatement or grant such other relief as it deems fit in the circumstances of the case.

(3) Against any decision of the authority under sub--section (2), a second appeal shall lie to Labour Court constituted under section 7 of the Industrial disputes Act, 1947 (Central Act 14 of 1947) within thirty days from the date of
communication of the decision and the decision of the Labour Court on such appeal shall be final and binding on both the employer and the employee and shall be given effect to within such time as may be specified in the order of that Court.
(4) Any amount directed to be paid under this section may be recovered—
(a) if the authority is a Magistrate, by the authority, as if it were a fine imposed by him as magistrate; and
(b) if the authority is not a Magistrate, by any Magistrate to whom the authority makes application in
this behalf, as if it were a fine imposed by such Magistrate.

Staffing Companies operating in Goa, Daman, Diu need to be careful when their clients make the request for termination.

With Regards

V.Sounder Rajan
VS Rajan Associates,
Advocates & Notaries -Legal Consultants
No.27, Ist Floor, Singapore Plaza,
No.164, Linghi Chetty Street,
Chennai - 600 001.
E-mail : rajanassociates@eth,net,
Off : 044-42620864, 044-65874684, .

Dear All

IMMEDIATE LEGAL QUESTIONS FOR INDIAN STAFFING COMPANIES


In our earlier post the following question came up:

Can the Temporary Employee of a Staffing Agency question his/her termination,/ retrenchment by an Appeal under the State Shops and Establishments Act ?

Now let us see the LEGAL REMEDY provisions to question his/her termination,/ retrenchment under The Punjab Shops and Commercial Establishments Act, 1958

22. Notice of removal. -- (1) No employee shall be removed from service unless and until one month’s previous notice or pay in lieu thereof has been given to him:
Provided that –

(a) no employee shall be entitled to the notice or pay in lieu thereof if he is removed on account of misconduct established on record;

(b) no employee shall be entitled to one month’s notice or notice pay unless and until he has been in the service of the employee continuously for a period of three months.

(2) In any case instituted for a contravention of the provisions of sub-section (1), if a Judicial Magistrate is satisfied that an employee has been removed without reasonable cause, the Judicial Magistrate shall, for reason to be recorded in writing, award compensation to the employee equivalent to two month’s salary;

Provided that no such claim shall be entertained unless it is preferred by the employee within six months from the date of his removal.

(3) The amount payable as compensation under this section shall be in addition to, and
recoverable and fine payable under section 26.

(4) No person who has been awarded compensation under this section shall be entitled to bring a civil suit in respect of the same claim.

23. Notice by employee. -- (1) No employee, who has been in the service of the employer continuously for a period of three months shall terminate his employment unless he has given to his employer seven days previous notice or pay in lieu thereof.

(2) Where an employee contravenes the provisions of sub-section (1) his employer may forfeit his unpaid wages for a period not exceeding seven days.

The Punjab Act is balanced and provides notice period both for the Employer and Employee.

With Regards

V.Sounder Rajan
VS Rajan Associates,
Advocates & Notaries -Legal Consultants
No.27, Ist Floor, Singapore Plaza,
No.164, Linghi Chetty Street,
Chennai - 600 001.
E-mail : rajanassociates@eth,net,
Off : 044-42620864, 044-65874684, .

Dear All

IMMEDIATE LEGAL QUESTIONS FOR INDIAN STAFFING COMPANIES

What can keep Staffing Companies secure from litigation wherever a claim is received from the Temporary Employee ?

At the first instance when Legal notice or claim is received from the temporary Employee without waiting for the Client to take a stand work out a settlement with the candidate in compliance of Legal Provisions of Sec 25(F) of the Industrial Disputes Act and corresponding provision of the Shops and Establishments Act.

This is where specialist legal advice is required .The problem will be solved then and there.Due to the monetary factor involved as to who is to bear the liability whether Client or the Staffing Company the matter gets dragged to Court and Staffing Companies will have to pay through their nose. In cases where the Client is made to bear the liability the Staffing Entity will lose the business.

With Regards

V.Sounder Rajan
VS Rajan Associates,
Advocates & Notaries -Legal Consultants
No.27, Ist Floor, Singapore Plaza,
No.164, Linghi Chetty Street,
Chennai - 600 001.
E-mail : rajanassociates@eth,net,
Off : 044-42620864, 044-65874684,

Dear All

IMMEDIATE LEGAL QUESTIONS FOR INDIAN STAFFING COMPANIES

The Supreme Court on 14-12-2010 in the matter of General Manager (OSD), Bengal Nagpur Cotton Mills Rajnandgaon Vs. Bharat Lal & anr decided has laid down the law on Two of the well-recognized tests to find out whether the Contract Labour are the direct employees of the principal employer are

(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.



Now it is therefore for the Principal Employer [Client] and Contractor [Staffing Company] to avoid the risk of the Contract Employees being termed as Direct Employees of the Principal Employer [Client].



This is definitely a Grey area where Specialist Legal advice will be required for the Staffing Companies on a continuing basis .Top Management of every Staffing Company needs to have a compliance Audit on applying the test enunciated by the Apex Court on each and every contract.

On the other side Principal Employers also need to conduct a similar Compliance Audit for availing a 100 % compliance by their Contract so that unwittingly they are not caught napping and running the risk of the Contract Employees being termed as Direct Employees of the Principal Employer [Client].



With Regards

V.Sounder Rajan
VS Rajan Associates,
Advocates & Notaries -Legal Consultants
No.27, Ist Floor, Singapore Plaza,
No.164, Linghi Chetty Street,
Chennai - 600 001.
E-mail : rajanassociates@eth,net,
Off : 044-42620864, 044-65874684,

Dear All

IMMEDIATE LEGAL QUESTIONS FOR INDIAN STAFFING COMPANIES

Mere filing of an Appeal before the Appellate Authority will not operate as Stay of Recovery of EPF dues.

EPF Organization has come out with this Important Circular

EMPLOYEES’ PROVIDENT FUND ORGANISATION
(Ministry of Labour & Employment, Govt. of India), Head Office – Bhavishya Nidhl Bhawan, 14, Bhlkaiji Camaji Place, New Delhi – 110 066.

LC/4/Cir. Judgement/2011/ 19184 dated 25/07/2011

Sub: Forwarding of landmark judgment delivered by Hon’ble Division Bench of Gujarat High Court in LPA No. 12/2010 in SCA No. 3347/2009 reg.

Sir,

Please find enclosed herewith a copy of judgment dated 15/6/2011 delivered by Hon’ble Division Bench of Gujarat High Court in the matter of EPFO Vs. Rollwell Forge Ltd. on the issue of initiating recovery action before expiry of limitation period of appeal prescribed under Sec.7-1 of the Act. While overturning the decision of Single Bench,
Hon’ble Division Bench has held that:

I. In the absence of any specific provision in the Act prohibiting or restraining the authorities from taking any further action of recovery of the amount due and payable by the employer, it is always permissible for the authorities to proceed ahead without waiting for the expiry of the statutory time period of appeal as provided under Section 7-1 of the Act. Any other interpretation in this regard would render provisions and the object of the Act otiose.

2. Mere filing of appeal without obtaining any relief from the Appellate authority shall not preclude or prohibit the authorities to proceed further in the matter for recovery of the amount.

The above judgment may be utilized for expediting recovery action and relied upon in similar situation cases.

End: As above

Yours faithfully,
(Anils S. Dixit)
Regional PF Commissioner-I(Legal)

For Staffing Entities the High Court apart from laying down the law that mere filing of appeal without obtaining any relief from the Appellate authority shall not preclude or prohibit the authorities to proceed further in the matter for recovery of the amount the Circular has also a serious impact on Staffing Companies as immediately on fixation of the liability the Department can also go for recovery action as in the absence of any specific provision in the Act prohibiting or restraining the authorities from taking any further action of recovery of the amount due and payable by the employer, it is always permissible for the authorities to proceed ahead without waiting for the expiry of the statutory time period of appeal as provided under Section 7-1 of the Act.

With Regards

V.Sounder Rajan
VS Rajan Associates,
Advocates & Notaries -Legal Consultants
No.27, Ist Floor, Singapore Plaza,
No.164, Linghi Chetty Street,
Chennai - 600 001.
E-mail : rajanassociates@eth,net,
Off : 044-42620864, 044-65874684,

Dear All

IMMEDIATE LEGAL QUESTIONS FOR INDIAN STAFFING COMPANIES

PF Department has recently come out with the following Circular:


EMPLOYEES’ PROVIDENT FUND ORGANISATION
(Ministry of Labour & Employment, Govt. of India), Head Office
Bhavishya Nidhl Bhawan, 14, Bhlkaiji Camaji Place, New Delhi – 110 066.

No. Coord./4(6)2003/Clarification/Vol.II/2482 Dated: 21.06.2011

Sub: Forwarding of Landmark Judgment delivered by the Hon’ble Division Bench of Madhya Pradesh High Court on the issue of considerable components of Basic Wages – regarding

Sir,

Please find enclosed herewith a copy of Judgment dated 24.03.2011 in the matter of Montage Enterprises Pvt. Ltd versus Employees Provident Fund, Indore & one another delivered by the Hon’ble Divisional Bench of Madhya Pradesh High Court Bench at Gwalior whereby, the Hon’ble Court has laid down a principle for treatment of certain allowances like Conveyance/Transportation allowance, Special Allowance etc. as component of “Basic Wages” for the purpose of Provident Fund liabilities if the same are being paid uniformly, necessarily and ordinarily to all employees. The same may be utilized as per merits of the case.
Yours faithfully
End: As above.
(Anita S. Dixit)
Regional PF Commissioner-I (Coord.)


Staffing Entities need to adhere to this dictum of Hon’ble Divisional Bench of Madhya Pradesh High Court Bench at Gwalior whereby, the Hon’ble Court has laid down a principle for treatment of certain allowances like Conveyance/Transportation allowance, Special Allowance etc. as component of “Basic Wages” for the purpose of Provident Fund liabilities if the same are being paid uniformly, necessarily and ordinarily to all employees apart from laying down the law .

The Department can re-open the Returns for earlier period of non compliance and the penal provisions will be incurred.

The rate of penal damages for belated payment of EPF dues is as follows:

If the period of default less than 2 months -5 %
If the period of default is 2 months above but less than 4 months – 10 %
If the period of default is 4 months above but less than 6 months – 15 %
If the period of default is 6 months above–25 %

The above is in addition to 12 % simple interest .

Apart from the above the further consequences for default are:

Attachment of Bank Accounts

Realization of dues from Debtors[ Garnishee Order]

Attachment of moveable and immovable properties.

Arrest and detention in Prison.

Action under section 406/409 of the Indian Penal Code[ Criminal Law] and Section 110 of Cr .P.C

Prosecution.Prosecution for Non payment of contributions normally end in favour of the Department.Mandatory punishment of detention in Prison is provided .

Managing Director or CEO of Staffing entities  on their part need to direct their Head of Compliance to file adherence reports on the Circular issued by the Department and arrange for a Board of Directors directed Compliance Audit on the following EPF Circulars :

1. No.: Coord/4(6)2003/Clarification/Vol-II/ Dated: 23-05-2011
2. No. Coord./4(6)2003/Clarification/Vol.II/2482 Dated: 21.06.2011

If a negative report on compliance of the above EPF Department Circulars is indicated by the Board directed compliance Audit Team then immediate remedial action is to be taken to avoid penal action by the Department.

With Regards

V.Sounder Rajan
VS Rajan Associates,
Advocates & Notaries -Legal Consultants
No.27, Ist Floor, Singapore Plaza,
No.164, Linghi Chetty Street,
Chennai - 600 001.
E-mail : rajanassociates@eth,net,
Off : 044-42620864, 044-65874684,

Dear All

NEXT IMMEDIATE LEGAL QUESTIONS FOR INDIAN STAFFING OR TEMPING COMPANIES



Recently the Gujarat High Court in the case of Medical vs Dashrathsinh decided on 10 May, 2011 has held



“If the workman is retrenched by an oral order or communication or he is simply asked not to come for duty, the employer will be required to lead tangible and substantive evidence to prove compliance of Clauses (a) and (b) of Section 25-F of the Act.”



The above reference is to the Industrial Disputes Act .Therefore Staffing Industry Professionals need to impress upon their Clients not to indulge in the practice of oral order or communication of termination of the Temporary Employee without getting clearance from them for termination as the burden of proof of Statutory Compliance would rest on the Employer. In case the Staffing Company points out the hand to the Client then the Principal Employer will become liable to compensate the Staffing Company for any out flow .Of course in such a scenario the Staffing Company may lose the Client .In the context of Staffing Companies working on wafer thin margins the liability arising on the Staffing Company by Client generated retrenchment arising out of an oral order or communication will eat into their Margins and ultimately claims emerging out of illegal retrenchment arising out of an oral order or communication may result in the Staffing Contracts ending with minus margins.



The success of a Staffing Company is to anticipate contingencies of illegal retrenchment arising out of an oral order or communication by Client and include clauses in the Staffing Contract to pass on the liability to the Client. For this the Staffing Company needs to have well tailored Staffing Contracts with a solid legal foundation.

With Regards

V.Sounder Rajan
VS Rajan Associates,
Advocates & Notaries & Legal Consultants
No.27, Ist Floor, Singapore Plaza,
No.164, Linghi Chetty Street,
Chennai - 600 001.
E-mail : rajanassociates@eth,net,
Off : 044-42620864, 044-65874684,
Mobile : 9840142164-9025792684-9025792634

 Latest Apex  court decison on contract labour

Dear Friends

Here is the latest decision of the Hon'ble Supreme Court of India of their Lordships Markandey Katju, Chandramauli Kr. Prasad in the matter of Bhilwara Dugdh Utpadak Sahakari ... vs Vinod Kumar Sharma Dead By Lrs & decided on on 1 September, 2011 wherein the Honble Supreme Court was deciding an Appeal which had been filed against the impugned judgments dated 23.08.2004 and dated 21.09.2004 passed by the High Court of Judicature at Rajasthan.


The Apex Court has held as follows :

"This Appeal reveals the unfortunate state of affairs prevailing in the field of labour relations in our country. In order to avoid their liability under various labour statutes employers are very often resorting to subterfuge by trying to show that their employees are, in fact, the employees of a contractor. It is high time that this subterfuge must come to an end. Labour statutes were meant to protect the employees/workmen because it was realised that the employers and the employees are not on an equal bargaining position. Hence, protection of employees was required so that they may not be exploited. However, this new technique of subterfuge has been adopted by some employers in recent years in order to deny the rights of the workmen under various labour statutes by showing that the concerned workmen are not their employees but are the employees/workmen of a contractor, or that they are merely daily wage or short term or casual employees when in fact they are doing the work of regular employees. This Court cannot countenance such practices any more. Globalization/liberalization in the name of growth cannot be at the human cost of exploitation of workers. The facts of the case are given in the judgment of the High Court dated 23.08.2004 and we are not repeating the same here. It has been clearly stated therein that subterfuge was resorted to by the appellant to show that the workmen concerned were only workmen of a contractor. The Labour Court has held that the workmen were the employees of the appellant and not employees of the contractor. Cogent reasons have been given by the Labour Court to come to this finding. The Labour Court has held that, in fact, the concerned workmen were working under the orders of the officers of the appellant, and were being paid Rs 70/- per day, while the workmen/employees of the contractor were paid Rs. 56/- per day.

We are of the opinion that the High Court has rightly refused to interfere with this finding of fact recorded by the Labour court.

The Judgment of this Court in Steel Authority of India vs. National Union Waterfront Workers (2001) 7 SCC 1 has no application in the present case. In that decision the question was whether in view of Section 10 of the Contract Labour (Regulation and Abolition) Act, 1970 the employees of contractors stood automatically absorbed in the service of the principal employer. Overruling the decision in Air India Statutory Corporation vs. United Labour Union, (1997) 9 SCC 377 this Court held that they did not.

In the present case that is not the question at all. Here the finding of fact of the Labour Court is that the respondents were not the contractor's employees but were the employees of the appellant. The SAIL judgment (Supra) applies where the employees were initially employees of the contractor and later claim to be absorbed in the service of the principal employer. That judgment was considerating the effect of the notification under Section 10 of the Act. That is not the case here. Hence, that decision is clearly distinguishable.

Mr. Puneet Jain, learned counsel for the appellant submitted that the High Court has wrongly held that the appellant resorted to a subterfuge, when there was no such finding by the Labour Court. The Labour Court has found that the plea of the employer that the respondents were employees of a contractor was not correct, and in fact they were the employees of the appellant. In our opinion, therefore, it is implicit in this finding that there was subterfuge by the appellant to avoid its liabilities under various labour statutes. For the reasons given above, there is no infirmity in the impugned judgment of the High Court. The Appeal is dismissed accordingly. No costs. "


This decision can be considered to be a landmark decision and importance need to be given to the finding in the Judgment of their Lordships "In order to avoid their liability under various labour statutes employers are very often resorting to subterfuge by trying to show that their employees are, in fact, the employees of a contractor. It is high time that this subterfuge must come to an end. Labour statutes were meant to protect the employees/workmen because it was realised that the employers and the employees are not on an equal bargaining position. Hence, protection of employees was required so that they may not be exploited. However, this new technique of subterfuge has been adopted by some employers in recent years in order to deny the rights of the workmen under various labour statutes by showing that the concerned workmen are not their employees but are the employees/workmen of a contractor, or that they are merely daily wage or short term or casual employees when in fact they are doing the work of regular employees. This Court cannot countenance such practices any more. Globalization/liberalization in the name of growth cannot be at the human cost of exploitation of workers.The facts of the case are given in the judgment of the High Court dated 23.08.2004 and we are not repeating the same here. It has been clearly stated therein that subterfuge was resorted to by the appellant to show that the workmen concerned were only workmen of a contractor. The Labour Court has held that the workmen were the employees of the appellant and not employees of the contractor. Cogent reasons have been given by the Labour Court to come to this finding. The Labour Court has held that, in fact, the concerned workmen were working under the orders of the officers of the appellant, and were being paid Rs 70/- per day, while the workmen/employees of the contractor were paid Rs. 56/- per day. "

 Legal Professionals need to take note of this Landmark decision .

With Regards

V.Sounder Rajan
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