By Dr Swati Jindal Garg
In yet another ground-breaking judgment, the Supreme Court has underscored that establishing an employment relationship is not a matter of applying a rigid formula, but is a “mixed question of fact and law”.
The decision not only provides a comprehensive overview of labour-law jurisprudence, but also traces the evolution of the legal tests used to determine when an employer-employee relationship truly exists.
A bench, comprising Justices JB Pardiwala and Sandeep Mehta, while adjudicating a dispute concerning canteen workers, has delivered a vital consolidation of principles to guide courts and tribunals in cases under key labour legislations such as the Industrial Disputes Act, 1947, and the Factories Act, 1948.
The ruling marks a decisive shift from traditional, control-centric models to more sophisticated, multi-factor approaches that reflect the complexities of today’s diverse employment landscape. “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,” the bench observed.
THE FOUR LEGAL TESTS LAID DOWN
1. The Control Test
As the earliest and most traditional method, the Control Test examines whether the hirer has authority not just over what work is done, but also how it is performed. The bench clarified that while “control and supervision” remain crucial indicators, the intensity of control required varies with each case and must be interpreted in light of contemporary workplace realities.
2. The Organisation (Integration) Test
Modern jurisprudence recognizes that skilled professionals often operate autonomously. Drawing from Silver Jubilee Tailoring House vs Chief Inspector of Shops and Establishments, the Court explained that this test focuses on how deeply the worker’s role is integrated into the employer’s core business. A worker who is an essential part of the enterprise is more likely to be an employee than one performing an ancillary function.
3. The Multifactor Test
Moving beyond one-dimensional approaches, the Court endorsed the Multifactor Test, which requires consideration of multiple indicators such as:
- Power to hire and dismiss.
- Payment of wages or remuneration.
- Control over the manner of work.
- Ownership of tools and equipment.
- Chance of profit or risk of loss.
- Degree of integration into the employer’s business.
The Court emphasized that no single factor is conclusive; all must be weighed collectively to determine whether a contract is truly of service (employment) or for service (independent work). Courts also retain the power to pierce contractual façades designed to disguise genuine employment relationships.
4. The Refined Multifactor Test
The judgment culminates in what the bench termed the “Refined Multifactor Test”—the most evolved framework yet. It considers:
- Control over work and its manner.
- Integration into the employer’s business.
- Method of remuneration.
- Degree of economic dependence.
- Whether the work is performed for oneself or for another.
The Court shifted from the phrase “effective and absolute control” to a more pragmatic “sufficient degree of control,” recognising that flexibility, not rigidity, is the key to fair adjudication in today’s workplace.
CASE IN FOCUS: THE CANTEEN WORKERS OF UP COOPERATIVE BANK
The verdict arose from an appeal filed by UP Cooperative Bank Ltd against an Allahabad High Court ruling that had upheld a Labour Court award reinstating four canteen workers as employees of the Bank. While the High Court had agreed with the Labour Court, the Supreme Court overturned those concurrent findings. The bench noted that the canteen was operated by a cooperative society formed by the Bank’s employees. The Bank merely provided infrastructure and a subsidy, and when it declined to increase the subsidy, the society ceased operations and terminated the workers.
Applying the tests it had just clarified, the Court held:
- The canteen workers were appointed, paid, and supervised by the employees’ cooperative society, not the Bank.
- The Bank’s involvement was limited to providing space and partial funding, which did not amount to managerial or disciplinary control.
- There was no statutory or contractual obligation for the Bank to run a canteen under the Factories Act or any other law.
“The Bank might have played a pivotal role in setting up the canteen by providing infrastructure, finance and subsidies, but there is nothing to indicate that the Bank had a direct role to play in managing its affairs,” the bench concluded. Consequently, the Court ruled that the canteen workers could not claim employee status and set aside the orders for their reinstatement.
BROADER SIGNIFICANCE
By consolidating decades of legal development, the judgment has become a landmark reference point for determining employment relationships in India. It balances evolving workplace realities with enduring legal principles, reinforcing that control, integration, and economic reality remain the cornerstones of judicial inquiry.
This ruling is expected to guide not only labour courts and tribunals, but also private employers and policymakers navigating the blurred lines between traditional employment and the growing gig and contract economy.
—The author is an Advocate-on-Record practising in the Supreme Court, Delhi High Court and all district courts and tribunals in Delhi
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