Not automatically. Since Steel Authority of India v National Union Waterfront Workers in 2001, the Supreme Court has held that contract workers have no right to absorption by the principal employer. That holds even where contract labour in the work was prohibited. The exception is a sham contract: if the contractor is only a front, an industrial adjudicator can hold the workers to be the site's direct employees. The OSH Code 2020 has not changed that.
No automatic absorption
A contract worker cannot become a site's permanent employee just by serving long or doing core work. A five-judge bench of the Supreme Court settled this in SAIL v National Union Waterfront Workers (2001), overruling its own 1996 Air India decision, which had ordered automatic absorption [VERIFY: Air India Statutory Corporation v United Labour Union, (1997) 9 SCC 377, as the case overruled]. The Court restated the point in SAIL v State of West Bengal on 25 September 2008, saying the 2001 judgment held that "automatic absorption is not permissible in law". It set aside a High Court order directing absorption.
The 2001 judgment did give contract workers one thing where contract labour was prohibited in a process. If the principal employer then takes on regular workers for that work, it is to give preference to the contract workers who did it, relaxing the age limit for their years of service [VERIFY: the preference direction and the age relaxation, from secondary summaries of SAIL (2001) 7 SCC 1; the 2001 judgment itself was not opened]. That is a right to be considered first, not a right to the job.
When the contract is a sham
Where the contractor is a front, the workers are the site's employees and always were. The 2008 judgment quotes SAIL v Union of India (2006) 12 SCC 233: if a contract "was really a camouflage or a sham one, the employees appointed by the contractor would, in effect and substance, be held to be direct employees of the management". The same passage says who decides: an industrial adjudicator, on evidence, not a writ court. Whether a worker is someone's employee is "essentially a question of fact".
The test the Court has used since is control. In Balwant Rai Saluja v Air India (2014), a three-judge bench held that the question is who holds "effective and absolute control" over the workers, not who has some say in their work. Air India checked the quality of a contracted canteen, but that did not make the canteen staff its employees [VERIFY: holding and citation (2014) 9 SCC 407, from secondary reports; the judgment was not opened]. The table shows the facts courts have weighed.
| Question | Points to a genuine contractor | Points to a sham |
|---|---|---|
| Who chose the worker | The contractor screened and appointed them, and issued the appointment letter | The site's HR picked individuals and the contractor only processed the paperwork |
| Who pays | The contractor pays from its own account and holds the wage register | The site sets each worker's pay, or the contractor passes on the site's money at cost |
| Who supervises the day | The contractor's supervisor allocates work; the site specifies the result | Site staff give daily instructions to named workers directly |
| Who disciplines | The contractor warns, inquires and dismisses | The site's managers issue warnings and decide terminations |
| Does the contractor have a business | Its own licence, other clients and its own management | No other clients, no real management, a name on the invoice |
What the OSH Code changes, and what it doesn't
The Code prohibits more, but it still does not convert anyone into the site's employee. Section 57(1) of the OSH Code 2020 prohibits contract labour in core activity by statute, with three exceptions. Under the 1970 Act, a prohibition needed a government notification. Section 54 makes it a contravention to engage contract labour through a contractor who lacks a required licence. Neither section says the workers become the principal employer's employees, so a breach is a penalty matter under the Code, not a route to absorption.
- The contractor's own permanent staff are not "contract labour". Section 2(1)(m) excludes a worker the contractor regularly employs on mutually accepted terms, including permanent engagement, with periodic increments, social security and welfare benefits. A crew on that footing is the contractor's workforce in every sense.
- Core work done without an exception is still exposure. A site that puts contract labour on its line outside the three exceptions breaches section 57. If the arrangement also fails the control test, it hands the crew the evidence for a sham-contract claim. The two problems often travel together.
- A direct hire on a fixed term is the lawful middle path. Where the work is core and the need is lasting, a fixed-term contract makes the worker the site's employee from day one, on parity terms. The fixed-term post on this site compares the two routes.
What a site should keep in order
Keep the contractor's control real, and keep the paperwork that shows it. A claim that a contract is a sham is decided on evidence, usually years later, so the records kept now are what a tribunal reads.
- Let the contractor appoint. The site can set the skill and the headcount, and veto a worker on safety or conduct grounds. It should not pick or interview individuals for the contractor's roll.
- Instruct through the contractor's supervisor. A work order that specifies outputs, and a contractor supervisor on every shift, separates the site's say over the result from control over the worker.
- Leave discipline with the contractor. The site may bar a worker from its premises. The warning, the inquiry and the dismissal are the contractor's, under its own standing orders.
- Check the contractor is a business. A licence where section 45 requires one, its own PF and ESIC codes, its own wage register, and other clients.
- Write down the core-activity call for every contracted role. The core-activity article on this site sets out how; a role on the line with no recorded exception is the weakest point in any later dispute.
Whether a particular contract would be read as genuine or sham depends entirely on its facts, and that is a question for the site's own counsel, and ultimately for an industrial tribunal.
How Velura Services helps
We scope every engagement against the core-activity rules before deployment and keep supervision, records and pay on our side of the line. Supervision, records and pay sit with us, as a genuine contract arrangement requires. Where a role should be permanent, we say so at the Requirement stage.
Sources
- Steel Authority of India Ltd. v State of West Bengal, Supreme Court of India, Civil Appeal No. 5846 of 2008, judgment dated 25 September 2008. Records the SAIL (2001) holding that automatic absorption is not permissible in law, and quotes SAIL v Union of India (2006) 12 SCC 233, paras 20 and 24, on sham contracts and the industrial adjudicator. Opened and read from the Supreme Court's judgment portal.
- Steel Authority of India Ltd. v National Union Waterfront Workers, (2001) 7 SCC 1, Supreme Court (five judges), 30 August 2001 [VERIFY: the preference direction and age relaxation; the judgment was not opened this run].
- Balwant Rai Saluja v Air India Ltd., (2014) 9 SCC 407, Supreme Court (three judges), 25 August 2014 [VERIFY: citation and the "effective and absolute control" holding, from secondary reports; the judgment was not opened].
- Occupational Safety, Health and Working Conditions Code, 2020 (Act 37 of 2020), Gazette text hosted by DGFASLI. Sections cited: s.2(1)(m) (contract labour, excluding a contractor's regular employees); s.45 (licensing part at fifty contract labour); s.54 (engaging an unlicensed contractor is a contravention); s.57 (prohibition in core activity, three exceptions, designated authority). Opened and read.