The Supreme Court of India has elaborated on the various judicial tests that must be applied while adjudicating disputes under labour welfare legislations like the Industrial Disputes Act, 1947 and the Factories Act, 1948.
A Division Bench comprising Justice JB Pardiwala and Justice Sandeep Mehta explained that the existence of an employer–employee relationship is a mixed question of fact and law, which depends on factors such as the degree of control, supervision, integration into the employer’s business, and economic dependence of the worker.
The judgment, delivered in an appeal arising from a decision of the Allahabad High Court, not only reviewed the established legal tests but also reversed the High Court’s finding that canteen workers employed by a cooperative society were employees of the U.P. Cooperative Bank.
Four Judicial Tests to Identify Employer–Employee Relationship
The Supreme Court traced the evolution of legal standards used by Indian courts to determine whether a genuine employer–employee relationship exists. The Bench highlighted four major tests that guide such determination.
1. The Control Test
The Control Test is the earliest and most traditional method for determining employment relationships. It focuses on whether the hirer exercises control not only over what work is to be done but also how it is to be done.
Citing Shivanandan Sharma v. Punjab National Bank Ltd. (AIR 1955 SC 404), the Court observed that control and supervision by the hirer indicate a true employment relationship, even if the workers are engaged through an intermediary.
In Dharangadhara Chemical Works Ltd. v. State of Saurashtra (1957), the Court held that the distinction between an employee and an independent contractor rests on whether the work is performed for oneself or for another. The Bench reiterated that the existence of “due control and supervision” is essential but must be assessed based on the circumstances of each case.
2. The Organisation (Integration) Test
Recognising that modern workplaces often involve skilled and professional labour beyond direct supervision, the Supreme Court referred to Silver Jubilee Tailoring House v. Chief Inspector of Shops and Establishments (1974) 3 SCC 498, which introduced the Integration Test.
This test examines whether the worker’s role is integrated into the core operations of the employer’s business. The higher the integration, the stronger the presumption of an employment relationship. The Court observed that this test complements the control test, particularly in specialised sectors, and reflects a shift from the rigid master–servant model toward a more holistic assessment.
3. The Multifactor Test
Moving beyond single-factor analyses, the Court endorsed the Multifactor Test, which considers a combination of indicators such as:
- Control and supervision
- Ownership of tools and equipment
- Degree of integration with the employer’s business
- Possibility of profit and risk of loss
- Power to hire or dismiss
- Payment of wages
- Economic dependence of the worker
Referring to Workmen of Nilgiri Coop. Marketing Society Ltd. v. State of Tamil Nadu (2004) 5 SCC 514, the Bench held that no single factor is conclusive — the totality of circumstances must be examined to discern a “contract of service.”
The Court further emphasized that if the evidence reveals camouflaged or sham contractual arrangements designed to obscure a real employment relationship, courts are empowered to pierce the veil and declare the true nature of the engagement.
In Bengal Nagpur Cotton Mills v. Bharat Lal (2011) 1 SCC 635, the Court laid down two decisive criteria for identifying the principal employer:
(i) whether the principal employer pays the wages directly, and
(ii) whether it exercises control and supervision over the employee’s work.
4. The Refined Multifactor Test
The Bench noted that recent judicial developments have led to a Refined Multifactor Test, as articulated in Sushilaben Indravadan Gandhi v. New India Assurance Co. Ltd. (2021) 7 SCC 151.
This modern test considers the following aspects:
- The degree of control over the manner of work
- The worker’s integration into the employer’s business
- The mode of remuneration
- The extent of economic dependence
- Whether the work is performed for the employer or for oneself
While Balwant Rai Saluja v. Air India Ltd. (2014) 9 SCC 407 had spoken of “effective and absolute control,” the Court in Sushilaben favoured the phrase “sufficient degree of control,” acknowledging that the nature of control varies across industries and employment models.
“The degree and level of control required would depend on the facts and circumstances of each case,” the Bench observed, emphasizing that there can be no uniform formula applicable to all employment disputes.
Background: Dispute over Canteen Workers of U.P. Cooperative Bank
The ruling arose from an appeal against an Allahabad High Court judgment which had affirmed the reinstatement of four canteen workers by the U.P. Cooperative Bank.
The canteen was operated by a cooperative society formed by the bank’s employees, with the bank providing infrastructure and a partial subsidy. When the bank refused to enhance the subsidy, the cooperative society shut down the canteen and terminated the workers.
The Labour Court directed the Bank to reinstate the workers, a decision later upheld by the High Court, which concluded that an employer–employee relationship existed between the Bank and the canteen staff.
Supreme Court’s Findings
The Supreme Court, however, set aside both the Labour Court’s and the High Court’s findings, holding that the canteen was not managed or supervised by the Bank, and its role was limited to providing financial and infrastructural support.
“The Bank might have played a pivotal role in setting up the canteen by providing the necessary 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 held.
The Court noted that the canteen workers were appointed, paid, and managed by the cooperative society, not by the Bank.
Furthermore, there was no statutory or contractual obligation on the Bank to maintain a canteen, and therefore, the workers could not claim parity with regular bank employees.
Relying on precedents such as Balwant Rai Saluja v. Air India Ltd. (2014), Employers in Relation to Management of RBI v. Workmen (1996) 3 SCC 267, and State Bank of India v. SBI Canteen Employees’ Union (2000) 5 SCC 531, the Bench reaffirmed that mere provision of facilities or subsidies does not establish an employment relationship.
Case Details
Case Title: General Manager, U.P. Cooperative Bank Ltd. Versus Achchey Lal & Anr.
Case No.: Civil Appeal No.2974/2016
Date: 11/09/2025
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