Are They Our Employees or Not? — What the Supreme Court Says About Hidden Employment Relationships

A review of the recent Supreme Court judgment on employer-employee relationship.

A recent Supreme Court of India judgment in the case General Manager, U.P. Cooperative Bank Ltd. vs. Achchey Lal & Another (2025 INSC 1175) has given a very important clarification about how to decide if a person is an employee of an organization — especially when such people are engaged through another agency, society, or contractor.

The Court has clearly explained that to call someone an employee of a company, the company must have “complete administrative control” over that person’s work and employment. This ruling draws a clear line between welfare support and legal employment responsibility.BB

Below is a simple explanation of this landmark case in four main parts — useful for HR professionals and business leaders.

1. The Issue

The case was about some canteen workers who worked in the canteen run by a cooperative society formed by the employees of U.P. Cooperative Bank Ltd. The bank supported the canteen by giving space and financial help (subsidy). Later, when the bank stopped the subsidy, the canteen had to shut down, and the workers lost their jobs. These workers claimed that they were actually employees of the bank and should get all rights and benefits under labour laws like the Industrial Disputes Act and Factories Act.

The question before the Court was — Are these canteen workers legally employees of the bank or of the cooperative society? This question was not simple. Many times, workers are hired through contractors or other organizations. In such cases, it becomes difficult to know who is the real employer. This judgment was needed to make the rules clearer — especially when an organization only provides money, infrastructure, or space but does not directly employ or supervise the workers.

2. What the Supreme Court Said and Why

The Supreme Court looked at many old cases and explained four ways (or “tests”) used by courts to find out whether a worker is an employee or not.

Control Test: This test asks — does the company or organization not only tell the worker what to do but also how to do it? If yes, then it is likely an employer-employee relationship. The Court referenced Shivanandan Sharma v. Punjab National Bank Ltd. (AIR 1955 SC 404) and Dharangadhara Chemical Works Ltd. v. State of Saurashtra (1957) to emphasize that control is a key indicator of an employer-employee relationship.

Organisation or Integration Test: This test checks — is the worker’s job an important and regular part of the main business? If the worker’s job is closely connected to the main business, he or she is likely an employee. The Court cited Silver Jubilee Tailoring House v. Chief Inspector of Shops and Establishments (1974) 3 SCC 498 to highlight this perspective.

Multifactor Test: Here, the Court looks at many factors together — such as control, who owns the tools, who bears the profit or loss, how the worker is paid, and who has the right to remove the worker. No single point is final — the overall picture matters. The Court referred sham contracts in the case of Workmen of Nilgiri Coop. Marketing Society Ltd. v. State of T.N. (2004) 5 SCC 514 and Bengal Nagpur Cotton Mills v. Bharat Lal (2011) 1 SCC 635

Refined Multifactor Test: This is the updated version. It includes control, how the worker is paid, economic dependence, and whether the person is working for themselves or for someone else. It says that every case should be looked at based on its facts — there is no one fixed rule. The article notes this is an evolution of the multifactor test but does not provide a separate case citation; it builds upon the multifactor approach from the above judgments.

After applying these tests, the Court said that just because the bank gave money or facilities to the canteen, it does not become the employer. The bank did not supervise or control the canteen workers. The cooperative society was the one that hired, paid, and managed them. So, the bank could not be treated as their employer.

The Court also said that sometimes companies may try to hide real employment relationships through fake or “sham” contracts — but in this case, there was no such trick.

3. Key Learnings for Employers

• Support does not mean employment: Giving money, space, or help to another organization does not make its workers your employees.

• Be careful with intermediaries: When using contractors or cooperatives, clearly define who is responsible for hiring, paying, and supervising the workers.

• Courts see the full picture: Labels in contracts don’t matter much — what happens in real life matters more.

• Avoid sham contracts: Don’t try to show regular employees as “contractors” or “consultants” — it can backfire legally.

• Keep proper documentation: Always maintain agreements, attendance, payment, and supervision records. These help if any dispute arises later.

4. What HR Professionals Should Do Proactively

• Review third-party workforce arrangements regularly: Check if your contractors and vendors are following proper employment practices and whether your organization’s role is clear.

• Use clear contracts: Make sure contracts clearly mention duties, control, payment, and who will handle HR and legal responsibilities.

• Train line managers: Many issues arise when managers directly control contract workers. Train them about limits — they should not treat contractor staff like direct employees.

• Keep separate policies: Clearly separate regular employees from outsourced workers/contract labour in terms of ID cards, benefits, and disciplinary rules.

• Keep written records: Maintain documents showing who supervises whom and how the payments are made. These records can save you during audits or disputes.

• Stay updated: Labour laws and court judgments keep changing. HR must keep learning about new developments.

• Consult experts when needed: Before making any big change in manpower model, check with a seasoned senior HR Professional who is a labour law expert to avoid future problems.

Conclusion

The Supreme Court’s decision gives a clear, practical way to decide who is a real employee. Instead of depending on one fixed rule, it says — look at everything together — who controls, who pays, how integrated the job is, and how dependent the worker is on the company.

For employers and HR professionals, this means being careful, transparent, and well-documented in all manpower arrangements. By doing so, you can manage risks better, avoid unnecessary disputes, and maintain fair and lawful relationships at the workplace.

Disclaimer: This is an analysis of a Supreme Court judgment and should not be construed as legal advice. Organizations should consult with Experienced Senior HR Professionals who are labour law experts for specific compliance and policy decisions.

For your quick HR & IR advisory support when needed urgently on employee issues or for a second opinion please visit: http://bit.ly/3Jn9hBS