Employee and Independent Contractor Distinction

An employee works under a contract of service, while an independent contractor performs work under a contract for service as an independent business person. Courts determine the real relationship from the statute, contractual terms and actual working arrangement. No single test is conclusive; the factors are assessed together.

Control and supervision test

The traditional inquiry is whether the alleged employer has the right to control not merely what work is done, but also how it is performed.

• In Dharangadhra Chemical Works v. State of Saurashtra (1957), the Supreme Court treated the right of supervision and control as a prima facie test, while recognising that its degree varies with the nature of work.
• Control over attendance, assignment of work, discipline and manner of performance supports employee status; control confined to the final result suggests independent contracting.
• For professional or highly skilled work, limited day-to-day direction does not by itself disprove employment.

Integration and economic reality tests

Modern adjudication asks whether the worker forms part of the organisation and is economically dependent on it, rather than merely supplying an external service.

• Under the integration test, an employee is ordinarily part and parcel of the establishment, whereas a contractor operates an independent undertaking.
• The economic reality test considers ownership of tools, investment, opportunity for profit, risk of loss, continuity, exclusivity and dependence for livelihood.
• In Hussainbhai v. Alath Factory Thezhilali Union (1978), the Supreme Court looked beyond intermediaries to identify the person exercising real economic control over the workers.

Composite assessment

Courts apply a multiple-factor test and examine substance over contractual labels.

• Relevant factors include who appoints and pays the worker, who may discipline or dismiss, whether personal service is required, and whether substitution is permitted.
• In Silver Jubilee Tailoring House v. Chief Inspector of Shops (1974), the Supreme Court held that control is important but not universally decisive.
• A statutory definition may broaden or narrow coverage, so status must be determined separately under the labour legislation being applied.

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