Dinesh Divekar
Business Mentor, Consultant And Trainer
Industrial Relations And Labour Laws
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In one of the cases, an agency's contract was terminated 8 months back by the principal employer,but the contract employees were given the employment opportunity by employer.How ever the previous agency objected and stated that as per services agreement they can not work at their premises/in their company directly /indirectly for a period of one year after the termination of contract.
My Question is - Is the company wrong in giving the re-employment to such employees, Second Is the such clause in service agreement of class iv employees be considered valid,without the consent of employees who are working under such contracts.
Third - what are the consequences in such cases.

From India, Vadodara
My opinion to your questions is as under:
"Is the company wrong in giving the re-employment to such employees" -
Yes, company is wrong in giving re-employment because company never gave them employment and hence where from question of giving re-employment comes. In fact, these were the employees of the contractor deputed to work in the company.
'Second Is the such clause in service agreement of class iv employees be considered valid,without the consent of employees who are working under such contracts."
Service agreement is between the employees and the contractors and as such validity can be examined between them.
"Third - what are the consequences in such cases."
Such employees can claim continuity of service from the company from the date when contractor deputed to work with you.
V K Gupta

From India, Panipat
Dear Bijay,

It is not a question of right or wrong. It is a question of adhering to the terms and conditions of the contract. Principal employer should have been thoughtful while signing this contract. Once the contract is signed, he should abide with it.

Let me explain to you why old contractor inserted this clause of prohibition of employment of his employees. Reinstatement of the employees by changing the contractor, defeats the very purpose of the contract. The previous contractor must have spent time and money in searching for the right candidates. In addition to this recruitment cost, he must have spent time and money in developing SOPs to fulfil the expectations of his customer (principal employer).

After the termination this contract, the new contractor will not incur any of this cost. Therefore, the principal employer is serving the interests of the new contractor at the cost of old contractor. Why old contractor will accept this? Principal employer cannot continue to ride on the back of the old contractor even after termination of the contract. This is slyness.


Dinesh Divekar

From India, Bangalore
""It is not a question of right or wrong. It is a question of adhering to the terms and conditions of the contract. Principal employer should have been thoughtful while signing this contract. Once the contract is signed, he should abide with it.""
Principal employer cannot and should not hire employees who were brought in by a contractor.
The contractor has searched,prepared,groomed workers to be suitable for the job,all these efforts which normally any principal employer would have put in gets saved by such short cuts.
Any way as learned member Dinesh rightly mentions,you have to scrupulously follow the contract agreement.
Is following the contract agreement so difficult?

From India, Pune
Dear BIjay,
The Services agreement contain the terms and conditions of engagement between the agency and the employer. if the principle employer has signed the contract that mentioned no hire of agency employees, the they need to adhere to it. Since the employee has not signed the contract, there cannot be legal action against the employee, however, the agent can initiate legal action against the principle employer for breach of contract.
the exact statement in the terms in the contract is important to give a correct opinion on this.
Typically the agency can go to the court and claim compensation for breach of contract, and losses due to the same, upto the duration of the contract. Normally, unless the agent continued to provide employment to the employees, and you have poached active employees, the court will be fair with the employees and allow their new employment with the principle employer to continue.

From India, Mumbai
In the above case,I would also like to bring in to picture that these contract employees were not provided alternative job after the termination of the contract.Therefore employees also resigned from the agency after the termination of contract and got freed in order to rejoin the same principal employer.Principal employer in good faith retained them under another contract on their request.

The agreement was made 4 years back and considered to be renewed automatically, In spite of having such clause in agreement, the agency took the objection against principal employer after the seven months delay.What therefore is the purpose of such objection to be taken after such a long period.

Is their any amicable way out /solution, that can help poor employees continue their job.Because the principle employer may eventually release the employees owing to the objection raised by the agency.(at least there will disturbance created with in employees)

Also these employees belong to unskilled category and work on min wages I would like to ask that , is it fair on part of agencies to mention such clauses/conditions by keeping the guns on the shoulder of unskilled contract employees. Who shall take the guarantee of giving them the continuous job under contract if such unskilled employees brought under the shadow of such clauses.

Business apart - ethically speaking why should these people suffer in the fight of business and business agreements.

From India, Vadodara
I understand that in the agreement there is violation of section 27 of Contract Act which says that a service agreement extended beyond the termination of service is void. Here the agreement is between the Principal employer and the Contractor Security agency and the same is for deployment of forces with a condition that the former should not hire either directly or indirectly (through any other agency) the employees deployed by the latter. I don’t think that in the agreement there will be a mention as to who all should be engaged by the contractor but only the number of security guards or officers would be there. Now, it is upto the contractor to send guards or officers to take care of the principal employer’s men and properties. Then what is the significance of a clause that the principal employer cannot take the employees of the contractor after termination of the contract?

Secondly, here the employees of the earlier Security Agency has every right of joining another organisation whether engaged in the same kind of business activity or not. This is his fundamental right also. Here again the same section 27 of Contract Act will apply. Various Court rulings, like Sandhya Organic Chemicals v. United Phosphorous held by Gujarat High Court, Ambiance India Pvt Ltd vs Naveen Jain, the Supreme Court ruling in Superintendence Co. of India v. Krishun Murgai. AIR 1980 SC 1717 etc say that no employee can be prevented from pursuing similar work if he/she quits the present one, merely on the pretext that it will be detrimental to the previous employer.

As far as (principal) employer is concerned, since he has had no legal relationship with the employees of the contractor who supplies guards or workers to do a certain work, he need not look beyond that. For him the person seeking direct employment with him is a new person and the legal relationship that he is going to build up with the worker/ guard is that of employer and employee. And, in case this guard is getting deployed in the same premises through another agency, there is not going to develop any legal relationship with him and as such why should he be held liable for an invalid clause? Once a contract is terminated, he cannot track where are these guards going or whether these guys come for employment with him or not. That means an agreement which extends beyond its termination is void and not maintainable.


From India, Kannur
Dear Madhu.TK, Thanks for your excellent clarification. In view of your post, I need to abjure my views stated in the previous post. Thanks, Dinesh Divekar
From India, Bangalore
The contractual terms is violative of fundamental right to employment as guaranteed by the constitution and hence the term itself is void. Secondly, the employees were kept n dark when such an illegal agreement was signed between the employer and contractor. As per law, the concurrence of the employee is required for any act which may concern the person. In this case, this is also violated. The employee is not a commodity that he can be bartered or thrown around the way the employer or contractor desires. In sch a case, when the contractor sues the employer, the management can get the employees to implead themselves and get this term in the contract thrown out of the window, since they were not party to it.
From Indonesia, Jakarta
Thanks to Madhu Sir and Anonymous,
I had to appreciate the replies from you.It is indeed violation of the fundamental rights as well as ethical work practices in industry. especially in case of contracts. However i would like to ask if this clause has any relevance to bonded labour act.
Warm regards

From India, Vadodara

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