Contract Of Service And Contract For Service

Dear All,

I'm Vignesh, working for a construction company as an HR executive. I want to understand the concept and scope of the contract of service and contract for service.

Please await your reply.

Thanks & regards,
Vignesh Hegde

Dear Vignesh,

Since you are in the construction industry, there is a major role for HR in contract labor activities. Normally, all civil activities are done through contractors only, and HR's role is to monitor all statutory compliance in time and handle IR issues. The activities mentioned below:

1. Obtain a certificate from the labor office to engage the contractor and its labor.
2. Ask the contractor to obtain a labor license, PF establishment code, ESI code, or W.C. policy, whichever is applicable.
3. Ensure compliance with minimum wages to ensure all labor receives minimum wages on time. Direct contractors to do all these.
4. Handle any IR situations that arise or accidents that happen. Control the mob.
5. Tie up with the nearest hospitals for immediate medical treatment if any accidents happen with contract labor.

Regards,
Bhushan

Dear Vignesh,

A contract of service and a contract for service are both contracts with reference to employment between the parties but with different characteristics. A contract of service is one which creates rights and duties of the nature of a master and servant relationship. Explaining the nature of a contract of service and the master and servant relationship, the Supreme Court in Dharangdhara Chemical Works Ltd v. State of Saurashtra & Ors 1957 I LLJ page 477 observed that a contract of service is characterized by the following features:

1) One person hires the other person to do his work. The former is called the master, and the latter is called the servant.

2) The servant agrees that, in consideration of a wage or other remuneration, he will use his work and skill in the performance of some service to the master.

3) The servant, in the performance of service to the master, agrees to be subject to the control of the master.

Thus, in a contract of service, the contract is a direct bipartite contract between the master and servant for performing certain work, and the master exercises direct supervision and control over the servant, directing him not only on what is to be done but also how and when it is to be done. Therefore, any contract that has an employer-employee relationship is a contract of service. Hence, all permanent employees on the rolls of a company are in a contract of service.

A contract for service, on the other hand, does not envisage a direct contract with the servant by the master (employer) but with a third party (middleman) called a contractor. The employer enters into a contract with a contractor to get his work executed. The contractor, in turn, hires workmen/employees to execute the work assigned to him. In a contract for service, the employer does not have direct control and supervision over the contractor's workers. They are under the direct control and supervision of the contractor. Hence, there will be no direct master and servant relationship between the employer (who may also be called a principal employer) and the contract workers. For example, the housekeeping job can be assigned to a contractor.

Another form of a contract for service will be engaging an independent professional/consultant to utilize his expert services for a fee or sum to perform the company's work. For example, a construction company utilizing an engineering consultant in designing a structure or engaging an electrical consultant to do maintenance work on its electric equipment like air conditioners, etc. This is also called a contract for service because the professional hired is independent of the control and supervision of the employer in doing his work. Therefore, in a contract for service, there will be an absence of control and supervision by the employer, and the other party, be it a contractor or an independent consultant, will be free to do his work.

B. Saikumar

HR & Labour Law Advisor

Mumbai

Hi, Good Morning.

My name is Ku, an HR Officer working in the apparel industry. I have some queries to clarify, please assist.

1) Can the company issue a contract for service to foreign contract workers? Provided they are working in a garment factory as sewing operators and will have a 3-year contract with the Company. Under such a situation, if we issue them a contract for service with a 3-year contract, is it unlawful or are we against the law?

2) If we can issue the contract for service, can we say that the company is not compulsory to provide them benefits stated in the Employment Act exactly? For example, Annual Leave (AL) according to Years of Service, Sick Leave, etc., because the "employee" definition in EA 1955 is those under a CONTRACT OF SERVICE. Are those under a contract for service still covered under EA1955? Please advise.

Thanks & Regards,
Ku

Dear Saikumar Ji,

Thank you very much for your elaboration on "Contract of Service" and "Contract for Service". I always enjoy your postings, which are truly knowledge-based.

This year-old posting by you came to my reference once again while responding to one of the queries a couple of days back. The link is as follows: https://www.citehr.com/495957-need-g...ur-issues.html

May I request your contribution in the above link/thread?

Thank you.

Dear Shri Keshav Ji,

I apologize for responding late as I was tied up with some domestic commitments and thus could not visit the site for some days. I have gone through the content in the link cited in your post.

My view on the first query is that the engagement of an outside agency for inspection and certification of materials no doubt falls under Contract for service, and such agency has all the features of an independent contractor and thus does not fall under the purview of the CLRA, as you rightly observed.

Regarding the second query, my view is that the security guards engaged through a Security agency may not fall within the definition of a worker under the Factories Act, even though they are present on the premises of the factory. They are performing watch and ward duties which are not either incidental to or connected with the manufacturing process in the factory. Therefore, their leave entitlement may have to be decided as per the concerned State's Shops and Establishments Act or as per the provisions of the State Security Guards Act, if any existing in Delhi.

B. Saikumar
In-House HR & IR Advisor

@ B Saikumar,

Thank you for your elaborate explanation about the contract of service and contract for service. Based on that, I understand that all job contracts, like the Housekeeping example you mentioned, where a third party (a contractor) is engaged for a specific job and executes it by hiring workers (contract labor), fall under the category of a contract for service. I am curious whether a contract for service is subject to compliance under the provisions of the CL (R&A) Act.

Regards,
DG

Hello Saptarshi,

When a third-party agency hires individuals for housekeeping jobs at a company, it is considered a contract for services but falls under the purview of the CLRA Act.

B. Saikumar HR & Labour Law Consultant