Can Companies Rehire Contract Workers Despite Service Agreement Clauses? Let's Discuss!

In one of the cases, an agency's contract was terminated 8 months ago by the principal employer, but the contract employees were given the employment opportunity by the employer. However, the previous agency objected and stated that, as per the services agreement, they cannot work at their premises or in their company directly or indirectly for a period of one year after the termination of the contract.

Questions Regarding Re-employment and Service Agreement Clauses

My question is: Is the company wrong in giving re-employment to such employees? Secondly, should such a clause in the service agreement of Class IV employees be considered valid without the consent of employees who are working under such contracts?

Thirdly, what are the consequences in such cases?

My opinion on your questions is as follows:

Is the company wrong in giving re-employment to such employees?

Yes, the company is wrong in providing re-employment because the company never initially employed them, so the question of giving re-employment does not arise. In reality, these employees were originally employed by the contractor and were assigned to work in the company.

Is the clause in the service agreement of Class IV employees valid without the consent of the employees working under such contracts?

The service agreement is between the employees and the contractors, and therefore, the validity of the clause can be evaluated between them.

What are the consequences in such cases?

Employees in such situations can assert the continuity of service from the company starting from when the contractor was assigned to work with the company.

Thanks,

V K Gupta

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

Explanation of the Clause

Let me explain to you why the old contractor inserted this clause prohibiting the 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 searching for the right candidates. In addition to these recruitment costs, he must have spent time and money developing SOPs to fulfill the expectations of his customer (the principal employer).

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

Thanks,

Dinesh Divekar

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

The principal employer cannot and should not hire employees who were brought in by a contractor. The contractor has searched, prepared, and groomed workers to be suitable for the job. All these efforts, which normally any principal employer would have put in, get saved by such shortcuts.

Anyway, as learned member Dinesh rightly mentions, you have to scrupulously follow the contract agreement. Is following the contract agreement so difficult?"

Dear Bijay, The services agreement contains the terms and conditions of engagement between the agency and the employer. If the principal employer has signed the contract that mentions no hiring of agency employees, then 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 principal employer for breach of contract.

Legal Implications of Breach of Contract

The exact statement in the terms of the contract is important to provide a correct opinion on this. Typically, the agency can go to court and claim compensation for breach of contract and losses due to the same, up to 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 principal employer to continue.

Regards

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

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

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

Also, these employees belong to the unskilled category and work on minimum wages. I would like to ask, is it fair on the 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 continuous job security under contract if such unskilled employees are brought under the shadow of such clauses?

Business aside - ethically speaking, why should these people suffer in the fight of business and business agreements?

I understand that in the agreement, there is a violation of Section 27 of the Contract Act, which states 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 it pertains to the 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 up to 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, the employees of the earlier security agency have every right to join another organization, whether engaged in the same kind of business activity or not. This is their fundamental right as well. Here again, Section 27 of the Contract Act will apply. Various court rulings, like Sandhya Organic Chemicals v. United Phosphorous held by the Gujarat High Court, Ambiance India Pvt Ltd vs. Naveen Jain, and 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 the principal employer is concerned, since he has had no legal relationship with the employees of the contractor who supplies guards or workers to do 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 these guards are 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.

Regards,
Madhu.T.K

Dear Madhu.TK,

Thank you for your excellent clarification. In light of your post, I need to retract my views stated in the previous post.

Thanks,
Dinesh Divekar

Violation of Fundamental Rights in Employment Contracts

The contractual terms are violative of the fundamental right to employment as guaranteed by the constitution, and hence the term itself is void. Secondly, the employees were kept in the dark when such an illegal agreement was signed between the employer and contractor. As per the law, the concurrence of the employee is required for any act that may concern the person. In this case, this is also violated. The employee is not a commodity that can be bartered or thrown around the way the employer or contractor desires. In such 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 a party to it.

Thanks to Madhu Sir and Anonymous,

I appreciate the replies from you. It is indeed a violation of fundamental rights as well as ethical work practices in the industry, especially in the case of contracts. However, I would like to ask if this clause has any relevance to the Bonded Labour Act.

Warm regards,
Bijay

Bonding is established when the contract is between the employer and the employees who are prohibited by the contract from taking up employment elsewhere. In this case, there is no such contract with the employees.

Madhu.T.K

Thank you, Madhu Sir,

May I seek to know that the clause we are speaking about, therefore, has no relevance but points towards binding the employees (working under contract) indirectly not to work elsewhere except the agency and principal employer with whom the contract is made, is brought under a false agreement clause.

Dear Madhu & Bijay
Although, you have given a very clear clarification, but still one doubt remains “The Principal Employer has terminated the Contract but whether the Employee / Employer relationship exists between Contractor and his employees when they were employed by another employer (Principal Employer)”.
If yes, then their appointment may me invalid?
Amit Tyagi

Amit sir, no, the employees resigned upon termination of the contract with the previous agency, and the same was accepted. After which, they were hired by another employer agency and placed to work at the same principal employer with the consent of the principal employer in good faith, that is to say, retain their jobs.