Contract workers also qualify for ESI: Karnataka High Court

Contract workers: A recent ruling by the Karnataka High Court stated that contract workers engaged for maintenance and repair of a factory’s premises qualify as ’employees’ under the Employees State Insurance (ESI) Act.

The court’s decision emphasizes that the definition of “employee” under the ESI Act is broad and includes individuals hired through a contractor for work connected to the factory or establishment. The court held that the term “employee” in the ESI Act should be interpreted liberally, as the Act is a social welfare legislation meant to benefit workers.

The ruling clarified that activities like construction of sheds, installation of new units, and renovation of existing structures are not external to a factory’s operations. Instead, they are considered “integral to the continuity, efficiency and safety” of the factory.

This judgment makes the principal employer (the company that hires the contractor) liable for paying ESI contributions for these workers, even if they are employed through an “immediate employer” or contractor.

The High Court’s decision overturned an earlier ESI Court order that had reduced the statutory contribution demand on the company, which had argued the workers weren’t under its direct control. The High Court ordered the company to pay the full amount demanded by the ESI Corporation.

This ruling sets a significant precedent, reinforcing that companies cannot avoid their ESI obligations for workers involved in core or incidental activities by hiring them through third-party contractors.

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