On December 16, 2025, the Supreme Court of India noted that if individuals hired through a contractor are granted the same benefits and status as regular employees, it would essentially endorse a completely arbitrary process. This is because there are no specific guidelines in any contract regarding how the contractor selects or employs individuals, beside the basic requirement of having knowledge in relevant field.
This observation came up during an appeal from a government corporation where its contractual employees wanted full pay parity with regular employees and wanted to be made full time permanent staff.
The employees said that they have been working for years doing the same work as the permanent employees yet they get less salary than them. The government said that this cannot happen as they have hired these contractual employees via a contractor and not through competitive exams.
The contractual employees’ lawyer said in Supreme Court that all they they are asking for is some relief, as the minimum time scale pay for regular positions should not be considered as giving them (contractual employees) something which was not due or excessive. After all, these contractual employees also have families to support and are performing the same roles as those in permanent positions.
The Supreme Court said that if employees hired through a contractor are given equal benefit and status as regular employees, it would essentially endorse a completely arbitrary process since there’s no specific guideline in any contract regarding how how the contractor should select or employ these individuals, aside from the basic requirement of having knowledge in the field for which they are required.
The Supreme Court also said that if distinctions between a regular employee and such contractual employees is not made, then the basic concept of hiring through various modes and in different capacity would lose its purpose and sanctity and ultimately everybody would be getting exactly the same benefits.
What led to this dispute between the contractual employees and government?
The government had engaged the contractual employees not directly, but through a third-party contractor starting from 1994. However, even though the contractors changed, the employees continued to perform their duties and work for the government.
After many years, the contractual employees approached the A.P. Administrative Tribunal, Hyderabad to ask for regularization and to receive at least the minimum pay scale that regular employees got for their position. After the Tribunal ruled against them, they approached the High Court. The High Court had reversed the order of the Tribunal and directed the government to grant minimum time scale pay to the contractual employees, along with annual grade increments whenever they were due.
Unhappy with the verdict, the government filed an appeal in the Supreme Court.
The contractual employees’ lawyer argued in the Supreme Court that the government’s stand is totally arbitrary and violates the basic constitutional rights of the contractual employees.
The lawyer of the contractual employees said that besides being discriminatory, it was highly arbitrary as at the end of the day, the contractual employees had been directed to be paid only the minimum time scale of the pay attached to the regular post of their respective cadre. This, according to him, cannot be objected by any employer, much less an employer which is State under Article 12 of the Constitution of India.
Furthermore, he argued that similarly situated persons in other municipalities had been given the same benefit and denying the same to the contractual employees in the present case would not stand the constitutional requirement of not being discriminatory.
On December 16, 2025, the contractual employees lost the case in Supreme Court. But the Supreme Court said that on humanitarian grounds, the government should consider the contractual employees’ plea. However, the court clarified that this humanitarian ground cannot be used as a precedent for other cases as it is unique to this case.
Why did the employees lose the case by law but still win it on humanitarian grounds?
Prof. Paramjeet Singh Associate Professor of Practice BITS Law School, said to ET Wealth Online: Under the contract labour regime, contract workers work for the contractor on the principal employer’s premises, which is the Municipal Council here.
Singh says: “It’s an established principle under Indian law that the principal employer cannot be termed as an employer unless the contract for service between the principal employer and the contractor is a sham/camouflage.”
According to Singh, in the present case, the same contract workers were working for the principal employer through different contractors at different points in time. This does not create an employer-employee relationship.
Singh says that the court noted that the principal employer might be comfortable working with a particular contract worker and, therefore, the contractor might employ such workers for a particular principal employer. On these grounds, the Court set aside the appeal and restored the order of the tribunal for non-payment of the minimum of the scale and regularisation.
Singh says: “However, the Supreme Court, on human grounds and as an act of mercy, required the appellant (employer, government) to look into regularisation, which prima facie appears to be perpetual in nature.”
According to Singh, normally, the appropriate government looks into such a factor before publishing a notification to abolish contract workers in a particular process, operation, or other work in any establishment.
Supreme Court analysis and discussion
Justice Ahsanuddin Amanullah and Justice Vipul M. Pancholi of the Supreme Court of India gave this judgement on December 16, 2025.
Employees had no direct employee-employer relationship with the government
The Supreme Court said that they find substance in the contention of the counsel for the appellant (government).
The Supreme Court said that the moot point on which the issue revolves is the nature of employment/ relationship of the appellant with the respondents. It is not in dispute that the appellant (government) had engaged the respondents (contractual employees) and other similarly situated persons through a contractor, which also had changed periodically.
However, at the same time, the respondents (contractual employees) may have continued to work for the appellant, though through some other contractor. Further, the respondents may have also continued for long periods.
The Supreme Court thus said that at first blush, the reasoning may seem to be attractive that there was discrimination as they were also performing the duties that were being performed by other regular employees and were required to be suitably paid and, at least, at the minimum time scale of the pay attached to the regular post. However, a deeper probe would reveal that the matter cannot be dealt with in such a simplistic way.
The Supreme Court said that the test which would throw light and would be relevant in the facts and circumstances of the present case as to whether the relationship, which is direct between two parties in whatever manner, can be differentiated with a relationship which had no direct connection with the two parties who are contesting, but rather the relationship is through a third-party which in the present case is the contractor.
The Supreme Court said that from the facts discussed above, it is clear that the appellant (government) had no direct connection with the actual persons who were employed by the contractor, i.e., the respondents.
The obligation and responsibility of the appellant (government) was to pay to the contractor the amount which had been contracted and agreed to between the appellant (government) and the contractor, and the responsibility then was that of the contractor to ensure payment of wages and other emoluments as per the terms of the contract to the persons who were actually sent by the contractor to the appellant (government) for performing various types of job.
Just because the same workers continued under different contractors does not automatically prove that the contract system was fake
The Supreme Court said they would pause here to indicate that it is not anybody’s case that the mode of employment through a contractor itself was illegal or there was any illegality in the terms and conditions of the contract so as to make it ultra vires any constitutional provision or to make it discriminatory. Further, there has been no challenge to such contract or any of the terms stipulated in the contract.
Another issue on facts, which has been addressed by the counsel for the respondents (contractual employees), is that the respondents could not have been exploited by the parties and the fact that they were the same persons being sent, though through different contractors, itself shows that the relationship was direct and only a sham camouflage was created; the contractor being the intermediary.
The Supreme Court said that in their considered view, the answer may not be in clear black and white terms and is still a grey area because even if the respondents (contractual employees) were the same persons who worked for the appellant (government), there can be instances where the new contractor, to maintain continuity and to ensure that there is no complaint from the employer, the appellant (government) in this case, continues with the same persons who were already employed and were working with the appellant.
Thus, there is an argument for and against such a stand, which the Supreme Court said they will not dwell on any further.
Supreme Court says that if distinction between regular and contractual employees is not made then the concept would lose its sanctity
The Supreme Court said that the senior counsel for the respondents (contractual employees) contented that the respondents being in the position they are, and the relief given being the minimum of the time scale of the pay attached to the regular post cannot be termed as giving them something which was not due or something excessive, for ultimately they also have a family to support and they are also performing the job which is performed by people on the regular establishment.
The Supreme Court said they have absolutely no doubt in our mind that such an issue raised by the senior counsel is of relevance, but they feel that the mode of contractual employment, that too, by a contractor and not directly by the employer will have to be seen in a different light in the eyes of law.
The Supreme Court said: “If all such distinctions between a regular employee and such contractual employees is not made, then the basic concept of hiring through various modes and in different capacity would lose its purpose and sanctity and ultimately everybody would be getting exactly the same benefit.”
The Supreme Court said that this cannot be permitted in law for the reason that employment under a state entity is a public asset and every citizen of the country has a right to apply for it.
The Supreme Court said: “In a regular employment, directly made by the said State entity, there are safeguards to ensure that the system of employment/ engagement is transparent and fulfills a minimum criteria and is open to all eligible persons and a mode/procedure is adopted for ultimately choosing the right person.”
The Supreme Court said that when employees/workmen are taken through a contractor, it is the absolute discretion of the contractor as to whom and through which mode he would choose such persons to be sent to the principal.
This is where the difference lies, which is a very valid distinction in law.
The Supreme Court said that the reason why there are safeguards in regular appointment is that there should not be any favoritism or other extraneous consideration where persons, only on merit, are recruited through a fully transparent procedure known in law.
The Supreme Court said that if the persons who are employed through a contractor, and have come to work, are given equal benefit and status as a regular employee, it would amount to giving premium and sanction to a process which is totally arbitrary as there is no mode prescribed in any contract as to how the contractor would employ or choose the persons who are to be sent, except for the basic qualification, i.e., knowledge in the field for which they are required.
Judgement: In view of the discussions made hereinabove and for the reasons aforesaid, the appeals are allowed. The impugned order dated 23.08.2018 passed by the High Court is set aside and the orders of the Tribunal stand restored.
Humanitarian ground
The Supreme Court said that having passed the order, they feel that sometimes justice is required to be tempered with mercy as human factors cannot be totally lost sight of.
In such view of the matter, the Supreme Court said that they would require the appellant (government) to look into whether the jobs which were being done by the respondents (contractual), in the background that they have not been disengaged or returned to the contractor on the ground of being unsatisfactory, having uninterrupted service under the appellant for decades can be regularized on posts, which prima facie appears to be perpetual in nature.
NOT A PRECEDENT: “We (Supreme Court) make it clear that this direction is limited for the purposes of the present case only as it has been passed in the special facts and circumstances of the present case and shall not be treated as a precedent in any other case. We expect the appellant to take a compassionate and sympathetic view in the matter.”
