The Standard-Vacuum Refining Co. of India Ltd v Its Workmen (1960)

This is the leading early case on contract labour under the Industrial Disputes Act. It decided two things that every later contract-labour case builds on.

First, a company's own regular workmen can raise an industrial dispute about the terms of workmen employed by a contractor, even though those workmen are not the company's employees. The Court got there by applying the Dimakuchi Tea Estate test for "any person" in s. 2(k).

Second, an industrial tribunal may direct an employer to stop using contract labour for a particular kind of work, even where the contract is genuine and not a sham. The deciding factor is the nature of the work: if it is perennial, done every day, and needed for the main business, it should be done by regular workmen.

The case is also cited later, for example in Air India Statutory Corporation v United Labour Union (1996).

The Standard-Vacuum Refining Company gave the cleaning and maintenance of its refinery, plant and premises to contractors on one-year contracts, from 1 October to 30 September. At the time of the reference the contractor was Ramji Gordhan and Company.

On 27 April 1957 the company's regular workmen demanded that the contract system be abolished and that the contractor's workmen be absorbed into the company's service. They said the contractor sometimes changed from year to year and the workers were thrown out; when the contract passed from Gowri Construction Company to Ramji Gordhan, all 67 workmen lost their jobs, and only 40 were taken back as fresh employees. The contractor paid much less than the company paid its own unskilled workmen, and the contract workers had no provident fund, gratuity, bonus, privilege leave, medical facilities or subsidised food and housing. The work was permanent in nature.

Conciliation failed and the Government of Bombay referred the dispute on 13 May 1958. The company argued that the reference was incompetent, and that how it chose to run its business was a management function the tribunal could not interfere with.

The Industrial Tribunal, Bombay, held the reference competent. It found the work necessary and done daily, though not part of the manufacturing process, and directed the company from 1 November 1958 to stop getting it done through contractors and to use its own workmen, giving preference to the contractor's workmen. It rejected the demand that all of them be taken over with past service counted and the same pay and conditions. The company appealed by special leave.

1. Was this an industrial dispute within s. 2(k), so that the reference was competent, when the workmen who raised it were not the contract workers whose conditions were in question?
2. Was the tribunal justified in interfering with the management's choice of how to get its work done, by directing abolition of contract labour for this work?

The appeal was dismissed, with one change: the direction was to take effect from the date the current contract ended, not retrospectively from 1 November 1958.

Issue 1: an industrial dispute under s. 2(k)

The Court broke the definition into three parts: a dispute or difference; between the right parties; connected with the employment, non-employment, terms of employment or conditions of labour "of any person". The first two were plainly met. On the first, "The fact that the respondents who have raised this dispute are not employed on contract basis will not make the dispute any the less a real or substantial dispute between them and the company as to the manner in which the work of the company should be carried on."

The third part turned on the Dimakuchi test: workmen who take up another person's cause must have a direct or a substantial interest in the subject-matter. The Court found that test met: "There can be no doubt that there is (community of interest in this case between the respondents and the workmen of Ramji Gordhan and Company. They belong to the same class and they do the work of the same employer and it is possible for the -company to give the relief which the respondents are claiming."

The company argued that the regular workmen's interests were not prejudicially affected. The Court said prejudice was only an illustration in Dimakuchi; the test itself is substantial interest. It concluded: "We are therefore of opinion that all the ingredients of s. 2(k) as interpreted in Dimakuchi case(1) are present in this case and the dispute between the parties is an industrial dispute and the reference was competent."

Issue 2: abolishing contract labour

The Court started from the general attitude of the law: "industrial adjudication generally does not encourage the employment of contract labour in modern times." It quoted the Royal Commission on Labour, that the manager should have full control over the selection, hours of work and payment of workers.

But general objections are not enough. The tribunal must look at the actual dispute: "the decision should rest not merely on theoretical or abstract objections to contract labour but also on the terms and conditions on which contract labour is employed and the grievance made by the employees in respect thereof."

On the work itself, the Court held that cleaning and maintenance "is incidental to the manufacturing process and is necessary for it and of a perennial nature which must be done every day. Such work is generally done by workmen in the regular employ of the employer and there should be no difficulty in having regular workmen for this kind of work." It added the limit: "The matter would be different if the work was of intermittent or temporary nature or was so little that it would not be possible to employ full-time workmen for the purpose."

A genuine contract can still be touched

The company relied on D. Macropollo and Co. v Its Employees' Union, where a bona fide reorganisation for economy and convenience was upheld. The Court accepted that the contractor here was independent and the arrangement genuine, not a camouflage. Even so, "the fact that the contract in this case is a bona fide contract would not necessarily mean that it should not be touched by the industrial tribunals."

The difference between a genuine and a sham contract affects the remedy. "If the contract had been mala fide and a cloak for suppressing the fact that the workmen were really the workmen of the company, the tribunal would have been justified in ordering the company to take over the entire body of workmen and treat it as its own workmen." Because this contract was genuine, the tribunal had rightly left the company to decide how many workmen to employ and on what terms, with only a preference for the contractor's workers. Macropollo was distinguished as a case of reorganisation of business leading to retrenchment.

(1) Regular workmen of an employer may raise an industrial dispute under s. 2(k) about the employment of contract labour doing that employer's work, because they share a community of interest with the contract workers, have a substantial interest in the subject-matter, and the employer can give relief. (2) An industrial tribunal may direct the abolition of contract labour for work that is perennial, done every day, necessary to the main business and enough to employ full-time workmen, even where the contract is genuine. Whether the contract is genuine or a sham affects what relief is given: if it is a sham, the tribunal may order the employer to take over all the workmen.

• Direct question: Can regular workmen raise an industrial dispute about contract labour? Discuss s. 2(k) with case law. Give the three parts of s. 2(k), the Dimakuchi substantial-interest test, and its application here.
• Direct question: When may an industrial tribunal abolish contract labour? Use the perennial / daily / necessary / enough-for-full-time-workmen factors, and the Court's point that intermittent or small-scale work is different.
• Problem question: a genuine contractor supplies workers for a company's daily cleaning; the regular union demands abolition. Apply both holdings, and explain why the remedy is a direction to use regular workmen with preference for the contract workers, not an order that the company absorb all of them.
• Distinguish: genuine contract versus sham ("camouflage") contract, and this case versus Macropollo (bona fide reorganisation leading to retrenchment).
• Link: read with Air India Statutory Corporation v United Labour Union (1996) in Unit 4.