The Supreme Court has ruled that contractual workers employed through contractors cannot claim equal pay or service benefits as regular employees, emphasizing the need for transparent, merit-based recruitment while allowing compassionate consideration in exceptional cases.
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NEW DELHI: The Supreme Court of India has held that granting equal pay and service benefits to workers engaged through contractors, at par with regular employees, would amount to endorsing an arbitrary and non-transparent recruitment process. While allowing the appeals, the Court nevertheless urged the employer to consider a compassionate approach for long-serving contractual workers, clarifying that such direction would not operate as a precedent.
Background of the Case
The appeals arose from a common judgment dated 23 August 2018, passed by the High Court of Judicature at Hyderabad (for the States of Telangana and Andhra Pradesh).
The High Court had directed the appellant–a municipal/state authority–to:
- Grant a minimum time-scale of pay applicable to regular employees, and
- Extend annual grade increments to the respondents.
Employment History of Respondents
- The respondents were not directly employed by the appellant.
- They were engaged through third-party contractors starting from 1994.
- Despite the change of contractors over time, the respondents continued to work for the appellant.
- They approached the A.P. Administrative Tribunal seeking:
- Regularization, and
- Pay parity with regular employees.
- The Tribunal rejected their claim, but the High Court reversed this decision, prompting the appeals before the Supreme Court.
Arguments Before the Supreme Court
Appellant’s Contentions
The appellant argued that:
- There was no employer–employee relationship between the appellant and the respondents.
- All payments were made to the contractor, who in turn paid the workers.
- The contract ensured:
- Payment of minimum wages as prescribed by the Government, and
- Compliance with statutory deductions and contributions.
- Any claim by the respondents, therefore, lay only against the contractor, not the appellant.
Reliance was placed on:
- Bharat Heavy Electricals Limited v. Mahendra Prasad Jakhmola & Ors., and
- Joint Secretary, CBSE v. Raj Kumar Mishra (2025).
Respondents’ Contentions
The respondents contended that:
- Denial of minimum time-scale pay was arbitrary and discriminatory, violating Articles 14 and 16 of the Constitution.
- They performed the same duties as regular employees.
- Similar benefits had been extended to contractual workers in other municipalities.
- Reliance was placed on State of Punjab v. Jagjit Singh, which recognized the principle of equal pay for equal work.
Supreme Court’s Observations
A Bench comprising Justice Ahsanuddin Amanullah and Justice Vipul M. Pancholi focused on the nature of the employment relationship.
Crucial Distinction Drawn by the Court
The Supreme Court clearly distinguished between direct contractual employment by the State and employment through a third-party contractor. The Bench emphasized that workers supplied by contractors do not have a direct legal relationship with the State, and granting them the same pay and benefits as regular employees would endorse an arbitrary recruitment process.
“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.”
The Supreme Court explained why contractual workers cannot be treated on par with regular employees. It noted that regular public employment is a public asset that must follow a transparent, merit-based recruitment process, ensuring open competition and safeguarding constitutional principles.
In contrast, workers provided through contractors are selected entirely at the discretion of the contractor, with no legally prescribed procedure. Granting such workers the same pay and benefits as regular employees would endorse an arbitrary and non-transparent system, undermining these safeguards.
The Court also clarified that the contractual arrangement itself was lawful, there was no challenge to its terms, and mere continuity of service through successive contractors does not create a direct employment relationship with the State.
The Supreme Court allowed the appeals, setting aside the High Court’s judgment and restoring the order of the Administrative Tribunal.
As a result, the respondents were denied the minimum time-scale pay and annual grade increments, reinforcing the principle that contractual workers engaged through a contractor do not automatically acquire the rights of regular employees.
Despite ruling in favour of the appellant, the Court struck a balanced and humane note:
“Sometimes justice is required to be tempered with mercy as human factors cannot be totally lost sight of.”
The Court directed the appellant to examine the possibility of regularization of the respondents on posts that appear perennial in nature, considering:
- Decades of uninterrupted service, and
- The absence of any complaint regarding their performance.
Case Title:
The Municipal Council, Rep. By Its Commissioner Nandyal Municipality, Kurnool District, A.P. v. K. Jayaram and Others
SPECIAL LEAVE PETITION (CIVIL) NOS. 17711-17713 OF 2019
READ ORDER