Will be sham contract in case of if contractor has been frequently change by principle employer in perennial job

Dear Sir,

Please advise if it would be considered a sham contract in a scenario where the contractor has been frequently changed by the principal employer in a perennial nature of the job. Additionally, even though the ESIC, mediclaim, and insurance amounts were continuously debited from the workman's salary, the ESIC card, mediclaim, and insurance documents were not delivered to the workman. Would these facts be sufficient to declare it a sham contract if the matter proceeds to the labor court?

Please provide your feedback.

Thank you.

Dear Birendra,

A sham contract is where the contractor is a namesake agent, and there is camouflaging, which means there is a direct employer-employee relationship between the Principal Employer and the employees of the contractor. This relationship is established through direct control, direct supervision, direct payment of wages and compensation (on a regular basis), and other relevant factors. Merely changing the contractor will not amount to a "sham" contract.

Non-compliance with the provisions of PF and ESIC will result in respective violations and penalties as prescribed in the relevant Acts.

Shailesh Parikh
99 98 97 10 65
Gujarat, India

A contract being sham or genuine would depend on a variety of factors, primarily who supervises the labor daily, who appointed them, who is paying the salary, who gives work-related instructions, who approves leave, and who is disciplining them, etc. Frequent changes of contractors need not be a pointer to a sham contract. Contract labor could be deployed in perennial jobs as long as it is not a prohibited trade.

Prima facie, it seems to be clearly a scam contract.

The fact that the contractor is changed frequently, with the workers remaining the same, clearly shows that they are really employed with the PE but routed through an agent for the purpose of preventing payment of fair wages and dues.

You need to speak to a good lawyer for the same as it depends on the circumstances of the case as KK pointed out above.

Dear Sir,

If the application applied by the workman to the principal employer, an interview also taken by the principal employer, daily supervision and control by the principal employer, and even the leave is granted by the principal employer in such a situation, can the contract be treated as a sham contract? Please revert.

The same workmen are working with the principal employer even if the consultants (contractors) frequently change, but the roles of the workmen are never changed. In such a situation, can it be considered a sham contract?

Please revert, sir.

In the situation below, it will definitely be considered a sham.

"If the application applied by the workman to the principal employer, interview also taken by the principal employer, daily supervision and control by the principal employer, and even the leave is also being granted by the principal employer in such a situation, can the contract be treated as a sham contract, please revert.

The same workmen are working with the principal employer even if the consultants (contractors) frequently change, but the roles of the workmen never change in such a situation, can it be a sham contract?"