Essential judgments

WHILE almost all employers in Pakistan engage third-party contractors to carry out some or most of their work, many are not aware as to what type of work they can safely contract out and how the job will be managed administratively.
Human resource professionals had believed that core jobs in the office or factory operations should not be assigned to contractors’ employees. Such jobs required constant supervision by the company’s staff, which provided an opportunity for the contractors’ employees to claim the status of the principal employer’s workers. The experts believed that ancillary services, or non-core jobs, such as housekeeping, gardening or canteen operations, could be safely contracted out as supervision by the company personnel was not required.
However, due to a spate of Supreme Court judgments, employers now feel it has become risky to outsource even support services. The provisions of the draft labour codes have triggered caution because they state that permanent jobs cannot be contracted out. Nevertheless, a perusal of three SC judgments, since the 2013 landmark judgment in the Fauji Fertiliser Company (FFC) case, reveals that none of them bars ancillary services’ outsourcing. These judgments establish the principle that employees hired through contractors and working with the company’s own staff under the same supervision are the latter’s employees and not the contractor’s.
In a landmark SC judgment on May 16, 2013, then chief justice Iftikhar Chaudhry confirmed the status of 112 workers of the bagging and loading section as FFC’s employees and not of the contractor. The reasons were valid: 1) The authority to hire and fire, including settlement of wages and benefits of the contractor’s workers rested with the company; 2) their work was supervised, controlled and looked after by the in-charge of the bagging department and his subordinate staff/ supervisors; 3) these workers had been continuously in the employment of the company for a long time; 4) they were also responsible for cleaning the machines and floors.
Prior to the judgment, this case had been pending in the lower courts for over two decades. FFC had purchased a plant at Mirpur Mathelo in Sindh from the Pak-Saudi Fertiliser Company, a state enterprise. The intention was to manage the plant professionally. But erasing irregular practices required time.
The bagging and loading section was considered the most manpower-intensive area in a fertiliser plant. Another fertiliser plant of an American company at Daharki where I worked till 1982 was grappling with a similar situation. It was acquired by the Engro Fertiliser Company. When I visited it more than two decades later, I was amazed to see that the huge bagging and shipping area was now fully automated. Even the loading of urea bags on trucks was mechanised.
In the second SC judgment on Dec 8, 2017, a three-judge bench headed by chief justice Mian Saqib Nisar regularised the services of 210 employees at Pakistan State Oil. During the hearing, the top judge observed that unfortunately, companies, including large enterprises, do not regularise their employees. In fact, the hiring was carried out through the contractor. The court also noted that it was sad that companies do not bother to own their workers. Instead of granting workers their rights, the companies file cases to avoid doing so. Some of the contractors’ employees had been in service since 1984.
In the third SC judgment on April 4, 2024, the services of 20 employees, allegedly employed by contractors, were confirmed at IFFCO Pakistan (Private) Ltd, the user company. The judges stated “there is no bar to contract out the whole job, or in bits and pieces, to the outsource contractor, including human resource, within its own pre­mises or through toll manufacturi­ng agreements, but what is crucial is that the outsourcing should not be used as a weapon of circumvention of labour laws by means of sham agreements”.
There is a common factor in the aforementioned judgments: the supervision and control of the employees hired through the contractors and regularised by the SC rested with user companies. Employers must bear in mind that they need to avoid hiring employees through contractors to save on costs or to retain the right to terminate their employment at will.
The judgment in IFFCO’s case is significant as it clearly spells out the outsourcing of jobs in totality or partly, provided a lawfully executed agreement is complied with in letter and spirit.
The employers should honour such verdicts by ensuring that the contrac-tors abide by the labour laws applicable to the establishment, and secure social security and pension schemes for their employees.
The writer is a consultant in human resources at the Aga Khan University Hospital and Vital Pakistan Trust.
Published in Dawn, October 29th, 2024