Contract For Service and Contract Of Service

Contract for Service and Contract of Service-

There is a really thin line difference between contract for service and contract of service. The contract of service creates an employer- employee relationship. For example- a contract executed between a corporation and its employees or between owner and his driver. Whereas, contract for service is contract between two independent parties for rendering service, they’re often called independent contractors. For example- a contract between A Ltd. and B Ltd. for supply of labor or workers or the connection between a rider in cab and cab driver.

Also, in contract of service, the employer controls all aspects of the work at hand just like the nature or execution of the services by its employee. On another hand, in contract for services, A Ltd. Only controls the main objective i.e. supply of labor by B Ltd. but doesn’t bother about it control the way during which B Ltd. proceeds to fulfil and implements its obligations.

In Bharat Heavy Electricals Limited vs. Mahendra Prasad Jakhmola & Ors, [1] the Supreme Court of India reiterated the essential tests to be applied in determining whether contract laborer are often classified as direct employees.

Bharat Heavy Electronics Limited (“BHEL”) had entered into an agreement with a contractor to attract contract laborer in its factory at Haridwar in North India. the utilization of certain contract laborer was terminated by BHEL.

The Court held,

  • There is no employer- employee relationship of the workers with BHEL and BHEL was also not paying salary to the workers. As, they were within the service of the contractor.
  • The workers were issued with gate passes at the request of the contractor, because it was specifically bearing the mention that they’re the workers of the contractors. Any worker cannot enter within the workplace if such gate passes aren’t issued. CISF takes care of the security in our organization.
  • Workmen were only hired by the contractor and weren’t their employees. Workmen admitted that payments of their wages were made by four contractors including Shri Madan Lal. Also, the actual fact that Madan Lal was paid under the agreement with BHEL was never disputed.


In the above case a case was referred,  General Manager, (Osd), Bengal Nagpur Cotton Mills, Rajnandgaon V. Bharat Lala And Another.[2] in the case two tests to seek out out whether the contract laborer are the direct employees of the principal employer are:

  • Whether the principal employer pays the salary rather than the contractor; and
  • Whether the principal employer controls and supervises the work of the worker . In the case, the commercial Court answered both questions within the affirmative and as a consequence held that the primary respondent may be a direct employee of the appellant”.

The contract should explicitly lay down the rights and obligations of the principal employer and therefore the contractor, as an example who shall pay the employed contract laborer. All steps should be taken to form sure that the last word supervision and control over the contract laborer rests with the contractor.


[1] 20 February 2019.

[2] 2011 (1) SCC 635.

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