The Karnataka High Court has recently ruled that contract labourers working within factory premises—whether for construction, repairs, or maintenance—are “employees” under Section 2(9) of the ESI Act, thereby making companies liable to pay ESI contributions for them, even if they are hired through contractors. The contract workers were regularly employed.
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In this case, a company had engaged contractors for building sheds, installing units, and renovating structures, but didn’t pay ESI contributions. The ESI Court had reduced the demand from Rs. 13.5 lakh to Rs. 3.5 lakh, saying the workers weren’t under the company’s direct control.
The High Court, overturning the findings of the ESI court, said such work is an integral part of the factory’s operations and cannot be called “non-core.” The law’s definition of “employee” is broad and includes contractor labour if the work is connected to the factory.
Terming the ESI Act a welfare law for workers’ protection, the Court restored the full demand of Rs. 13,52,825/-, reinforcing that principal employers are responsible for ensuring coverage for all such workers.
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