CEYLON MERCANTILE UNION
CEYLON FERTILIZER CORPORATION
SAMARAKOON. C.J., WANASUNDERA. J. AND WIMALARATNE. J.
S C. APPEAL No. 10/83.
S.C SPL. (L/A) No 129/82 – S.C. No. 123/77.
T. No 1/12804 TO 1/13305/75.
JULY 16 AND 17, 1984.
Contract – Contract of employment – Industrial Disputes Act. s. 48 – Definition of'employer' – Factors creating a contract of service.
The Ceylon Mercantile Union (appellant) made an application to the Labour Tribunal onbehalf of 502 of its members alleging that the Ceylon Fertilizer Corporation (1st' respondent) had unjustly terminated’the services of the said 502 workers and asked fortheir reinstatement with back wages or in the alternative compensation and gratuity.The applicant Union named the Hunupitiya Labour Co-operative Society as the 2ndrespondent as it alleged that wages were paid to the workmen by the 1st respondentthrough the 2nd respondent. The crucial question was whether the FertilizerCorporation (the 1st respondent was the employer of these workmen ? The Presidentof the Labour Tribunal held that the 2nd respondent had acted as agent for the supplyof labour and that the workmen were employees of the 1 st respondent corporation and-ordered their reinstatement together with 6 months' wages or in lieu one year's wages.The Court of Appeal, on an appeal being preferred to it, held that the respondent wasnot the employer of the workmen. The applicant Union appealed to the Supreme Court.
Held (Samarakoon, C.J. dissenting).
Although there was a written contract between the 2nd respondent Society and the 1 strespondent Corporation for the supply of labour services in practice the Society actedas a mere conduit for the transmission of the payment of wages to the workmen. Thiswas the only nexus between the Society and the workmen..
Not a single workman was a member of the 2nd respondent Society. The workmen hadmuch greater contact and involvement with the 1 st respondent Corporation than withthe 2nd respondent Society. It is unlikely that any respectable enterprise would havedepended on casual labour for its essential work involving such a large number okemployees without having some permanent arrangement. It was the first respondentwho calculated and determined the wages and advances of the workmen, assigned thework and supervised and controlled its execution. These factors are sufficient to spell acontract of service between the workmen and the 1 st respondent. The test of control'and the test of 'integration' the workmen being intrinsic to the working of theCorporation, support this conclusion.
Cases referred to:
Carson Cumberbatch & Co. Ltd. v. Nandasena (1973) 77 NLR 73.
Shaw Wallace & Hedges Ltd. v. Palmerston Tea Co.. Ltd. 1 Sriskantha's LR 14.
Ready Mixed Concrete (South East) Ltd. v. Minister of Pensions and NationalInsurance (1968} 1 All ER 433, 439.
' Shortv. J. & W. Henderson Ltd. (1945-1946) 62 T.L.R. 427. 429.
(5| Construction Industry Training Board v. Labour Force Ltd. (1970} 3 All ER 220-
APPEAL from judgment of the Court of Appeal.
Faiz Mustapaha with N. M. Saheedior applicant-respondent-appellant.
Mark Fernando for 1st respondent-appellant-respondenl
Cur. adv. vult.
August 6. 1984.
The Ceylon Mercantile Union (hereinafter referred to as appellant)made an application to the Labour Tribunal on behalf of 502 of itsmembers alleging that the Ceylon Fertilizer Corporation (hereinafterreferred to as respondent) had unjustly terminated the services of thesaid 502 workers and asked for their reinstatement with back wagesor in the alternative compensation and gratuity. The respondentdenied that it was the employer of the workmen. The President.Labour Tribunal ordered their reinstatement together with 6 months'wages to each wprkman or inJieu thereof one year's wages to eachworkman. The respondent appealed to the Court of Appeal. That£ourt upheld the contention of the respondent that it was not theemployer of the workmen and therefore allowed the appeal. Theappellant has appealed to this Court on being granted Special Leave toappeal by this Court.
The contention of the respondent is that it is not an “employer'' asdefined by section 48 of the Industrial Disputes Act (Cap. 131) Thatdefinition is as follows :
■ 'employer' means any person who employes or on whose behalfany other person employs any workman and includes a body ofemployers (whether such body is a firm, company, corporation or! trade, union) and any . person who on behalf of any other personemploys any workman."
This deals with three types of persons
any persons who'employs a workman,
any person on whose behalf any other person employs anyworkman, and
(in) any person who on behalf of any other person employs anyworkman
This definition read with the definition of "workman" in the samesection-postulates a contract. It is now settled law that an applicantmust establish a contract of service with the employer. CarsonCumberbatch & Co . •Ltd. v. Nandasena (1},and Shaw Wallace SHedges Ltd., v. Palmerston Tea Co.; Ltd. (2). Counsel for theappellant based his case entirely on the first limb set out above. Whatis a contract of service ? Various tests have been formulated andapplied to discover a contract of service. In Ready Mixed ConcreteISouth East) Ltd. v Minister of Pensions and National Insurance (3)McKenna, J. stated that a contract of service exists if the followingconditions are fulfilled
(i) The servant agrees that in consideration of a wage orother remuneration he will provide his own work and skillin the performance of some service for his master.
(if) he agrees expressly or impliedly that in the performance ofthat service he will be subject to the other's control in asufficient degree to makathe other the master.
(m) The other provisions of the contract are consistent with ;tsbeing a contract of service."
Lord Tankerton who delivered the judgment of the House of Lords inShort v. J. & W Henderson Ltd. (4) recapitulated the four indicia of acontract of service as follows
The master's power of selection of his.servant.
The payment of wages or other remuneration.
The master's right to control the method of doing the work.
The master's right of suspension or dismissal.
Tbese are by no means conclusive. Condition (Hi) set out by McKenna,.J. indicates that they are not even definitive. Other factors not namedcan affect the issue and it is well to keep in mind that in the vast field ofindustrial relations such factors can vary from industry to industry andbe of such diversity that it is not possible to make the list of conditionsexhaustive. In this context Justice Rodrigo's quotation from thejudgment of Fisher, J. (who in turn quoted P. S. Atiyah, VicariousLiability in the Law of Torts 1967, p. 38) bears repitition :
“In my judgment, it is really not possible, in Mr. Atiyah's words tolay down :
'. . . a number of conditions which are both necessary to, and'sufficient for, the existence of… (a contract of service). The mostthat can profitably be done is to examine all the possible factorswhich have been referred to in these cases as bearing on the natureof the relationship between the parties concerned. Clearly not all ofthese factors will be relevant in all cases, or have the same weight inall cases. Equally clearly no magic formula can be propounded fordetermining which factors should, in any given case, be treated asthe determining ones. The plain fact is that in a large number ofcases the court can only perform a balancing operation, weighing upthe fafctors which point in one direction and balancing them againstthose pointing in the opposite direction. In the nature of things it isnot to be expected that this operation can be performed withscientific accuracy.''
I now turn to the facts of this case. The Ceylon Fertilizer Corporation(respondent) came into existence in the year 1964. Its main functionhas been to import raw materials, make the appropriate mixture offertilizer, bag such mixture and sell them to the consumers in various
parts of the island. At the commencement it produced three to four
thousand tons of fertilizer. In the year 1975 its output had reached
fifty thousand tons. It then operated from warehouses at Hunupitiya,•
Meethotamufla and Ja-Eta. Conveyors and heavy machinery had beeninstalled in 1972 for mixing, weighing and bagging. It also possesseda fleet of vehicles for transporting raw materials and distributingfertilizer to consumers throughout the island. It had a permanent staffas well as casual labour. The former consisted of the clerical staff,skilled workers and a few unskilled workers. The latter categoryconsisted of casual labour. They were of two kinds – check roll labourand those paid on a piece rate basis. The 502 persons-on whosebehalf the claims are made comprised casual labour, some on thecheck roll and some paid at the piece rate.
The mode of engaging casual labour was on a contract basis. Theyare commonly known as contract labour. They were workers suppliedby labour contractors. From 1967 to 1969 one Somapala was thelabour contractor and from 1970 to 1972 one Silva was the labourcontractor. In August 1.972 the second respondent, the HunupitiyaLabour Co-operative Society Ltd. (hereinafter called the Society)obtained the contract to supply labour. The Society entered into awritten agreement with the appellant dated 21st August. 1972,(agreement marked R 6) for the supply of labour for 22.8.1972 to31st December 1973. The President. Labour Tribunal has ignored thisdocument in his order perhaps because he was of the view that' thiswas a subterfuge by the appellant who was thereby 'guilty of theexercise of an unfair labour practice of the worst order". Suffice it to•state that this is an unwarranted and unjustified stricture on theappellant and its business methods. Labour contracts have beenknown in the agricultural field for decades. The Kangany of the estatesupplied the labour in return for a payment then known as "pencemoney". This practice has ceased. Labour contracts were well knownin stevedoring in the ports of Sri Lanka. This practice still persists insome of the minor ports. Labour contracts are still prevalent in theIndustrial field and it is that practice tfftt the appellant has adopted. Ipropose to start with an examination of the agreement R 6 as this iSthe genesis of the transaction.
By a notice dated 1 st November, 1971, the appellant called foftenders for the supply of General Labour Services at fertilizer loadingand unloading points at Meetotamulla/Hunupitiya for a period of oneyear commencing 1st January, 1972, to 31st December. 1972. Theprospective tenderer was informed that he must be ready to supplysufficient labour at short notice at all points for a total daily tonnage1000-1500 tons, but during certain days there may be no handling atall. The Society tendered stipulating their rates. The.negotiations seemto have extended beyond 1st January, 1972. By letter dated 15.7.72
(Ft 3) the Society raised its rates by 10 cents. By letter dated 2.8.72
(R 4) the Society accepted the tender and the agreement R 6 was
signed by both parties. It recited that the contractor was an
independent contractor and that the appellant was in no way bound to
provide regular work or any work whatsoever. The contractor
undertook to supply labour at short notice (2 hours' notice) and be
liable in damages if the appellant was compelled on account of the
contractor's failure to supply labour, to engage other labour at higher
rates. The schedule to the agreement sets out the rates of payments
agreed upon payable to the contractor. They were rates for loading
and unloading and piece rates. The rate for a casual labourer was Rs.
6 per eight-hour shift. These were not the rates paid by the contractor
to the labourers. They were different and lower in rate, the difference
being the Society's profit. In terms of the agreement R 6 the
contractor was obliged to supply to the appellant within one week of
the commencement of work a list of the rates paid by him to the
labourers. After the contract period expired the contract was not
renewed in writing but it is accepted that the period was extended by
mutual agreement and these terms and conditions mutatis mutandis
were operative thereafter at the dates relevant to this dispute. On the
22nd April 1975 the appellant stopped the work of one of the
checkroll labourers and these 502 labourers then went on strike. They
chose to report for work again on 4th June, 1975 but the appellant• *
refused to give them work. Tbe Union (respondent) claims that theappellant thereby unjustly terminated-their services.
I will now consider whether the necessary conditions have beensatisfied to establish a contract of service. The first condition is thepayment of a wage agreed to between employer and worker. There isbo such agreement. On the other hand the agreement by the appellantis to pay the Society the scheduled rate. The Society pays the labourera lower rate keeping a rake off for itself. This is in pursuance of anagreement between the Society and the labourer. Furthermore thiscontractor agreed not only to pay a stipulated sum to the welfare fundin respect “of each employee of the contractor' but also to complywith all laws, rules and regulations relating to employment of labourThe first condition has not been satisfied.
Counsel for the appellant made‘much of the element of contfolwhich is the second condition. “Control by itself is not alwaysconclusive" (Atiyah ibid p, 38). There is no doubt that the respondentassigned the work to the labourers and stipulated the proportions formixing and also indicated the mode of distribution. This hadnecessarily to be done if its business was to be properly conducted.Apart from this the respondent could do nothing else. Disciplinaryaction was in the hands of the Society. When a labourer wasinefficient the Society was asked not to send the particular labourer forwork In case of misconduct the Society was asked to take action. Theletter R 16 to the Society is revealing. It state; that some labourershad been detected demanding gratification in respect of loading oflorries It states “several complaints have been received of not onlydemanding of such gratification but threats made to owners of lorriesso (sic) do not agree to make such gratifications. I have brought this toyour notice by my letter of 9.4.1974 and on several other occasions.But I regret to state that this matter has not been rectified by theCorporation (sic). I would therefore request that steps be taken tosafeguard the good name of the Corporation by seeing that the serviceto the clients of the Corporation be carried out without disruption."Clearly disciplinary control was not in the hands of the respondent. Itcould not take action necessary to safeguard its own reputation. It hadto look to the Society for such action. When labourers refused to work"half way and gone back" it was the Society that was surcharged theloss incurred by way of warehouse charges (R 10). Allotment oflabour for various ships was don# by the Society and not therespondent (R 11). The Society appointed its own Supervisors whokept a record of the labour supplied. It was the Society that chose tljelabourers to be sent for work. Overall control especially disciplinarycontrol was in the Society and not the respondent.
There are other factors which militate against a finding that this wasa contract of service with the respondent. A fund for the welfare of thelabourers was maintained by the Society. This was a term of thecontract and money for this purpose was paid by the respondent tothe Society in respect of each labourer. All negotiations on behalf ofthe labour were conducted, and all claims for enhancement of rateswere made, by the Society with the respondent. Two labourers wereput on the check roll by the respondent's Manager but they wereaccounted in the check roll as the Society's labourers. The Society
was so informed and their rates were paid direct to the Society interms of the agreement. Furthermore there is no guarantee ofemployment or continuity of work.
In view of the above I am of the opinion that there was no contractof service with the respondent. Rodrigo. J. has cited the case ofConstruction Industry Training Board v. Labour Force Ltd. (5). Thatcase decided that there was no contract of service between theworker and the.Construction Industry Training Board. Cooke, J.added –
'I think that there is much to be said for*the view that, where Acontracts with B to render services exclusively to C, the contract isnot a contract for services, but a contract sui generis, a differenttype of contract from either of the familiar two.” (p. 225).
We are not considering such a situation in this case. Two othermatters need comment. The President. Labour Tribunal expressed theview that these 502 labourers were 'intrinsic to the working” of theCorporation and therefore an “integral part of the organisation”. I canonly repeat the comment of McKenna, J. in reference to the dictum ofDenning, L. J. who said that the test of being a servant 'depends onwhether the person is part and parcel of the organisation. * Hiscomment was as follows :
"This raises m&re questiong than I know how to answer. What ismeant by being 'part and parcel of an organisation' ? Are all personswho answer this description servants ? If only some are servants,what distinguishes them from the others if it is not their submissionto orders ? Though I cannot answer these questions I can at leastinvoke the dictum to support my opinion that control is noteverything.”
The President, Labour Tribunal also observed that the onlyconclusion he can come to is that the Society ‘acted more as an agentfor the supply of labour and not as an independent contractor'. It isnot a question of more or less. It is a question as to whether it was orwas not. An agent merely brings the two together and leaves all theother terms of the contract tothe two – the labourer and the would beemployer. He collects his agency commission and that is all. His partof the work ends there. The position in this case is just the contrary.The Society far from being passive, actively engaged in working andputting into practice the terms of its contract R 6. I am thereforeunable to agree that the Society was merely an agent.
I dismiss the appeal with costs.
The applicant-union made this application to thp. Labour Tribunal onbehalf of 502 of its members, alleging that the 1 st respondent, theFertilizer Corporation, their employer, had unjustly terminated theservices of these workmen. It asked for their reinstatement with backwages or in the alternative compensation and the payment of agratuity. The applicant had named the Hunupitiya Labour Co-operativeSociety as the 2nd respondent, as it alleged that wages were paid tothe workmen by the 1 st respondent through the 2nd respondent.
The 1 st respondent-corporation in its answer stated that the 2ndrespondent Co-operative Society had entered into a contract with the1st respondent whereby the 2nd respondent became a contractor tosupply labour services to the 1st respondent. The members of theapplicant-union, though they did work for the 1st respondent underthe above mentioned contract were however nevef employees of the1 st respondent. They were employed by the 2nd respondent. The 2n<Jrespondent Co-operative Society neither filled answer nor took part inthe proceedings.
The crucial question in .this case is : Was the Fertilizer Corporation,the 1 st respondent, the employer of these workmen ? The Presidentof the Labour Tribunal, after a full inquiry in a carefully consideredorder, stated that the only conclusion he could come to was that the*2nd respondent had acted as an agent, for the supply of labourApplying the generally accepted criteria, he concluded that theevidence clearly pointed to the existence of an employer-employeerelationship between the workmen and the 1 st respondent-
• In appeal, the Court of Appeal reversed the findings of the LabourTribunal. The Court of Appeal said that the President, when he appliedthe 'generally accepted criteria" for determining the relationshipbetween employer and employee, had not adequately considered theoral and documentary evidence, which indicated a contrary state ofaffairs. The Court of Appeal added that the control or supervision testapplied by the President was not relevant in this case, as none of theworkers had been interviewed nor a lettter of appointment given tothem by the 1st respondent. Their names were also not found in thebooks relating to the permanent staff of the. 1 st respondent. Mr.Mustapha for the appellant has canvassed these views before us.
The Judgment of the Court of Appeal had discussed at length boththe oral and documentary evidence relating to the contract R6between the 1 st respondent and the 2nd respondent "for the supplyof labour services'. Undoubtedly this contract embodies featuresconsistent with a. contract to.supply labour services. But evidence hadbeen adduced before the President, without objection, showing that inactual practice the 1 st respondent had dealt with these workmen in away inconsistent with and at variance with the tenor of thisagreement. The complaint against the 1 st respondent is that it hadtried, as far as it was possible, to distance itself from its employees byformulating a contract in this form to evade its due responsibilities andliabilities under the labour laws of the country.
While due regard should be given to R 6. its terms and conditionscannot be conclusive of this matter. For, in the case before us, the factin issue is not so much the interpretation of R6 or the relationshipbetween the Fertilizer Corporation and the Labour Co-operativeSociety, which no doubt are relevant to our inquiry, but primarily therelationship of the members of the applicant Union to the Corporation..We are here called upon to examine not a bilateral agreement but atripartite situation.
Now these workmen-using the word in a neutral sense-were not.signatories to R6, nor was any of them a member of the LabourCo-operative Society. They are therefore entitled to claim that they beconsidered as an independent third party in this matter. The evidenceshows that their only nexus with the Labour Co-operative Society wasthat the payments due to the them from the Fertilizer Corporationwere paid to them through the Labour Co-operative Society. Apartfrom that, they do not appear to have any other connection with theLabour Co-operative Society. The evidence also shows that theLabour Co-operative Society has not claimed them as its workers buthad sought to disown them at every stage. Two of the workmen havestated that, when they had approached the Labour Co-operativeSociety for advances and increase in salary, the Co-operative Societyhad denied responsibility for them and directed them to the FertilizerCorporation for relief. The 2nd respondent oh the other hand, whileexercising a real control and supervision over these workmen, hadtaken pains to see that its acts in. relation on them were given theappearance of being in conformity to R 6. The Labour Co-operativeSociety, the 2nd respondent, has also declined to participate in theseproceedings and has chosen not to have its position clarified orexplained either in relation to the workers or the Fertilizer Corporation.
Let us now turn to the relationship of the workers with the FertilizerCorporation. The President, Labour Tribunal, found as a fact thatnotwithstanding the contract (R6), most of the workers had been-working for the 1 st respondent prior to the formation of the LabourCo-operative Society, the 2nd Respondent, and since then there havebeen even some instances of direct recruitment of some workmen bythe 1 st respondent. Such recruits have not even been members of the2nd respondent at that time, but after recruitment the 1 st respondentwould inform the 2nd respondent of such recruitment. The Presidentalso found that the 1st respondent had exercised the right ofdetermination of wages, the assignment of work, the exercise ofsupervision and control in the. execitfion of work, disciplinary cdntrol,and the payment of advances anc^ compensation. Even the finaltermination of their services, it is alleged, was by the 1st respondsand the 2nd respondent had no hand in the matter.
Clearly the manner in which the 1 st respondent has dealt with theworkmen is more in line, as the President says, with the LabourCo-operative Society being in the nature of a mere agent to supplylabour, while the 1 st respondent itself became the employer of suchlabour. Two other factors reinforce this view, namely, that not a singte 'workman concerned in this case is a member of this LabourCo-operative Society and the only nexus between these workmen andthe Labour Co-operative Society was the making of payments by the1st respondent to the workmen through the Labour Co-operative
Society. It would appear that these workmen had much greatercontact and involvement with the 1 st respondent than with the 2ndrespondent.
The other factor is that these workmen were intrinsic to thefunctioning of the Corporation and would have normally constituted itswork force. When this Corporation began work in 1964 its turn overhad been about 3-4 tons of fertilizer. From about the beginning of1970 its work expanded rapidly and in 1975 it was handling about
tons of fertilizer. Its main work involved loading, unloading,mixing, bagging, and*the distribution of the fertilizer. This was hardphysical work involving unskilled labour. The permanent staff consistedof only 161 employees, of whom about 100 consisted of the drivers,welders, turners, motor-mechanics, electricians etc., and thereremained only a handful of permanent employees to do the largeamount of unskilled physical labour. More than 300 labourers arerequired daily for such work. It is therefore unlikely that anyrespectable industrial enterprise would normally have depended oncasual labour for any appreciable period of time for this type ofessential work involving such a large number of employees withouthaving some permanent arrangement.
Mr. Mark Fernando's main submission was that the President hadwrongly applied the 'control' test, because such a test should not beapplied unless there is a contract in existence between the parties. Herelied on the judgment of Tennakoon, J , in Carson Cumberbatch &Co.. Ltd. v. Nandasena (supra). If Mr. Fernando means that thecontrol test should only be applied where a prior contractualrelationship of employer and employee between the parties is alreadyin existence, then this would be to beg the question. Such anargument, apart from being tautologous, also ignores the implicationscontained in the definition of the word 'workman', which refers to acontract 'in any capacity expressed or implied, oral or in
writing", leaving it open to imply a contract from the
circumstances of a case. The need for an antecedent agreementtherefore would have the effect of nullifying this definition.
The case of Carson Cumberbatch & Co., Ltd. v. Nandasena (suprp),relied on by counsel, dealt with an entirely different situation. In thatcase, the applicant who was the Manager of a Farm had beenappointed to that post by a letter signed jointly by a principal and itsagent. The applicant, while admitting that the principal was hisemployer, sought to make the agent also liable as employer. Hesought to give an artificial and extended meaning to the word'employer’ so as to include the agent. It is in this context that -Tennakoon, J. said :
“Having regard to the factual contexfin which the question
of who is or are the employers of the 2nd respondent arises in thiscase, it must be noted that the definition of the word employercontains no reference to control or supervision or managementexercised by one person over another, so that it certainly does nothave the effect of including cases in which a person not thecontractual employer; may by reason of the control, supervision ormanagement exercised over a workman give only the appearance ofbeing the employer.'
Even if we were to assume that Mr. Fernando's argument is correcton this point, namely the need for a prior contractual relationshipbetween the parties, his submission is not supported by the findings ofboth the Labour Tribunal and the Court of Appeal which have admittedthe existence of a contractual relationship between the workmen andthe 2nd respondent. On this matter the Court of Appeal said :
'…. the facts in the present case do not point to a contract ofservice between the appellant and the workmen. The kind qfarrangement referred to under which these workmen had workedfor the Corporation appears to me to be a contract sui generis vis avis the Corporation. As for the arrangement under which theworkmen worked for the Society, the Society apart from paying theworkmen when sent for work appears to have had no control overthe work done by them in the Corporation warehouses. Theevidence is not satisfactory as to the terms of any contract thdy had
^vith the Society. Though in the Agreement there is a reference tothe workmen as servants of the Society, the Agreement is onebetween the Society and the Corporation and the workmen werenot parties to the Agreement. They were not even members of theSociety. All that is clear is that the workmen had some kind ofarrangement with the Society to do work for a third party, theCorporation. It is not a question of the Society lending the servicesof its employees to the Corporation, because the workmen,according to the evidence, had not rendered their services to theSociety. Since the sole issue for determination is whether theappellant is the employer of these workmen.vye need not pronounceon the character of the relationship of the workmen involved withthe Society in all the circumstances of the case."
This passage is in line with Cooke, J's analysis of the facts in theConstruction Industry Training Board v. Labour Force Ltd. (supra)referred to in the judgment. That case also dealt with a tripartitesituation. In that case the respondents were engaged in supplyinglabour to the construction industry. When building contractors requirelabour, the respondents agreed with the contractors to supplyworkmen at certain rates payable by the contractors to therespondents. The workmen were paid by the respondents on thebasis of information relating to the times worked provided by thecontractors, but th§ respondents had no control over the work carriedout by the workmen for the contractors and the contractors had theri§ht to terminate any workmen's engagement. On being allotted toparticular contractors, the workmen received from the respondents an'Information Card', containing terms and conditions of employment,on the back of which was a declaration made by the workmen, whichirfeach case contained the following terms :
. "I hereby certify that I am engaged by (the respondents) on aSub-Contract basis. I further declare that I shall be responsible formy own and any of my employees' P.A.Y.E.. Income Tax Returns,National Insurance Contributions and Holiday with Pay payments orstamps.”
SCC M. U. V. Ceylon Fetilizer Corporation IWanasundara, J.)415
The court held that the respondents did not act as an employment
agency because the worker had a written agreement with the
respondents to work for them and to be paid for it. The Court said :
. . it is plain that when the workman agreed to work on aparticular site at a particular rate, of pay, he was agreeing so to dowith the respondents as principals. That in my judgment is sufficientto dispose of the view that the respondents were merely acting forthe workman as an employment agency. They were contracting
with the workmen as principals. ’
The court also held that the workman .was paid by the respondents atthe rate agreed between him and them, and the profits of therespondents were derived from the difference between the sums theypaid to the workman and the sums which they received from thecontractor.
In the case before us the position is materially different. The
workman had the most tenuous contact with the 2nd respondent and
in truth and in fact it was the 1st respondent who calculated and
determined the wages and advances to the workmen and not the 2nd
respondent which acted as a mere conduit for the transmission of the
payment. The 2nd respondent, as the President says, had merely
undertaken to supply labour and not jo perform aijy specific services.
It is in this context that the President compared the work of the Labour
Co-operative Society to the old Kangany system and held that the 2rib
respondent functioned only as an agent for the supply of laboifr.
Further, in the Labour Force CaseM was specifically agreed between
the parties that the workman was engaged by the Labour Force. TherS
was a certificate signed by the workman to the effect that he was
engaged by the Labour Force on a Sub-Contract Basis. That was a
most significant item of evidence and we have nothing like that in thS
present case. In the light of these facts, the limited supervision that
was enjoyed by the contractor in that case was found insufficient to
spell a contract of service between the workmen and the contractor.
But in the case before us the governing factors are'quite different.
416Sri Lanka Law Reports 1 SriL.R.
In that case the Court faced the situation of being confronted with
the express .terms of contract. That did not preclude the Court from
inquiring into the true nature of the contract. This is how the Court
approached the matter:
'The tribunal was asked to consider the nature of the contractsentered into by a large and indeterminate group of workmen in theindustry. It was entitled, as it seems to me. to use its ownknowledge of the undoubted fact that many of the workmen in theindustry are self-employed. The tribunal referred to the declarationsigned by the workman in which he purports to certify that he isemployed on a sub-contract basis. Quite rightly, in my judgment,the tribunal held that this did not preclude it from enquiring into thetrue nature of the contractual relationship."
Later the Court said :
"In my view, the fact that the parties have in express terms soughtto make a contract of a particular kind, while it does not_ bind thecourts to hold that they have succeeded, is a factor which can beconsidered in determining the true nature of the contract."
Both for the above reasons and in view of the existence ofcontractual relations of the workmen with both the 1st respondentand the 2nd respondent. I think the President was right in examining allpossible factors, including ttie control test as bearing on therelationship between the parti^
The Court of Appeal has examined the material and has sought tocome to its own independent conclusion which is at variance with thefindings of the President. The Court of Appeal give the followingjustification for this exercise :
'The generally accepted criteria for determining the relationship ofemployer and workman as mentioned in the passage referred toearlier in the order of the President has not been balanced againstoral evidence indicating the contrary or against the documentaryevidence referred to or considered in their totality notwithstanding abare statement in the order that the totality of evidence was beingconsidered."
■The balancing operation contemplated by the Court of Appeal is thebalancing of all the possible factors that may have a bearing inresolving the issue of employment. The Court of Appeal in the abovepassage was no doubt having in mind the following excerpt fromFisher, J's judgment in the Labour Force Case which it quoted withapproval:
“In my judgment, it is really not possible, in Mr. Atiyah's words tolay down :
'a.number of conditions which are both necessary to,
and sufficient for the existence of(a contract of
service). The most th*at can profitably be done is to examine all thepossible factors which have been referred to in these cases asbearing on the nature of the relationship between the partiesconcerned. Clearly not all of these factors will be relevant in allcases, or have the same weight in all cases. Equally clearly no magicformula can be propounded for determining which factors should, inany given case, be treated as the determining ones. The plain fact isthat in a large number of cases the Court can only perform abalancing operation, weighing up the factors which point in onedirection and balancing them against those pointing in the oppositedirection. In the nature of things it is not to-be expected that thisoperation can be performed with scientific accuracy'.'
There is nothing in the order of the President to show that he hasnot considered all the relevant factors pro and c<3n. nor in any wayfailed to evaluate the documentary evidence. On the other hand, wh^rthe Court of Appeal has done is to give undue stress to the provisionof the bilateral agreement R6 to which these workmen were notparties while ignoring the actual conduct of the 1 st respondent in itsrelations with the workmen.
I am unable to say that the President has been unreasonable eitherin the approach he had adopted or in regard to his findings on what ar£essentially questions of fact. The two other matters – the question oftermination and the computation of compensation – mentioned byMr. Fernando had not been in issue between the parties at any stageuntil it was mentioned before us. We do not think that they couW beraised at this stage.
In. the. result, I would allow this appeal with costs both here and inthe Court of Appeal and restore the order of the President, LabourTribunal. The workmen could be entitled to back wages until the dateof reinstatement or in the alternative until the date of payment ofcompensation..
WIMALARATNE, J. –
I have had the benefit of reading the judgments prepared by the ChiefJustice and by Wanasundera, J., where the facts are set out.
Wanasundera, J. after discussing the manner in which the workmenhave been dealt with by the Fertilizer Corporation concludes that thefunction of the Hunupitiya Labour Society was to act as mere agentsto supply labour to.the Corporation, whilst the Corporation becamethe employer of the labour so supplied.
The Chief Justice is unable to agree that the.Society was merely an• agent, for the reason that the Society was actively enagaged inworking and'putting into practice the terms of its contract R6 with theCorporation. Implicit in the judgment of the Chief Justice is theconclusion that the Society and not the Corporation is the employer ofthese workmen.
The instant case is similar to a situation where a contractor regularlybrings labour to the employer's workplace to perform work in theregular course of the business of the employer, and the employerqjrects how the work is to be performed, and even calls upon thecontractor not to employ particular persons from among theworkforce. In that situation, my view is that there is no contract of-employment between the contractor and the workmen. This situationis different to one where a person enters into a contract with anotherto construct a building, and that other (the contractor) employs -labour.for the purpose. In that case it may not be difficult to establishthe employer-employee relationship between the contractor and theworkmen, since the employment of the workmen is on behalf of thecontractor, and not on behalf of the person with whom the contractorhas contracted to build.
On the question as to whether a contract of service exists betweenthe Corporation and the workmen, the Chief Justice takes the viewthat the evidence shows that there is no such contract, mainlybecause (a) of the absence of any agreement regarding the paymentof wages between the Corporation and the workmen, whilst there ison the other hand, an agreement between the Corporation and theSociety as embodied in document R6 ; and (t>) the overall control,especially disciplinary control, was not in the hands of the Corporation,but in the hands of the Society.
Wanasundera, J. takes the view that on the facts of this case therelationship of employer Snd employee between Vie Corporation andthe workmen has been established not only by an application of thetest of 'control', but also by the test of "integration’, that is that theworkmen were intrinsic to the working of the Corporation.
I am in agreement with the views of Wanasundera, J. The paymentof wages by the Society was only a physical act of handing over thewages in the capacity of agent of the Corporation. One has toremember that it was the Corporation, and not the Society thatdetermined the wages of each category of workers – check roll aswell as piece-rate workers. As regards control of work, even the ChiefJustice has no doubt that it was the Corporation that assigned thework, stipulated the proportions of mixing and indicated the rnode ofdistribution. What appears to have influenced the Chief Justice is thatdisciplinary control was in the hands of the Society. There is, howevera strong finding of fact by the President that 'it is absolutely clear thatthe supervision and control of the workmen were exercised not by the2nd respondent (the Society) but the 1 st respondent (theCorporation).' J cannot see sufficient reason to disturb that finding offact.
The Court of Appeal has erred, in my view, on two other matters.They are
(a) that too much reliance has been placed on the agreement R6,which was an agreement between the Corporation and theSociety, to which the workmen were hot parties. It is doubtfulwhether they were even aware of the existence of R6. Theexistence of such an agreement cannot act to their detriment ifthe facts establish a relationship of employer and employeebetween the Corporation and themselves.
b) the fact that "none of the workmen had been interviewed priorto appointment, nor was a letter of appointment given to themor the name of any person ehtered in the Corporation booksmaintained for the permanent staff'. A common law contract ofservice can yet be implied even without any or all of thesecircumstances.
For these reasons l agree to the order proposed by Wanasundera. J.Appeal allowed.