A Contract, whose prologue screams an agreement between two principals (a cab-hailing service provider and its drivers), ends up whispering a story of master-servant relationship by its epilogue.
Like the washing-off of the proverbial paint, the true colour of this relationship is revealed with each passing clause. By the agreement’s final word, it becomes clear as day that one principal has ascended to a ‘master’ status through thousand acquisitions (of rights), while another has descended into a ‘servant’ status through allowing thousand concessions (to obligations).
The existence (or lack thereof) of an employer-employee relationship between the cab-aggregator and its drivers, a question simple to ask but difficult to probe, stood as the core issue in front of the Karnataka High Court through a writ petition [MS X v. ICC ANI Technologies & Ors.— decided by the Karnataka High Court on 30 September 2024].
The case of the petitioner was simple, facts undisputed, and the prayer straightforward.
The Petitioner, a victim of sexual harassment by a cab/taxi driver, was aggrieved by the inaction of the Internal Complaints Committee (‘ICC’) of the cab aggregator (‘Respondent’). The said committee, constituted under the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (‘PoSH Act’), rejected her complaint on the grounds that the said driver was an independent contractor and not an employee. The petitioner then approached the High Court through a writ petition.
The ICC responded to the petition by arguing before the Court that it is beyond its statutory jurisdiction to enquire into non-employee complaints. Section 11 of the PoSH Act expressly states that, ‘the Internal Committee…shall, where the respondent is an employee, proceed to make inquiry into the complaint…’.
The Respondent, taking forward the ICC’s contentions, presented before the Court the Subscription Agreement it uses to onboard drivers. This Agreement explicitly recognises the relationship between the respondent and its drivers as that of two principals. Thereby negating any employer-employee relationship between respondent and its driver-partners.
Beyond the contractual arrangement, the cab aggregator argued that the practical aspects of their arrangement with drivers also failed to satisfy the classical factors required to be fulfilled for the purpose of establishing an employer-employee relationship. Mainly, that the respondent does not have an exclusive arrangement with its drivers. This was evident from the fact that most of the taxi drivers in the aggregator economy drive for multiple platform aggregators [arguing that anyone who serves multiple masters, is a servant of none]. Furthermore, the drivers are free to decide their working hours, not mandated to report at any specific place, time, days etc. [arguing that there is no ‘punching the clock’ character of its drivers, as is the case in regular employer-employee relationships].
The respondent further pointed out that it’s the driver-partners who own the vehicle they drive and not the cab aggregator [arguing that in a master-servant relationship, it is the master who provides machinery, and the servant brings the labour. Thus, anyone who owns their own machinery cannot be an employee but merely an independent contractor].
On their narrow and specific role, respondent argued that it merely provides a platform to connect independent drivers with passengers [arguing that it has no control whatsoever on either the independent drivers or the passengers]. To further substantiate, the aggregator drew a parallel with other intermediaries and e-commerce platform providers like Flipkart and Amazon [arguing that it would be absurd to determine the sellers on these e-commerce platforms as employees].
The respondent further argued that not only the commercial understanding between the aggregator and its drivers was sufficient proof for non-existence of an employer-employee relationship, but they also had the statutory backing under the PoSH Act.
Section 2(g) of the PoSH Act defines employee as ‘a person employed at a workplace for any work…and includes…a contract worker…’. And though a contract worker is fairly and squarely covered under definition of employee, it’s the word ‘employed’ that the respondent contested upon.
It was submitted that unless the term ‘employed’ is established in relation to the respondent and its drivers, the remaining part of the definition cannot be thrusted upon them. [Their argument being, all employed workers can be said to be working in or in connection with the business of the employer, but all workers working in or in connection with the business of employer cannot be necessarily said to be employed by the employer.]
Finally, the cab-hailing service provider relied on a precedent from the Delhi High Court (ANI Technologies Private Limited v. Rajdhani Tourist Driver Union and others) which had previously determined that the drivers of the service provider are not employees.
The Court, to determine the employment status of the drivers, flipped the pages of the Subscription Agreement presented before it. On its face, the ingenious drafting appeared to negate any master-servant relationship. It employed specific terminology like ‘driver-partner’, ‘driver-subscriber’, ‘independent contractor’, and ‘principal-to-principal basis’, while describing respondent’s role as an ‘intermediary’ and ‘Online booking platform’.
The Bench left more anxious than satisfied, upon the patent examination of the Subscription Agreement, called in for a closer scrutiny of various terms and conditions in the Agreement in order to find the latent meaning (if any).
The Court looked at the Subscription Agreement through the oldest angle in the book, used for determining employer-employee relationship—control and supervision, and made crucial observations as follows.
First and foremost, the respondent exercises complete control over the technology infrastructure. All drivers are required to install and maintain an ‘OLA device’ under the company’s supervision. Non-compliance leads to immediate termination, and notably, this device is essential to the respondent’s business operations.
Next, drivers have no autonomy in core operational matters like, booking rides, choosing routes, communicating with users, negotiating fares, choosing passengers etc. The driver is required to complete all bookings allotted by the aggregator. They are prohibited from cancelling the booking allotted to them except under limited circumstances and that too with an explanation. Respondent mandates route adherence and vehicle speed limits, requiring notifications for any deviations. Drivers are even restricted from using their personal mobile phones while rendering the services.
And finally, the respondent maintains absolute control over the revenue being generated from the business, including, setting rates, processing payments, determining commission structures, handling tax treatments, and other ancillary matters.
The Court while examining the terms of the Subscription Agreement, held that even though the Agreement pins the driver as an independent contractor, there’s hardly any independence vested in the hands of the drivers.
Drivers do not have any bargaining power in drafting the terms of Agreement. They are put to a take-it-or-leave-it scenario, however fair or unfair may be the terms. Not to mention the obvious, the drivers’ inability to comprehend these complex agreements, that become binding through a mere click of a button.
The contractual clauses designating drivers as independent contractors cannot be read in isolation but must be considered in the light of the control wielded by the cab-aggregator.
A word like ‘employed’ in today’s economy is not a crystal—transparent and unchanged, it is the skin of a living thought and may vary greatly in colour and content according to the circumstances and the context in which it is used. If the context is a gig economy, the term has to be interpreted liberally.
And most importantly when a passenger books a ride using the respondent’s platform, they rely on the company’s goodwill for safe and secure conveyance. The respondent itself has given an impression to all its users that it is safe to use its services. In fact, in the Agreement itself, respondent shouldered the burden of ensuring passenger’s safety and security—for which they evaluate the drivers and train them, pre and post engagement respectively [the Court’s reasoning here being, if it was a principal-to-principal relationship why would the respondent take upon itself the responsibility of driver’s customers and go an extra step to train the drivers].
Considering the commercial terms of the Agreement (which revealed respondent’s extensive involvement in business management, supervision, and control) and the fulfilment of the POSH Act’s objectives, the Court held that driver-subscribers qualify as employees for the Act’s purposes, and the respondent transcends mere intermediary status.
The Court also drew parallels with international precedents: the UK Supreme Court’s decision in UBER B. V. v. Aslam, the California Labor Commissioner’s ruling in Barbara Berwick v. UBER Technologies, and the French Court of Cassation’s judgment in UBER France v. Mr. A. X. These cases similarly found that the control and supervision of the cab-aggregator involved in these cases over its drivers created employment relationships. However, the Court did not comment on the Delhi HC judgment submitted by the respondent that concluded that driver-partners are not it’s (respondent’s) employees.
Consequently, the Court found both the ICC and the respondent guilty of deliberate negligence and inaction, making them liable for compensation to the petitioner and prosecution under the PoSH Act.
Conclusion
While the Court’s inquiry focused on a specific question—whether cab-hailing service provider’s drivers qualify as employees for the purposes of PoSH Act—the analytical framework employed to reach the conclusion i.e., examining the true nature of control and supervision in platform-based business models, can be used to draw similar conclusions for all other labour law statutes. If the driver-partners can be considered employees for the purposes of PoSH Act, basis the level of control and supervision wielded by the cab aggregator, why not for the purposes of employee compensation, state insurance, provident fund, gratuity, leaves, protection as a workman, etc.
No doubt the definition of ‘employee’ in the PoSH Act is a wide one—to the extent, it specifically includes a ‘contract worker’. However, the Court could not draw much mileage from it, and had to rely on the interpretation of the Subscription Agreement to cross the line wherefrom an employer-employee relationship is established. Thus, it can be said that inherently there’s nothing in the PoSH Act itself that was determinative in reaching the conclusion. However, on the other hand the principle of supervision and control remains a necessary and sufficient pre-condition for establishing an employer-employee relationship. And if the Subscription Agreement is sufficient to establish an employer-employee relationship, why cannot the same be used for the purposes of other labour and employment law statutes.
To say this judgment may have far-reaching implications, wouldn’t even come close to explaining the gravity of the situation. This decision potentially opens the door to reconsidering the employment status of gig workers across various legislative domains in India.
The ramifications of this judgment on India’s burgeoning gig economy are unthinkable. This warrants a complete rejigging of business models and operational structures of various platform-based companies (nothing to say about those who would not be able to survive the restructuring) consideration.
It may however be noted that the cab aggregator has a temporary reprieve as the judgment is currently under scrutiny of the Division Bench of the Karnataka High Court. Given the severity of the implication, it has all the potential to reach the Supreme Court as well. Thus, this case is on its way to becoming a pivotal instrument in shaping the future of platform-based employment relationships in India.
[The first two authors are Partners while the third author is a Senior Associate in Corporate and Employment law practice at Lakshmikumaran & Sridharan Attorneys, New Delhi]
