Karnataka: SC verdict will now pave way for contractors to run factory canteens

In a significant ruling, the Supreme Court on Thursday (August 10) dismissed special leave petitions challenging the Division Bench of Karnataka High Court’s judgment that allows contract labour engagement in factory canteens.

Previously, Section 46 of the Factories Act required factories with a workforce of 250 or more to operate an on-site canteen. Many of these employers traditionally outsourced canteen services to contractors or other external providers. However, a 1997 notification from the Karnataka government prohibited hiring contract labour in industrial canteens.

This change, backed by the Contract Labour (Regulation and Abolition) Act 1970 and the State Contract Labour Advisory Board recommendation, forced over 700 factories in Karnataka to change their operational strategy. The move would have made canteen contract labour permanent employees.

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Around 40 affected managements sought legal recourse, filing petitions against the notification with the Karnataka High Court. Though their pleas were initially dismissed in 1998, many approached the Supreme Court. Despite their efforts, the Supreme Court upheld the State government’s decision. Following the judicial decisions, trade unions pressed the Karnataka government for strict adherence to the prohibition and called for punitive measures against non-compliant management.

In response, on March 24, 2011, the Karnataka Employers Association (KEA) approached the Commissioner of Labour, advocating for the revocation of the April 11, 1997 notification.

A delegation spearheaded by BC Prabhakar, Advocate and President of the KEA and representatives from organisations such as CII, BCIC, and FKCCI met the then Chief Minister, SM Krishna. They highlighted the concerns presented in the KEA’s representation and urged the CM to reconsider the 1997 notification.

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They emphasised the adverse effects on Karnataka’s investments, noting that neighbouring states did not restrict outsourcing of factory canteens. They argued that eliminating such a backwards-looking directive would boost investments, allowing factories to focus more on their primary operations. Following the appeal from the KEA and various industry bodies, the State government rescinded the 1997 notification in 2001.

However, the reprieve was short-lived. Trade unions successfully challenged the 2001 decision, leading to its quashing in 2005.

Not to be outdone, the KEA and its allies appealed again, and in 2011, the Division Bench of the Karnataka High Court reaffirmed the permission for contract labour in factory canteens. In the final leg of this legal tug-of-war, trade unions appealed to the Supreme Court. But Thursday’s judgment has ended the dispute.

Factories with a workforce exceeding 250 can now officially and without contention outsource their canteen operations to contractors or service providers.

This ruling is expected to impact the operational dynamics of large factories across Karnataka significantly.