In the realm of employment law, the intersection of legislation and evolving work structures often raises intricate questions. One such query pertains to the applicability of the Tamil Nadu Shops and Establishments Act, 1947 (the Act) on retainerships. This article delves into this legal conundrum, specifically exploring whether the Act extends its jurisdiction to retainerships and, if so, how it impacts the entitlements of retainer employees.

Central to this inquiry is the classification of retainer managers and their status under the purview of the Act. By scrutinizing the provisions of the Act and their alignment with the nature of retainer arrangements, this analysis seeks to delineate the boundaries of legal applicability.

Furthermore, the article navigates through the nuances of leave entitlements for retainers within the framework of the Act. Specifically, it examines the rights and obligations concerning casual leave and sick leave, shedding light on the rights of retainers under this legislative ambit.

In elucidating these critical questions, this legal exploration aims to provide clarity and guidance to both employers and retainer employees, navigating the intricate landscape of employment law in Tamil Nadu.

Applicability Of The Act On Retainerships

A retainership is distinct from an employment as it is a 'contract for service' and not 'contract of service'. In Dharangadhara Chemical Works Ltd. v. State of Saurashtra 1957 SCR 152, a four-judge bench of the Supreme Court held that the prima facie test for the determination of the relationship between a master and servant is the existence of the master's right to supervise and control the work not only by directing what work the servant is to do, but also the manner in which the servant shall do his work. However, the nature or extent of control which is requisite to establish the relationship between an employer and his employee must necessarily vary from business to business and is by its very nature incapable of a precise definition.

In the case of Electronics Corporation of India Limited v. Electronics Corporation of India Services Engineers Union (2006) 7 SCC 330, the Apex Court, on facts, upheld the decision of the Industrial Tribunal which stated that no employer employee-relationship existed for the retainers of the company.

Further, in the case of ACIT Circle-37(1), New Delhi v. Dr Rajan Gadiok 2012 SCC OnLine ITAT 16637, the Income Tax Appellate Tribunal (Delhi Bench 'F' New Delhi), held that "We have observed from agreement of retainer ship and nature and extent of duties performed by the assessee that there is a very thin difference between holding assessee as employee or as professional.

All requirements for holding the assessee an employee does not exist as per the agreement for retainership. Generally and practically employments are always for a long period than one year which is not in the present case which is only for one year. Secondly, employment contracts generally carries various other benefits like bonus, gratuity, HRA, Medical allowance etc. whereas in the present case only lump sum payment per month was fixed for the period of retainership."

The term 'retainership' is not defined under the Act. However, Section 2 (12) (i) of the Act defines a 'person employed' and reads as provided hereunder:

2 (12) "person employed" means:

1. in the case of a shop, a person wholly or principally employed therein in connection with the business of the shop;

Therefore, it is important to peruse the manner in which the phrase "wholly or principally employed", has been interpreted in judicial precedents.

In the case of Dr. T.N. Lakshmipathy v. Standard Vacuum Oil Co. Ltd. & Anr. 1961 SCC OnLine Mad 335 the Madras High Court, while interpreting the applicability of Section 2 (12) of the Act to a medical officer on retainership in a commercial establishment observed that "The word "wholly" appears to indicate that the entire scope of the duties of his employment was in connection with the business. The word "principally" would imply that the principal scope of his employment with the concern was in connection with the business of the establishment, even if he has some other less important duties."

Therefore, it held that,:
"…stress should be laid on the very proximate connection while construing such definitions, between the "person concerned" and the "business of the establishment". Since the admitted business of the establishment is the import, storage and distribution of petroleum products, the work of a medical attendant whose duty is to look after the health conditions of the workers cannot be considered as having a proximate connection with the business of the establishment sufficiently close to warrant the application of the definition."

In the case of Messrs. Standard Vacuum Oil Company at Madras represented by K. S. Rangaraj, Manager v. The Additional Commissioner for Workmen's Compensation, Madras and others (1961) 1 MLJ 3 the Madras High Court, while interpreting Section 2 (12) (iii) of the Act, held that:
"According to this definition, the only fact to be ascertained is whether the respondent is a person wholly or principally employed in connection with the business of the establishment. We find it impossible to hold that the respondent is not such a person. He is a person wholly employed in connection with the business of the Company; he is not a casual employee engaged to do any particular piece of work for the establishment under a specific contract."

In light of the legal precedents and the specific provisions of the Tamil Nadu Shops and Establishments Act, 1947, it appears that the mere classification of an arrangement as a 'retainership' does not automatically exempt it from the purview of the Act.

The decisive factor in determining whether the Act applies lies in a thorough evaluation of multiple crucial elements, most notably:

1. Nature of the Work: The fundamental nature of the services provided by the retainer plays a pivotal role. If these duties closely align with or are integral to the core operations of the business, then it may warrant the application of the Act. The nature of services provided by the retainer is critical.
    
2. Connection with the Business: The connection between the work performed by the retainer and the overall business activities of the establishment is a decisive factor. If the services rendered by the retainer directly impact, support, or are intricately tied to the establishment's core functions, it may be construed as an employment in whole or in principle and the Act may be applicable.
    
3. Contractual Agreements: An examination of the specific terms and conditions outlined in the contractual agreement between the retainer and the establishment may reveal insights into the intended relationship. If the agreement reflects a substantial level of control, exclusivity, or permanence, it may indicate an employer-employee relationship, and thus may be subject to the Act's provisions.
    
4. Case-Specific Considerations: In practice, the application of the Act to a retainership arrangement should be evaluated on a case-by-case basis, considering unique circumstances, industry norms, the extent of supervision, and other relevant factors.

Consequently, it becomes evident that a blanket determination based solely on the label of 'retainership' is insufficient. The decision regarding the Act's applicability necessitates a holistic evaluation, taking into consideration the specific work performed, its proximity with the business, the contractual framework, and the factual context of each case.

Applicability Of The Act To People Employed As Managers:

Relying on the abovementioned precedents, a retainership may be said to be in connection with the business of the office and thus under the ambit of the Act. However, it is necessary to peruse Section 4(1) of the Act, which prescribes specific exemptions, is attracted and reads as provided hereunder:

4. Exemptions.:

1. Nothing contained in this Act shall apply to:
   1. persons employed in any establishment in a position of management;

In light of Section 4 a manager will be exempted from the Act and its provisions shall not apply to him.
However, it must be noted that the role of management must be function based, irrespective of the designation of the individual. The principle has been held and reiterated by the Supreme Court in various judgments such as in the case of Ramchandiram Mirchandani v. The India United Mills Ltd., AIR 1962 Bom 92 wherein the apex court held that "the definition of the word 'manager' is very wide, and whatever be the nomenclature employed by the parties, if large powers of management of substantially the whole business of the company are vested in a person then that person becomes the manager".

In the case of Messrs. Standard Vacuum Oil Company at Madras represented by K. S. Rangaraj, Manager v. The Additional Commissioner for Workmen's Compensation, Madras and others (1961) 1 MLJ 3 the Madras High Court, to decide whether a person employed is employed in the position of management within the meaning of section 4 (1) (a) of the Act, observed that "there is an essential difference between "managerial capacity" and "position of management". In this connection, it made a reference to the definition of 'employer' in Section 2 (5) of the Act, which reads as provided hereunder:

2(5) 'employer' means a person owning, or having charge of, the business of an establishment and includes the manager, agent or other person acting in the general management or control of an establishment"

Thus, the Hon'ble Court proceeded to observe that "Obviously, though there may be one person acting in the general management or control of an establishment, there would be, in a large establishment, several others who would be in management or control of particular departments of the establishment, or particular classes of manual or clerical or lower class of employees. Though such employees would not fall within the definition of 'employer', they would certainly fall within section 4(1) (a) of the Act, as being persons employed in position of management. The amount of pay or salary drawn may not be an absolute test." It commented that "no employee would fall within the class specified in section 4 (1) (a) , if such employee was subject to the overall supervision of a superior officer."

The Court exemplified on certain roles and responsibilities of the employee therein enabling him to be construed as a manager including that "He was responsible for all the correspondence work in connection with the construction work, including correspondence with the Government. He was the officer to engage casual labour and he was responsible for taking disciplinary action against all those who were working under him."

Thus, the court noting that despite there being a head manager and under him, several departmental managers, and the employee therein was an assistant to one of the departmental managers, he was still in complete charge in his role and held that:
"We have no hesitation in holding that, on the evidence on record, the respondent would be a 'person employed' in a position of management within the meaning of section 4 (1) (a) of the Act."

Therefore, the scope of the word 'manager' is very wide and as long as the employee is in control and charge of his specific department and duties, the employee would be construed to be employed in a position of management and be exempted from the ambit of the Act.

Casual and Sick Leave Policies under the Act

To determine whether retainers to whom the Act is applicable to would be entitled to casual leaves and sick leaves, Section 25 of the Act needs to be examined, which reads as provided hereunder:

25. Holidays and sick leave:

1. Every person employed in any establishment shall be entitled, after twelve months' continuous service, to holidays with wages for a period of 12 days, in the subsequent period of twelve months, provided that such holidays with wages may be accumulated up to a maximum period of twenty-four days. Explanation: For the purposes of this sub-section any continuous period of service preceding the date on which this Act applies to any establishment shall also count, subject to a maximum period of twelve months.
2. Every person employed in any establishment shall also be entitled during his first twelve months of continuous service after the commencement of this Act, and during every subsequent twelve months of such service,
   1. to leave with wages for a period not exceeding 12 days, on the ground of any sickness incurred or accident sustained by him
   2. to casual leave with wages for a period not exceeding 12 days on any reasonable ground.
3. If a person entitled to any holiday under sub-section (1) is discharged by his employer before he has been allowed the holidays, or if having applied for and been refused the holidays, he quits his employment before he has been allowed the holidays, the employer shall pay him the amount payable under this Act in respect of the holidays.
4. If a person entitled to any leave under sub-section (2) is discharged by his employer when he is sick or suffering from the result of an accident, the employer shall pay him the amount payable under this Act in respect of the period of the leave to which he was entitled at the time of his discharge in addition to the amount, if any, payable to him under sub-section (3).
5. A person employed shall be deemed to have completed a period of twelve months' continuous service within the meaning of this section, notwithstanding any interruption in service during those twelve months brought about:
   1. by sickness, accident, or authorized leave (including authorized holidays), not exceeding ninety days in the aggregate for all three;
   2. by a lock-out;
   3. by a strike which is not an illegal strike;
   4. by intermittent periods of involuntary unemployment not exceeding thirty days in the aggregate;
   Authorized leave shall be deemed not to include any weekly holiday or half holiday allowed under this Act which occurs at the beginning or end of an interruption brought about by the leave.

Therefore, under the Act, during the 1st year and every subsequent year thereto, any person to which it is applicable to shall be entitled to 12 days sick leave and 12 days casual leave each, subject to the terms and conditions above.

Written By:  Trisha Agarwala, Associate, Fox & Mandal
Authors Note: It must be noted that the applicability of other statutes, rules and regulations in place governing the leave policy applicable to retainers has not been examined above. The article is strictly limited to the applicability of the provisions of the Tamil Nadu Shops and Establishments Act, 1947 on leave policies.