In the ever-evolving landscape of workforce management, many organizations today are exploring flexible engagement models—especially in sales and retail environments. A common trend is the appointment of individuals as “retainers” or “consultants” to drive sales from company-owned stores, third-party counters, or partner retail formats. While such nomenclature may appear to provide operational flexibility and cost efficiency, it often masks what the law interprets as a classic employer–employee relationship.
This article explores the legal validity of retainership models in retail formats and the significant risks they carry under Indian labour laws.
The Central Legal Question: Retainer or Employee?
Under Indian law, merely labelling a worker as a “consultant” or “retainer” does not determine their legal status. Courts and enforcement authorities rely on substance over form, applying specific tests to determine whether an individual is, in effect, an employee.
The Supreme Court in Balwant Rai Saluja & Anr. v. Air India Ltd. & Ors. [(2014) 9 SCC 407] laid down key indicators to determine an employer–employee relationship:
Who recruits or appoints the worker?
Who pays their remuneration?
Who exercises control and supervision over the work?
Who holds the power to discipline or terminate?
Is there continuity of service?
What is the nature of the duties and reporting structure?
These tests have been reaffirmed in other judgments including Hussainbhai v. Alath Factory Thezhilali Union and Steel Authority of India v. National Union Waterfront Workers, where the courts emphasized that the presence of economic control and functional supervision is sufficient to establish a de facto employment relationship.
When Retainership Becomes a Sham
A growing number of companies engage sales staff under fixed-term “retainer” contracts, especially in formats like:
Company-owned stores (Exclusive Brand Outlets or EBOs),
Partner-led Modern Trade (MT) counters,
General Trade (GT) counters in local retail outlets.
Even when individuals are labelled as retainers and raise invoices (in some formats), the engaging entity often retains control over recruitment, transfers, attendance, leave approvals, day-to-day supervision, and termination.
Such arrangements may be construed by courts and enforcement authorities as sham contracts, designed to avoid compliance with employee welfare statutes. In such cases, the law will pierce the contractual veil and hold the organization liable for all statutory obligations applicable to regular employees.
Does the Contract Labour (Regulation and Abolition) Act, 1970 Apply?
Interestingly, the Contract Labour (R&A) Act, 1970 is not applicable in such direct retainership models, because there is no third-party contractor involved. The Act regulates relationships where workers are deployed through licensed contractors. If the organization engages individuals directly—even under consultancy contracts—it assumes the role of the principal employer and bears all corresponding responsibilities.
Statutory Compliance Exposure
If the nature of the engagement is construed as employment, the organization becomes liable for a range of obligations under the following laws:
The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
The Employees’ State Insurance Act, 1948
The Payment of Gratuity Act, 1972
The Maternity Benefit Act, 1961
The Payment of Wages Act, 1936
The Minimum Wages Act, 1948
State-specific Shops and Establishments Acts
Non-compliance can result in:
Prosecution of directors and officers,
Retrospective claims for benefits (PF, ESI, gratuity),
Penalties, interest, and damages,
Labour inspections, audits, and civil litigation.
Who is Liable?
Wherever an employer–employee relationship is deemed to exist, the engaging entity—and in certain cases, its directors, HR managers, or other responsible officers—may be held personally liable for violations. In shared retail premises (such as MT/GT counters), while retail partners may bear responsibility for local premises-related compliance, the employment-related obligations rest squarely with the entity that hired and controls the individual.
Key Takeaways for Businesses
Nomenclature is not protection: Merely calling someone a “consultant” or “retainer” does not protect the company from labour law obligations.
Control equals employment: If the company controls hiring, supervision, transfers, and payments, it is likely to be considered the employer in law.
Retainership ≠ immunity: Even without written employment contracts, statutory benefits must be provided if the engagement meets the employment test.
Compliance is non-negotiable: From PF and ESI to maternity benefits and gratuity, companies must ensure full compliance for all personnel engaged under such models.
What Should Businesses Do?
To mitigate risk, organizations should:
Conduct a legal audit of all current retainer arrangements.
Convert de facto employees to formal employment, where appropriate.
Regularize payments and records under labour law frameworks.
Provide social security benefits proactively rather than reactively.
Define roles and responsibilities with retail partners through formal MOUs.
Ensure compliance with state-specific Shops and Establishments Acts.
In Conclusion:
The Indian labour law regime is geared toward protecting workers from exploitation under the guise of contractual or consultative relationships. Businesses seeking long-term sustainability and legal security must align their engagement models with the realities of control and supervision, rather than the convenience of contractual labels.
In the eyes of the law, substance trumps form—and when it comes to human capital, clarity, compliance, and caution should always come first.