Preferential rights of erstwhile contract labourers upon subsequent regular recruitment

Even where the engagement of contract labour through a licensed contractor is genuine and its termination lawful upon the abolition or cessation of the contract, the principal employer does not possess unbridled discretion to bypass displaced workers when appointing regular staff. If the principal employer subsequently resolves to employ regular, direct workmen to execute the same work or process previously performed by contract labour, an equitable and legal obligation arises to accord preference to the erstwhile contract labourers over candidates from the open market. To ensure that this statutory and equitable preference is tangible rather than illusory, the principal employer is obligated to consider relaxing general entry criteria, including upper age limits and formal academic or non-technical requirements, in appropriate recognition of the past service and operational experience acquired by the displaced contract personnel. (M/S Premium Transmission Private Limited Vs Kishan Subhash Rathod and Others | 2026 INSC 122).