Global Capability Centres (GCCs) have radically changed the face of business operations to the point where India now seems to be the very heart and soul of multinational corporations. Initially, these GCCs were seen only as low-cost back offices, where companies wanted to outsource support functions. Over time, the GCCs began to take on many more core roles for companies. Today, they develop software, perform financial analysis, provide legal services, offer cyber and IT security, conduct independent research, and also do some AI (Artificial Intelligence)/ML (Machine Learning) related work, apart from the usual stuff, like legal stuff, IT, etc., to name a few. These GCCs are such an important part of MNE (Multinational Enterprise) operations that they can be considered the "arms" of the company's global business. The idea that an Indian GCC is an "independent subsidiary" has become a fantasy.
Truth is, MNEs operate their work at such a highly synchronized level has brought along the biggest headache ever faced by lawyers handling Indian labor issues, namely, who, in a situation like when the employee is under the control and management (functionally reporting) of the foreign parent company but is formally employed by the Indian subsidiary, is the employer? The question is not really that big or tough until a conflict situation or disagreement shows up between the employer and the employee. For example, an employee's letter has been signed by the Indian Company, but the payment is made from abroad, and the statutory contributions deposited by the Indian entity have also been made. At the contractual level, the employer's name mentioned is that of the subsidiary.
All these facts suggest that from a legal point, the Indian subsidiary is the employer. This, though, is only when you do a quick legalistic check of contractual details. But in practice, the employee receives orders from a supervisor or manager of the U.S. headquarters, the U.K. subsidiary, or the German or Singapore unit. They make work assignments, conduct performance reviews, decide promotions, grant leave, etc. When an employee is denied a right, or when an adverse or employer-initiated action is taken to the employee's detriment or against her rights, the ambiguity is even more serious. For instance, let us imagine a situation where a software engineer, whose only employer is an Indian GCC, is informed that he is to be made redundant because the global tech manager in California has decided to reorganize the software development team globally. Indian HR only relays the information, stating that there is no point in discussion on their part, since they were only executing the company's instructions from the parent company.
It might be difficult to decide, if an Indian court of law or any industrial tribunal hears or decides the matter, whether the Indian subsidiary was genuinely the employer that made the manager's own decisions, or just a mouthpiece of a company that had practically been making and managing employee relations. While different legal jurisdictions have adopted various legislation on "joint employer" liability or have created codified rules governing labour hiring, Indian labour law lacks a comprehensive legislative framework for addressing employment issues arising from multinational employment structures.
The degree of control and supervision is usually the focal point in determining whether a person is the employer or the contractor (as the term is used in a legal sense) in disputes arising under labour statutes and employment law in the Indian context. In legal parlance, it is termed "the control test." The test aims at revealing, in essence, the identity of the person who has the actual power to make managerial decisions that will affect the employee. It does not simply focus on identifying the contracting party in a work contract, which, in most cases, is a legal arrangement.
It seeks answers, from a pragmatic angle to questions like: Who gives the orders? Who checks how well an employee works? Who can impose penalties on or discipline an employee? Who authorizes the transfer of jobs, promotions, or firing? Who oversees how a job is done?
These kinds of questions yield clear results in traditional workplaces. But when the issue at hand is a GCC one, these answers very often take divergent paths. One company undertakes statutory worker roles while the foreign head does the actual work direction. Consequently, we get a split-up employee relationship in which legal obligations and managerial responsibilities belong to different corporations. This disagreement between the legal and real situations is an indicator of a very important, unsettled problem for employment law in the Indian context, faced by corporations with operations throughout the globe.
Understanding Dual Employment, Secondment and the "Control Test"
This matter is very serious, as the GCC business model shifts towards a single global business entity, and the legal recognition of who the employer is no longer merely an academic subject. It becomes a practical legal risk that can influence, among other things, cases of job termination, compliance with human resource regulations, employment equity matters, workplace inquiries, and the liability aspects of the corporate body itself. To get a good grasp of why Global Capability Centres (GCCs) are facing this problem to such an extent, one needs first to figure out the differences between these three legal and business concepts, which are often used interchangeably in daily life, but which carry totally different legal meanings and consequences: dual employment, secondment, and the control test.
Dual Employment
A Commercial Real-Life Scenario with No Statutory Coverage. The Indian labour laws, as currently existing, offer no express recognition of or definition for the term "dual employment" for corporate multinational business arrangements. Although there may be a few statutory provisions prohibiting simultaneously working with more than one employer under certain conditions like, for instance, restrictions by the Factories Act, 1948 (incorporated Later into the Occupational Safety, Health and Working Conditions Code, though not fully operationalized by all States as yet), and standing orders of industrial establishments - these are designed rather to prevent conflicting employment ties than to oversee the legal and practical issues surrounding multinational integrated corporate entities themselves.
In the business world of GCCs, the term "dual employment" very often refers to an employee who works for two employers in a legal sense. It is a rare case, though, in which the employee has signed up for an official employment agreement with both employers. Most commonly, it refers to a situation in which one entity is legally the employer and another exercises managerial functions. GCC employees usually receive employment offers from the company's Indian entity. Then their salary is issued in Indian rupees by the payroll department. They contribute to the Employees' Provident Fund and State Insurance, if required, and are subject to Indian tax withholding at source. So, the Indian company appears, on paper, to be the only employer.
Still, in practice, that employee works within the structure of the foreign parent company. That employee is being directed in day-to-day activities from overseas managers; that employee's work plan and project priorities are to be decided overseas; that employee's performance standards are to be set across borders. Managers decide promotions in a foreign office, and even if there may be situations where employees are going to be discussed from a disciplinary point of view, the managers who take over those discussions are in contractual relationships only with the foreign head office and have no contractual relationship with the employee under Indian law.
This disconnect creates uncertainty because contractual documentation reflects one employment relationship while operational reality reflects another.
Secondment
Secondment is an entirely separate situation, although it tends to raise many of the same legal issues.
In most cases, a secondment agreement will involve an employee who is temporarily seconded from their employer to work at another company owned or operated by the former employer.
These may involve work within the company where the original employer is also the host employer under a commercial agreement, or at another company within the same corporate group.
Secondment arrangements are often written agreements that outline the period of the secondment, work costs, who the employee will report to, confidentiality restrictions, intellectual property, and who receives employment benefits. Dual reporting arrangements differ in that they generally occur between an employee and two employers, with the employee simultaneously responsible to both. But with secondment arrangements, employees are working in a very different, more limited role than their primary work roles and responsibilities at their original employer. The host employer will generally provide the employee with a brief daily or weekly report outlining the tasks, and the employee may receive a monthly or quarterly assessment.
Such arrangements between international companies are very common. For example, the parent company's engineer in Germany may work at a GCC in Bengaluru for 18 months, or an employee of an Indian subsidiary could be sent to the parent company to complete a project on a time-limited basis.
The legal issues are quite challenging because when the host company supervises the employee, the original employer often continues to pay them and remains contractually obligated.
Indian courts have consistently held that it is not sufficient to define an agreement as a "secondment"; they consider that the legal relationship depends on its contents rather than on how the parties label the terms. If the host company has the final say over what work he/she will do, courts might find that the employer-like responsibilities of the host company are accepted regardless of what was said in the contractual document.
The Central Role of the Control Test
Since Indian law does not cover secondment arrangements, courts must rely on principles laid down by judges in judicial decisions. One of these factors is that the control and supervision test is one of the most important elements.
The test, simply put, is: who has actual control over the employee?
In the past, the judiciary only considered direct supervision as a way of describing "control". But because employment today is a matter of relationships based on mutual trust in fields as knowledge based as GCCS, control must now be examined at many levels beyond direct supervision. Highly specialized workers generally are not supervised very closely. As a result, courts now tend to consider the overall employment contract rather than just day-to-day work directives when identifying control and supervision. The following are the factors in the decision:
Carefully, a single indicator is not considered to decide the situation. Through a collective analysis of these points, courts decide which party has real control in the situation.
About GCCs, this assessment tends to yield contradictory results. Generally, the Indian subsidiary will be the entity that meets most of the statutory requirements. Still, at the strategic employment level, the entire decision-making might reside with the foreign parent company. With the globalization of the workforce, these two distinct roles and responsibilities are becoming increasingly merged, and the gap resulting from the separation between legal duty and managerial control is quite problematic. This is mainly the case when employment matters are brought before the Indian courts. This part explores the reasoning adopted by Indian courts in dealing with this matter and why the 'control test' has usually been preferred over contractual definitions.
How Indian Courts Identify the "Real Employer"
When Indian courts deal with employment disputes, they do not strictly adhere to contract terms; judges will look to the reality to get to the heart of the matter. The concept of employment can be traced back to Indian labour law jurisprudence: the true determination of an employer is made not by what the parties call their relationship, but by what the parties do.
While there is no single statute that lays down employer determination tests for employment arrangements across different levels of corporate structure, judges rely on various judicial principles in making such determinations. The control and supervision test is the basis of the principle, but judges no longer rely on it alone. The Supreme Court in Dharangadhra Chemical Works Ltd. v. State of Saurashtra (1957) made it clear that the extent to which a person or organization controls how an individual carries out work is a very significant characteristic indicating an employment relationship. At the same time, the Court was aware and pointed out that not every employee can be under supervision at every moment. In such situations, the employer-employee relationship should be assessed based on the general situation rather than a mathematical formula.
This understanding was further developed in Balwant Rai Saluja v. Air India Ltd. (2014), where the Court stated that the traditional control test cannot alone explain modern forms of employment. Instead Courts must follow a **multi-factorial assessment strategy** and they should examine whether the employer appoints the employee to a job, if the employer is the one that pays wages, whether the employer is the one that has the right to discipline or even fire an employee, whether the employer is the one exercising power over administrative decisions and day-to-day operational activities that the company is doing, besides whether the worker is part of the business of the alleged employer. No single parameter will make a difference; it all lies in evaluating the employment relationship, with the benefit of all the factors present. The decision is very significant for employees at Global Capability Centres. While a GCC employee might be appointed and paid by an Indian subsidiary entity, virtually every significant employment decision, for instance, allocation of work or projects, performance evaluation, and promotion, will likely be made by the foreign parent company's employees who are employed as managers. Facts such as these could have implications in a court on where to assign the actual exercise of a controlling power.
Another key case is General Manager (OSD), Bengal Nagpur Cotton Mills v. Bharat Lal (2011), in which the Supreme Court reemphasized that the contract itself may not serve as a tool to hide the real nature of the employment relationship. The court said that any labor dispute resolution should be done after looking to the substance of the relationship which actually exists in fact, that is, not only how a contractual arrangement is described, but also who is the person or organization exercising control or supervision, and/or who is benefiting from the work output of an employee in the arrangement. It is just an intermediary company or another organization being involved that cannot necessarily prevent the real company that runs the operations from being held liable for its own actions if, in fact, it was the employer all along.
The application and interpretation of the principles in the case of multinational companies can become very complicated due to GCCs functioning mainly in matrix structures or dual reporting systems. An employee might be under the HR department of an Indian branch organization and at the same time be under the guidance of an overseas function head. Ratings are determined across the globe. Overseas leaders sanction bonus schemes, and workforce strategies are decided entirely at the HQ.
For Indian courts, these kinds of working setups do not inherently establish a dual employment relationship. Still, they definitely present a significant challenge to the fact-finding courts. If the employee proves through various evidence documents that their Indian workplace has no or little managerial independence and merely obeys the orders given elsewhere, they could expect that the court might not fully accept such a situation as a regular employer-subordinate relationship but might rather see the workplace as a legal entity that is merely being used for payment and compliance with legal obligations.
GCCs are very much alive to the understanding, which this judicial attitude reveals, that drafting a contract for employment and an intercompany arrangement in perfect detail can still be insufficient and should be regarded with caution. Indian courts, in their judgment, always focus first on the real state of affairs underlying the labor relation, rather than purely on the form adopted by the corporate organization. That's why, when a legal case on termination, disciplinary action, workplace harassment, or employment benefits reaches a tribunal, the weight given to the various documents will probably be far less than that of the evidence indicating who actually managed the employee or who influenced their working conditions.
Termination Disputes, Practical Exposure and Risk Mitigation for GCCs
The uncertainty about the employer's identity is most evident after the employment relationship is terminated. The reporting arrangements during normal business hours may be functioning well. Still, once employment ceases, the issue of the employer's identity, whose contractual obligations apply, and who is operationally controlling the company, becomes visible. In Global CapabilitCenters (GCCs), the typical situation is a reorganization of the business that involves a reduction in the workforce by the overseas parent company. The Headquarters may decide to reduce the global workforce, eliminate a particular business division, or shift teams to another region. In this case, the Indian subsidiary receives a directive to implement the decision by issuing termination notices to selected employees. In response to a legal challenge brought by the employees, the company usually asserts that they were merely carrying out an order from the parent company and had not been allowed to exercise their own decision-making authority.
Legally speaking, this reason would probably not remove the Indian company's responsibility in the case. Under Indian employment law, the employer has responsibility for statutory compliance with termination, retrenchment notice periods, and severance, and for fairness and justice. In case the termination goes against the statutory provisions, the Indian employer is normally the one who will be liable, as it is the local employer, regardless of whether the commercial decision was taken elsewhere.
But where one can show by the evidence that the foreign parent was largely directing the employee and effectively made all significant employment decisions, the litigation issue can become much more complicated. Even though Indian law doesn't acknowledge or accept the principle of shared employer liability as in other countries, Indian courts, when determining the true nature of the employment relationship, can still take a close look at or give attention to the role of the parent company. E-mail correspondence from outside the company, charts showing the worldwide structure of the company, employee evaluation methods, organizational hierarchy, and internal memoranda may all serve as evidence of who held power or authority.
Risks don't end with just termination-related disputes. Issues regarding who the employer is could also arise in cases of workplace discrimination, sexual harassment inquiries, employee misconduct, breaches of confidentiality, restrictive covenants, intellectual property ownership, compliance with social security, and unfair labour practice claims as Global Capability Centres are becoming more and more important units why of problems between them and the headquarters will be these types of issues which will come more to light.
Conclusion
So, large-scale global organizations must ensure that their governance structures are transparently aligned with the allocation of employment responsibilities under local law. That is why you should ensure the Indian subsidiary has sufficient autonomy to make its own decisions, for instance, on recruiting, performance appraisals, disciplinary actions, promotions, or dismissals. Of course, they can take business-related inputs from global leadership. Managers working in different countries should make sure that when they issue employment-related directives, they do not bypass decisions of local management, especially if such decisions would affect employees' legal rights. Secondment agreements need to be clearly written and legally binding so that it is explicit what part of the work has been outsourced and which part remains with the main company. In addition to reviewing employee documentation, the mobility policy, organizational hierarchy, and delegation system should also be checked from time to time to ensure they reflect actual ways of working.
Over time, as the number of Global Chief Centres in India grows and becomes the norm, legal and operational employers will likely become indistinguishable. Until Parliament frames the appropriate set of laws for regulating employment arrangements across different locations of a single multinational enterprise, courts will use the principles based on who is the actual decision maker, who is in charge of supervising, and how close the employees are to the headquarters of the parent company as a basis to resolve labour issues. Because of this, to protect their interests, GCCs will do well not just to set up company structures but also to create policies and systems that will be in force when the court looks at what happened.