Hiring Workers Through Third-Party Contractors in Pakistan: Legal Framework and Practical Realities

In today’s business environment, outsourcing labour through third-party contractors has become a practical necessity in Pakistan. Businesses routinely rely on contractors to supply workers for a wide range of functions, including security services, logistics and warehousing, facility management, manufacturing support, technical support and administrative services.

While such arrangements allow organizations to focus on operational flexibility and scalability, they also raise important legal considerations under Pakistan’s labour law framework, particularly where contractor workers become closely integrated into a company’s operations.

Judicial Approach to Outsourcing Arrangements

Over the years, courts in Pakistan have repeatedly scrutinized contractor-based employment structures, especially where such arrangements appear designed to shield companies from their labour law obligations.

In the landmark case of Fauji Fertilizer Co. Ltd. v. National Industrial Relations Commission (2013 SCMR 1253), the Supreme Court of Pakistan recognized over 100 contract workers of Fauji Fertilizer Co. Ltd. as employees of the company, despite their formal engagement through contractors. The Court held that where workers are performing functions integral to a company’s operations, working on its premises, using its machinery and resources and operating under the direct supervision and control of the management, the contractual label cannot mask the true employment relationship.

To determine this, the Court applied a multi-factor analysis, including the “control test” and the “integration test”, and stressed that no single factor is determinative; instead, courts must assess the overall substance and organizational reality to ensure that outsourcing is not used as a mechanism to deny workers their lawful rights.

More recently, in IFFCO Pakistan (Pvt.) Ltd. v.Ghulam Murtaza (2024 SCMR 1548), the Supreme Court reaffirmed that while outsourcing is a legitimate commercial tool, it cannot be used to circumvent workers’ statutory rights. The Court observed that when contractor- supplied workers operate on the company’s premises, under its direct supervision, and perform tasks integral to the company’s manufacturing or operational processes over extended periods, they may be treated as employees of the company despite formal contractor agreements.

Statutory Development in Punjab: The Punjab Labour Code 2026

While these principles have largely been developed across Pakistan through judicial interpretation, the Government of Punjab has now taken a step further to the extent of workplaces in Punjab and codified them in the recently promulgated Punjab Labour Code 2026, formally regulating outsourcing arrangements within the province.

The Punjab Labour Code 2026 recognizes that companies frequently engage contractors, subcontractors, or employment agencies to supply labour under “contracts for services”, while also expressly guarding against the misuse of such arrangements in Punjab from being used to circumvent workers’ statutory protections.

Particularly, under the Code 2026, a company may be deemed the employer where a contractor arrangement is used as a device to deprive workers of their legal rights, where the workers are engaged in the core operations of its business, or where the company exercises control over the means and method by which the work is performed. In such circumstances, the law effectively looks beyond the contractual structure and treats the principal company as the employer for the purposes of labour law compliance.

Practical Guidance for Businesses

Judicial precedents in Pakistan have established a clear framework for assessing the true nature of contractor engagements, ensuring these arrangements cannot be used to evade workers’ rightful statutory protections. Building on this, the Government of Punjab has gone a step ahead and formalized these principles in the Punjab Labour Code 2026, giving them statutory force for workplaces across the province of Punjab.

Given this legal backdrop, the practical dividing line for employers in Pakistan increasingly lies in whether an outsourcing arrangement is genuine in substance or merely formal in structure.

To stay on the right side of law, businesses need to ensure that outsourcing arrangements are properly structured and genuinely independent. This may involve:

  • clearly defining the structure and scope of outsourced services.
  • ensuring that contractors retain independent control over recruitment, supervision, discipline, and management of their workforce.
  • Avoiding arrangements where contractor workers perform core managerial or operational roles.
  • periodically reviewing outsourcing arrangements and contractual structures to ensure continued compliance with evolving labour law requirements and judicial guidance.

With the evolving regulatory landscape, proactive legal guidance in structuring these arrangements in this manner is essential to ensure that outsourcing models remain both commercially effective and legally defensible, safeguarding businesses against potential liability while enabling operational flexibility.

This article is written for information purposes only and does not constitute legal advice. For more information, you may contact Mian Tariq Hassan ([email protected]) and Zam Zam Shabbir ([email protected]).