Nepal Labour Act 2017 – Establishing an Employment Relationship
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The Labour Act 2017 provides Nepal’s principal framework for determining whether an employment relationship exists. It does not establish a separate statutory test called “false self-employment.” Instead, classification follows from the broad definition of labour and the factual creation of an employment relationship. Section 12 provides that employment exists where an employer enters into an employment contract, employs a person verbally or engages a person in casual employment. A written agreement is generally required, but the absence of one does not necessarily prevent employment from existing. Where the parties dispute whether an employment relationship exists, the competent Labour Office, Department of Labour and Occupational Safety or court may determine the issue. If the employer fails to produce employment records after being ordered to do so, the relationship may be deemed established.
1. Scope and Definition of Labour
The Labour Act defines “labour” broadly as a worker, employee or person employed under any job title who performs physical or intellectual work for an employer.
The Act generally applies to enterprises, including companies, partnerships, cooperatives, organisations and other entities established or operated for business, service or other activities.
The terminology chosen by the parties—such as freelancer, consultant, service provider or independent contractor—is therefore not, by itself, determinative.
Explanation
A business cannot necessarily remove a person from labour-law protection merely by calling that person a freelancer or consultant. The relevant question is whether the person is actually engaged to perform work as labour for an employer.
2. Employment Contracts and Types of Employment
Section 10 recognises several forms of employment:
regular employment;
work-based employment;
time-based employment;
casual employment; and
part-time employment.
The applicable category depends on the nature and duration of the work. Section 10 specifically provides that a dispute about whether employment is regular must be determined according to the nature of the work, notwithstanding the wording of the employment contract.
Section 11 generally prohibits employing a person without an employment contract. The contract must state the remuneration, benefits, employment conditions and other prescribed matters. A written contract is not required for casual employment.
Explanation
Nepalese law recognises flexible and temporary forms of employment. A business does not need to label a worker self-employed simply because the assignment is short, part-time or linked to a specific project. The Act already provides employment categories for those situations.
3. Establishment of the Employment Relationship
Under Section 12, an employment relationship is established where an employer:
concludes an employment contract with a worker;
employs the worker verbally; or
engages the worker in casual employment.
For casual employment, the relationship begins when the person is engaged or starts providing the service.
The statutory rule means that employment can arise through conduct even where the parties have not executed the required written employment agreement.
Explanation
If a person is actually engaged and performs work as an employee, the employer cannot necessarily rely on missing paperwork to deny that the employment relationship exists.
4. Disputes, Evidence and Misclassification Risk
A dispute about whether employment exists may be settled by the Labour Office. Where the same issue forms part of proceedings before the Department or a court, that body may decide it.
The Labour Office may order the employer to produce employment-related documents within its custody. If the employer fails to submit the requested evidence, Section 12 permits the employment relationship to be deemed established.
Explanation
Employers should retain contracts, attendance records, payment information and documents showing how work is organised. Failure to produce those records can operate against the employer in a classification dispute.
Sources
Related knowledge
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Nepal’s Electronic Commerce Act 2025 regulates commercial transactions involving goods or services conducted through information technology. The Act distinguishes between businesses selling their own goods or services and intermediary businesses that facilitate transactions between other parties through an electronic platform. This distinction is directly relevant to a marketplace such as Zooly. An intermediary platform must satisfy registration, disclosure, contracting, complaint-handling, confidentiality and recordkeeping obligations. However, the Act does not determine whether an individual providing services through the platform is an employee or an independent freelancer. Employment status remains governed principally by the Labour Act 2017.
Freelancer Misclassification in Nepal
Nepal does not currently appear to have a dedicated statutory regime determining the employment status of workers engaged through digital labour platforms. Platform workers must therefore be classified through the general Labour Act. The central issue is whether the platform or client actually employs the person to perform work, whether the platform supplies labour to a main employer, or whether the person operates a genuinely independent business. The use of an app, freelance agreement, tax registration or payment-per-task model does not automatically decide the issue. Equally, the Labour Act does not create an automatic presumption that every platform worker is an employee.
Employment-Status Disputes, Enforcement and Remedies in Nepal
Nepal does not appear to have a large, easily accessible body of reported judgments specifically using the terminology “false self-employment” or “freelancer misclassification.” The principal protection instead comes directly from the Labour Act. A worker can seek recognition of an employment relationship through the Labour Office, Department of Labour and Occupational Safety or, where procedurally applicable, the Labour Court. The authorities can examine the factual relationship, require the employer to produce records and issue orders concerning statutory compliance. Appeals may ultimately reach the Labour Court and Supreme Court according to the applicable procedure.
Nepal Labour Act 2017 – Labour Outsourcing and Deemed Employment
Chapter 11 of the Labour Act regulates arrangements in which a licensed labour supplier provides workers to a main employer. Labour may only be supplied for prescribed work or services and through a licensed supplier. The labour supplier is generally responsible for employing and paying the supplied workers, while the main employer has statutory obligations concerning lawful engagement, workplace treatment, occupational safety and compliance monitoring. Most importantly, workers may be deemed employees of the main employer where they are obtained through an unlicensed supplier or are supplied in violation of the Act. This prevents organisations from using unlawful outsourcing structures to avoid direct employment obligations.