The proximate cause for the inception of the Employers' Federation of India (EFI) is traceable to the controversy over the procedure for selection in 1919 and 1920, of the employers' delegates to the meetings and conferences of the International Labour Organization (ILO). ILO was then newly set up in Geneva in 1919, in compliance with the Peace Treaty of Versailles at the end of the First World War. It is common knowledge that the ILO is a specialized agency of the United Nations family of organizations with a membership of 123 States originally created as a part of the League of Nations at the end of that War. In pursuance of Article 389 of Part XIII of that Treaty, the ILO was set up specifically to ensure social justice to workers of the world, as the feeling among nations then was that one of the causes of that War lay in the exploitation of labour by different countries in their bid to achieve economic superiority over others. In terms of the said provision, each Member-State was required to depute four delegates - two governments and two non-governments, being representatives each of the employers and workers - to the periodic meetings and conferences of the ILO which itself is a tripartite organization, consisting of representatives of governments, employers and workers. In terms of the constitution of the ILO, the non-government delegates and their advisers were required to be chosen in agreement with the organizations, which were mostly representatives of employers and workplace in their respective countries.

This posed a problem to both these parties, as much as till then there was no single organization in existence, which was representative of either workpeople or employers on an all-India basis, which could be entrusted with the task of selection of their respective delegates. In the circumstances, the Government of India resorted to the expedient of nominating these delegates on their own and accordingly, in 1919, they nominated Mr. N M Joshi, the famous labour leader and Mr. A R Murray, Chairman of the Indian Jute Mills' Association, as representatives of labour and employers respectively, to attend the first International Labour Conference in Washington. The same procedure was followed in 1920 when the Union Government nominated Mr. Rahimtullah Currimbhoy, Chairman of the Millowners' Association, Bombay, as the employers' delegate to serve on the ILO Commission of Enquiry and Mr. N B Saklatwala to attend the ILO Conference.

For obvious reasons, the employers and labour leaders disliked the Government of India's arrogating to themselves this authority, which should have legitimately been exercised by the employers and employees themselves. The labour leaders immediately organized the All-India Trade Union Congress as the federation of trade unions in 1920 to protect their right in this direction. For employers, no such expeditious action was possible although the dislike of nomination by the Government did provoke serious thinking among them and spurred them on to serious consideration of the necessity of organizing their own Federation on an all-India basis.

The modest objective in setting up a Federation was, in the beginning thus limited to facilitating the selection of employer's delegates for the Meeting and Conferences of the ILO. The Scope of this objective gradually came to be widened over the years in consonance with its underlying aim to encourage the formation of employers associations and to foster co-operation amongst them for protecting and promoting employers common interests and achieving common objectives especially in the area of industrial relations.