By Rimcy Keshri
The concept of fixed-term employment (“FTE”) was introduced into Indian labour law through the Industrial Employment (Standing Orders) Central Rules, 1946 (“Standing Order Rules”), by way of an amendment in 2003. The definition of ‘workman’ under the Standing Order Rules was expanded to include FTE workmen, who were defined as workmen engaged on the basis of a contract, and were entitled to the same working hours, wages, allowances and other benefits as a permanent workman. Further, such FTE workmen were entitled to statutory benefits available to permanent workmen on a proportionate basis, even if they did not satisfy the qualifying period prescribed under the relevant statute.
However, the concept had a relatively short-lived existence. In 2007, the provisions relating to FTE were omitted from the Standing Order Rules.
Nearly a decade later, FTE was reintroduced through an amendment in 2016. This reintroduction was limited in scope and applied only to workmen employed in the apparel manufacturing sector.
In 2018, the applicability of FTE was expanded to all sectors and industries. The amendment substantially restored the definition introduced in 2003, with one notable modification: the requirement that the engagement be pursuant to a ‘written contract of employment’ rather than merely a ‘contract of employment’.
The enactment of the new labour codes marked the next stage in the evolution of FTE. The concept has now been incorporated into the Industrial Relations Code, 2020 (“IRC”) and the Code on Social Security, 2020 (“Social Security Code”). The Social Security Code substantially retains the definition introduced through the 2018 amendment, but broadens its applicability from ‘workmen’ to ‘employees’, thereby extending its coverage beyond ‘workman’, as defined in the Industrial Disputes Act, 1947 (“IDA”). In contrast, IRC continues to define FTE specifically in relation to ‘workers’, as it had under the IDA. This distinction is significant because the term ‘employee’ under the Social Security Code is wider and includes managerial, administrative, supervisory, technical, clerical, operational and other categories of wage earners. The term ‘worker’ under IRC is narrower and covers only those engaged in skilled, semi-skilled, unskilled, manual, operational, supervisory, technical or clerical work, while excluding persons employed mainly in managerial or administrative capacities and certain supervisory employees. Thus, every worker is an employee, but every employee is not necessarily a worker.
A significant development under the codes relate to gratuity for fixed-term employees. While the Standing Orders Rules provided that fixed-term workmen would be entitled to the same benefits as permanent workmen on a proportionate basis, no corresponding amendment was made to the Payment of Gratuity Act, 1972. Since gratuity generally required five years of continuous service, the benefit remained largely unavailable to fixed-term workmen engaged for shorter durations. The Social Security Code addresses this gap by expressly providing gratuity to fixed-term employees and waiving the five-year service requirement, with gratuity payable on a pro rata basis. The FAQs to the Social Security Code provide that gratuity is payable to a fixed term employee only upon completion of one year of service although the Social Security Code merely states that gratuity will be paid on a pro rata basis. The IRC, however, clearly stipulates that gratuity to fixed-term workers would be payable only upon completion of one year of service. Both codes mark a significant departure from the earlier position, under which the entitlement of fixed-term workmen to gratuity was largely ineffective in practice.
Another notable change introduced by the labour codes is the addition of the phrase ‘same work or work of a similar nature’ while comparing the wages, allowances and other benefits of fixed-term employees with those of permanent employees. By linking parity to employees performing same or similar work, the codes provide an appropriate benchmark to ensure fixed-term employees are not denied benefits by comparison with lower-level or differently placed permanent employees.
In conclusion, introduction of FTE under the codes reflect an attempt to balance labour flexibility with employee protection. By mandating parity in wages, benefits and working conditions with permanent employees performing same or similar work, the codes seek to prevent discriminatory treatment of fixed-term employees. At the same time, the framework affords employers greater flexibility in workforce management, particularly because the expiry or non-renewal of a fixed-term contract does not constitute retrenchment and therefore does not attract retrenchment-related obligations. Although, concerns were raised during the Lok Sabha debates on September 22, 2020 that FTE could facilitate an ‘easy hire and fire’ regime in the absence of limits on contract duration or successive engagements, the codes ultimately leave such matters unregulated. Consequently, while the FTE framework strengthens employment-related protections, it does not provide the degree of job security traditionally associated with permanent employment. Its long-term impact will ultimately depend on how employers utilise this flexibility in practice.
The authors, Associate, Citadel Law Chambers with inputs from Ramya Hariharan, Founder Citadel Law Chambers
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.