Understanding Fixed Term Employment

The Industrial Employment (Standing Orders) Act, 1946, recognised only five tenures of employment – permanent, temporary, casual, badli and probationer. The Industrial Employment (Standing Orders) Amendment (Rules) 2018, had already introduced a “fixed term contract” as a tenure. Now, with the Industrial Relations Code, 2020 it has been made a part of the Act itself. 

Industrial Relations Code, 2020 introduced provisions on fixed term employment as a labour reform for the benefits of both employers and employees.

Section 2 (l) reads "fixed term employment" as the engagement of a worker on the basis of a written contract of employment for a fixed period: 

Provided that— 

(a) his hours of work, wages, allowances and other benefits shall not be less than that of a permanent workman doing the same work or work of similar nature; and 

(b) he shall be eligible for all statutory benefits available to a permanent workman proportionately according to the period of service rendered by him even if his period of employment does not extend to the qualifying period of employment required in the statute;

Fixed term employment refers to workers employed for a fixed duration based on a contract signed between the worker and the employer  and may allow employers the flexibility to hire workers for a fixed duration and for work that may not be permanent in nature.  Further, fixed term contracts are negotiated directly between the employer and employee and reduce the role of a middleman such as an agency or contractor.  They may also benefit the worker since the Code entitles fixed term employees to the same benefits and conditions of work as are available to permanent employees.  

It is an undeniable fact that fixed term contracts offer several benefits to the employees and employers.

Fixed-term Contract Rights as an Employer

An employer gets the following benefits:

• Specialized candidates who have expert knowledge for a particular project or time can be hired.
• Increase labour when there is a greater demand by putting them under a probation period and evaluating their work. Once the employer is satisfied, he/she can be transferred to a permanent employment contract.
• Effectively forecast resources and budget.
• Higher commitment from the employees because of the several advantages that the fixed-term contracts have to offer.
• Fixed term employment also leverages the employers to offer permanent employment to their employees.

Fixed-term Contract Rights as an Employee

• Fixed term employees, enjoy the same rights as permanent employees. They are entitled to similar wages, leaves, and working conditions. So, the benefits like the package, protection against unfair dismissal, and equal pay subjected to permanent employees are also rendered to the fixed-term employees.
• In certain cases, fixed-term employees are paid more than their permanent staff because of their special skill that is required for the kind of role they have been hired.
• There is also a greater probability of extending the fixed-term employment to permanent contracts based on the performance and requirement of the company.
• This Code also extends the benefit of gratuity even for a Fixed Term Employee contract of one year which is five years in case of regular employee.

Fixed Term Employment  could help improve the conditions of temporary workers in comparison with contract workers who may not be provided with such benefits.   

However, unequal bargaining powers between the worker and employer could affect the rights of such workers since the power to renew such contracts lies with the employer. This may result in job insecurity for the employee and may deter him from raising issues about unfair work practices, such as extended work hours, or denial of wages or leaves.  Further, this Code does not restrict the type of work in which fixed term workers may be hired.  Therefore, they may be hired for roles offered to permanent workmen.  In contrast, under the Contract Labour (Regulation and Abolition) Act, 1970 the government may prohibit employment of contract labour in some cases including where: (i) the work is of a perennial nature, or (ii) the work performed by contract workers is necessary for the business carried out by the establishment, or (iii) the same work is carried out by regular workmen in the establishment.  Table 1 below compares the provisions of fixed term employment, permanent employment and contract labour. 

Fixed Term Employment & hire and fire

There is a mis-understanding of the fact that, ‘Fixed Term Employment’ as a new rule has been introduced by the government. However, Fixed Term Employment has already been notified by the Central Government and 14 other States. These States include Assam, Bihar, Goa, Gujarat, Haryana, Himachal Pradesh, Jharkhand (apparel and made up) Karnataka, MP, Odisha, Punjab, Rajasthan, UP (textile and EOU), and Uttarakhand.

However, now with the introduction of Fixed Term Employment, the employer can directly get into a fixed term contract with the employee without the middleman. A fixed term employee has been made statutorily entitled for all benefits and service conditions equivalent to that of a regular employee. 

Conversion of Permanent Employee into a Fix Term Employee ?

In Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018, Rule 3 A states that   “No employer shall convert the posts of permanent workmen existing to his industrial establishment “.  Employers are prohibited from converting the existing permanent employees into fixed term employees.