Fixed Term Employment Contracts: Legal Framework, Practical Implications, Benefits And Risks

Introduction:

Fixed-term employment contracts are agreements between an employer and an employee that are characterized by a limited duration or a predetermined event that terminates the contract. Along with project-based employment, casual employment, and temporary work facilitated by private employment agencies, fixed-term contracts constitute a particular category of temporary dependent employment. These contracts are distinct from regular employment, which is typically “open-ended,” “permanent,” or “of indefinite duration.”

The Code on Industrial Relations (IR), which will replace the Industrial Employment (Standing Orders) Act, 1946, incorporates provisions for Fixed Term Employment (FTE). According to Section 2 clause (o) of the Code, FTE refers to the engagement of a worker through a written contract for a specified period. FTE is now applicable across all industries to enhance business operations^[1].

Legal Considerations Of Fixed Employment Contract:

FTE was first introduced in the year 2003 vide GSR 936(E) dated 10th December 2003.In 2016, FTE for apparel manufacturing sector was introduced vide GSR 976(E). Further expanding, FTE has been extended to all sectors through the Industrial Employment (Standing Orders) Central Amendment Rules, 2018. Proportionate benefits for FTE workers, which would include gratuity after their service of one year, have been provided without laying down the need for notice or retrenchment benefit on non-renewal of contract.

Many of the provisions regarding FTEs have already found a place in the new code with the subsuming of the Industrial Employment (Standing Orders) Act, 1946, into the Industrial Relations Code, 2020. These provisions stipulate that all FTE workers must have the same statutory benefits as permanent workers, thereby advancing business ease and securing fair treatment for temporary workers in all industries.

The existing regulations do not provide for stipulating the minimum and the maximum duration of fixed-term employment contracts in addition to the number of successive fixed-term employments. Expiry of FTE will not amount to retrenchment under Industrial Disputes Act. Besides these, there are many more pivotal laws that the employees fall under, such as the Equal Remuneration Act, 1976, Industrial Employment (Standing Orders) Act, 1946, Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996, Minimum Wages Act, 1948, Maternity Benefits Act, 1961, Trade Unions Act, 1926, Payment of Gratuity Act, 1972, Payment of Wages Act, 1936, as applicable.

Practical Considerations:

A fixed-term employment contract specifies the duration, gives a detailed and comprehensive description of the job, role, responsibilities, and expectations one is expected to meet. The contract will outline the terms on working hours, where and including associated benefits such as health insurance and paid leave. It would have clauses of renumeration, termination, renewal, and extension and also the confidentiality and non-compete clauses wherever applicable. Compliance with the applicable laws and regulations would also be adhered to; the contract acknowledges the rights of employees including the right to lodge grievances. The contract will be signed by both the parties as an acknowledgment of mutual consent and understanding of the said stipulation.

There are fixed-term employment contracts that may casually be referred to, project-based contracts that last for the time length of a specific project, seasonal contracts covering the peak periods in industries like agriculture and tourism.

Thus, fixed-term workers have about the same rights as permanent workers as far as statutory employment benefits are concerned. They are usually protected from unfair dismissal before the fixed term of employment comes to an end, and they have the right of written statement of terms of employment and health and safety similar to other employees.

Benefits Of Fixed Term Employment Contract:

Fixed-term contracts specify a fixed duration in which the person should serve. Hence, it sets the limitation for the employer, as well as the employee, who does not prefer a long-term commitment. This could be quite an effective type of contract in businesses which have an only transient organizational staff requirement. If the employer does indeed wish to continue employing this person after the specified term, he can issue a renewal or extension contract, but only with the agreement of both parties.

Fixed-term contracts ease the process of handling temporary staffing needs, particularly in case of short-term projects or seasonal demand. An example would be a software company that works with tight deadlines for launching a product. It would use fixed-term contracts to quickly employ additional personnel to meet the deadline. The date of the end of the fixed contract period should be included in the mentioned terms; this way, a notice period will not have to be adhered to upon the completion of a contract, thus reducing the possibilities of non-compliance on the part of an employer.

Internationally, provisions in the law concerning fixed-term contracts differ considerably from place to place. At certain places, limits are set on how many times such contracts can be renewed and on the overall numbers of fixed-term contracts that can be made in any one business, while other places do not. Additionally, a few countries require that the fixed-term employees be paid the same salary and benefits as the permanent employees and reduce the percentage of fixed-term employees compared to permanent workers. In addition, many countries also require that there be previous notice of renewal or non-renewal of fixed-term contracts, and if not followed then the contract can be declared open. However, these requirements are not specified in Indian laws.

Risk Of Fixed Term Employment Contracts:

The employment of fixed-term contracts may necessitate frequent recruitment processes due to the limited duration of these roles. This can incur significant costs and divert HR resources from other critical functions. Additionally, potential candidates who prioritize long-term job security may be less inclined to accept temporary positions.

The transient nature of fixed-term contracts can hinder the development of stable, cohesive teams. High turnover rates among permanent staff may ensue, potentially impacting organizational stability and undermining the company’s overall reputation.

Conclusion:

In conclusion, fixed-term business contracts give outstanding benefits, counting well-defined business periods, upgraded adaptability for transitory staffing, and decreased liabilities for companies. These contracts are especially profitable for tending to short-term needs, overseeing project-based errands, and reacting to special requirements. Be that as it may, they moreover posture certain dangers, such as claims for regularization. To address these issues viably, it is basic for the employees and the employers to clearly depict the terms of the fixed-term contracts, guarantee strict adherence to pertinent controls, and maintain reasonable treatment for all workers. By carefully overseeing these components, organizations can optimize the utilization of fixed-term contracts whereas keeping up a compliant and steady workforce.

[1] Ministry of Labour and Employment, “The Code on Industrial Relations,” Government of India, 2020. [Online]. Available: https://labour.gov.in/sites/default/files/ir_gazette_of_india.pdf. [Accessed: 03-August-2024].

King Stubb & Kasiva,
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