Introduction to Fixed Term Employment
Fixed Term Employment (hereinafter referred to as ‘FTE’) refers to the engagement of employees for work for a fixed period of time through execution of written contracts with them, which can be renewed after the expiry of the said term with the mutual agreement of the employers and the employee. Such employment does not fall under the category of permanent employment. The incorporation of the concept of FTE in the Indian Labour Law realm was undertaken through the Central Government Notification of February 2017. However, the provision was implemented merely for the employees working in the Apparel Manufacturing Units, and was extended to few other sectors including leather industries etc. in January 2018.
Keeping in mind the promotion of ease of doing business the provision was extended to all the sectors with the enforcement of the Industrial Employment (Standing Orders) Central Amendment Rules, 2018 (hereinafter referred to as the “Amended Rules of 2018”). The Rules enumerated that the FTE workmen shall be administered proportionate but equal benefits in terms of working hours, remuneration and other statutory benefits as are administered to permanent workers, irrespective of whether their period of service fulfils the statutory qualifications for claiming such benefits. Further, the Rules state that such workers shall be granted gratuity in case they have served the employer for more than one year. However, the employers are not obligated to furnish the notice and reason of termination in case of non-renewal of the FTE agreement, or retrenchment benefits to such workmen.
Pursuant to the integration of The Industrial Employment (Standing Orders) Act, 1946 in the Industrial Relations Code, 2020, many provisions with respect to FTE have become a part of the latter. The Draft Model Standing Orders for the Service and Manufacturing Sectors, which have recently been circulated for objections and suggestions, depict the insertion of “fixed-term employment” with the deletion of “casual work” in the categories of workers, indicating that the Ministry aims at replacing causal work to give it a better and formal structure.
For long, employers have been hiring numerous workmen through Agencies and Contractors for temporary periods, thus reaping the advantages of the absence of a mandate to provide statutory benefits to them, as are entitled to permanent workers. The involvement of middlemen has been feasible for employers because of this advantage. The codification of FTE will throw these middlemen out of the equation to a great extent, for the employers no longer have the option of not providing statutory benefits to workers engaged on fixed-term basis. Considering the aforesaid, FTE comes as a relief to temporary workers and aids in the enhancement of their living standards, especially for the workers in seasonal industries.
Shortcomings of Fixed Term Employment in Indian Scenario
Despite the numerous pros that FTE entails, its implementation doesn’t come without a hefty cost. The policy itself is tainted with inherent flaws that emerge in the form of the question as to why would employers resort to FTE that enhances their costs when they still possess the alternative of hiring temporary labours? A careful analysis of the reform evinces its potential of giving rise to large-scale industrial unrest. The government should pay heed to the fact that a measure introduced for the benefit of workers is being opposed by the workers themselves. Such measure is therefore definitely marked with some irregularities.
It is pertinent to note that the determination of the terms and conditions of employment lies completely in the discretion of the employer, given the lack of bargaining power of the temporary workers in India. Therefore, FTE will entail low wages for workers, especially the uneducated and unaware workers, who are unable to stand a chance before the employers. As more and more employers start to offer FTE contracts in large numbers, competition among them might result in the setting of low wage rates throughout the industry, to the detriment of workers. Further, these employers will have no incentive to provide training to the temporary FTE workers, thus, halting the growth and development of the working class of the country. Undeniably, the law has left plenty of loopholes that give undue advantage to the employers.
The Industrial Employment Standing Orders Central Rules, 1946 provided for the conversion of temporary employees to the category of permanent employees pursuant to the completion of three months of service in a particular industrial organization. However, the same is not likely to be inculcated in the Rules to be framed for furthering the purposes of the Industrial Relations Code, 2020. Notably, the introduction of FTE merely creates a new bracket of temporary employment. A combined reading of the aforesaid two affirmations clearly evinces that the provision of FTE has sanctioned the employers to resort to temporary employment of workers for indefinite period on contract renewal basis, thus rendering these workers devoid of any permanent or long-term job security. Moreover, the maximum limit imposed on the number of times fixed-term contract can be renewed has been discarded. Hence, the provision will culminate in more and more workers living in the perpetual fear of foreseeable unemployment. This is in clear defiance to the stance adopted by the Hon’ble Supreme Court in Haryana State Electronics Development Corporation v Mamni. The Court in this judgment held against the intentional breaks of few days given by the employer after the completion of every 89-day fixed-term contract so as to circumvent the law and avoid hiring the worker on a permanent basis. Thus, the absence of a cap on renewals warrants such mala fide practices of the employers. Is FTE then really a testament of good governance? Does it not do more harm than good? These are few questions that have surfaced since the formulation of the Code.
Furthermore, the protective prohibition on the transition of the position of permanent workers to fixed-term workers does not find place in the Code as it did in the Amended Rules of 2018. Hence, the employers are bestowed with the recourse of revoking the status of permanent workers and changing it to fixed-term workers, discharging themselves of the liability of furnishing termination reasons and notices and paying retrenchment benefits. Undoubtedly, employers now have the weapon of “hire and fire” to be used at their own free will in utter disregard to the job security of the workers, as claimed by numerous trade unions. Given the aforesaid, the rate of unemployment will soar even higher during any unprecedented happenings in the future similar to the present COVID-19 pandemic, or an economic slowdown. Notably, these workers have to bear the complete risk of economic uncertainties while the employers bear none, leading to unequal risk-sharing in the economy. These horrific repercussions have forced the workers to tag the new labour law reforms as “anti-working class”.
Even though the law on fixed-term employment proves to be an employer-sided endeavour, only a few employers will actually be resorting to it, for recruitment of contract labours is far less costly an affair. Hiring workers through contractors shifts the major responsibilities and transaction costs of recruitment on them. Further, contractors are a one-stop solution to hiring a large number of workers with the requisite skills, making it highly convenient for employers and saving the searching as well as selection costs. Therefore, the introduction of FTE will not bear the fruits as intended by the government unless the shift from contract labours to FTE is incentivized. One way of securing such a shift is to impose a blanket ban on the engagement of contract labours. However, it is pertinent to note that the government has taken a measure exactly opposite to the aforesaid, by allowing the employment of contract labours for all the jobs in an industry, unlike the previous legal position when they were to perform merely the ancillary jobs and not the core ones. Considering the present legal scenario, FTE will remain a provision merely on paper, with no real implementation and positive implications in actuality.
What can be done?
FTE is undeniably one of the most effective measures for appeasing the plight of contract workers who haven’t been provided any social security over the years. When implemented in a well-thought-of manner, it has the potential of overhauling the present poor position of the Indian economy. The policy-makers need to ensure that this newly introduced provision does not result, directly or indirectly, in the exploitation of the workforce and at the same time, afford benefits for the employers and the industry too. All in all, well-regulated FTEs are the need of the day and the same can be achieved by making robust Rules under the Code.
Fixing an industry-wise lower and upper ceiling on the tenure of fixed-term workers will be of great help in preventing the employers from hiring such workers for performing core activities of the industry, ensuring that temporary employment is extended only in case of genuine requirements. The need for the same can be inferred from the judgment in the case of K. Rajendran v. Director, Projects and Equipment Corporation of India Ltd. which stated that there needs to be a robust justification for the employment of workers on a fixed-term basis and not as permanent workers.
Further, the number of times FTE contracts in a particular industry can be renewed shall be restricted to a reasonable figure, after which the employers shall be mandated to convert FTE workers to permanent employment if they intend to continue to employ them. In fact, the best recourse to implement this provision is in a phased manner, commencing from a few industries and then extending its scope slowly and steadily, as a veritable need arises in other industries, instead of opening the option for all. Nevertheless, the mandate should be to allow FTE merely for ancillary jobs.
Furthermore, FTE contracts, like the Model Standing Orders, shall be standardized throughout the industries for ensuring minimal rights of the workers and responsibilities of the employees. Similarly, appointing compliance officers to monitor the employer activities and to take actions in case of mala fide activities with respect to FTE will also be highly beneficial as this will allow the FTE workers to have certain representation in the industry.
Moreover, the conversion of job posts from permanent to FTE shall be allowed only with the assent of the government and must be well-reasoned. Also, the provision of tax benefits and subsidies to the employers who recruit only FTE workers under the category of temporary workers will act as a great incentive for them to cease hiring contract workers through middlemen. Notably, providing a forum to FTE workers for bringing forth their specific grievances will encourage more and more workers to demand such employment over that through Contractors.
As far as employers are concerned, such regulation will avert them from subverting the law. Genuine and justified benefits of FTE for the employers include the exclusion of middlemen from the recruitment process hiring through whom posed numerous hurdles to the, heightened trust between them and the workers, ready and easy availability of workers for short-term requirements and during emergencies, opportunity to assess workers before offering them a permanent job, replacement of absent workers, and some flexibility in hiring and firing the employees according to the industry needs.
Conclusion
The recent labour law reforms concerning FTE highlight the aim of government of boosting economic development. The endeavour of the government towards formalising casual work and rendering equal benefits to FTE workers is highly commendable. However, the government has failed to realise that the development in its present form will be nothing but transient, merely effective in the short run. The lack of bargaining power of the workers vis-à-vis the employers leads them to low wages and poor living conditions, even though the law provides for equal benefits and living conditions to them as permanent workers. The law does not furnish any incentive to the employers to ensure the growth and development of FTE workers. With the absence of provisions requiring the conversion of temporary status of workers to permanent status, regulating the renewal of FTE contracts and prohibiting the change of permanent workers to fixed-term workers, FTE is bound to do more harm than good. Given the existing unemployment rate and the state of workers in India, FTE with its current legal scenario will result in low job-security, high transition and unemployment rate and unequal risk-sharing between employers and workers. Continuation of FTE without addressing these issues and incorporating the aforementioned recommendations will drop the number of permanent workers in the country, culminating in insignificant job security as well as social security and lowered living conditions. The same is evidenced by the statistics collected from the foreign countries that have adopted FTE. Nevertheless, the step taken by the government is in right direction and will definitely prove to be successful if coupled with robust regulatory structure to safeguard the interests of all in a balanced manner.
Malika Tiwari,
a 4th year B.Com (LL.B.) Hons. student at Institute of Law, Nirma University.
Image credits: The Express Tribune
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