Introduction
Fixed-term employment has been a defining feature of the informal contractualisation that Indian employers have used to manage labour costs and maintain operational flexibility since at least the 1980s. The model is conceptually simple: instead of creating an open-ended employment relationship that attracts the protective provisions of the Industrial Disputes Act 1947, the employer engages a worker on a contract of specified duration. When the contract expires, the employer is not required to give notice, pay retrenchment compensation, or seek government permission for separation. The worker, who may have worked for the same employer for years through a succession of fixed-term contracts, has no claim to permanency and no protection against arbitrary non-renewal.
The Industrial Relations Code 2020 attempts to address the most egregious consequences of fixed-term employment misuse by establishing statutory entitlements for fixed-term employees equivalent to those of permanent employees: the same hours of work, wages, allowances, and other statutory benefits, and a pro-rata gratuity entitlement on completion of one year of service. These are meaningful improvements over the previous legal landscape. However, they address only one dimension of the fixed-term worker’s vulnerability. They do not address the fundamental insecurity that arises from the temporary nature of the engagement itself, the absence of retrenchment compensation when a fixed-term contract expires, or the ability of employers to use successive short-term contracts to avoid the normal incidents of a continuous employment relationship.
The scale of the issue is substantial. Fixed-term and contract employment accounts for a significant and growing share of formal sector employment, particularly in manufacturing, construction, IT services, and retail. The automobile manufacturing sector, where the Maruti Suzuki contract worker model has been extensively documented, illustrates how large-scale contractualisation can operate within the formal sector to create a two-tier workforce: a smaller core of permanent employees with full legal protections and a much larger periphery of fixed-term and contract workers with reduced protections.
Legal Framework
The Industrial Relations Code 2020 defines “fixed-term employment” in Section 2(o) as the engagement of a worker on the basis of a written contract of employment for a fixed period. The Code specifies that a fixed-term employee must receive the same wages as a permanent employee in the same category of work, the same benefits and allowances applicable to a permanent employee, and must not be treated less favourably than a permanent employee in matters of hours of work, annual leave, and other statutory benefits. The Code further provides that where a fixed-term employee has rendered continuous service of not less than one year, they are entitled to a proportionate payment of gratuity.
These provisions represent a significant extension of the concept of equal treatment for fixed-term workers beyond what was available under the pre-Code framework. Prior to the Code, fixed-term employees engaged through the standing order mechanism had limited statutory protection, and the terms of their engagement were largely a matter of contract rather than statutory entitlement.
However, the Code’s equal treatment provisions do not disturb the fundamental premise of the fixed-term employment relationship: when the fixed-term contract expires, the employment ends without the employer incurring retrenchment liability. The Code does not cap the number of times that a fixed-term contract may be successively renewed with the same employee, nor does it specify a maximum duration of fixed-term engagement after which the employee must be offered permanent status. The absence of these limiting provisions means that the equal treatment guarantee, while important, does not prevent the indefinite use of fixed-term contracts to maintain a casualised workforce.
The Contract Labour (Regulation and Abolition) Act 1970 (CLRA) is the other primary legislative framework governing non-permanent employment. The CLRA regulates the engagement of workers through third-party contractors rather than directly by the principal employer. The Supreme Court in a series of decisions, including Air India Statutory Corporation v. United Labour Union (1997) and Steel Authority of India v. National Union Water Front Workers (2001), addressed the question of whether contract workers whose contracts were abolished under the CLRA were entitled to absorption as permanent employees of the principal employer. The Steel Authority decision significantly narrowed the scope of mandatory absorption, holding that abolition of contract labour does not automatically entitle contract workers to direct employment by the principal employer, though it may entitle them to employment by a new contractor.
The Maruti Suzuki contract worker model, extensively documented by labour researchers and examined by parliamentary committees, involves the use of three categories of workers alongside a core permanent workforce: company-employed temporary workers (on fixed-term contracts), trainee apprentices (paid apprentice stipends rather than wages), and workers employed through third-party contractors. This layered contractualisation is designed to minimise the employer’s exposure to the full employment law obligations applicable to permanent employees.
Judicial Developments
The judicial history of fixed-term employment in India is shaped primarily by decisions addressing the question of whether repeated renewal of fixed-term contracts confers an expectation or right of permanency. The Supreme Court in State of Haryana v. Piara Singh (1992) and subsequent cases held that in government employment, repeated engagement of fixed-term employees on temporary contracts for work of a permanent and perennial nature may give rise to a right to regularisation. However, this principle has been applied primarily in the public sector context and has been progressively narrowed by subsequent judgments that emphasise the absence of a right to regularisation absent a sanctioned post.
In the private sector context, the courts have been more circumspect about finding that repeated fixed-term contracts confer permanency rights. The Labour Courts have occasionally awarded relief where the evidence demonstrated that successive fixed-term contracts were being used as a device to avoid the statutory protections applicable to permanent employees and that the nature of the work was perennial rather than seasonal or project-based. However, these decisions have not crystallised into a consistent doctrine.
The Bombay High Court in 2022 addressed a case where an employee engaged on successive fixed-term contracts for over five years sought a declaration of permanency. The court held that while the repeated renewal raised questions about the genuineness of the fixed-term arrangement, the Industrial Disputes Act did not provide a mechanism for converting fixed-term into permanent employment by judicial order; the remedy was a claim for retrenchment compensation and other statutory dues, not regularisation. This decision reflects the limits of the courts’ capacity to address the fixed-term worker’s vulnerability through interpretation of existing law.
The implementation of the Industrial Relations Code and its fixed-term employment provisions has not yet been judicially tested in a comprehensive way, because the Code remains unnotified in most states. Once notified, the courts will be called upon to interpret the equal treatment provisions and to determine whether the absence of a renewal-cap constitutes an evasion of the Code’s spirit.
Contemporary Issues and Analysis
The IT services sector presents a distinct version of the fixed-term employment problem. Large IT companies routinely engage workers on renewable project-based contracts, with the project duration determining the contract period. When a project ends, the contract expires and the employee may or may not be offered a new project-based contract. This model has been defended as reflecting the genuinely project-based nature of IT service work. Critics argue that where an IT services company has a continuous pipeline of projects and the worker is continuously engaged across successive projects, the project-based contract is a fiction designed to deny the worker the benefits of an ongoing employment relationship.
The construction sector’s use of fixed-term and daily-wage employment is even more extensive than in IT, and the workers involved are typically far more economically vulnerable. Construction workers are engaged on project-specific contracts that expire when the project is completed, which may be a period of weeks to several years. The Building and Other Construction Workers (RECS) Act 1996 provides a welfare board mechanism for construction workers, but it does not address the fixed-term employment vulnerability arising from the project-based nature of the work.
The retail sector’s use of fixed-term employment has grown significantly with the expansion of organised retail chains, which engage sales staff on renewable fixed-term contracts timed to avoid the one-year service threshold that would trigger gratuity liability under the Payment of Gratuity Act (now the Code on Social Security 2020). The Industrial Relations Code’s pro-rata gratuity provision for one year of service partially addresses this device by removing the one-year minimum service requirement for fixed-term employees, but the basic strategy of limiting individual contract periods to avoid accumulated service entitlements can still be pursued through sufficiently short successive contracts with breaks.
Comparative and International Perspective
The European Union’s Fixed-Term Work Directive (Council Directive 99/70/EC) provides the most comprehensive comparative model for addressing fixed-term worker vulnerability. The Directive has two primary operative provisions. First, it requires equal treatment: fixed-term employees must not be treated less favourably than comparable permanent employees unless the differential treatment is objectively justified. Second, it requires member states to introduce measures to prevent the abusive use of successive fixed-term contracts, which may take the form of limiting the number of successive contracts, limiting the total permissible duration of successive fixed-term engagements, or requiring objective reasons for each renewal.
The UK’s Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002 implement the EU Directive and additionally provide that an employee who has been continuously employed on a succession of fixed-term contracts for four years or more is to be treated as a permanent employee (unless the use of a fixed-term contract is objectively justified by the employer). This automatic conversion provision is the most direct legislative response to the abuse-of-successive-contracts problem.
Germany’s Gesetz über Teilzeitarbeit und befristete Arbeitsverträge (Part-Time and Fixed-Term Employment Act) permits fixed-term employment only where there is an objective reason for the fixed term (such as the temporary nature of the work, a substitution arrangement, or a trial period) or, in the absence of an objective reason, limits the first fixed-term contract with a new employer to a maximum of two years. This dual-track framework provides genuine flexibility for genuine temporary work while preventing the indefinite use of fixed-term contracts for permanent work.
Practical and Policy Implications
The Industrial Relations Code’s equal treatment provision for fixed-term employees is a necessary but not sufficient response to fixed-term worker vulnerability. It ensures that fixed-term employees are not paid less or denied statutory benefits relative to permanent employees doing comparable work, but it does not address the fundamental job insecurity of the fixed-term worker or the employer’s ability to maintain a perpetually temporary workforce.
For workers in the manufacturing sector, the combination of fixed-term employment and the raised retrenchment threshold (from one hundred to three hundred workers) in the Industrial Relations Code creates a doubly precarious position. Fixed-term workers are not retrenched when their contract expires, so the retrenchment compensation provisions do not apply; they simply cease to be employed. And where the fixed-term workers are engaged through a labour contractor, the CLRA framework applies, with all its limitations regarding contractor accountability and absorption.
The apprenticeship misuse problem is related to fixed-term employment abuse. The Apprenticeship Act 1961 provides for the engagement of apprentices at stipend rates that are lower than the minimum wage applicable to workers. Some employers in the automobile and engineering sectors have exploited the apprenticeship framework to engage workers at sub-minimum-wage rates for extended periods, creating a category of workers with neither the legal protection of employees nor the genuine training opportunity of apprentices. The Ministry of Labour has issued guidelines limiting the proportion of apprentices to total workforce, but enforcement is uneven.
Suggestions and Reforms
The Industrial Relations Code should be amended to introduce a provision comparable to the UK’s four-year automatic conversion rule: where a fixed-term employee has been continuously employed on successive fixed-term contracts for a total period of three years, the employment relationship should be treated as indefinite unless the employer can demonstrate an objective justification for the continued use of a fixed-term arrangement.
The Code should impose a maximum duration for any single fixed-term contract (suggested: two years) and limit the number of successive renewals of a fixed-term contract with the same employer without an objective reason (suggested: two renewals). These provisions would prevent the indefinite circumvention of permanent employment status while preserving the legitimate use of fixed-term contracts for genuinely temporary work.
The definition of “continuous service” for the purpose of the Code’s gratuity and other entitlements should be applied across successive fixed-term contracts with the same employer, preventing the use of short breaks between contracts to reset the service clock.
State governments, in notifying their rules under the Industrial Relations Code, should include sector-specific provisions addressing the particular fixed-term employment patterns in construction, IT services, and retail, where the abuse of successive contracts is most systematic.
Conclusion
The Industrial Relations Code 2020’s recognition of fixed-term employment as a legitimate category, accompanied by equal treatment provisions, represents legislative progress. But it is progress that stops well short of addressing the fundamental vulnerability of the fixed-term worker: the absence of job security, the ability of employers to perpetuate temporary employment indefinitely, and the effective exclusion of large swathes of the manufacturing, construction, and service workforces from the labour law system’s most important protections. The comparative experience of the EU, the UK, and Germany demonstrates that a more complete response is possible without sacrificing the genuine flexibility that temporary employment arrangements provide for genuinely temporary work. India’s labour codes, in their current form, leave this task unfinished.
