In this article, Kanishka Chakrabarti who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses Fixed term employment contracts in India.

Fixed term employment contracts in India

The fact that India has a plethora of laws is well documented, and laws in relation to employment are no different. India has as many as 165 laws relating to the same, covering almost every aspect of employment.

In a broad sense, the category of employees in India can be divided into two, workmen and non-workmen.

Workmen (or blue collared employees) fall under the purview of the definition of workmen under the Industrial Disputes Act, 1947. The other kind, that is, those who fall under management, administrative or supervisory roles, their employment contracts principally governs the relationship between the employer and the employee.

While the Industrial Disputes Act, 1947 primarily relates to workmen, its provisions and content have been reproduced in other statutes, whose scope are wide enough to cover non-workmen as well.

In this assignment we will be primarily dealing with workmen while elaborating on employment on fixed term – this is because the provisions pertaining to fixed term employment so far as employees in managerial or supervisory capacity depends on the individual agreements they execute with the employer. It is legal to the extent the employee agrees to its terms and conditions.

However, so far as those who fall into the ambit of workmen are concerned, there are relevant statutes and provisions that govern the same.

Fixed-term employment contracts in the context of workmen are allowed in India, provided that the  employer hires such persons only a requirement that is short term in nature. The same has been construed to mean an arrangement that lasts for a maximum of 7 (seven) years.

The courts have long held the view that successive fixed-term agreements cannot be used as a substitute for employing a workman on a “permanent” or “unlimited term” basis merely to bypass the statutory provisions and to get benefits out of them. The courts have also ruled that fixed term employment is not meant to be permitted in roles that are permanent by the very virtue of their nature, as far as the particular employer or industry is concerned.

 Fixed-term employment agreements can be signed between the employer and employee, or such relationship may be established through the use of a contractor as envisaged under the provisions of the CLRA Act. While employees on fixed-term employment agreements are not entitled to all the benefits given to permanent employees, such as gratuity, leaves, Provident Fund, etc. (unless such employees are engaged through contractors – in which case it is the responsibility of the said contractor to ensure the same) they are not however assured of other benefits under the act, such as retrenchment among others. These have been dealt with in further detail in the present assignment.

Recognition of fixed-term employment contracts and reasons behind the same

The Industrial Disputes Act, 1947 legitimises fixed term employment of workmen under Section 2 (oo) pertaining to retrenchment. Under the sub-section (bb)[1], the provision states that retrenchment does not include non-renewal of contract owing to its expiry or the said contract being terminated by virtue of a stipulation contained therein.

Further, the definition of ‘workman’ under the Industrial Disputes Act, 1947 provides for a set of exceptions and exclusions, such exceptions do not specify ‘temporary workers’.

Industries may need to streamline operations and cut down on surplus labour owing to factors such as increased costs, low profitability, etc. The same is done through ‘retrenchment’ as laid down under the Industrial Dispute Act. The law mandates that the that the company terminating employment adhere to the relevant provisions such as providing the workmen being downsized are provided adequate compensation and sufficient notice so that they can look for alternate employment, etc.

In an amendment that took place in the year 1984, a new exception was added to the ambit of retrenchment, viz. Section 2 (oo) (bb). The same reads as under ,

“Termination of service of the workman as a result of the non-renewal of the contract of employment between the employer and the workman concerned on its expiry or of such contract being terminated under a stipulation in that behalf contained therein”.

Thus, legitimacy to fixed term employment contract was born – so far as workmen were concerned.

India is a welfare state, and strives to provide employment of the permanent and continuing kind to its citizens, in light of the same the question arises if legitimising Fixed Term Employment Contract is counterproductive?  Especially since the benefits associated with retrenchment is not available to the workmen who are working on a fixed term basis.

The fact is, while in an ideal situation enduring employment is the idea, there are various industries and kinds of jobs which are seasonal or temporary in nature.  The aim is to provide employment during the time they are available – to people who otherwise would have been unemployed. [2]

If the workmen appointed for fulfilling the requirement of temporary projects or schemes were to become a burden on the employer by liberal interpretation of the laws, then the said employers, (including the state) may avoid initiating such schemes or projects in the first place, even though there might be an urgent requirement for the same. Therefore the intention of the legislature was to balance the interests and welfare of the industries, and the workmen.

Brief summary of obligations and rights

• Under a fixed term employment agreement, the employee concerned is entitled to all the statutory benefits otherwise accruing to a salaried employee, this includes among others leave, overtime, provident fund, gratuity, bonus etc. as per the applicable laws.
• Similarly, deductions go towards Provident Fund contributions, insurance amounts, labour welfare funds, canteen facilities etc.
• TDS is deducted from salary as per section 192 of the Income Tax Act. [3]
• The employee is taxed accordingly as per his taxable income slab.
• On termination of a fixed term contract though, no severance dues become payable which would otherwise have been applicable, and no conditions precedent are required to be fulfilled as contemplated under Section 25 F of the Industrial Disputes Act.

Soon after the notification of Section 2 (oo) (bb) of the ID Act, people began to rampantly misuse the provision – employers started exclusively hiring on the basis of fixed term contracts and started shying away from providing regular employment. One particular practice that gained traction was showing a   gap of a couple of days before renewing the temporary agreement. Needless to say, these were, for all purposes actually permanent jobs.

Judicial activism and interpretation of law: Important judicial pronouncement

The judiciary was forced to interpret the law after employers misused the provisions for their selfish advantage instead of benefitting the industries engaged in work in passing phases.

If an employee works under an employer for more than 240 days in a year, even the exception stated under Section 2(oo)(bb) does not entitle the employer to treat such employee as a temporary workman.

This is because one of the prerequisite conditions under Section 25F of the Industrial Dispute Actis that,

“no workman employed in an industry who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until …. “.

In turn, the phrase ‘continuous service’is defined under Section 25B – stating (among other, more specific conditions) where the employee had completed service of 240 days, the provisions of Sec. 25F would be attracted and the exception cannot be claimed.[4]

In the case of Mahindra Co-Op Sugar Mills Ltd. Vs. Ramesh Chandra Gouda[5], the Supreme Court held that in interpretation of sub-clause (bb) the most important factor that has to be looked into is if the nature of work is temporary or for a specific timeline.

In the above mentioned matter, the sugar factory used to hire workmen only during the crushing season and at the end of the same their employment used to conclude. The Supreme Court opined that in spite of the fact that the workmen were employed continuously for almost 240 days[6]per year, the expiry of their employment each year does not come under the ambit of retrenchment owing to the very nature of the job.

The Supreme Court re-enforced its stance in Haryana State Agriculture Marketing Board vs. Subhash Chand[7].

It was contended that as the workman was appointed three times, he was entitled to retrenchment, however the court took note that the recruitment had been made during paddy season for fixed durations on fixed term basis. The Court observed the said patterns and concluded that there were no artificial gaps for the sake of gaps, rather the breaks in between were for considerable durations. The Court held that the employers did not have mala-fide intentions and held that the circumstances warranted exception from retrenchment.

The Court discerns genuine fixed term employment from those trying to pass off as fixed term employment contract – by looking at the times when the employment is made, and how long the gaps are.

The Courts, while sympathetic to such employees, have ruled in favour of the employers time and again in bona fide cases. For example, in Director, Institute of Management Development, UP Vs. Smt. Pushpa Srivastava[8], the Supreme Court held that when an appointment is purely on ad-hoc basis and is contractual and expires by efflux of time, such appointment comes to an end and the workman concerned has no right whatsoever to remain in the post, even though if he was employed on ad-hoc basis for more than one year – such workman’s right to claim service with the employer would not hold ground. The Court did however ask the management to consider the possibility of regularization of such workman to permanent employee.

While it might appear that the courts are lenient towards interpreting workmen to mean permanent employees, particularly owing to attempts to bypass the law on part of the employer, the Courts have time and again been strict in reading the statutes as is.

In State of Gujarat Vs. PJ Kampavat[9],  the Chief Minister and other Ministers appointed people in certain establishments and the order appointing the employees explicitly mentioned that their services could be terminated at any time without notice or reason, and that the appointment is co-terminus with the Minister’s tenure. The employees were also required to give an undertaking agreeing to the said contentions.

The said employees were held to be not temporary government servants as understood under the Bombay Civil Service Rules as the terms of their appointment clearly specified otherwise.

In Surinder Prasad Tiwari vs. UP Rajya Krishi Utpadan Mandi Parishad[10] the Supreme Court held that the courts cannot stand forappointments to public office which has been made against what has been envisaged by the Constitution. It would be improper for the courts to give directions for regularisation of employees who are, as per the law – temporary workers. Such workers, who have not been appointed as per the procedure established under Article 14, 16 and 309 do not have any scope for being recognized as permanent employees.

In Salt Commissioner vs. Central Salt Mazdoor Union, the Supreme Court held that the government is not bound by acts of its officers in contravention to statutory rules and any breach by said officers can not result in the benefit of a temporary employee.

In RBI vs. Gopinath Sharma, the Supreme Court dismissed the order of the High Court, which had directed to regularise the appointment of a workman who was hired as a temporary worker and did not work on a regular basis. Likewise, the Court did not stand for the regularisation of daily wagers who did not fulfil the criteria of recruitment as per the statutory rules but were hired nevertheless owing to needs of administration[11].

Another factor that the courts regularly look into while ascertaining if an employee amounts to a temporary workman or not is to observe that if during the said period, any other employee with similar nature of work was appointed in permanent capacity.

In a matter, a workman was appointed as a typist and worked for roughly six years, his appointment was on temporary basis and he was given breaks during the said term, after which his contract was again renewed. The labour court ruled that he ought to be reinstated. While The Allahabad High Court[12]held that the labour court was wrong in logic, but nevertheless modified the order and directed reinstatement of the typist as during the interim period, other typists were appointed – which amounts to discrimination.

In Pramod Kumar Tiwari Vs. Hindustan Fertilizer Corporation Ltd[13], the High Court of Madhya Pradesh opined that termination of a of a workman who was appointed for a fixed term (and renewed thereafter) would not be covered by retrenchment, as it fell under the exceptions stated in Section 2(oo)(bb) of the Industrial Disputes Act.

However, it is generally accepted that any person who has been working for an employer for more than 7 years, albeit through renewals and by way of fixed term contracts – would be interpreted as a permanent worker, and such practice should be avoided.

The Supreme Court’s opinion in Deepa Chandra Vs. State of UP &Ors[14] Is also worth looking into.The workman raised the matter stating that in spite of him putting in more than 240 days in each year of service for a period of six years, he was retrenched without fulfilling the criteria as prescribed under Section 25F of the Industrial Dispute Act. The Labour Court arrived at the conclusion that the termination was illegal as people who were appointed subsequent to him were still continuing in service. The Labour Court ordered reinstatement of the worker. The High Court however overturned the Labour Court’s order, on which the Workman appealed to the Apex Court. The Supreme Court held that the High Court did not take into account the fact that the Workman had been in service more than 240 days every year, and thus his services could not be terminated without following the prescribed procedure under Section 25F.

The Ahmedabad High Court, in Keshod Nagarpalika Vs. Pankajgiri Jhavergiri[15]  has held that Sec. 25F of the Industrial Disputes Act lays down the conditions precedent for retrenchment of workman. If a Workman claims to have worked for 240 days, and the management was unable to show evidence to the contrary, or did not challenge such a claim, any order for granting such workman reinstatement cannot be set aside.

The Supreme Court in Jacob M. Puthuparambil and others, Vs. Kerala Water Authority and others,[16] has however held that such appointments that were intended to be interim measures to serve the purpose and not long term ones. The provisions were put in place not to fill a long list of vacancies but those that could remain vacant till long term appointments could be made. But, if these appointments continued for too long, the same had to be regularized, so far as the appointees qualified the requirements. These employees,who have been employed and working at the establishment for a long duration must be allowed to avail all the benefits associated with a permanent appointment and ought to be permitted to continue with their jobs in a regularized manner. It is unreasonable, unfair and against the principles of natural justice to terminate such people who have been rendering their work satisfactorily, and these can go on to have serious consequences. Not only for him, but for his family, who have also settled down and become used to and accommodated their needs along with the bread winner, who is often the sole earner in his family. The family may suffer economic loss of the worst kind if his source of income is suddenly taken away. Further, he may be barred from securing a job elsewhere owing to his age, and his lack of skills in different vocations.

The Court went on to say that such a move is against the principles of the constitution and the philosophies it stands for, particularly ‘the right to work’ as enshrined in Article 41. “Therefore, if interpreted consistently with the spirit and philosophy of the Constitution, which it is permissible to do without doing violence to any rule, it follows that employees who are serving on the establishment for long spells and have the requisite qualifications for the job should not be thrown out but their services should be regularized as far as possible”.

Conclusion

We have, during the course of this assignment, understood the legalities of fixed term employment contracts in India, and have seen how the laws have evolved in this respect. While initially the employers tended to misuse the provisions for their benefits, thanks to the activism on the part of our courts, occurrences of the same have substantially come down. The current government in particular have brought new industries under the scope of fixed term employment agreements and promises to do further in this aspect to aid in further job creation and fuel new industries in our country. However, the nature of the jobs aside, we ought not to forget our roots, India is a welfare state, and we have to ensure that our citizens be given permanent employment in conditions suitable to them and in terms of work environments that lead to their further growth. The government has also simultaneously commenced the ‘skill India’ movement, and we can hope that in the times to come, provisions such as this will be used only in such cases that there are no alternatives.

This was all on Fixed term employment contracts in India. What are your views on Fixed term employment contracts in India? Comment below and let us know. Do not forget to share.

References

[1] Coming into effect from 1984.

[2]S.M. Nilajkar vs. Telecom District Manager (AIR 2003 SC 3553)

[3]http://www.businesstoday.in/moneytoday/cover-story/different-types-of-employment-contracts-benefits/story/192008.html

[4]Krishna Kumar Vs. UP SFEC Corporation (1994) III LLJ (supp.) 254 (SC)

[5]AIR 1996 SC 332

[6]A requirement under Section 25F of the Industrial Dispute Act for retrenchment flowing from Section 25B of the same Act.

[7]AIR 2006 SC 1263

[8]AIR 1992 SC 2070

[9]AIR 1992 SC 1685

[10] (2006) 7 SCC 784

[11]Yogesh Chandra Dubey Case.

[12]2000 LLR 56

[13]1994 LLR 465

[14]2001 LLR 312

[15]2000 LLR 416

[16]AIR 1990 SC 2228