This article has been written by Anuradha Shinde, pursuing the Certificate Course in Labour, Employment and Industrial Laws for HR Managers from LawSIkho.
What is meant by fixed-term employment?
Fixed–term employment (FTC) is an employment contract in which an organization recruits an employee for a limited time period. Generally, it is for a period of one year, however, depending on the necessity, the same can be renewed.
In FTC, the employee is not in the regular employment of the company and he/she is there only to perform explicit & short-term tasks. In such events, the contract automatically gets over on a specific date or at the conclusion of a particular assignment. They are used for various reasons to guarantee that the project has adequate staff members for a particular project to get completed.
Fixed-term contracts can be consecutively entered with an employee maximum of four years. In case the contract gets renewed after this period, the concerned person entitled to become a permanent employee unless the employer is successful in giving a piece of proper evidence or a reason to justify that he should stay on a fixed-term contract.
There exists a set of particular terms and conditions of work like wages to be paid, the place ofwork, leave benefits, hours and period of work. However, FTC cannot be given for regular jobs but is generally given for those jobs which are temporary in nature. Also, it can never be used if an employer wishes to use the same to replace a current employee on leave.
In most technical/IT companies, the professionals are hired on a contract basis to complete a certain ongoing project. The fixed-term employment contract is duly signed by both parties for a certain period of time. On completion of the project, they can be absorbed in regular employment. Many organizations in India recruit a person for a period of one year and take them on the payroll after one year. The potential of the concerned professional is always seen before offering him permanent employment.
In India, there exist no provisions under labour laws with respect to fixed-term employment. In view of this, the Industrial Employment Act (Standing Orders), 1946 introduces a category giving flexibility to a company to recruit the people in the apparel manufacturing sector due to its very basic seasonal nature to meet the ever-increasing & unpredictable demands. On 16th March 2018, the act got amended portraying the FTC as entirely a new concept and benefited the flourishing seasonal manufacturing industries on a national level.
Types of employment can be categorized as below
- Permanent or fixed-term employees
- Casual employees
- Apprentices or trainees
- Contractors and sub-contractors
Benefits of fixed-term contract
To the employer
- Expecting an increased level of dedication from employees.
- Getting a suitable person having expert knowledge for a particular subject.
- With the help of FTC’s and hiring people on contract as per the requirement of the project, it helps an employer to forecast suitably for budgets & use of available resources.
- The employer gets an opportunity to take performing candidates on a permanent basis on the payroll after seeing their performance and only if they are satisfied.
- With a view to make it more appealing, the employer can alter the maternity or paternity leave benefits.
To an employee
- Employees with FTC enjoy similar kinds of benefits & rights that of permanent employees with respect to leaves, wage levels, and working environment.
- Sometimes, the fixed-term employees are paid a better salary than a permanent employee for their special qualities. Profession & aptitude required to perform a specific job.
- The fixed-term employment can get converted to permanent employment depending upon the performance of the employee and the need of the organization.
Employees rights under fixed Term Employment Contracts:
- Pension: A fixed-term employee should be offered access to various pension schemes as offered to a permanent employee. This works in favour of the employer as he need not provide any additional compensation to the FTC employee.
- Holiday Entitlement: Employees on regular employees are entitled to annual leave from the date they join a company. The FTC employees (both full and part-time) get the holiday monthly in advance at a rate of one-twelfth of their annual entitlement.
- Pregnancy: Employees on fixed-term contracts to get the benefit of statutory maternity leave and pay similar to that of permanent employees. Such a statutory maternity leave comes to an end on the expiry of a fixed-term contract.
What is the difference between a fixed-term contract and a permanent one?
Employees are individuals who have an employment contract with a company that ends on a particular date or on the completion of a specific task. The fixed-term contract covers the employees whose contract will get over on a certain date or on completion of a certain project. A fixed-term contract can vary from a number of months up to a year or more.
Permanent fixed term contract
The fixed-term contracts will automatically be deemed to have created a permanent contract, maintaining the employer’s right to terminate the employment on reasonable notice for a good reason. If a fixed-term employee reaches four years with the business, they may automatically become a permanent employee.
Why are fixed-term employment contracts required within the current situation?
Due to the seasonal nature of work in some industrial sectors like textile and leather-based industries, the requirement of manpower is in varying degrees. The demand for such products always fluctuates, depending on the customers, festivals, etc. Sometimes products become outdated very fast, leaving no curiosity among the consumers to purchase such products, resulting in no market demand for them.
Sometimes there is a huge demand for few products in the market. In such situations, to tackle the growing demand of consumers, employers always look to avail the best quality services from a talented workforce to supply the material or end product on-time. They give preference to fixed-term employment contracts, which keep their expenses in control & deal with an increase or decrease in demand.
Employer if wishes to convert his existing employee into fixed-term worker
Rule 3A of Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018, states that the employer shall not convert the posts of permanent workmen existing to his industrial establishment. For fixed-term employees, serving a termination notice is not compulsory as the contract gets terminated automatically or stands canceled on the date of the contract.
Rule 3(3A) in the new provision prevents the employer from converting any of his permanent workmen into fixed-term employment. This is essentially brought into practice to stop the employer or the management of the organization from implementing such practices from exploiting the permanent workers.
The conditions of fixed-term contract coming to an end
- The conditions under which the employer wishes to end the contract must be provided under the contract. In such an event, a minimum notice of:
- One week is essential in case the person has worked for a month or more.
- One week for every year in case the person has continued to work for 2 years or more.
- It is applicable to Employers as well to fulfill the same.
- It is a prerequisite in a fixed-term employment contract between the employer and the employee to contain a clause permitting either party to terminate the contract on the basis of written notice prior to the expiration of the contract term. On completion of the contract, it ends on the agreed date and the employer need not give notice. If the work ends after two years of employment, the employee can be eligible for a redundancy payment and similar rights as applicable to a permanent employee.
- Like any other agreement, even a fixed-term employment contract contains a provision wherein employers can terminate the contract before the due date based on specific criteria.
- The employment setting an end date in a fixed-term contract, the termination is considered a dismissal for employment law purposes.
- In the event an employee wishes to terminate a fixed-term contract before its end date or expiry, he may be liable to pay damages to the employer.
Concerns regarding fixed-term contract
- One of the main concerns of fixed-term employment is Small & Medium size Enterprises (MSMEs) as they may not opt for fixed-term employment as they operate with less profit margin. Rather, their choice is to stick to contract workers to whom they can pay lower salaries. And this becomes one of the major issues as Small and Medium Enterprises form a large portion of the Industries in India.
- In FTC, the employers get a free hand to hire & fire. Sometimes, this forces the employees to bear the malpractices of employers and the unskilled laborers become vulnerable to the unscrupulous actions of the employer.
- Many times, fixed-term workers are not provided with the same working conditions as permanent workers. It certainly proves unfair on the part of fixed-term workers as they deliver for longer hours and still get paid lesser than permanent employees. Few other areas of concern are allowances, termination of employment, wages, etc.
- Generally, the contract of employment specifies the notice period required to be served if the employee wants to resign and leave before the end of the contractual notice; in such cases, the employer hardly has any option.
- FTC’s non-renewal or expiry is considered a dismissal in the eyes of the law, which means that any employee working under a fixed-term contract which has two or more years of uninterrupted service is eligible to lodge a claim for unfair dismissal.
Fixed-term employment provides a mid-way between contract work and permanent employment. The people in case of contract jobs many times face an issue with wages or poor working conditions. Whereas, in permanent employment, the organization is not at liberty to hire & fire the employees. Due to the concept of fixed-term employment, the skilled workers are most benefited and unskilled or semi-skilled workers are forced to bear the employers’ unfair practices. We can conclude by saying that a balance needs to be struck between both types, thereby leading to healthy work conditions for skilled & unskilled workers.
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