Contract Labour – Fixed Term Employment/Contracts

Industry Practices & Challenges

Although Contract Labour system is prevalent for centuries in India, a codified system of rudimentary nature is traceable to ex-princely states with the objective of safeguarding the interests of the subjects. Even after independence, there was no substantial development till the parliament passed the Contract Labour (Regulation and Abolition) Act, 1970 (CLRA)

As for Fixed Term Employees, the industry either availed the services of contractors for sourcing workmen, or directly in their pay roll by issue of direct fixed term employment contracts (FTEs). The Industrial Disputes Act, 1947 (ID Act), has no specific definition of the concept “fixed term” and it comes from the exclusion of “Contractual Employment” from the definition of the word “Retrenchment” as defined in Sec.2(oo)(bb) of the ID Act, (introduced as an amendment, during 1984).

The major framework for fixed term employment/contract are governed, by the ID Act and the CLRA. The workmen employed under this framework are also, inter alia, governed by the following laws: –

  • Equal Remuneration Act, 1976
  • Industrial Employment (Standing Order) Act, 1946 (IESO)
  • Building and Other Construction Workers Act, (RE&CS)1996
  • Minimum Wages Act, 1948
  • Maternity Benefits Act, 1961
  • Trade Unions Act, 1926
  • Payment of Gratuity Act, 1972
  • Payment of Wages Act, 1936
  • Payment of Bonus Act, 1965
  • Employees’ State Insurance Act, 1948
  • Employees’ Provident Fund & Misc. Provisions Act, 1952
  • Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

Regulation of FTE Model

The FTE contract model adapted by the industry was regulated by introduction of Rules by the Central/State spheres by way of amendment to the IESO Act, 1946 and Rules, as illustrated below:

7th October, 2016
Introduced “Fixed Term Employment” in Apparel Manufacturing sector, ISEO Central Rules, 1946
16th March, 2019Extended to all sectors by another amendment
State Amendments on various datesKarnataka, Punjab, Goa, and Bihar etc.,

Fixed Term Employment (direct payroll of Employer)


Hours of work, wages, allowances and other benefits shall not be less than that of a permanent workman

Eligible for all statutory benefits available to a permanent workman proportionately including Gratuity according to the period of service rendered by him even if his period of employment does not extend to the qualifying period of employment required in the statute


Conversion of existing posts of the permanent workmen as fixed term employment not allowed

The prescribed particulars of workmen for purposes of sub-section (3) of Section 3 of the ID Act shall also mention- Number of fixed term employment workmen

Benefits to Industries
Short-term projects that require skilled workmen. Cost of retrenchment compensation and other obligations an option against contract labour in certain cases companies look for quality services from their employees for a limited time. The employer can effectively forecast resources and budget. In real sense, it will support the economy and challenges of industries  he/she enjoys the same benefits and has the same rights as permanent employees. Fixed term employees are entitled to similar (proportionate) leaves, wages and working conditions. In some special cases, fixed term employees are paid higher than a permanent employee in view of their uncommon aptitudes that are needed for the sort of job they have been recruited for. Employment generation.   


  • Fix term employee may work in industries, areas or roles where labour supply is higher than demand. Talent crunch may be faced in critical roles
  • It may lead to high attrition, low engagement, less loyalty and low moral and discontent among the employees
  • Received the short end of the stick when it came to conditions of work, statutory benefits and termination of employment
  • Trade unions “criticize that extending fixed term employment to all sector, will legalise hire and fire modus, while permanent jobs would vanish” resulting in Job insecurity

Risk identification, mitigation and alignment of business model

  • Roles need to be identified for FTE and Management Policy to be framed
  • Contract must be in writing and well drafted
  • Wages and benefits shall not be less than that of a permanent worker doing the same work or work of similar nature
  • Attractive emoluments to be offered to attract high quality talent
  • Flexibility to be provided to the employee in terms of working days per week
  • Engagement initiatives to increase sense of belongingness
  • Various retentions strategies to be introduced such as Term completion Bonus
  • NDA agreement for protecting Secrecy issues
  • Notice period should be appropriate to the term of contract

Contract Labour – Global Percept

  • If the work for which contract labour is employed is incidental to and closely connected with the main activity of the industry and is of a perennial and permanent nature, the abolition of contract labour should be justified.
  • It is also open to the Industrial Tribunal to have regard to the practice obtaining in other industries in or about the same area. 

Key Case Laws

  • Supervision:

Merely because the loaders were handling cargo under the supervision of the International Airports Authority of India(IAAI) when such control and supervision is inevitable the contract labour do not become employees of IAAI (SC, 2009 LLR 923)

  • Test for determination for longer duration contracts >240 days

Object of giving temporary employment – if it falls under Section 2(oo) (bb) of ID Act,…only because an employee has been engaged either casual or temporary intermittently for a number of years, the same by itself would not imply unfair labour practice… determination of question of unfair labour practice essentially a question of fact…the breaks between contracts were not artificial and were basis projects – period of work undertaken commensurate with the period contract undertaken
Gangadhar Pillai vs Siemens Ltd., (2007) 1 SCC 533

  • Gratuity

Gratuity is payable to an employee from the date of entry if he has completed 240 days continuous service in each year for a continuous period of 5 years, irrespective of the fact whether he was badli or casual or temporary worker (2022) LLR745 Karnataka High Court

Liability to pay gratuity can be fastened on the principal employer if the contractor fails to pay the same (2013) LLR374 Madras High Court

Guiding Principles

  • Supervision & Control
  • Economic Control
  • Twin Test – whether the principal employer pays the salary instead of the contractor, and whether he controls and supervises the work of the employee
  • Integration Test – if the service provided by the worker is performed as an integral part of the business or done on behalf of the business but not integrated….
  • Regular hours of work; fixed period of employment; place of work dictated exclusivity of service demanded; Right to summarily dismiss… continuous dominant and detailed control on every point, by the Principal Employer

Ref: International Journal of Advance Research, Ideas & Innovations in Technology

Labour Codes: Key Impact & Challenges   

All the four Codes, viz. Code on Wages, 2019, Industrial Relations Code, 2020-Code on Social Security, 2020 & the Occupational Safety, Health and Working Conditions Code, 2020 have unique impact on contract labour and Fixed Term Employees.  while the OSHWC Code subsumes the provisions relating to contract labour regulation & abolition, the Wage Code consolidates Payment of Wages Act, Minimum Wages Act, Payment of Bonus Act & Equal Remuneration Act. Key highlights are: –

Code on Wages, 2019:

  • Contract labour definition includes inter-state migrant worker, but does not include a worker who is regularly employed by the contractor… on permanent basis
  • Wages (standard definition across all codes) include basic, DA but exclude bonus, house accommodation, travelling allowance, HRA, commission, etc.,
  • Equal remuneration covers all employers and employees……
  • Scope of minimum wages widened by elimination of the concept of scheduled employment
  • Overtime rate shall not be less than twice the normal rate of wages
  • Full wages at the normal rates, are payable even to part time employees, as if he work for full day
  • Contractors/Sub-contractors included in definition of Employer

IR Code, 2020

  • Consolidates Trade Unions Act, IE (SO) Act and ID Acts.
  • Covers matters related to worker’s classification, holidays, paydays and wage rates, termination and grievance redressal mechanisms mandated to establishments with 300 (instead of 100) workers
  • Prior permission for closure, lay-off or retrenchment mandated with at least 300 (instead of 100) workers
  • 14 days’ notice for strike or lockout
  • Threshold for negotiating with trade unions reduced from 75% as members to 51% of workers

OSHWC Code, 2020

  • Consolidates 13 laws including Factories Act, Plantations Labour Act, Mines Act, Working Journalists, Contract Labour (R&A) Act,
  • Factory definition amended to 20 workers for premises where the process uses power and 40, where the process uses no power
  • Mandates applying Code on contractors employing 50 workers (instead of 20)
  • Daily work hours limit fixed at maximum of 8 hours per day…spread over
  • Women entitled to be employed in all establishments for all types of work and employer required to provide adequate safeguards in hazardous conditions… shift….
  • Inter-state Migrant Workers earning maximum of Rs.18,000 p.m., can avail benefits like PDS, building cess, insurance and provident fund 
  • Core activity of an establishment means any activity for which the establishment is set up and includes any activity which is essential or necessary to such activity
  • Following shall not be considered as essential or necessary, if the establishment is not set up for such activity viz.
  • Sanitation works, … watch and ward services including security services, canteen and catering services, loading and unloading operations, running of hospitals, education & training institutions, guest houses, clubs… courier services (support services) civil and other constructional works including maintenance, gardening, housekeeping, transport, any activity of intermittent nature even if that constitutes a core activity of an establishment
  • Intermittent nature is not defined (though the provisions of CLRA, i.e., explanation to sub section (5)(a) of section (1) provides that work perform in an establishment shall not be deemed to be of intermittent nature – (i) if it was performed for more than 120 days in the preceding 12 months, or (ii) if it is of a seasonal character and is performed for more than 60 days in a year.)  
  • Mandatory registration by electronic means
  • Appointment letter compulsory for all employees
  • Employees’ right to obtain from employer information on his health and
    safety and report to safety committee
  • National OS & Health advisory Board
  • Welfare Officer for every 250 workers (factory/mine/plantation)
  • Safety Committee & Officer, Welfare facility, etc.,

The OSHWC Code has come at a critical juncture where the rights of the workers have been in debate and their conditions have been brought to the fore owing to the pandemic. The Code clearly addresses issues like that of the migrant workers that needed much attention. Further, it simplifies compliance for employers in the industry by introducing the provision of a single license pan India.

  • As for Employees, the category of scheduled establishment is done away and instead minimum floor level wages are proposed across regions, basis skills
  • As per statement from the Labour Minister, the number of contract labour deployed in the Central Sphere (Railways, Mines, Ports, Oilfields, etc.) is 2.43 million, till 2021
  • As per a Report by the Indian Staffing Federation (ISF), the number of flexi-staff deployed by their member staffing companies are 1.39 million, +3.5% growth during Jan-Dec’21
  • Notice period should be appropriate to the terms of contract

Trade Union’s Points of view on Fixed Term Model and also the Labour Codes

The concept of Fixed Term Employment is rather abused by certain Employers and the industry to employ FTE model indiscriminately, to avoid permanent employment. In a practical sense, it should be permitted only in exceptions and not as a ploy to deprive permanent employment. It is apt for positions of seasonal nature, and cyclical business with due process of governance. Rather the Line Managers use it to employ hire and fire and policy and the HR/IR should ensure proper system to avoid such abuse.

Social Responsibility is the Golden Rule and even when situations of retrenchment, organization should consider provision of compensation be it a binding obligation or fall as an exception under the provisions of Section 2(oo)(bb) of the Industrial Disputes Act.

As for Labour Code, the Codes contain various provisions not favourable to employees and in particular the provisions for individual settlement between the employer and the employee, under the Industrial Relations Code, as it could be abused by the employer being in the dominant position.


This article is a concise presentation of webinar on Fixed Term Employment & Contracts – Law, Procedure & Practice organized by EFI-LAC on 15th July 2022. EFI place on records its sincere appreciation to the Key Note Speaker Mr. Anand Tripathi – President HR Aditya Birla Group (Ultratech Cement) and Panel Members Mr. Amit Kochrekar – VP, HR Bennett, Coleman & Co Ltd, Mr. Santosh Chalke – General Secretary Bhartiya Kamgar Sena and All India Bhartiya Kamgar sena Mahasangh for their valuable time and contribution to ensure that the webinar was inter active with key essential learnings for the cross section of Industry and individual participants.