Fixed term employment permitted under India’s industrial employment standing orders act, 1946

Mar 31, 2018


On March 16, 2018, the Ministry of Labour and Employment notified the Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018 (the “Amendment Act”), which amends the Industrial Employment (Standing Orders) Act, 1946 (the “Act”) and the Industrial Employment (Standing Orders) Central Rules, 1946 (the “Rules”) to allow fixed term employment for all sectors.  Further, it amends the termination provisions for temporary workmen.

The Act is applicable to industrial establishments where at least one hundred (100) workmen are employed, or were employed on any day of the preceding twelve (12) months.

This update discusses and critiques the Amendment Act.

Fixed term employment for workmen in all sectors

Previously, under the Act and Rules, fixed term employment was only allowed for workmen in the apparel manufacturing sector.  The Amendment Act has liberalized this and allows fixed term employment across all sectors.  The Amendment Act is prospective in nature, and it specifically prohibits employers from converting the posts of existing permanent workmen to fixed term employment.

Meaning of “fixed term employment workmen”

The Amendment Act has introduced the definition of “fixed term employment workman” in the Rules.  A “fixed term employment workman” is a workman engaged on the basis of a written contract of employment stipulating a fixed period, provided that (a) his hours of work, wages, allowances and other benefits are not less than that of a permanent workman; and (b) he is eligible for all statutory benefits available to a permanent workman proportionately 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.

Termination of employment

No notice of termination of employment is required for temporary workmen whether monthly rated, weekly rated or piece rated, and probationers or badli (substitute) workmen.  For fixed term employment workmen, if the fixed term contract is not renewed, then upon the expiry of the contract period, no notice or payment in lieu of notice is required.  However, if a temporary workman is terminated due to alleged misconduct, he is required to be given an opportunity of explaining the charges.

The Amendment Act prescribes separate termination provisions for temporary workmen in coal mines.  A two (2) weeks’ notice is required to be given to temporary workmen in a coal mine, who have completed three (3) months of continuous service, if the termination is not in accordance with the terms of the contract of employment.  For the termination of temporary workmen in a coal mine, who have not completed three (3) months’ continuous service and are terminated before the completion of the term of employment, the reasons of termination have to be intimated in writing.  Further, for the termination of badli workmen in a coal mine, before the return of the permanent incumbent or before the expiry of the term of employment, the reasons of termination have to be intimated in writing.

Our Comments

By extending the provision of fixed term employment to all sectors, it is now possible for employers to hire workmen for a fixed term on specific projects, instead of relying on casual workers.  Further, as there is no need for giving notice of termination or payment in lieu of notice at the time of expiry of the contract, the employer will not be faced with frivolous claims of wrongful termination.

The prospective nature of the Amendment Act ensures that the terms of present permanent workmen are not forcibly converted to that of fixed employment.  The Amendment Act sufficiently protects employees from being subjected to unfair terms in the guise of a fixed employment contract, by extending the same working conditions and benefits as permanent employees.  However, in our view, more clarity is required on the method of ascertaining the payouts for statutory benefits (such as gratuity) which depend on a qualifying period of employment.  All in all, the Amendment Act increases the ease of doing business in India, especially in India’s burgeoning manufacturing sector.

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