India – Employment Update

by | Aug 9, 2022

Under the Industrial Disputes Act, 1947, normally, the termination of a fixed term contract does not elicit payment of retrenchment compensation to the contractual worker, unlike the termination of an open-ended employment agreement. In the recent case of Jamnagar Municipal Corporation v. Advesh Kishorbhai Solanki (C/SCA/10126/2018), the Gujarat High Court has reiterated this well-established principle of Indian law and affirmed prior Supreme Court and High Court rulings in holding that, if a fixed term contract is periodically renewed without a break, the contractual worker will be akin to an employee and be entitled to retrenchment compensation on termination of the contract. In these cases, courts deem it to be an unfair labour practice if workers are employed by way of fixed term contracts to avoid providing them statutory benefits which a regular/permanent employee is entitled to.

The new labour codes (which are yet to be implemented) also have a similar exemption from payment of retrenchment compensation to contractual workers under a fixed term contract. That said, the labour codes also provide that a fixed term contractual worker will be eligible for all benefits under any law for the time being in force, available to a permanent employee. While there seems to be an apparent discrepancy pertaining to the payment of retrenchment compensation for fixed term contracts, in all likelihood, retrenchment compensation will continue to be payable to contractual workers in instances where such contracts are renewed without a break.

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