Introduction of Fixed Term Employment (FTE) Under Standing Orders Acts of Various States

The Industrial Employment (Standing Orders) Act, 1946 is a Central law that aims to provide industrial establishments a common framework that defines conditions of employment across the country. The objective behind the same is to ensure workers are aware of the conditions of work they are entitled to as well as regularize the same across the nation to prevent exploitation. Under the Act, States have the power to issue rules as well as publish Model Standing Orders. Recently, several states have introduced fixed term workman as an additional classification to workman under their respective Industrial Employment (Standing Orders) Rules, 1961.

The Central Government through the Ministry of Labour & Employment released a notification on 16^th March 2018 amending the Central Rules to effect the above-mentioned change. To understand the implications of the same we must briefly examine the operation of the Act with the respective rules and the analyse the reason this change was brought in.

Operation of the Act & Rules Prior to the Introduction of the Amendment

The Central Act and Rules provide clarity on model standing orders applicable to industries that are not mines, those that are applicable solely to industrial establishments in mines and model standing orders that are additional items applicable to all industries. The Act provides for certification of Standing Orders by Jurisdictional Labour Commissioner on submission of draft by the employer. These are provided under the schedules to the Act, with each set of model standing orders providing for a classification of workmen.

Prior to the introduction of the above-mentioned amendment, fixed term employment was allowed only in the apparel manufacturing sector. Other industries were not permitted to hire workmen on a fixed term basis which lead to issues, especially in industries that are seasonal in nature.

Under the scheme of model standing orders the available classifications of workers were permanent, probationers, badlis, temporary, casual and apprentices. Fixed term workmen ended up being classified under temporary workmen and thus lost out on several benefits that they would have been entitled to.

Moreover, fixed term workers were ineligible for statutory benefits that were available to permanent workers. This was problematic as there were cases wherein fixed term workers rendered longer periods of service than permanent workmen but received not pay in lieu of the same. Another area of concern was the conditions of work in terms of hours of work, termination of employment, wages, allowances etc. fixed term workers were not provided with the same conditions that were provided to permanent workmen.

Due to the above grey area in the law, employers began opting for fixed term workers to cut costs. The practice of converting permanent workmen to fixed term workmen was prevalent and thus workers were being given the short end of the stick.

Changes Brought in By State Governments

In the past few months State Governments have begun giving effect to the Central Notification that provided for inclusion of fixed term employment. The Notification first amended the portion on classification of workman by adding fixed term employment as an additional classification. Another amendment to Rule-3A remedied the problem of conversion permanent workmen to fixed term workmen by explicitly prohibiting the same. Submission of particulars of workmen also requires details of fixed term employees and the same has been implemented by inserting Item-6A in the Central Rules. In the past few months States like Karnataka, Bihar and Goa have introduced notifications that give effect to these changes, while other States have implemented the same earlier.

Model Standing Order under Schedule-I to the Rules have been amended to include fixed term employment and has provided for parity of fixed term employees with permanent workmen. The concept of proportionality of statutory benefits has also been brought in which ensures that a fixed term employee shall be eligible for all statutory benefits available to a permanent workman in proportion to the period of employment. This applies even if the period of service does not extend to the qualifying period of employment required in the relevant statute. An additional provision has been added to the Model Standing Order wherein workmen employed on fixed term employment basis are not entitled to notice or any pay in lieu of services terminated as a result of non-renewal or expiry of the contract of employment.

While these changes had been brought in two years back, their effect was not felt at the practical level as states had not made the relevant amendments to their respective Industrial Employment (Standing Orders) Rules. This has changed over the last few months, with most states introducing the relevant amendments to give effect to this change.

Impact of Change & Recommendations

The above changes to the Industrial Employment (Standing Orders) Act, 1946 and the relevant Central and State rules bring a practice that has been in operation for a long time into the domain of regulation. However, the cumulative effect the change remains narrow as most of these changes would have been incorporated only by manufacturing companies. This is because the Act is binding only on a certain set of establishments while for the rest it remains advisory in nature. Very few states, such as Karnataka and Haryana have extended the application of this enactment to shops & establishments through the Payment of Wages Act, 1936 in their respective State S&E Acts. Moreover, the above change will take a significant amount of time to implement as standing orders can be submitted for certification only after the requisite Tripartite Consultation and call for objections.

The draft Code on Social Security, 2019 addresses the issue of parity in receipt of benefits with permanent employees under the definition of fixed term employment under Section-2(34). Similarly, under the chapter on gratuity under the Code, fixed term employees are entitled to payment of the same on pro rata basis. The five years of continuous service threshold is inapplicable to the category of fixed term employees.

Best practice for an employer would be to define fixed term employment in their company policies and provide this category of the workforce with their statutory benefits accurately. Employers should refrain from discriminately hiring people on fixed term basis as a cost reduction measure and hire fixed term employees only where the same is necessary.

From a policy perspective, penalties for failure to include fixed term workmen in standing orders as well as non-compliance with other provisions such as conversion of permanent workmen to fixed term may be introduced. Provisions that bestow fixed term employees with permanent status after a certain number of contract renewals can be introduced to ensure that the practice is carried out in a bona fide manner.

What measures have you taken as an employer to implement this change in your company’s policy? Do you think there are any changes required in terms of policy?

Drop your thoughts in the comments below. 

Disclaimer: This blog is meant for informational purposes and discussion only. It contains only general information about legal matters. The information provided is not legal advice and should not be acted upon without seeking proper legal advice from a practicing attorney. Simpliance makes no representations or warranties in relation to the information on this article.