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PERSPECTIVES The Future of VIKALPA

The Journal for Decision Makers


48(2) 87­–99, 2023

presents emerging issues Fixed-term © The Author(s) 2023


Article reuse guidelines:
in.sagepub.com/journals-
and ideas that call for action
or rethinking by managers,
administrators, and policy Employment permissions-india
DOI: 10.1177/02560909231178162
journals.sagepub.com/home/vik
makers in organizations
in India
Kanupriya Jain
Special Operations and Talent Acquisition, Larsen & Toubro Ltd., Mumbai,
Maharstra, India

Piyali Ghosh
OB & HR Area, Indian Institute of Management Ranchi, Ranchi, Jharkhand,
India

Shankha Shuvra Misra


Xavier Labour Research Institute, Jamshedpur, Jharkhand, India

T
he industrial relations (IR) environment in India and its labour market, have
been undergoing significant transformations in multiple domains for around
two decades after the economic liberalization. Gillan and Lambert (2013)
observe several restructurings at the workplace level in the country. These include,
among others, farming out job functions or services to any third party through
outsourcing, engaging contract labour in the organized sector, the tendency among
managers to avoid acknowledging the right of trade unions to collectively bargain
and the prevalence of voluntary retirement schemes for having numerical flexibility
of the workforce.

In tandem with such changes, precarious forms of work are growing steadily, with
‘a generous use of flexi-category workers’ (Sapkal & Sundar, 2017 p. 342). One
such flexible work arrangement, namely fixed-term employment (FTE) has been
a subject of debates and controversies. The Ministry of Labour and Employment,
Government of India, introduced FTE in 2018 under the classification of workers in
KEY WORDS the Industrial Employment (Standing Orders) Central Rules, 1946. Any FTE worker
Fixed-term Employment is to be hired for a fixed period on an employment contract provided in writing.
Though the duration of employment is fixed, a worker under a fixed-term contract
Fixed-term Contract
(FTC) is to be treated at par with a permanent (i.e., regular) worker for all aspects
Code on IR of service conditions like wages, allowances, other benefits, and hours of work.
Standing Orders Act This work arrangement is all set to get new emphasis with the introduction and

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VIKALPA • VOLUME 48 • ISSUE 2 • APRIL-JUNE 2023 87


Table 1: Percentage Share of Overall Employment.

Share of Overall Employment Years


2004–2005 2011–2012 2017–2018
Self-employed 56.9 52.2 52.2
Regular salaried 14.3 17.8 22.8
Casual workers 28.9 29.9 24.9

Source: India Wage Report, (2018).

implementation of the upcoming Labour Codes (Code forces (Deakin, 2009). Therefore, labour regulations,
on Wages, 2019; Code on Occupational Safety, Health & more specifically the ones which aim to provide
Working Conditions, 2020; Code on Social Security, 2020 employment stability, are hindering new investments
and Code on Industrial Relations, 2020). and economic and employment growth (Posner, 1984).
Counter to this laissez-faire proposition, there have
Our study analyses the operational feasibility of having been ongoing debates citing the success of various state
FTCs in India by discussing their merits and demerits. initiatives to improve labour market indicators.
We have limited the scope of the article to issues like
unionization of workers on FTC, termination of such Labour productivity has been growing significantly
workers and their inclusion in workers’ participation since 1991 in India. The real gross domestic product
in management (WPM) of industries. Ahead of the per employed person has increased by three-and-a-
introduction, the study briefly discusses the restructuring half times since 1991, while the average productivity of
process in the Indian labour market, followed by a labour in the organized sector has grown around three
section that presents some of the advantages that FTE times (Dasgupta & Kar, 2018). In contrast, the labour
could bring to employers and some pertinent concerns force participation rate has gone down. Such factors,
related to workers in the Indian context. The section after coupled with a near-constant unemployment rate,
that, reviews the practice of FTCs in other countries, the indicate that the proportion of the population looking
merits and demerits of these contracts and the prevalent for employment has risen sharply. Real wages have also
practices of duration and rules of renewal. A discussion increased, although at a variable rate, across various
on policy options for regulating FTCs follows, and the skill levels. We consider this combination of increasing
study ends with concluding remarks. real wages and growing unemployment as a unique
labour market outcome.

RESTRUCTURINGS IN THE INDIAN LABOUR An analysis of the overall employment status in


MARKET the country from 2004 to 2018 (see Table 1) prima
Looking back at the evolution of the IR framework, we facie indicates an increase in the number of regular
observe a consistent context of regulations. Moving salaried workers and a decrease in casual workers as
from a pre-independence colonial setup, the legislative a percentage of overall employment (Mehrotra, 2019).
framework for labour has also been evolving. Since 1991, Figure 1 presents the share of wages and profits of the
the Government has adopted several measures to reform gross value added in manufacturing between 1993 and
the existing regulations in the labour market, along 2013. It is evident that the increase in wages has never
with more privatization and increased liberalization come at the cost of profits, thereby attesting to the
in the industrial policies at the national level. The fact that firms, on the aggregate, are not suffering as a
overall objective of these measures has been to increase consequence (Abraham & Sasikumar, 2017).
industrial output and productivity significantly. Data
reported in various studies till 2019 indicate that this Though the increase in labour productivity and
objective has been met, albeit partially. decrease in the number of casual workers have not
happened at the cost of profits, this did not reflect in
However, a prevailing neoclassical view is that labour- the formalization of the workforce. A staggering 90–94%
related regulations are exogenous to a self-adjusting of the labour force is still away from the protection of
labour market and disturb the operations of market labour regulations and benefits generated for formal

88 THE FUTURE OF FIXED-TERM EMPLOYMENT IN INDIA


Figure 1: Share of Profit and Wages in Manufacturing gross value added (in percentage).

Source: Abraham and Sasikumar (2017).

employment. Evidently, the drop in agricultural scheme was withdrawn. More than a decade later, in
labour has not resulted in commensurate growth in the October 2016, the Government introduced FTCs in the
organized sector workforce. apparel manufacturing industry. The seasonal nature
of employment in the industry was put up as the
Since the past decade, the Government has been underlying rationale for flexible laws.
attempting to overhaul the archaic and oft-cited rigid
labour laws, so that the regulatory framework gets more In 2017, the Government extended this form of
in sync with the modern business landscape, pushing employment in the leather and footwear sectors under
for higher employment flexibility. As a part of labour the ‘Make in India’ Scheme and the National Skill
reforms, four categories of Codes have subsumed and Development Mission. Now, with the 2018 notification,
consolidated 25 central labour laws. The Labour Codes the Government has elaborate plans to incorporate FTE.
are also expected to bring about better compliance The Code on IR, which will subsume the Industrial
with legal provisions. Of these, the Code on Industrial Employment (Standing Orders) Act, 1946, has included
Relations (referred to interchangeably as Code on IR provisions for FTE. As per Section 2 clause (l) of the
from this point ahead) is already inviting criticism for Code, FTE refers to ‘the engagement of a worker on the
giving FTE legal sanction, on the grounds of further basis of a written contract of employment for a fixed
reducing formal, stable and regulated employment period’.
(Roychowdhury & Sarkar, 2021).
FTE is now applicable to all industries to promote ease
of doing business. A worker on FTE shall get all the
ISSUES IN FIXED-TERM EMPLOYMENT MODE IN
statutory benefits that a permanent worker is entitled to.
THE INDIAN CONTEXT
Benefits like gratuity are to be given in proportion to the
FTE is not new in India. In 2003, the Government service the FTE worker renders, even if the tenure is less
introduced FTE amidst stiff opposition from all central than the qualifying period of employment stipulated in
trade union organizations (CTUOs). Consequently, this the respective legislation.

VIKALPA • VOLUME 48 • ISSUE 2 • APRIL-JUNE 2023 89


During a phase witnessing increasing ‘non-standard the 1990s (Niti Aayog, 2020), it still employs a significant
work arrangements’ (International Labour Organization part of the labour force. One reason is the extensive use
[ILO], 2015) to bring about employment flexibility, we of contracting out in public sector enterprises (Chandra
perceive it imperative to understand the implications & Walton, 2020).
of FTE contracts, both for employers and workers. This
section presents an elaborate narrative of the advantages The private formal sector has been experimenting with
that FTE could bring to employers and the possible risks various policies on labour flexibility for a long time.
to workers. The more economically stable, reputed and older firms
have been following labour-related policies similar to
the public sector, thereby maintaining a certain parity.
ARGUMENTS IN FAVOUR OF EMPLOYERS It is the newer firms that are instrumental in driving
the present enactments. FTE could be suspected to be
Greater cost flexibility and better control over workers
a case for roundabout protectionist cover to such firms.
are two economic advantages that FTE offers to
However, contemporary research has not found much
employers. From the neoliberal view, FTC as a work
merit in favour of the role of rigid labour laws and the
arrangement would take out the burden of long-term
inability to hire and fire as a deterrent to employment
cost commitments of an employer (like pension and
growth (Roychowdhury, 2019).
tenure-induced wage velocity) associated with formal
employment, thereby paving the way for accelerated
job creation (Roychowdhury, 2019). The Government Further, wherever the barriers to hire and fire are
has removed the original provision that prevented a high, workers continue to work in sectors that are
private establishment from converting a permanent job unproductive, the outcome of which is a loss of
to a fixed-duration job. The Code on IR does not have competitiveness and less job creation. Employment
this restriction as well. legislation that is rigid could push workers to some grey
area. On the contrary, reforms aligned with the World
With the job market already gloomy in the second year Bank’s initiative—‘Ease of Doing Business’ have the
of the pandemic, employers might prefer more tenure- potential to spread the scope of regulation by including
based workers over a regular workforce, thus having employers and workers in the formal sector (World
a lesser burden of fixed costs. As the scheme of FTE Bank, 2006). We see this as a strong advantage that FTE
seems more in line with providing a business with could bring to Indian private enterprises.
the flexibility to deal with a changing environment, it
is not surprising that employers have welcomed the Among the other advantages to a employer, fixed-
Government’s directive on FTE. term workers can now be hired directly without the
intervention of a contractor. FTE may be used as an
In developing and developed countries, FTE co-exists alternative to engaging contract labour, thereby giving
with regular employment (ILO, 2015). As opposed to the simultaneous advantages of flexibility and reduced
FTEs, in regular employment, the job tenure is protected. transaction costs. It is argued that FTE would benefit
Wage velocity leads to a ‘decent wage’, as compared micro, small and medium enterprises (MSMEs) as these
with ‘acceptable wage’, and workers enjoy retirement establishments face labour market rigidities. MSMEs
benefits in terms of pension and gratuity. This coexistence work in a complicated regulatory environment that
enables employers to gradually shift jobs from regular does not deter them from deploying FTE workers as
employment to FTE, without facing any shortage of and when required (Financial Express, 2019). Introducing
workers, given there is a lower-cost alternative ready and FTE could thus help MSMEs generate employment.
waiting. As a result, the FTE system enables employers to
enforce discipline in their favour, exercising better control Referring to the seminal work of Lepak and Snell (2002)
of the workforce (Basu et al., 2021). on HR architecture, we see FTE to be located in the third
quadrant of the matrix on ‘human capital characteristics
Another vital factor to note here is the role of the and employment modes’ (p. 520). This quadrant
government as an employer, especially for organized ‘contains human capital that is neither of particularly
labour through the public sector. Though employment of high strategic value to a firm nor unique’ (p. 521). Our
regular workers in the public sector in India has steadily logic is backed by the argument given by these authors
declined since the onset of liberalization initiatives in that such workers are fit for tasks that have limited

90 THE FUTURE OF FIXED-TERM EMPLOYMENT IN INDIA


scope or duration. Employers would thus be keen on the biggest argument from the neoliberal camp, FTE can
engaging workers on FTC in tasks with low exposure to effectively emerge as the legally sanctioned downward
risk and lesser focus on value. spiral that can bring down the overall wage rates (Basu
et al., 2021).
Although the two principal advantages of FTE, namely
flexibility and control, are touted widely, there has been A typical example is an increase in wage inequality for
no conclusive evidence of these advantages in the long regular urban workers from 1993–1994 to 2011–2012
run. On the contrary, Wang and Heyes (2020) found (ILO, 2018), evident from a sharp rise in the wages of
employers who do not deploy FTE in the European skilled workers compared with unskilled ones. We align
Union (EU) record higher productivity advantages over with Sundaram (2018), who points out that FTE would
those who engage workers on FTC. Similarly, the rising benefit the categories of highly skilled workers, as they
labour problems across establishments in India raise are in high demand in their specific industry.
doubt over the validity of the claim over control (Kazi,
2021). On the benefits side of the argument, the Code on
Social Security claims to extend all admissible benefits
of a regular worker to one on FTC. But, in reality,
ISSUES RELATED TO WORKERS establishments that engage workers on FTC tend to
deprive the latter of provident funds and certain other
The policy decision of the Government on FTE is
benefits that are the legal entitlement of any regular
purportedly non-discriminatory for any worker on FTC
worker. It would be interesting to briefly mention a
in terms of wages and related benefits. Nevertheless,
recent judgement by the Supreme Court of India in
there are several risks inherent to FTE for workers in the
its January 2020 judgement (Pawan Hans Limited and
Indian IR framework. We have summarized a few such
Others vs. Aviation Karmachari Sanghatana and Others).
issues below.
Herein, the apex court has clarified that all contractual
employees who are paid wages directly or indirectly by
Issues Concerning Wages and Other Benefits the company are eligible for provident funds, irrespective
Ideally, fixed-term contractual arrangements are of the nature and periodicity of their employment.
designed by employers to complete tasks that are time-
bound and tenured in nature. Therefore, the scenario
Issues Related to Termination
could be less favourable for unskilled and semiskilled
workers, who comprise the majority of the Indian Perhaps the most significant challenge would be
workforce (Times of India, 2020) in the immediate future the termination of FTE workers (or retrenchment, as
in terms of long-term employment prospects. This is per the Industrial Disputes [ID] Act, 1947). An FTC
also compounded by the fact that these workers are implies that a worker is hired for a particular fixed
mostly exposed to unfair practices by their employers. period, and employers do not have to give notice to the
Compared to European nations, short-term workers worker before this period ends. Likewise, this would
on low wages in India face a staggering 60% wage mean that employers can terminate such workers
penalty because of tenurial insecurity, in sharp contrast before the contract ends, possibly on the grounds of
with high-wage workers engaged in longer-term non-performance and/or other misdemeanours.
employment contracts (Menon, 2019).
Section 2(oo)(bb) of the ID Act, 1947, defines retrenchment
In fact, we foresee a rise in employment vulnerability by clearly excluding ‘termination of the service of the
among workers with lower skills in the long run. workman as a result of the non-renewal of the contract
Without bargaining power and legislative protection, of employment between the employer and the workman
fixed-term workers might be obligated to accept lower concerned on its expiry or of such contract being
wages (Jimeno & Toharia, 1993). In contrast, these terminated under a stipulation in that behalf contained
workers should ideally ask for higher wages because of therein’. This can easily be extended to the case of fixed-
a lack of security, based on the logic of more risk, and term workers, the termination of whom is thus not
more returns. Hence, the possibility of a compensating included within the ambit of retrenchment under this
differential, owing to job insecurity, does not seem to Act. It follows that an employer does not have to pay
be relevant, given the massive unemployment rate in retrenchment benefits to these workers, which might
India. Instead of a rising tide lifting all boats, perhaps be construed as empowering employers to hire and fire

VIKALPA • VOLUME 48 • ISSUE 2 • APRIL-JUNE 2023 91


at will. Interestingly, the Code on IR also has excluded unionize. In a study of eight firms operating in India,
FTE from the definition of retrenchment by specifying including Japanese and Korean MNCs, Hammer (2010)
‘termination of service of the worker as a result of the observes resistance in the management towards trade
completion of tenure of fixed-term employment’. union organizations and employers’ mobilization of
state interventions. In the same research, workers of one
of the Japanese firms expressed that the management
Issues Related to Unionization
prevented them from forming their union and that such
For workers hired under FTE, joining or forming a workers were dismissed.
trade union is a pertinent issue. Low rates of union
membership among workers on FTC are of concern Historically, CTUOs have been affected by a
for the trade union movement in many countries. For narrow membership base. They focussed on large-
instance, unions representing FTC workers in the UK scale enterprises and public sector workers in the
public sector have revealed that member-workers in formal economy, which has been detrimental to the
casual employment are among the most insecure and interests of other categories of workers. However,
exploited (Conley & Stewart, 2008). Booth and Frank Gillan and Lambert (2013) observe a paradigm shift
(1996) point out that most USA unions focus on members in the composition, strategies and priorities of trade
who serve a relatively longer term in an establishment. unions in India, with specific plans to reach out to
women and contract labour. Unions are extending
In India, the definition of a workman as per Sec. 2(g) of the their presence in the unorganized sector to include
Trade Unions Act, 1926, refers to ‘all persons employed urban workers from industries like construction,
in trade or industry whether or not in the employment and the service sector, including transport. Despite
of the employer with whom the trade dispute arises’. For renewed focus of unions on increasing their
the chapter on trade unions under the Code on IR, in a membership base, it remains a question whether
similar vein, a worker means ‘all persons employed in FTE workers would be allowed union membership
trade or industry’. The ambit of both these definitions with the regular workers of any establishment. If
is wide enough to include FTE workers. Yet, there are not, how can these workers fight for their legitimate
several points of concern that have to be spelt out. rights otherwise?

The Indian labour market is still not favourable to Lack of clarity on unionization for FTE workers could
workers. Flexibilities through contractual work have bring multiple problems. The absence of a collective
emerged as a ‘major irritant in the IR scenario of India forum in the form of a trade union could expose such
in the last decade’ (Sohani, 2015, p. 144). The majority of non-regular FTE workers to the risk of being deprived
the labour laws are applied only to large establishments, of legitimate benefits. Even if these workers are allowed
to which, by and large, unions are also confined. to join a union, would an employer pay heed to the
Compliance with labour legislation usually involves a issues peculiar and restricted to FTE workers? One
cost to the employer to revise wages, contribute to social recent example is of FTE workers of Alliance Air, a
security, and so on. Unions further contribute to such an subsidiary of Air India. These workers were being paid
increase in costs and lessening of functional flexibility. lower wages and given fewer benefits compared to
Hence, there has been a tendency in establishments permanent workers. Air India reportedly ignored the
in the organized sector to avoid applying labour laws workers’ demands put up by the Centre of Indian Trade
and the formation of trade unions by ensuring that the Unions (Hemalata, 2018).
workforce employed is small (Papola, 1994). Further,
within an establishment, the category of permanent
Other Issues
workers is mostly unionized and enjoys the best
social security coverage and emoluments compared Workers engaged through a contractor could be on
with the other types of workers (Vijay, 2005). Regular the permanent rolls of the latter. Hence, removing
contract workers mostly do not have a social security or contractors as an intermediary at the cost of fixed-
emoluments package, nor are they members of a trade term arrangements directly with the employer could
union within the establishment. invite precarious employment status. We foresee an
interesting trade-off for workers on FTE, as they would
Another concern is that multinational companies get legal recognition but would not have any right to
(MNCs) tend to victimize employees if they try to regularization on completion of the contract.

92 THE FUTURE OF FIXED-TERM EMPLOYMENT IN INDIA


The economy has suffered from a sharp rise in translate this scheme to create a trend among employers
unemployment from 5.27% in 2019 to 7.11% in 2020, per to convert permanent workers into FTC workers
the Centre for Economic Data and Analysis. Although (The Economic Times, 2018). Such a shift in workforce
skilled workers might opt for short-term employment composition could adversely affect those in regular
amidst uncertainties as recently thrown open by the employment.
pandemic, they might prefer more stable, regular
employment in the long run, making FTE attractive Overall, we are faced with several questions. Is the IR
to only skilled workers in the short run. FTE assures framework in India ready for FTE? Is FTE poised to be a
flexibility to employers and workers alike. However, an new form of labour that could be subject to exploitation?
in-depth look into the concept reveals that this flexibility Would the IR system make appropriate changes to
is detrimental to female workers. An employer would absorb this new form of work arrangement?
like to hire the best talent in the market with competitive
wages and prefer someone for whom it has to be less
FIXED-TERM EMPLOYMENT IN OTHER
accountable in providing various employment benefits,
COUNTRIES
including maternity benefits. Under such circumstances,
would women willing to work under FTC benefit? Among the nations in which FTE is in vogue, Spain
stands out as an excellent example as non-standard
The Indian labour market is unique, with a vast work arrangements account for around one-third of
presence of unorganized labour. Since the past few the country’s total salaried employment. Most of these
decades, the unorganized sector has grown faster than arrangements are fixed-term, without any implicit or
the formal sector, and this phenomenon is termed explicit contract for long-term employment. Amuedo-
as ‘informalization of the formal sector’. Prominent Dorantes and Serrano-Padial (2007) have assessed the
features of this sector are low wages, unproductivity implications of a rise in wages in FTE in Spain. Their
syndrome, and poor working conditions. Another results indicate that wage growth for workers on an
burning question is whether FTE will bring another indefinite term mostly happens through job mobility.
set of workers subject to exploitation similar to the Fixed-term workers, on the contrary, have wage gains
unorganized sector (NCEUS, 2007)? on the job and through job mobility. Jimeno and Toharia
(1993) have empirically established that using FTCs
For labour, one of the most prominent features of the in Spain brings the risk of greater bargaining and
Constitution of India is workers’ participation in the discrimination against such workers in terms of wages.
management of industries, laid down in Article 43A
as one of the Directive Principles of State Policy. The Blanchard and Landier (2001) have studied the negative
very idea of empowering workers emanates from the impact of fixed-duration employment contracts in
socialist principle enshrined in the Constitution. There France. Theoretically, the authors have posited that
is a lack of clarity on whether FTE workers would be such a reform may be perverse because it leads to higher
allowed to be members of worker bodies like works turnover and lower welfare. As per the 2015 report on
committees that promote joint decision-making as non-standard forms of employment by the ILO, in some
a component of WPM. Furthermore, the legislation countries (like the Republic of Korea after the financial
on equal pay for equal work (Equal Remuneration crisis of 1998, Bangladesh in 2010 and Ireland in 2011–
Act, 1976, which is getting subsumed under the Code 2012), the economic downturn has led to growth in
on Wages, 2019) is yet to spell out the rights for this hiring on very short, temporary contracts rather than
category of workers. permanent hires, to keep labour costs flexible. The
outcome has been increased volatility in terms of both
All the central trade unions have opposed the employment and unemployment. Such volatility is
directives of the Government on FTE. They argue that likely to make the public budget volatile and bring
the Government did not consult trade unions and severe implications for taxpayers, as more people could
has ignored the tripartite mechanism. Union leaders claim unemployment benefits. De Matos and Parent
are construing this notification to the Government’s (2016) observed increased use of FTCs primarily by
legitimizing violation of the existing legislative start-ups in the early 2000s in Portugal, coinciding with
framework that protects workers’ rights. Unions also the country’s deteriorating business climate.

VIKALPA • VOLUME 48 • ISSUE 2 • APRIL-JUNE 2023 93


RULES FOR DURATION OF CONTRACT AND has been introduced, by which an employee can work
RENEWAL OF CONTRACT on such contracts for the same employer for up to two
years within five years. There would be no statutory
Without a proper legislative framework, there is no
protection against the abuse of successive temporary
doubt that exploitation of this category of workers
contracts (Engblom, 2008).
is bound to happen. Several countries have tried to
control such exploitation by incorporating appropriate
FTCs in Japan generally extend to 3 years. Such an
enactments. The practice of FTC varies widely, ranging
extension can be up to 5 years for employees above 60
from giving complete flexibility to employers to
years of age or highly skilled employees, but the number
restricting the maximum duration of contracts to 18
of renewals has no legal limits. Brazil permits only one
months. Hoda and Rai (2015) have reviewed the legal
extension, though the cumulated duration must be
perspective of FTCs in emerging countries, especially
restricted to two years. In France, FTCs are allowed only
the OECD nations. They observe variations in regulatory
one renewal, with the maximum term only 18 months.
rigour in the legislative frameworks across countries.
For example, while the USA is liberal about all forms of Zhao and Zhang (2010) have analysed how the
FTC, France is strict. Labour Contracts Law of 2008 in China has influenced
employment relations therein. Workers with 10 years of
Legal provisions in several countries prevent engaging
continuous work can enter into the second or successive
FTE workers in regular tasks. FTC is permissible only
FTC with a non-FTC. Countries with the norm of two
for a temporary assignment unrelated to an enterprise’s
successive FTCs include Indonesia, Saudi Arabia, Spain,
core business in France. Countries that do not allow this
Brazil and Vietnam. At the other end of this continuum,
type of employment in regular, permanent tasks include
South Africa has no legal restriction on the cumulative
Mexico, Brazil, Argentina, Russia and India. Denmark’s
duration or the number of renewals permissible.
legal system does not have any statutory restriction on
fixed-term work. The legitimate scope for FTCs in Finland
is limited only to justifiable reasons, while Norway has a MERITS AND DEMERITS OF FIXED-TERM MODE
strict regulatory framework (Numhauser-Henning, 2002). OF EMPLOYMENT
Policies that impose an upper limit on the number of Flexible forms of work find support from employers on
renewals of any FTC usually aim to render job security. several grounds. Among the variants of employment
Several countries have imposed limits on successive flexibility, fixed-term or a temporary contract
FTE contracts, while some have a legal limit on the arrangement is of particular interest to organizations
maximum duration for which any worker on FTC (Guest, 2004). For example, in an investigation of the
could be employed. Germany is the most liberal for Australian black coal mining industry, Waring (2003)
FTCs, permitting contracts for two years in general and has commented that a rise in temporary employment
four years in new businesses. It allows four renewals, arrangements represents an essential remodelling of
with two years as the maximum cumulated duration. employment relations, with the potential to change
Similarly, Belgium, Portugal and Slovakia allow up to bargaining structures in favour of employers. In
four renewals; the Czech Republic, Romania, Greece countries like Indonesia and China, FTCs are used as a
and the Netherlands permit three renewals (Aleksynska stepping stone to regular employment in the future, as
& Muller, 2018). In the Netherlands and Belgium, if employers hire at entry-level using such contracts (Basu
an employer fails to comply with the provisions that et al., 2021).
regulate FTE contracts, it is mandated to change them
into open-ended employment contracts (Blanpain, 2008). FTCs are applied as a flexible mechanism to adjust
employment with business cycle fluctuations in an
Countries like Spain, Brazil, Korea and the Netherlands economy (Blanchard & Landier, 2001). FTE increases
permit a maximum of two years for FTCs, including competition among workers and boosts labour turnover
renewal. Earlier, Sweden had a complicated pattern (Schomann et al., 1998; Blanchard & Landier, 2001). Some
of restrictions by justification for and/or maximum sections of the Indian information and communication
duration of such contracts imposed by legislation. technology (ICT) sector that are dependent on project
However, since July 2007, Swedish employers may workers employed on a fixed-term basis have witnessed
not cite any objective reason for fixed-term contractual turnover rates as high as 50–75% (Machado & Kourakos,
employment. A new format, namely ‘fixed-term-at-will’ 2004, c.f. Ross & Ali, 2011). As per the International

94 THE FUTURE OF FIXED-TERM EMPLOYMENT IN INDIA


Commission for Labour Rights (2013), auto factories in Italy since 2015 have introduced a new type of open-
India rehire workers repeatedly on completion of their ended contract that renders increased protection against
contracts instead of offering permanent employment. unfair dismissal (Pizzoferrato, 2015).
Basu et al. (2021) describe this phenomenon as
permanent temporary employment.
DISCUSSION
Fixed-term workers have lower wages and lesser job The previous sections have highlighted some of the
stability than their full-time counterparts (Handler, merits and significant risks associated with FTE as a
1995; Peck & Theodore, 2000, c.f. Amuedo-Dorantes & ‘non-committal’ nature of employment, both globally
Serrano-Padial, 2007). These workers do not have any and in the Indian context. This section etches out some
legal or contractual guarantee of permanent employment specific policy options for regulating FTCs in India.
(Basu et al., 2021). Jobs on fixed-term represent ‘one
of the most visible manifestations of job insecurity’ Apart from the lack of clarity on its implementation
(Scheuring, 2020, p. 92). Kiersztyn (2020) observes that, procedure, aspects like the duration of an FTC, provision
especially in occupations that involve highly complex for renewal of such a contract, and implications of such
tasks, early on-the-job experience gained by the Polish renewal are still not spelt out by the Government of
youth could bring better chances of achieving job India. There are some urgent requirements at the policy
stability. In sharp contrast with workers in permanent level concerning FTCs. These include, among others, a
contracts (usually referred to as open-ended contracts), proper framework guiding the renewal of these contracts
those on FTCs are exposed to a higher risk of job loss and defining in clear terms the operations in which FTE
because they have ‘a predetermined expiration date’ workers could be engaged in an establishment. If FTE
(Ruiz-Valenzuela, 2020). Fixed-term and outsourced is introduced to control the labour costs associated with
ICT workers in Malaysia have less loyalty to their firms termination, what could be the limit at which it can be
than full-time employees (Ross & Ali, 2011). As Gebel said to be illegal? What would be the legal remedies
and Giesecke (2011) argue, this form of employment available in such situations? The Government needs to
has increased inequalities further. clarify whether FTC is to be allowed only in non-core
activities in an establishment.
According to ILO (2015), FTE in many countries
increases the risk of unemployment. For example, 2.5% FTE owes its origin to the textile industry owing to
of permanent workers in Spain reported a loss of jobs the seasonal nature of work inherent to the industry.
in the last quarter of 2008, vis-à-vis 15% of fixed-term Extending this practice to all industries in the economy,
employees. Workers in ‘non-standard arrangements’ many of which may not be seasonal, raises several
face the consequences of economic adjustments doubts. Another glaring issue that could assume critical
disproportionately more than regular workers as importance in the future is the regularization of FTE
employers avoid renewing temporary contracts during workers.
an economic downturn. Another glaring issue against
the fixed-term mode of employment is unionization. Policymakers could elaborately examine FTCs’
The capacity to hire temporary workers throws open experiences of countries that are similar to India in socio-
the risk of reducing the core workforce to a minimum economic conditions and labour market indicators. The
and could dilute collective bargaining (Waring, 2003). maximum legal duration for which FTE workers can
be hired ranges between 1 year or less (as prevalent
In a market where employers can choose between in Pakistan, Chile and Zimbabwe) to 10 years or more
permanent and fixed-term (having short duration and (common in China and Switzerland). Renewal of FTC is
uncertainty of rehiring) contracts for their workers, seen to range between one to four times. Any standard
theory predicts that firms tend to invest less in of duration and renewal of FTCs could be decided upon
developing workers on FTCs than their permanent by studying the success (or failure) of such a work
counterparts (Guadalupe, 2003). Jimeno and Toharia arrangement in any nation as per trend analysis of
(1993) highlight a de facto ranking between permanent various socio-economic parameters.
employment and FTE, with permanent workers having
the upper hand. The distinction also involves de facto At the same time, it is essential to give cognisance to
ranking regarding dismissal as a worker on FTE would countries such as Sweden, Japan and Germany, as
be the first to be dismissed. Labour market reforms in pointed out by Maira (2014), that have a long-term

VIKALPA • VOLUME 48 • ISSUE 2 • APRIL-JUNE 2023 95


orientation towards their human resource. In these measures or could result in converting the FTC into a
countries, there is a significant commitment to the regular employment contract. Such a contract should,
continuity of service of employees. ‘Flexibility in in clear terms, spell out the remuneration, duration,
employment’ connotes employees’ ability to learn new provision for renewal (like the number of renewals
capabilities, duly supported by employers, instead of permissible and the cumulated duration of such
flexibility to employers to terminate employees easily. renewals), and other characteristics. For transparency,
The Government of India can customize and adapt it must ideally be signed by both the employer and
the philosophy of flexicurity implemented by the EU the worker as parties to the contract. Alongside this,
for more than two decades. Flexicurity is one of the to avoid complications, it would be better if employers
mechanisms in the EU to increase the flexibility of labour engaged FTC workers in non-core activities.
markets and enhance the adaptability of employees and
enterprises (Muda, 2010). In conceptual terms, the central issue with FTE seems to be
the ‘right’ of employers to exercise hire-and-fire flexibility,
The most impactful way to tackle the various challenges or, in other words, to change the size of their workforce
thrown open by FTE is perhaps through an enactment whenever they choose. Laws limiting or banning FTE
exclusively for FTE workers in the future, just like impose formal restrictions on this flexibility or encourage
circumstances had paved the way for legislation on employers, especially in India, to evade the prevailing
contract labour (Contract Labour [Regulation and laws through informal (often illegal) actions. Employers
Abolition] [or CLRA] Act, 1970). If all the stakeholders prefer FTC, as these contracts do not include any long-
accept the practice of FTCs, an explicit legal framework term cost commitments like formal employment. In
for regulating this type of employment contract is India, much of this debate has involved the hire-and-
perceived to be quintessential. fire restrictions on regular workers under the Industrial
Disputes Act and other related issues, such as attempts to
Regulatory guidelines on FTE contracts are laid down liberalize the CLRA Act, wherein an employer claims that
in the Termination of Employment Convention, contract labour systems are necessary due to the excessive
1982 (No. 158), and its accompanying Termination of restrictions under the ID Act. Perhaps the design and
Employment Recommendation, 1982 (No. 166) by ILO. implementation of any new policy framework covering
The Government of India and its legislative body need FTE have to be understood in this context.
to refer to both to bring about any policy on FTCs.
Further, any policy related to FTE, legislation proposed
CONCLUDING REMARKS
exclusively for FTE workers, or an amendment in
the existing legislation must be in consultation with The World Bank’s ‘Ease of Doing Business’ index
all central trade unions as vital stakeholders in the presents a ranking of countries based on the level of
country’s industrial scenario. The needs of employers business-friendly environments. Roychowdhury and
and workers should be balanced. Maintaining equality Sarkar (2021) note that a country’s ranking would
and non-discrimination in wages, access to collective improve if, among other parameters, its industries
bargaining, and social security benefits must be offered FTE in place of regular employment. India
ensured. Besides, policymakers could consider any moved up the rankings from 130 in 2017, 100 in 2018 to
provision by which FTE workers can be offered 63 in 2020. The Government has recently set the target to
permanent employment to increase their morale and reach the top 50, for which it has prescribed around 90
productivity. reforms; FTE is one such measure.

Failure to comply with the provisions of the CLRA Apart from the lack of clarity on its implementation
Act (which will be subsumed under the Code on procedure, aspects like the duration of an FTE, provision
Occupational Safety, Health & Working Conditions, for renewal of FTE, and implications of such renewal
2020; e.g., failure to register the establishment of hiring are still unclear. Termination of FTE workers could
contract labour), fetches only penal consequences also be challenged as it contravenes the existing legal
equivalent to imprisonment and fine. Nowhere does provisions. It would be interesting to see the wage/
the Act provide for regularization of contract labour in salary structure of workers on FTC. Establishments
such an establishment. Policymakers have to be careful that engage such workers, once the Labour Codes are
in framing any guidelines regulating a FTC regarding effective, have to strategically plan out wage/salary
whether the failure of compliance could have only penal payment. The choice between a consolidated pay or a

96 THE FUTURE OF FIXED-TERM EMPLOYMENT IN INDIA


regular pay scale, monthly or otherwise, must be framed FUNDING
to avoid legal repercussions.
The authors received no financial support for the
research, authorship and/or publication of this article.
Any policy guidelines or Act (or amendment of an
existing Act) on FTE, when framed, must keep in
perspective the socio-economic conditions peculiar to
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Kanupriya Jain is presently working as Assistant engagement, and training and development. She has
Manager (Talent Acquisition & Special Initiatives) with co-authored a book on Industrial Relations, besides
the Larsen & Toubro Group in India. She graduated with having to her credit more than forty research papers
MBA in HRM from the Indian Institute of Management published in international journals, including the
Ranchi, Jharkhand, India. Prior to this, she obtained a International Journal of Manpower and Personnel Review.
BTech Degree in Energy Engineering from the Maulana
Azad National Institute of Technology, Bhopal, India. e-mail: piyali.ghosh@iimranchi.ac.in

e-mail: kanu.mathwiz@gmail.com Shankha Shuvra Misra works with ITC Limited


as General Manager, Corporate Human Resources
Piyali Ghosh is an Associate Professor in the OB/ Department. He completed his post-graduation from
HR Area of the Indian Institute of Management (IIM) the Tata Institute of Social Sciences, Mumbai, and is
Ranchi. Prior to this, she worked with the Motilal Nehru pursuing the Doctoral Program from XLRI, Jamshedpur,
National Institute of Technology Allahabad, Prayagraj, India. His broad research theme is Conflict in Gig
from where she earned her PhD degree. At IIM Ranchi, Work—Perspective from a Global South Context.
Dr Ghosh is teaching courses on labour laws. Her
research interests include industrial relations, employee e-mail: Shankhashuvra.Misra@itc.in

VIKALPA • VOLUME 48 • ISSUE 2 • APRIL-JUNE 2023 99

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