FIXED TERM EMPLOYMENT: SOCIO-ECONOMIC SIGNIFICANCE AND CONSTITUTIONAL VALIDITY
By Krishnagopal Abhay and Neha Chauhan
(Krishnagopal Abhay is a II year student of LL.B. at Campus Law Centre, University of Delhi and Neha Chauhan is a final year student of M.A. Economics at Jawaharlal Nehru University.)
With 29 central labour and employment enactments being subsumed under four codes, our country saw a comprehensive overhaul of labour laws. As is the case with every piece of legislation, these codes have received their fair share of bouquets and brickbats. One of the major bones of contention is the provision regarding fixed-term employment (“FTE”) workperson category in the Industrial Relations Code, 2020 (“Code”), which was first introduced in 2018.
Section 2(o) of the Code defines FTE as the “engagement of a worker on the basis of a written contract of employment for a fixed period”. The said worker would be entitled to the same benefits related to wages, hours, social security, etc. as a permanent one doing the same work, except retrenchment compensation. These workers will be entitled to gratuity if they work for more than a year.
Despite the numerous benefits given to the FTE workers, some trade unions are against the provision as they fear a weakening of collective bargaining power of the workers while dealing with the employers. Additionally, some apprehensions are being raised regarding the removal of two safeguards which were provided when the Code was first introduced in 2018, viz., the prohibition of employment of such workers for more than two terms; and prohibition of conversion of the posts of existing permanent workperson into FTE. These deletions are perceived to be exploitative as they might lead to the replacement of permanent employees with FTE workers. The government claims that these measures would lead to an increase in formalization and permanence of the workers.
Due to the removal of such safeguards, the constitutional validity of the provision is also being doubted. In this piece, we shall throw light on the apprehensions being raised and examine the merits of a possible constitutional challenge, should it happen.
Collective action is essential, not just to prevent suppression of wages but also to make sure that employers do not circumvent the existing labour laws. Labour movements across the world have benefitted immensely from workers’ collective action. In September 2015, more than 5000 women tea plantation workers of Kannan Devan Hills Plantation Limited organised and demanded that their daily wage be increased from Rs. 232 to Rs. 500. The collective named itself “Pembilai Orumai” – which translates to “Women’s Unity”. After several days of protests and negotiation, the management had to give in to the workers’ demands. This movement, however, went beyond a simple wage dispute. It soon turned into a feminist struggle, and the existing trade unions such as All India Trade Union Congress, Centre of Indian Trade Unions, etc. were criticized for their patriarchal functioning and their political absence in issues that affected women workers. Subsequently, Pembilai Orumai chose to negotiate with the management on their terms. Unions fear that their bargaining power would get diluted over a period of time as they believe that firms would prefer FTE workers over permanent ones. As a result, the number of organized permanent workers would decline, and the benefits that they have achieved because of years of bargaining and political activity would be rolled back. Additionally, FTE workers will not be a part of an organized collective and even though they would be able to raise industrial disputes, collective action plays a major role in fostering diversity and inclusion in an organisation.
Moreover, the new Code allows employers to directly hire workers for a pre-specified period, as opposed to hiring contractual workers through a contractor. While on one hand, the removal of the middleperson can prove to be beneficial to both employer and employees, on the other, the fixed-term contracts would be negotiated on a one-to-one basis between two parties who do not have equal bargaining power. While the workers are “free” to choose whether they want to enter into a contract or not, in the face of chronic unemployment and widespread deprivation, they are not really in the position to dictate the terms of the contract. With almost 93% of India’s workforce in the informal sector, regular employment is already under considerable threat.
Does FTE lead to an increase in permanent employment?
Labour and Employment Secretary, Shri Apurva Chandra, stated that FTE would lead to an increase in permanent employment and formalization over a period. While this argument does hold some merit, it might not have the desired impact in a country like India where the workers are easily replaceable.
Werner Eichhorst, a German economist, in a study on fixed-term contracts, discusses how the use of such contracts leads to the creation of a “dual labour market”, which makes employers reluctant to hire workers permanently. He reviews different studies conducted across European countries and concludes that the evidence for fixed-term contracts leading to an increase in permanent employment remains ambiguous. A study conducted on Italy’s labour market deduced that a transition from temporary to fixed employment increases with an increase in the duration of the contract, but at the same time, multiple repeated fixed-term contracts have adverse effects on this transition. As mentioned earlier, the Code allows for such repeated contracts in our case.
The Joint Employment Report, 2019 of the European Commission expressed concern about the growing labour-market duality and highlighted the need for reforms to achieve a better balance between flexibility and security. Even in India, the Eighth Report of the Parliamentary Standing Committee (“Committee”) on Labour expressed serious apprehensions regarding this, stating that it “may lead to exploitation of the workers and promote ‘hire and fire’ policy by the Employers”, due to the absence of statutory safeguards.
Parliamentary Committee on FTE
On the question of providing a minimum and maximum tenure for such engagement, the Ministry asserted that doing so would beat the very purpose of the provision. There are no substantial reasons provided therein to back this claim. Due to this, the Committee expressed their dissatisfaction with the stand of the Ministry and impressed upon it the importance of stipulating a minimum and maximum tenure period to avoid manipulation and provide job security. All major countries having a provision for such an engagement have a cap on the number of terms for which such workers can be employed.
On whether workers under FTE would get permanent placement after the contract period was over, the Ministry submitted to the Committee that the apex court has prohibited the engagement of contract workers for posts where the job is perennial. While this can’t be disputed – and is even stated in Section 57 of the Occupational Safety, Health and Working Conditions Code, 2020, it only covers “contract workers” under its ambit and not FTE workers.
Constitutional Validity in the light of the Umadevi judgment
The absence of a cap on the maximum number of tenures may lead to the workers getting endless extensions without any assurance of a secured future, despite them doing the work of the same nature as a permanent employee. One may argue that it is ultra vires the Constitution of India (“Constitution”), but all these arguments were laid to rest by a Constitutional Bench of the Hon’ble Supreme Court in Secretary, State of Karnataka and Ors. v. Umadevi and Ors (“Umadevi“).
On the question of regularising temporary workers who have served for a considerable length of time to prevent violation of Article 14 of the Constitution, the Court opined that temporary workers form a separate class, distinct from permanent employees. Different treatment to distinct classes does not offend Article 14. On the contrary, the Court stated that regularising such workers would offend equality of opportunity as enshrined in Article 14 since every qualified citizen who may get appointed as per the constitutional scheme would be at a disadvantage if temporary workers were to be regularised. “Regular appointment must be the rule”, the Court said.
The Court held that workers on a contractual basis have no right to ask for regularisation once their tenure ends, in the absence of any rule providing as such. Additionally, the continued employment of such workers beyond their tenures would also not entitle them to ask for absorption or permanence merely on the strength of such continuance, if the appointment is not done in the regular way. The Court opined that the concerned workers know full well that the association would end with the end of the tenure, and still choose to be engaged. The Court acceded to the argument that it may be possible that such workers are not in a position to bargain, but held that it is not a sufficient ground to jettison the constitutional scheme of employment.
The Court stressed on the difference between “equal pay for equal work” and conferring permanence, stating that while the former may be ordered by courts, the latter shall not be. Doing so would be “litigious employment”, which the Court vehemently discouraged, as it would perpetuate illegality. As far as equal pay for equal work is concerned, it has already been incorporated in the statute, as mentioned earlier.
The Court finally held that “there is no fundamental right in those who have been employed on daily wages or temporarily or on a contractual basis, to claim that they have a right to be absorbed in service”.
While the benefits provided to the FTE workers are laudable, the apprehensions surrounding it are not misconceived either. In a country where workers prefer job security and are even willing to compromise on the salary in some cases, the Central Government could have ended the controversy by not removing the said safeguards. The claim that FTE would lead to an increase in permanent employment is not backed by any data. It might happen, but the available data and research worldwide suggest otherwise. Whether to give flexibility to the employers or not has always been a matter of debate. Be that as it may, there can be no sound argument against its constitutional validity, since the subject matter has already been decided by the apex court in Umadevi. Thus, though different schools of thoughts argue differently on the impact it would have on the sector, the provision is secured should the legality be questioned. One would hope that these reforms turn out to be the watershed moment for the labour and employment sector, but this can only be answered with time.
(The views and opinions expressed in this article are the authors’ own and do not necessarily reflect the official policy or position of the Legal Aid Society, Campus Law Centre, University of Delhi.)