Fixed-Term Employment fixed under New Labour Codes
Published: Jan 05, 2026
By Dr M K Pandey, Advocate, Supreme Court of India
THE new labour codes, intended to consolidate and simplify over 29 Central laws, have explicitly recognized and regulated Fixed-Term Employment (FTE) as a distinct category of employment. The introduction of the four new labour codes in India on 21st November 2025 has formalized and standardized the concept of Fixed-Term Employment (FTE), moving it from a patchwork of judicial pronouncements and state-level rules into a coherent, pan-India statutory framework. The FTE regime has been codified primarily in the Industrial Relations Code, 2020, and the Social Security Code, 2020. We need to critically analyse the conditions of appointment, the principle of equal treatment vis-à-vis regular employees, and the comprehensive range of benefits extended to FTEs, including the significant shift in gratuity eligibility. The legal boundaries regarding the permissible use of FTE, the implications of contract extension and renewal, and the crucial distinction between termination at tenure-end and retrenchment is also a question of concern to employers alongwith identifying the operational safeguards employers must implement to ensure compliance and avoid judicial intervention for unfair labour practices, while highlighting the enhanced security and dignity accorded to workers under this formalized system.
The evolution of labour law in India has long grappled with balancing employer flexibility with worker security. A key site of this tension has been the use of temporary or contractual labour for work of a perennial nature, often leading to protracted litigation over regularization. This formalization aims to provide a legal, transparent pathway for genuine project-based or temporary work needs while statutorily protecting such workers from exploitation. If we dissect the architecture of FTE under the new codes, moving beyond a mere explication of provisions to a critical analysis of their intent, operational requirements, and potential pitfalls, there are underlying implications. It argues that while the codes create a structured regime for FTE, its lawful application is heavily contingent on adhering to the principle of equal treatment and ensuring the bona fides of the fixed-term contract, failing which the judiciary may still intervene to grant regularization.
2. The Concept and Statutory Definition of Fixed-Term Employment
Fixed-Term Employment is a contractual employment relationship where the commencement and termination dates of the contract are pre-determined and specified in writing. The fundamental characteristic of FTE is its ex proprio vigore (by its own force) conclusion; the employment automatically ceases upon the expiry of the stipulated tenure without requiring a separate act of termination by the employer. This distinguishes it from permanent employment, which is of indefinite duration, and from casual labour, which is typically irregular and unstructured. The conceptual rationale is to meet exigencies of business that are transient, such as seasonal demand, specific projects with a finite timeline, or replacement of a permanent employee on leave.
Section 2(34) of Code on Social Security 2020 defines
"fixed term employment" means the engagement of an employee on the basis of a written contract of employment for a fixed period:
Provided that---
(a) his hours of work, wages, allowances and other benefits shall not be less than that of a permanent employee doing the same work or work of a similar nature; and
(b) he shall be eligible for all benefits, under any law for the time being in force, available to a permanent employee proportionately according to the period of service rendered by him even if his period of employment does not extend to the required qualifying period of employment;
Similarly, the "fixed term employment" is defined in section 2(o) of the Industrial Relation Code 2020 as under-
2(o) "fixed term employment" means the engagement of a worker on the basis of a written contract of employment for a fixed period:
Provided that---
(a) his hours of work, wages, allowances and other benefits shall not be less than that of a permanent worker doing the same work or work of similar nature;
(b) he shall be eligible for all statutory benefits available to a permanent worker 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; and
(c) he shall be eligible for gratuity if he renders service under the contract for a period of one year;
An additional Clause C in the definition under section 2(o) of the Industrial Relation Code 2020 is for the purpose of bringing the eligibility of gratuity on rendering the service of one year under fixed term employment.
The definition of FTE has been harmonized across the relevant codes. Section 2(o) of the Industrial Relations Code (IRC), 2020, and Section 2(34) of the Social Security Code (SSC), 2020, provide an identical definition: a worker who is engaged on the basis of a written contract of employment for a fixed period. The definition is deliberately broad and simple, focusing on two key elements: (1) the existence of a written contract, and (2) the fixed temporal nature of the engagement. This statutory clarity displaces the previous ambiguity where such engagements were often governed by a confluence of the Industrial Employment (Standing Orders) Act and judicial precedents.
3. Permissible Use and the Shadow of Regularization Jurisprudence
A significant feature of the codified FTE regime is the absence of any statutory limitation on the type of work, role, or department where an FTE can be deployed. Unlike some earlier state-level notifications which restricted FTE to specific activities, the central codes impose no such fetters. In theory, an FTE can be hired for any role, from administrative support to core production.
However, this statutory silence must be read in the context of a robust body of Indian labour jurisprudence, most notably the Supreme Court's decision in State of Karnataka v. Uma Devi (2006) and subsequent rulings. The judiciary has consistently held that where an employee is engaged in work of a perennial nature and continues in service for a long duration, often through sequential contracts, the form of a fixed-term contract cannot be used to deny the substance of permanent employment. Courts have ordered regularization in such cases, deeming the repeated use of fixed-term contracts an unfair labour practice designed to circumvent statutory protections.
Therefore, while there is no de jure restriction, there exists a compelling de facto guideline derived from case law. Prudent employment practice dictates that FTE should be used bona fide for genuinely temporary needs: short-term projects, maternity leave replacements, seasonal work, or one-time assignments. Employing FTEs in core, ongoing roles indefinitely risks judicial scrutiny and potential directives for regularization, treating the FTE arrangement as a sham.
4. Conditions for Appointment and the Imperative of Equal Treatment
Mandatory Written Contract
The sole explicit statutory condition for appointing an FTE is a written contract specifying the tenure of employment (IRC, Sec 2(o)). This contract is the foundational document, establishing the definite period of service and acting as a safeguard against arbitrary oral agreements. It is recommended that this contract explicitly state the reason for the fixed-term nature (e.g., "for the duration of Project X, estimated to conclude on…").
The Principle of Non-Discrimination
The most transformative provision for FTEs is encapsulated in Section 59 of the SSC, 2020. It mandates that a fixed-term employee "shall be eligible for all statutory benefits available to a permanent employee proportionately according to the period of service rendered by such employee." Furthermore, the Code on Wages, 2019, in Section 3(3), prohibits discrimination in wages on the ground of a worker being employed on a fixed-term basis.
This crystallizes the principle of "same work, same pay, same benefits." An FTE performing the same work or work of a similar nature as a permanent employee is entitled to:
- Identical wages (basic + dearness allowance + retaining allowance, if any).
- Identical working hours, overtime rates, and rest periods.
- Identical statutory benefits such as Employees' Provident Fund (EPF) and Employees' State Insurance (ESI), with the critical provision that eligibility accrues from day one, proportionately, irrespective of any qualifying period stipulated in the respective statutes. For instance, the standard 240-day qualifying period for annual bonus under the Payment of Bonus Act does not apply to an FTE; they are entitled to a proportionate bonus for the period worked.
5. Benefits Entitlement and the Special Case of Gratuity
The SSC, 2020, revolutionizes the social security landscape for FTEs. As per Section 59, all benefits (like EPF, ESI) must be provided pro-rata. The only explicit exception to the principle of immediate pro-rata benefit is gratuity.
Gratuity Eligibility Threshold
Under the Payment of Gratuity Act, 1972 (subsumed in the SSC), an employee is eligible for gratuity upon completion of five years of continuous service. For FTEs, Section 59(2) of the SSC creates a special, more favourable rule: a fixed-term employee becomes eligible for gratuity upon completing one year of service. This one-year period is to be calculated based on continuous service under one or more fixed-term contracts, provided the gap between contracts does not exceed the statutory threshold (generally, one month). This is a significant worker-friendly provision, acknowledging the transient nature of FTE while ensuring a critical social security benefit.
Contract Renewal, Cessation, and the Retrenchment Distinction
Renewal and Extension: A Zone of Caution
The codes do not prohibit the renewal or extension of a fixed-term contract. However, this is the most legally sensitive aspect of FTE management. Renewal must be for a legitimate, temporary requirement. If renewals become a mechanism to employ a worker in a permanent role for years, courts are likely to pierce the corporate veil of successive contracts. As held in cases like Bharat Sanchar Nigam Ltd. v. M. R. G. Soni (2018), repeated renewals can lead to a presumption of permanence, triggering obligations of regularization. Each renewal should be justifiable by a fresh, temporary need.
Cessation: Not Retrenchment, But with a Caveat
Section 2(zh) of the IRC, 2020, defines "retrenchment" and explicitly excludes from its scope "termination of the service of a worker as a result of…non-renewal of employment contract on its expiry." Therefore, the automatic termination of an FTE contract upon its stipulated expiry does not constitute retrenchment. Consequently, the employer has no obligation to follow the retrenchment procedure (notice, compensation, seniority rules) under Section 77 of the IRC, nor is the FTE entitled to the preference in re-employment afforded to retrenched workers under Section 80.
The Critical Caveat: Early Termination as Retrenchment
The exclusion applies only to termination on expiry. If the employer terminates the contract before its agreed end date for any reason other than misconduct (punishment by way of disciplinary action) or voluntary resignation, such termination may be treated as retrenchment. In this scenario, if the FTE has worked for not less than 240 days in the preceding twelve months, the employer must comply with all conditions precedent to retrenchment: one month's notice or wages in lieu, retrenchment compensation (fifteen days' average pay for every completed year of service), and notification to the appropriate government.
Re-employment and the Absence of a Right
Unlike retrenched workers, a fixed-term employee whose contract has expired has no statutory right to preference in re-employment. The employer is free to hire anyone for a subsequent vacancy. However, as flagged earlier, if re-employment occurs immediately or repeatedly with the same individual, it strengthens the employee's claim that the FTE label was a subterfuge and that they are, in substance, a permanent worker entitled to regularization.
6. Practical Implications
The codification of Fixed-Term Employment in India's new labour codes represents a dual-purpose reform. For employers, it offers a simplified, legally recognized framework to hire for genuine temporary needs without navigating complex contract labour regulations. For workers, it is a substantial upgrade from informal temporary status, guaranteeing them dignity through equal wages and immediate, pro-rata social security benefits.
However, the regime is not a license for the permanent casualization of the workforce. Its stability hinges on employers adhering to both the letter and the spirit of the law. The shadow of judicial regularization jurisprudence looms large, acting as a check against abuse. The key to compliant implementation lies in:
Bona Fide Purpose: Deploying FTEs strictly for transient, justifiable needs and documenting the rationale.
Scrupulous Equal Treatment: Ensuring absolute parity in wages and pro-rata statutory benefits from the first day of employment.
Transparent Contracts: Using clear, unambiguous written contracts for every FTE engagement.
Cautious Renewal: Avoiding automated or perpetual renewals, especially for core business functions.
Distinguishing Termination Types: Carefully managing contract endings to avoid inadvertent retrenchment liabilities.
In essence, the new FTE provisions have created a structured pathway for flexible employment. Their success in promoting both labour market flexibility and worker welfare will depend critically on responsible implementation, guided by the overarching principle that the form of a fixed-term contract must genuinely reflect the temporary nature of the employment need. The codes have provided the framework; its ethical and lawful application remains the responsibility of the employer, under the vigilant oversight of the judiciary. Workers' Unions have expressed deep concern and strong opposition over FTE arguing the ground that it makes jobs less secure and stronger rules is sine qua non to protect workers and balance the stakeholder's interest.
