Private companies in India can now convert permanent jobs into fixed-term contracts — without offering severance pay or a fixed tenure

Private companies in India can now convert permanent jobs into fixed-term contracts — without offering severance pay or a fixed tenure
  • Under the Industrial Relations (IR) Code 2020, firms can now directly hire contract workers through the fixed-term contract without a middle man in the way, according to a Business Standard report.
  • Unlike most countries, there is no cap on the number of times private firms can renew fixed-term contracts in India.
  • Modi's government's latest decision may provide an edge to private employers looking to hire seasonal workers.

In the new labour laws notified last week, the Indian government removed the provision prohibiting private companies in India from converting permanent jobs to fixed-term contracts.

Under the Industrial Relations (IR) Code 2020, firms can now directly hire as many workers as it likes using the fixed-term contract route without going through a contractor, according to a Business Standard report. There is no longer any cap on the number of times a private firm can renew the fixed-term contract.

What is a fixed-term contract?
Fixed-term contracts are employment relationships that last for a specified period or on completing a specified job. Whereas, permanent contracts do not come with an expiry date, and the employee is hired for a specific position in an organisation — not just a particular project. The only provision a permanent contract has is the ‘notice period,’ which is to be served upon resignation by the employee.

Even though fixed terms were favourable, private firms in India had to go through an expensive process to employ people through that route.

India’s new labour laws are a boon for private companies

The Modi administration’s changes may come as a boon for the private industry. It will help industries hire seasonal workers for a short term period and allow these industries to save on cost and effort by hiring people without an intermediary in the mix — contractors.

“In the near term, this (three labour reforms passed by Parliament in the Monsoon session) will do little to boost the economy, as firms will be focussing on survival instead of making long-term decisions that utilise these supply-side reforms. But if the virus is successfully contained, and if firms are then able to look to the future, these measures could start to deliver benefits,” a report by Capital Economic stated.

"We need a certain amount of flexibility to hire on fixed-term contracts, but the core of a factory has to be permanent employees. It is only when their long-term future is tied to a company that you will benefit," RC Bhargava, Chairman, Maruti Suzuki earlier said.

Employees have little to gain
On the flip side, these new norms are likely to hurt employee sentiments. Most of the time, a fixed-term contract often looked like a stepping stone to a permanent position at the company. This is why, in most countries, including China, Vietnam, and Indonesia, there are policies that cap the number of times a fixed-term contract is renewed — a move that ensures job security.

However, unlike its Asian counterparts, the Indian government has set no such cap, allowing private firms to renew fixed-term contracts multiple times.

Fixed-term employees will be eligible to enjoy all the benefits that a permanent employee is entitled to — like gratuity before completing five years of services. Unlike permanent employees, these employees will not be given retrenchment compensation or a severance package if the company decides to let them go, reported Business Standard.

Experts now fear private firms will hire fewer permanent employees. Harpreet Saluja, president of National Information Technology Employees Senate (NITES), believes that this decision is likely to degrade employees and their families' lives drastically as the situation of the job market in India is already grim.

"Government should take cognizance of humongous problems faced by workers and employees instead of protecting crony capitalists," Saluja said.

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