India: Fixed Term Employment Contracts In India

Last Updated: 14 September 2016
Article by Krishna Vijay Singh

In any industry there may arise a situation where it becomes necessary for the employers to reduce the surplus work force due to the deteriorating profit margins, shortage of raw materials, accumulation of stocks, break-down of machinery etc. The reduction in work force is generally in the form of retrenchment. However, in order to protect workers against dismissals in the garb of retrenchment due process and conditions have been laid down under the Industrial Dispute Act, 1947 ("Act"). Further, the Act prohibits retrenchment of worker who has been in continuous service of one year unless the employer pays retrenchment compensation as well as fulfills other obligations stipulated in the Act.

However, the said protection granted to the workmen made it difficult for the seasonal industries or other industries which are involved in fixed term projects to hire employees for a specific duration for a particular season or project. Therefore, the legislature keeping aforesaid aspect in mind amended the Act in 1984 by introducing Sub-clause (bb) under Section 2(oo) of the Act which excluded from the purview of retrenchment employees employed on a fixed term basis.

By way of the amendment the legislature has excluded from the definition of retrenchment "the termination of the service of the workmen as a result of the nonrenewal of the contract of employment between the employer and the workmen concerned on its expiry or such contract being terminated under the stipulation in that behalf contained in the contract of employment". There are two parts to this provision - the first part relates to the termination of the service of a workman as a result of non-renewal of the contract of employment between the employer and the workman concerned, on its expiry; and the second part refers to 'such contract' being terminated under the stipulation in that behalf, contained in the employment contract. Therefore, if the contract of employment stipulates the mode and the manner of termination of employment, such termination has now been specifically excluded from the ambit of the retrenchment defined under the Act.

The purpose behind amending the Act was to confer benefit to the seasonal industries as well as those industries which undertake passing phase projects & schemes since they require additional work force for specific/short duration. The purpose of introducing sub-clause (bb) in definition of retrenchment has been elucidated by the Hon'ble Supreme Court in S.M. Nilajkar vs. Telecom District Manager (AIR 2003 SC 3553). The Court observed that "It is common knowledge that the Government as a welfare State floats several schemes and projects generating employment opportunities, though they are shortlived. The objective is to meet the need of the moment. The benefit of such schemes and projects is that for the duration they exist, they provide employment and livelihood to such persons as would not have been able to secure the same but for such schemes or projects. If the workmen employed for fulfilling the need of such passing-phase-projects or schemes were to become a liability on the employer-State by too liberally interpreting the labour laws in favour of the workmen, then the same may well act as a disincentive to the State for floating such schemes and the State may opt to keep away from initiating such schemes and projects even in times of dire need, because it may feel that by opening the gates of welfare it would be letting-in onerous obligations entailed upon it by extended application of the labour laws. Subclause (bb) in the definition of retrenchment was introduced to take care of such like-situations by Industrial Disputes (Amendment) Act, 1984 with effect from 18.8.1984".

The Hon'ble Supreme Court in S.M. Nilajkar (supra) came to the conclusion that the following conditions must be satisfied for the applicability of Subclause (bb) of Section 2(oo) that (i) the workmen is employed in a project or a scheme of temporary nature; (ii) the contract of employment provides inter-alia that the employment shall come to an end on expiry of the scheme or the project; (iii) the employment comes to an end with the termination of the scheme or project or on the expiry of the contract; and (iv) the workmen was apprised of the aforesaid terms by the employer at the commencement of the employment.

Since the benefit conferred on the employers by the above amended clause made the employer segment to valiantly and excitedly deploy labour on a fixed term basis, it led to misuse of the said provision and employers started hiring employees on fixed term basis instead of providing regular employment. Therefore, at this point of time, the judiciary was forced to reiterate the correct law in relation to the said provision.

With the increasing instances of misuse of the said amendment specifically in cases where the employment of the workmen employed on temporary basis was repeatedly renewed on artificial gaps of one or two days to ensure that provisions of retrenchment are not attracted to such employees, the Hon'ble Supreme Court took a strict view. The Supreme Court in Haryana State Electronics Corporation Ltd. vs. Mamni (2006 II LLJ 744 SC) upheld the conclusion reached by the High Court and observed that the intention of the management was not to engage the workmen for a specified period but was to defeat the rights available to the workmen under Section 25-F of the Industrial Disputes Act, 1947. The Supreme Court held that the High Court could not be said to have committed any illegality and that such a course of action was adopted by the employer with the view of defeat the object of the Act and therefore, Section 2(oo) (bb) was not attracted in the present case. In the said case a worker used to be engaged on 89 days and after completion of 89 days the contract was further renewed by leaving a gap of one or two days between each renewal.

Additionally, while interpreting the Sub-Clause (bb) the most essential factor on which the courts have laid emphasis is that the work to be carried out by the workmen ought to be of temporary nature or for a specific period. In this regard, attention must be drawn towards the decision of the Hon'ble Supreme Court in Mohindra Co-op Sugar Mills Ltd. vs. Ramesh Chandra Gouda (AIR 1996 SC 332). In the said case the sugar factory used to employ certain number of workmen during the crushing season only and at the end of the crushing season, their employment used to cease. The Supreme Court held that despite the fact that the workmen had worked for more than 240 days in a year (i.e. continuous service in a year), the cessation of their employment at the end of the crushing season would not amount to retrenchment, in view of the provision of Sub-clause (bb) of Section 2(oo) of the Act. A similar issue came before the Supreme Court in the Haryana State Agriculture Marketing Board vs. Subhash Chand (AIR 2006 SC 1263). In the said case the workman was appointed thrice on contract basis as an arrival records clerk.

However, such appointment was made during the paddy season only and that too for a specific duration. After termination of his service the workman raised an industrial dispute. The Hon'ble Supreme Court noted the fact that appointments of the workman were made on contract basis. The court also noted that it was not a case where the workman is continuously appointed with artificial gaps of one or two days only as the gaps were of considerable periods. In view of the same, the court observed that the termination of the service of the workman does not amount to retrenchment under the Act since the same is covered under the exception contained in Sub-clause (bb) of Section 2(oo) of the Act.

Therefore, in view of the foregoing, where a workman is employed on fixed duration and the same is successively renewed on a gap of one or two days, then such practice on the part of the employer may be considered a camouflage for regular employment with a view to defeat the law and provisions regarding the termination of service of the workmen.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.