There are two possibilities with regard to a contract employee. If by contract employee you mean an employee appointed for a fixed period, then you can initiate disciplinary action while he is under suspension pending enquiry. On the other hand, if he is an employee engaged by a contractor then you cannot suspend him and initiate any disciplinary action against him. This is because he is not your employee or there exists no employee employer relationship between him and you and if he, while being engaged in your company, has done any misconduct, you can ask the contractor who has engaged him in your plant/ office, to remove him from your place and it is up to that contractor to suspend or dismiss or whatever he can do and you have nothing to take part in it.
Madhu.T.K 20th June 2013 From India, Kannur