Contract Labor Claiming Permanancy - CiteHR
Industrial Relations And Labour Laws
Vihaan Sharma
Freelancer In Employability Skills Enhancement
India Compliance Head
+3 Others

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What are the do’es and dont' s to prevent the risk of contract resources claiming permanency
do not let them to work more than 240 working days as per Section 25-B clause -2.
Working days includes
laid off period
Leave with full wages
absent due to temporary disablement
maternity leave in case of female worker

Dear Shhhail
Does it also include vacations and holidays as well. If it does then can the contractual employees' services can not be discontinued without giving notice period. Please throw some light on it. Here the contractual employees are the skilled people.

There is nothing wrong in letting them work for more than 240 days. Only thing to be noted is that the contract should be genuine and not sham one. If the number of contract workers engaged through all the contractors, say security contractors, housekeeping contractors etc, are 20 or more than 20, you should take registration (to engage contractor(s) ) under the Contract Labour (Regulation and Abolition) Act. Similarly, if any contractor has engaged 20 or more workers in your plant/ establishment, you should ensure that the contractor has obtained Licence under the same, CLRA Act. For enabling him to get licence from the Labour Department, you should give a certificate in form V certifying that you have appointed him as contractor for engaging workers in your establishment. The area/ nature of work where they are supposed to do should also be mentioned in it and in no way it should be a work which is perennial or directly connected to the core area of your operations. As per Contract Labour Act, no worker shall be engaged through a contractor in any activity which is directly connected with the main business of the company, which is regular in nature and for which a full time regular employee can be employed.

If you have employed contract workers in skilled job, and that work is regular in nature, there is a very high risk. The nature of their payments, the way in which they are supervised, disciplinary action is taken against them etc will decide whether the contract is sham or not. Therefore, if you can give us the following details, we can guide you properly.

1. Who is the contractor- whether somebody related to your company Directors/ Managers etc?

2. How the salary of workers are being paid?- Is it paid to contractor or directly to workers?

3. Who supervises the work of contract workers?

4. Was there any instance of you taking disciplinary action against any contract worker?

5. Was there any instance of deciding the wages of such workers?

6. Is the nature of work similar to the work of regular employees?

The above are some of the tests to prove whether the contract is a camouflage or genuine one.


Thank you very much for the detailed information. My query is related to the teachers(special reference to higher education) being hired by the colleges and universities these days. Is it a legal procedure and what could be the terms & conditions for the non-renewal of their contract including lower performance.
1. The payment in this case is directly being transferred to the employees salary account.
2. The contract is being signed between the institute management and the employee for a period of 2-3 years.
3. The employees apply 2 months before the expiry of their contract for contract renewal.
4. The employees are not intimated well in advance giving sufficient time to search a new job.
Are these practices ethical if not then where can they be challenged?
Prof. Sharma

You are talking about a system of hiring employees for a fixed period and is commonly referred to as Fixed Term Contract (FTC) which is acceptable in the case where the period of service required is known in advance and where the service is required for a particular project only. In such case nothing explained in my earlier post will apply since the employees are directly hired by the employer and not through an agency or contractor.

Now, coming to FTC, if it is for a period of, say one year, there is no guarantee that the contract will be renewed automatically. If renewed, it will be documented by means of an office order or by giving a fresh appointment order. If the employee does not receive any communication of renewal, it should be presumed that the contract of employment is terminated. As per section 2(oo)(bb) of the Industrial Disputes Act, termination of employment due to non-renewal of contract of employment will not amount to retrenchment. It is implied that retrenchment compensation of 15 days salary for every completed year of service and one month notice or payment in lieu of notice are not applicable to such kind of termination.

In the case cited, the period of employment is 2-3 years. There is no illegality in it. But only thing is that continuously offering fixed term employment and renewing it year after or period after period is unfair practice as per Industrial Disputes Act.

Renewal can be initiated by either party. It can also be done on the previous day also. Since termination of employment on expiry of contract period is just automatic no need to give advance notice or time to search for another job.

Now, an important thing with regard to FTC employment is that such employees are eligible for all social security schemes, like EPF, Gratuity etc. Some consider that by employing people on FTC, they do not give them PF, Bonus, leave encashment and gratuity. As per law, they are eligible to all statutory payments as if they are regular employees. If employed for 5 years with each year contributing 240 days, obviously they are eligible to get gratuity also. One or two days break in service has no relevance in labour laws though it could be of relevance in government service rules.

In government department, nothing mentioned above will be applicable because they are the major defaulters of law. Needless to say that there are PSUs who engage contract labour in violation of Contract Labour (R&A) Act. Similarly, there are n number of departments, especially schools, colleges and universities who engage teachers on FTC for 10 month duration with a view to refuse them vacation period salary. These happen in government sector and not in private sector because the former are agencies who frame laws and therefore, they can deviate from it and the latter are bound to obey rules.


Whether the contract workmen provided to an industry through an out sourcing agency workers are eligible for the payment of follwings :
1- Gratuity according to provisons of Payment of Gratuity (Completed 5 years of service with same contractoe or Agency working with same factory.
2- Workers are to pay encashment of balance leave with wages under Factory act .
3- Workers are providing leave with no bar.. Is it right ?? under Factory act.
4- Monthly Bonus are paying to worker is it okay under the payemnt of Bonus act.
According to My knowledge :
1- Gratuity shall not payable
2/3- Leave encashment should be done up to 30days as per factory act
4- Bonus should be payable on annual basis ..
Please clear my doubt in the eye of law applicable in rajasthan..

Dear All
A small query in recruiting FTC for statutory posts.
we have a requirement of safety officer and junior welfare executive.
can we appoint these posts by FTC and if so for how many terms.
some are of the opinion that these should not be recruited on FTC.
request your inputs for the same.
thanks and regards
prasad K

A Safety Officer is not a workman and as such no labour law which speak about permanency, continuous service will apply to him. So long as social welfare laws like Provident Fund and ESI are complied with, what is wrong in FTC employment? If engaged for 5 years, obviously, he will be eligible for gratuity. In the case of a Junior Welfare executive to whom nobody reports, you can take a stand that it should be a regular appointment.
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