Can We Renew Fixed Term Contracts Without a Break in Employment? Seeking Advice from HR Peers

Dear all,

Our company is into hospitality, and the majority of our F&B service employees are on FTC for 1 year. The benefits and entitlements for FTC employees remain the same as regular employees. I seek clarification with reference to the renewal of their contracts. Can we issue them a renewal letter extending their contract, or do we have to give them a break in their employment and consider them as fresh recruits? Please advise.

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Regards, SunilK

You can go ahead with the renewal of the contract without any break. There is no advantage that the company gets out of giving them a break of one or two days. If the company aims at interrupting the continuity of service, then they should give work for less than 240 days in a year.

Regards,
Madhu.T.K

Dear,

I'm in agreement with Madhu Sir, you can't do this to employees. Their benefits like leave, PF, ESIC. Issue them a renewal letter.

Regards,
Vipin

Dear Sir,

Thank you for your quick response. I hope the letter of renewal of contract meets all the legal requirements as far as employee and employer are concerned.

SunilK

Though you can renew the contract, it can be challenged in the court of law for permanent employment as renewal of contract tantamounts to the fact that a permanent vacancy exists in your company, but you are intentionally not hiring or filling the vacancy. There are case studies available on that.

Dear Sunil K,

Gaggan is right. Continued renewal of FTC, especially en masse, may be questioned by authorities based on the premise that the nature of engagement is of a permanent nature if such FTC-FTEs approach the legal fraternity for redressal. If the nature of work is not of a permanent nature (i.e., temporary type), any legal contention is untenable.

In traditional business sectors, FTCs are most often used for consultative, advisory, or post-superannuated empanelment of professionals, even though the likes of the software industry (non-traditional sunrise) use it en masse.

It makes little difference if you break service for 'employment-like' FTCs since statutory deductions (if applicable, depending on the nature of the FTC service agreement) will need to be continued to be paid and continuity will be presumed for such 'employment-like' FTCs. A break in continuity in compliance such as PF, Gratuity, Bonus (if any) may be questioned. For such nature of engagements, as Mr. Madhu rightly advised (as always), a break in continuous service (i.e., < 240 days) will be advisable.

For 'non-employment' like FTCs (note: terms of engagement will be different), compliances will not apply and hence you are comfortable either way (i.e., giving a gap or not makes virtually no difference, legally). Employers are not obligated to pay retiral/superannuation/SS benefits in such cases.

For any further advice, you would need to more specifically indicate the type/nature of FTC engagement, title and job description & terms of engagement to establish whether the nature of engagement is construed to be permanent or temporary.

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