Transitioning from Contract to Permanent: Is Our Approach to Regularization Fair?

We have an associate in our organization who is employed on the rolls of a very reputed third party for the last two years. As his performance has been excellent, my organization has decided to take him as a permanent employee on the rolls of the organization.

When I consulted my senior manager, he advised me to ask the associate to submit a resignation letter to the third party. My manager also advised me to waive off his notice period (which is 15-30 days for contractual employees) and instead ask him not to report to work for 15 days after the date of resignation. We will issue an offer letter to him 15 days after his date of resignation. My manager said this is being done so that the associate cannot claim for "continuous association" with the organization.

Kindly advise whether the stance taken in this case is okay. I personally feel that as he is an employee of the third party, he cannot claim continuous employment. The associate's salary payments, travel expenses, and reimbursements of the last two years have been routed through the third party itself.

Kindly help.

Hi Lijo,

As per my knowledge, you should have taken an NOC from the third party. The NOC will be helpful for your company and also for the employee. In the NOC, the third party will mention the last working day and provide the final settlement copy. This will help you smoothly hire the third-party employee into your company.

Thank you.

Regards,
Dayakar

First of all, the so-called associate has not been on your payrolls earlier. On the other hand, he has been receiving a salary and other benefits only through another person, i.e., a third party.

If you anticipate that he may claim for continuous service (considering his two years of service as employment with you), then giving him a break for 15 days or one month will not be advantageous for you. Furthermore, it is not just about providing a 15- or 30-day break but about proving the relationship that existed between you and the employee, which will determine his eligibility for employment continuity. In other words, if the relationship or contract you had with the third party regarding the engagement of the so-called associate is proven to be a sham due to your direct involvement in setting the salary and other terms of service for that employee or your direct supervision over him, there is a high likelihood of the employee claiming continuous service with you. Therefore, you cannot ignore this aspect.

You should also verify if the employee had a PF account number with his contractor and ensure that it is transferred to the new account provided by your company.

Regards,

Madhu.T.K

Dear Madhu and Dayakar,

Thank you for your inputs.

Once the associate submits his resignation, I will begin the NOC process from the principal employer's end. My senior manager has also confirmed that the third party completes NOC from their end also, after receiving our NOC.

The associate has a PF account with the third party. He is not eligible for ESI as his gross payment is above Rs.10,000. He also gets medical benefits and accident insurance from the third party. As for fixing his remuneration, etc., we advise the third party on what the % increase should be because we will be charged for it after all. There are around 10 such associates employed through the third party working in my department. Their job is more of clerical/data entry. They are supervised by permanent officers of my organization.

So, if I have understood correctly, the associates can still claim continuous service based on being directly supervised by permanent officers of the organization.

Also, I forgot to mention previously, these associates are taken on a contract period of one year only. After one year, their contracts are renewed for another year. So, this particular associate in question has had his contract renewed twice to date. They have ID cards provided by the third party.

In short, my organization's name doesn't figure anywhere except in their appointment letter issued by the third party, which says - "You will be deputed for one year with our client XYZ for a period of one year. During the course of your employment, you will abide by the rules and regulations of our client."

Can they still claim continuous employment?

By insisting on a lot of formalities of relieving with a No Objection Certificate (NOC) from your own departmental heads and confirming that the third party also relieves him with an NOC, you are again putting yourselves in trouble.

As I said, you have nothing to do with an employee engaged by a contractor except to ensure whether the assigned work is done on time or not. When you go to get a 'no objection' from the departments where he has been working, you will be proving that he has been employed by you or the contract is a sham.

I do not think that when a consultant is leaving the establishment after fulfilling the assigned duties, you will require an NOC. Do you collect NOCs when audit parties leave after completing their audit work? The relationship with an outsourced employee is similar. Certainly, if an outsourced employee leaves without completing the assigned work, you can withhold the remuneration payable to the contractor, but you cannot insist that the employee should not be relieved. For that employee, your relieving letter has no relevance; it should come from the contractor.

On the other hand, if you collect an application from the employee and process his appointment letter based on that application, you will not lose anything. There should be no reference to his past service with you in the appointment order. When he joins, you can collect his certificates, including the relieving order issued by his employer, i.e., your contractor.

Regards,

Madhu.T.K

Dear Madhu,

Thank you for the feedback. I completely agree with what you have said. Although these associates are on third-party rolls, for all practical purposes, they are like permanent employees. They are supervised by us, we decide their remuneration, and we have even given them appreciation letters, etc.

I have asked the associate to resign. Following that, we will conduct a formal interview, similar to the process for recruiting a permanent employee. He will have to undergo a medical test. We have decided to maintain a gap of 3-4 days between his last working date as an associate and his joining as a permanent employee.

Once again, thank you for the insights and the conceptual clarity.