Transitioning Contract Employees to Permanent: Do We Need a Break Period Before Confirmation?

Employee Contract Transition to Permanent Status

If an employee has been on contract for three years with the principal employer and has been given a break period of four days between the contracts, does the break still apply when the employee is made permanent? The contract employee has been on the payroll since the beginning of the first contract.

The question is whether we need to provide a four-day break, or if the employee can be given a letter stating that they are permanent from the day immediately following the contract end date. For example, if an employee completes their third-year contract on 31.01.2020, should they be given a four-day break from 01.02.2020 to 04.02.2020, or can they be made permanent from 01.02.2020 onwards? Please advise.

Clarification on the Effective Date of Permanency for FTC Employees

In all probability, the poster needs clarification regarding the effective date of permanency of a Fixed Term Contract (FTC) Employee and not about any contract labor engaged through a contractor.

As per the amended IE(S.O) Rules, 1946, all the statutory benefits available to the regular employees of industrial establishments should be given to the FTC employees also, in proportion to the period of service rendered by them. Therefore, if the FTC employee was given all the terminal benefits like gratuity, leave encashment, etc., on completion of the three-year contract period, his subsequent appointment as a regular employee would be effective from the date of joining afresh only.

Fixed Term Contract Employment and Break Periods

This is not a case of contract labor but a case of fixed-term contract employment. Giving a break of three days between two terms will not serve to interrupt service in the eyes of labor laws. An employee who has worked for 240 paid days (including weekly off days, holidays, and leave days for which salary has been paid) over a period of 12 months is considered eligible for all rights, leave with wages, retrenchment benefits, gratuity, etc.

When such an employee has been taken on regular rolls, i.e., permanent rolls without mentioning any fixed periods, a letter or office order that is given to candidates appointed on regular rolls should be provided. You need not wait for four or five days but can serve his letter immediately when his fixed-term contract ends. For all purposes, his date of joining will be the date on which he was first appointed on a fixed-term contract.

Continuity of Service for Contractual Employees

Here you have an employee on a contractual basis for 3/4 years with a 4-day break in service during the employment, and now you want him to take on a permanent role with the company. The question of giving his contractual employment period the continuity of service here does not arise, as presumably you, after each break, would have settled all his dues, including gratuity, etc. If you have, each period is considered a fresh contract of employment. By giving a break in service, you obviously intended not to provide him with continuity of service. It would be consistent if now you also pay him all his dues and take him on the company's payroll as a fresh employee on a permanent basis from the date of appointment, without continuity of service. However, giving him continuity of service is entirely up to your HR policy, and legally nothing bars you.

Regards,
Vinayak Nagarkar
HR and Employee Relations Consultant

Mr. Vinayak, let me say that even if there is a fresh appointment order each time, the employee remains the same. Issuing a fresh contract of employment year after year and engaging the employee in a job of a permanent nature should be considered an unfair labor practice as per the ID Act. Moreover, with every change in the contract, the employee remains the same.

Various court verdicts, including some from the Supreme Court, state that fixed-term contract employees are also eligible for gratuity. When there are rulings that the period of employment of an employee who served as a casual worker should be counted for determining eligibility and the amount of gratuity, the question of non-eligibility of an employee who has been working continuously under a legal document (contract of employment) does not arise. He should be eligible for gratuity once he completes five years, including the fixed-term contract period.

Dear Madhu T.K, nowhere have I stated that contractual or FTC appointments with breaks should be resorted to as a rampant practice to deprive employees of permanency. My views, as well as Mr. Umakanthan's, were based on the presumption that the concerned employee was on an FTC basis. FTC, as you know, is largely used for project employment where the length of employment is determined based on the project period. Any employee can be hired on an FTC basis for varying periods and different projects, and their dues can be settled at the end of each project period, including gratuity. I do not see any element of unfair labor practice, as the law has recognized the necessity of FTC basis for project employment.

Here, the poster needs to clarify whether it is an FTC appointment and whether dues were settled for each term of the FTC period. If gratuity and other legal dues were settled each time, then his engagement on the company's roll now will be fresh from the date of appointment.

Regards, Vinayak Nagarkar HR and Employee Relations Consultant

No way, there should be a break after payment of 'gratuity' at each point. It is implied that there was settlement of gratuity at the end of each contract. Let us wait for the confirmation from the thread opener.