Business India ×

Published on: Oct. 23, 2020, 10:10 a.m.
Fixed term quick-fix
  • Pulling it along: will FTE improve their lot?

By Rakesh Joshi. Executive Editor, Business India

The job losses and economic contraction that followed the national lockdown has prompted the Modi government to rush through a spare of reforms, which include three new labour codes. The codes, among other things, introduce a new category of employment called Fixed Term Employment (FTE). This is a concept borrowed from Europe, where it failed to pass muster among economists.

FTE, in layman’s language, is a contract in which a company or an enterprise hires an employee for a specific period of time without the services of the intermediary contractor. In most cases, it is for a year but can be renewed after the term expires, depending on the requirement. In a fixed-term employment, the employee is not on the payroll of the company.

Fixed-term workers are entitled to all statutory dues that permanent workers in the same unit get. However, fixed-term contract workers are not entitled to retrenchment compensation like permanent employees. Economists believe that the changes may come help the private industry in the longer run. 

Before the labour codes, about a dozen state governments had issued notifications dismantling many basic protections, such as payment of minimum wages and minimum working hours – some, for a period of the next three years. These moves were said to be aimed at injecting some life into the crippled economy.

Economists point out that, in Europe, FTE did not help contract workers get equal pay, provident fund, gratuity and other social security facilities on a par with permanent employees, as the government claims it will do in India. In fact, it ended up harming the workers.

Sources in the RSS-affiliated Bharatiya Mazdoor Sangh say that FTE is ‘creating a lawless regime’, which should not be in the statute at all. At best, it should be restricted to contract workers in the Occupational Safety, Health and Working Conditions (OSHWC) Code 2020 to ensure parity in pay and social security for contract workers with permanent employees. By including it in the IR Code 2020 (Standing Orders there-under) as a separate category of workers, it is an invitation to trouble.

New category

How exactly the government will navigate the trouble remains to be seen. So what exactly will FTE do in political terms? Trade unions are up in arms for a variety of reasons.

To begin with, FTE has been included in the Standing Orders (First Schedule of the IR Code 2020) applicable to all industrial establishments, adding a new category of employees to the existing five: permanent, temporary, apprentices, probationers and badlis. It will swell the ‘temporary’ category of workers, though by a different name.

Secondly, the Central Rules of 1946 under the Industrial Employment (Standing Orders) Act of 1946 provided that ‘temporary’ and ‘probationers’ will become ‘permanent’ after “a period of three months in the same or another occupation in the industrial establishment”. There is little chance of this being retained in rules to be framed, because FTE is now universal in applicability: it is part of the Code on Social Security (SS) 2020; the Central government has adopted it for its own hiring and it already exists in the formal private sector for the past two decades.

Thirdly, the gazette notification of 16 March 2018, which introduced the FTE for the first time, had put a restriction on its applicability: “No employer of an industrial establishment shall convert the posts of the permanent workmen existing in his industrial establishment on the date of commencement of the Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018, as fixed term employment thereafter”. This restriction does not find a place in the IR Code 2020. 

Finally, the very concept of FTE comes from Europe, which adopted it in the early 2000s. It was meant to provide both flexibility to the industry and act as a stepping stone for young and raw hands to establish their suitability for permanent employment. But Europe has witnessed the evolution of FTE into a concept vastly different from what it was at the time of conception. While FTE continues to be a stepping stone for young and raw hands, much has changed in countries like the Netherlands, Sweden, France, Spain and Italy.

The transition rate from FTE to permanent employment has been falling over time. FTE has created duality in labour market with low transition rate and high wage difference (between FTE and permanent workers). The duration of FTE is getting shorter. For instance, in Spain, 25 per cent of all new contracts last less than a week and 40 per cent last less than a month.

The European experience should have been a wake-up call for India, where 94 per cent of workers are informal, with no job security and no social security. Yet, the government has chosen to embark on an opposite trajectory altogether. 

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