Fixed Term Employment: Contractualisation As A Tool For Fragmentation Of Labour Rights In India

As the Supreme Court's April 2026 ruling in Madan Singh v. State of Haryana effectively barricades the backdoor to permanency by denying regularisation to ad hoc employees hired without formal recruitment, the promise of security has transitioned from a legitimate expectation to legal mirage. As the Apex Court noted in D.N. Banerji v. P.R. Mukherjee, industrial disputes must be viewed through the standpoint of “status” and social justice rather than a mere contractual agreement. However, as India's gig economy is projected to grow by 23% by 2025, reaching a workforce of 15 million, the Code on Social Security (CSS), 2020 and the Industrial Relations (IR) Code, 2020 represent a decisive reversal of this trend. These reforms institutionalise contractualization as a strategic tool to fragment labour rights, creating a workforce that is 'permanently temporary' where the illusion of parity in benefits masks the systematic destruction of job security.

The central novelty of this legislative shift is the Convergence Thesis, which posits that the formal and informal sector are merging into a singular, permanently temporary workforce. This gig-ification of the formal sector allows employers to engage FTE workers for core activities, primary business functions previously reserved for permanent staff, thereby eroding the stability of the standard employment relationship. This shift reflects a move from a protective intervention toward a model that prioritises business exigencies, allowing firms to meet short-term needs without the burden of long-term statutory commitments.

The FTE Paradox: Legalized Evasion And The Parity Smoke Screen

The new labour regime introduces specific terms to categorise the flexible workforce, yet these definitions create overlapping compliance buckets for employers. Fixed-Term Employment (FTE) is defined under Section 2(34) CSS as an employee engaged directly by an employer through a written contract for a pre-determined period. This definition establishes four essential elements; a written contract, a pre-defined tenure, a direct relationship with the principal employer, and the individual qualifying as an “employee”. However, this framework functions as a lion in sheep's skin because the IR Code explicitly excludes the automatic expiration of an FTE contract from the definition of retrenchment.

By utilising Section 2(oo)(bb) IDA, which was originally a legislative response intended to prevent undue liabilities on the state for short lived projects, the law now allows all employers to bypass the procedural safeguards once mandatory for permanent staff. Furthermore, the Codes introduce a fragmented legal identity based on nomenclatures; while the CSS applies to an “employee”, the IR Code applies to a “worker”, excluding those in supervisory roles earning over Rs. 18,000 per month. This implies that a manager on a fixed term contract may qualify for maternity benefits under the CSS but is denied retrenchment compensation for pre-mature termination under the IR Code.

While the law promises pro-rata benefits meaning statutory benefits provided in proportion to the duration of service these acts as a strategic trade off for the loss of tenure security. For instance, FTEs are now eligible for gratuity after just one year of service, a significant departure from the five-year required for permanent employees. However, this parity in wages, allowances, and hours for similar work serves to validate the temporary nature of the engagement, effectively making the worker's rights as transient as the contract itself.

Due Process And The Erasure Of Legitimate Expectation

The linkage between the uncertainty associated with “due process” and the Doctrine of Legitimate Expectation has been the most important process through which any expectation regarding permanency was destroyed by the introduction of these new codes. It has traditionally appeared from judicial pronouncements that repeated temporary appointments could give rise to the expectation of permanency; however, under the new system, termination of employment due to expiry of the contract is treated as a natural legal conclusion and not as a dismissal.

As a result of this, FTEs were precluded from the due process of retrenchment proceedings, in the event that the employment contract expires on its expiry date. This principle was reinforced in the April 2026 judgment of Madan Singh v. State of Haryana, wherein it was held that the regularisation of such ad hoc employees who had been appointed without public advertisement or interview was impermissible in view of the total absence of any record of manner of engagement.

Therefore, the employees who opt for contracts knowing full well about the tenured nature of the contract cannot claim permanency on grounds of legitimate expectation in Pawan Kumar v. Union of India. The uncertainty of procedural fairness is more than an administrative blunder; it is an exercise of the statute wherein a worker's hope of tenure is converted into a statutory fait accompli. While certain schemes, such as the ECHS scheme, do provide for procedures for disciplinary dismissals with provisions of issuing of show cause notice and inquiry, there is no question of such procedures where mere expiry of the contract results in loss of job despite having rendered service to the employer for 8-10 years at least.

Risk Allocation And Global Comparative Perspectives

The current legal debate should focus on the allocation of Risk, not the classification of workers, and determine who will shoulder the economic consequences of the employment contract. Businesses employ legal defences, such as independent consultancy contracts, to circumvent the Control and Supervision test, where the employer determines the way work is done, and the Integration test, which gauges the importance of the role within the main business. By creating a contract for service rather than a contract of service, companies maintain their freedom and profits while the employee assumes the risk of job insecurity and absence of statutory rights.

Globally, the Indian legal framework is inferior compared to other legal systems that have imposed limitations on the period of precariousness. The Fixed-term Workers Act of South Korea (2007) restricts the period of precariousness to two years, after which the worker can be considered a non-fixed term worker. Similarly, in Indonesia, employers are required to register online all fixed-term agreements within three business days after the signing to allow for state scrutiny and avoid the rise of fictitious relationships. Within the UK, employers should present an objective justification for any discrimination against fixed-term employees, for instance, where the significant cost of a company car is unjustified within a fixed-term employment relationship.

Thus, these international examples illustrate that there is no reason why flexibility could entail a complete loss of security, as seen from the Italian model where fixed-term employees are prohibited from forming more than 20% of a firm's open-ended workforce. In turn, in India, neither is there a limit regarding the number of renewals nor a limit concerning the length of fixed-term employment. In this way, the employer will be able to use FTEs in perpetuity and, therefore, not absorb them permanently. The absence of such limitations means that through the procedure of due process involving only a signature of a new contract, the worker remains temporarily employed in perpetuity.

Regulatory Responses

The Labour Codes passed in 2020 create a halfway house offering some proportional benefit but removing the entire principle of job security and regularisation. Contractualization has moved from being an auxiliary need to become the backbone of the Indian economy, causing the disintegration of labour rights in both the formal and informal economies. In order to achieve a labour market that is equitable and inclusive, the regulatory system needs to shift its focus from welfare to rights, placing the honour and stability of the worker at the forefront. Actionable measures need to be taken to achieve a balance between job security and operational flexibility, such as mandating e-registration for all FTEs to ensure smooth inspection and prevent fraudulent employment contracts.

As also upheld in the case of R.B. Diwan Badri Das v. Industrial Tribunal that the doctrine of absolute freedom to contract does not supersede social justice. It is equally essential to represent these workers in the Grievance Redressal Committees to regain their bargaining power and settle grievances in the workplace. The government also needs to ensure the digitalization of all documentation, allowing the flow of information and ensuring compliance on behalf of employers in statutory payments to PF and ESI schemes. Lastly, the legal framework needs to incorporate definite measures, including setting a minimum and maximum duration for the fixed term employment agreement as well as strict constraints on contract renewals to avoid exploitation through repeated renewals. Ensuring compliance along with improved legal recourse to help the employees will be essential in making sure that flexibility is not another word for perpetual subjugation. If these measures are not put into place, the FTE paradox will lead to the creation of a labour market wherein the rights of the labourer expire at the same time as the labour contract itself.