15th October 2020


Author: Suhas Karthik

A Fixed Term Contract (FTC), is an employment contract between an employer and an employee. It has a predetermined period of service. The Industrial Relations Code, 2020, has a provision allowing industries to employ workers on fixed-term contracts.

Fixed-term contract employees are entitled to all the benefits that accrue to regular employees. Since, the term of the employment is predetermined; the employee will lose the benefit of retrenchment compensation.

The concept of fixed-term employment was introduced prior to the Industrial Relations Code, 2020. Some states have already implemented it; since labour comes under the Concurrent List of the Constitution. State-level legislation that was amended to introduce Fixed Term Contracts includes:


The Industrial Employment (Standing Orders) Central (Amendment) Rules, 2018 Modified on 16th March, 2019
The Bihar Industrial Employment (Standing Orders) Amendment Rules, 2020 Modified on 20th May, 2020
The Industrial Employment (Standing Orders) Central Rules, 1946, Goa Modified on 21st May, 2020
The Karnataka Industrial Employment (Standing Orders) (Amendment) Rules, 2019 Modified on 30th June, 2020
The Industrial Employment (Standing Orders) Himachal Pradesh Rules, 1973 Modified on 9th Sept, 2020


Benefits for an Employer under Fixed-Term Contracts

1. Employer can assess the productivity of the employee and if satisfied, can hire such employees permanently.
2. Hassel-free termination of an employee when the period of the contract expires.
3. No permission required from labour authorities to terminate contracts.
4. Employers do not need the services of a contractor to act as an intermediary.

Benefits for an Employee under Fixed term Contract

1. All statutory benefits accruing to a fixed-term employee are similar to those enjoyed by regular employees.
2. Employees receive the opportunity to work with the organization directly and not through a contractor. The appointment letter and 3. experience letter will be on the letterhead of the establishment.

Is Fixed Term Contract separate from an employment contract?
A Fixed term Contract is similar to a standard employment agreement with only one additional clause detailing terms of deployment. The term of the employment is predetermined. When the period of employment comes to an end, it is upto the involved parties to extend or conclude the contract.

Can the contract be concluded prior to the fixed term?
The contract should have specific clauses for early termination – with a notice period factored in.

Can the employee be terminated in case of misconduct?
Yes, the employee can be terminated immediately in cases of misconduct. However, sufficient opportunity has to be provided to the employee to present his or her submissions.

What are the documents and registers to be maintained?
The Fixed Term Contract is the primary document for employing workers for a specific term; or for a finite period of project-based employment. Since the contractual employee will be entitled to employment terms similar to that of a regular employee, all registers have to be maintained – under all applicable statutes.

Fixed-term contracts are an attempt to increase employment generation and to reduce the scope of disputes between employer and employee. It institutes more streamlined and smoother exit mechanisms for employees. Fixed term employment eliminates the involvement of intermediaries like contracting and staffing agencies. It improves your bottom-lines by optimizing your wage bill and boosting productive employment.

Important Points Related to Fixed-Term Contracts

Fixed-term contracts are for a finite period of time. However, in certain cases, the employer may wish to extend the contract. In such cases, they can work upon renewing the fixed-term contract. Here are certain things that you need to remember:


Usually, a fixed-term contract comes to an end when the date mentioned in the contract is reached. The employer doesn't always have to specify the notice period. However, this may be counted as intent to terminate the services of the employee.
After the fixed-term employee has completed two years of service with the company, the employer cannot unfairly dismiss the employee. The employee is entitled to receive a written statement or reason for dismissal. In case the reason for dismissal is redundant, and the employee has completed two years of continuous service with the organization, then he qualifies for statutory redundancy payment similar to a permanent employee
If the employer ends the contract earlier, the employee has the right to a notice period. This is contingent on the terms of the contract. For example, the employer will specify the notice period, like a week or a month (it is one week for each year that the employee has worked.) It is only applicable if the employee has worked continuously for two years or more.
In case you have exceeded the fixed-term contract, and your agreement has not yet been renewed, then there can be implied agreement. The employer has to provide the notice period.
There is a probability of a fixed-term contract to become permanent. If your fixed-term contract is for four years or more, then it becomes a permanent one – unless the employer documents plausible reason to the contrary.
Employees must provide notice if they want to terminate a contract. If fixed-term contract hires decide to terminate the contract before the agreed upon date, then they must hand-in notice of at least a week. This is only applicable in case they have worked with an employer for a month.