Skill, Labour, Talent for MSMEs: A “fixed-term employment workman” has been defined to be a workman who has been engaged based on a written contract of employment for a fixed period.
- By Vivek Daswaney
Skill, Labour, Talent for MSMEs: For the past couple of years, Micro, Small and Medium Enterprise (MSME) industry has become the backbone of the industrial landscape of the country. The industry is contributing a sizable portion to the GDP and is seen as a key player for generating employment opportunities. The industry fosters an environment of entrepreneurship and generates employment opportunities at much lower capital cost. In fact, a survey conducted by the Confederation of Indian Industries (CII) in the year 2019 shows that MSME industry created the most job opportunities in the last four years.
However, the situation has changed drastically over the past few months. Pandemic novel coronavirus disease (COVID-19) has gripped the entire globe and has brought even the strongest of world economies down on their knees. The countries are finding it difficult to cope up with the current situation and are totally clueless about the aftereffects of this pandemic. India too has been hit hard. The overall impact of the pandemic COVID-19 can be felt by most industries/sectors of the country, especially MSMEs. Indian origin companies and MSMEs are expected to suffer the most out of this economic turmoil. Most of the companies, proprietorship and partnership firms, etc. that form part of the MSME industry do not have adequate liquidity and reserves to last through this period of pandemic and its after-effects. In these difficult circumstances, these entities would be left with no other option but to either reduce wages/salaries of their employees, lay-off staff or to close the establishments. Even these options are not easy to execute and would attract huge costs and expenditure.
It is important to understand that unlike the US, labour and employment laws in India do not recognise the practice of hire and fire and furlough. Most of our labour laws are still 50-60 years old and drafted to address the situations then, when most of the labour class in India belonged to socially and economically backward classes. While things may have changed in urban areas, the laws and the government still consider all employees to be vulnerable to the might of the employer. And therefore, such a category of employees are protected under most of the Indian labour and employment legislations.
In light of the above-mentioned circumstances, one interesting and feasible option available with the MSMEs industry may be to hire employees on a fixed-term contract. In fact, in the year 2018, the central government also clarified in standing orders that central rules and allowed all types of firms to hire workers for a specific time period in all the industries. As a result, a new category of workmen by the name ‘fixed-term employees’ was introduced to the already existing list of workmen such as permanent employees, temporary employees etc.
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A “fixed-term employment workman” has been defined to be a workman who has been engaged based on a written contract of employment for a fixed period. Generally, such a workman is hired for a period of one year or the duration of a particular project. The employment contract for fixed-term employment workman expires automatically after the duration for which he was hired on account of non-renewal of the contract. One big hurdle Indian legislations provide is the procedural difficulty to lay-off or retrench a workman. Such fixed-term workman is, however, not entitled to any termination notice or pay in lieu thereof due to non-renewal of contract. Therefore, in the context of lay-off and/or retrenchment, the employers do not have to have to go through the hassle of following the procedure for lay-off and/or retrenchment as provided under the Industrial Disputes Act, 1947.
The contract can also clearly provide the purpose for which the employee is hired and the option to terminate mid-way if any project is cancelled or postponed. Further, the contract can also layout the damages that will be paid by the employer in the event the contract is terminated mid-way, thus eliminating the risk of any uncertain claims that may be made by the workmen or the union involved.
The employers have the option to extend fixed-term employment to permanent contracts based on the performance and requirement of the business enterprise. The employers also have the option to extend the duration of fixed-term employment of a workman by renewing his existing employment contract for another fixed duration of time. However, a word of caution, such renewals should not be exercised by the employer multiple times as such a measure can be viewed by the courts to avoid permanent workman status to a workman. Even before the formalisation of fixed-term employment in the country, employers hired workmen for a shorter duration of time or a particular project through a contractor. But that increased costs and didn’t provide comfort to many employees. So now the employers can directly employ workmen from the market, reducing intermediary costs and, more importantly, creating transparency in the employment process.
The fixed-term employment workmen are entitled to receive the same statutory benefits, which are available to a permanent workman, giving them a sense of equality with others for the period of service rendered by him. This is even if his period of employment does not extend to the qualifying period of employment required in the statute. Further, his hours of work, wages, allowances and other benefits are at par with a permanent workman. Moreover, the fixed-term employment workmen would be directly governed by the terms and conditions and employee handbook of the business enterprise.
In the present situation, where the MSME industry is not sure of the demand and supply patterns, fixed-term contracts provide flexibility for such business enterprises where they can match the number of workers with the actual requirement. In this way, business enterprises can mitigate their costs and expenditure by employing workmen only when required and also mitigate procedural and financial risk and uncertainties involved when terminating such employees. Even on the macro-level, employing workmen on a fixed-term basis would help fix the problem of short-term unemployment in the country.
Vivek Daswaney is the Founding Partner of V Law Partners. Views expressed are the author’s own.
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