Fixed-Term Employment is a form of employment in which a worker is engaged by an employer on a written contract for a fixed duration, with the same wages, hours, allowances, and statutory benefits as a permanent worker performing the same or similar work. Under Indian law, fixed-term employment was formally introduced for all sectors through the Industrial Relations Code, 2020, Section 2(o), after having been introduced for specific sectors through earlier notifications.
Legal definition
The Industrial Relations Code, 2020 provides the definition:
Section 2(o): "Fixed term employment" means the engagement of a worker on the basis of a written contract of employment for a fixed period.
The Code establishes the following principles for fixed-term employment:
- A fixed-term worker shall be eligible for all statutory benefits available to a permanent worker proportionately according to the period of service rendered
- The working hours, wages, allowances, and other benefits of a fixed-term worker shall not be less than those of a permanent worker doing the same or similar work
- A fixed-term worker is eligible for gratuity if the period of service is one year or more (under the Payment of Gratuity Act, the normal threshold is five years)
- The non-renewal of a fixed-term contract on the expiry of the fixed period does not constitute retrenchment under the Code
Prior to the Industrial Relations Code, the Central Government had introduced fixed-term employment in the manufacturing sector through a 2018 notification amending the Industrial Employment (Standing Orders) Central Rules, 1946. Some states had also adopted similar provisions through state-level amendments.
How courts have interpreted this term
Secretary, State of Karnataka v. Umadevi [(2006) 4 SCC 1]
A five-judge Constitution Bench of the Supreme Court held that temporary or daily-wage workers cannot claim regularisation merely because they have been engaged for a long period. The Court ruled that regularisation can be granted only in accordance with the prescribed procedure, including proper recruitment through the constitutional route under Articles 14 and 16. This decision is significant for fixed-term employment because it establishes that the non-renewal of a fixed-term contract does not create a right to permanent absorption.
Haryana State Electronics Development Corporation v. Mamni [(2006) 9 SCC 434]
The Supreme Court held that where an employee has been engaged on a contractual basis for a fixed term, the employer is not obligated to renew the contract upon expiry. However, if the engagement is a sham — designed to deny the benefits of permanent employment to a worker who performs perennial work — the court can look through the form to the substance and grant relief.
K. Rajendran v. Director, Projects and Equipment Corporation of India [2012 SCC OnLine Mad 6524, followed by SC]
The courts held that there must be a robust justification for engaging workers on a fixed-term basis rather than as permanent workers. The repeated renewal of fixed-term contracts for the same work over extended periods raises a strong presumption that the engagement is a device to circumvent labour protections.
Why this matters
Fixed-term employment represents a significant shift in Indian labour policy — it provides employers with a lawful mechanism to engage workers for specific projects or seasonal needs without the obligations associated with permanent employment, while guaranteeing workers parity in wages and benefits during the engagement period.
For employers, the key advantage is flexibility: fixed-term workers can be engaged and disengaged according to business needs without triggering the retrenchment provisions (notice, compensation, and government permission) that apply to the termination of permanent workers. The non-renewal of a fixed-term contract is not treated as retrenchment under the Industrial Relations Code.
For workers, the parity guarantee ensures that they receive the same wages, hours, and allowances as permanent workers, and the reduced gratuity threshold (one year instead of five) provides a significant benefit for short-term engagements. However, the lack of statutory limits on the number of renewals and the total duration of fixed-term engagements has been criticised as a potential loophole that could enable the permanent substitution of the regular workforce with fixed-term workers.
Related terms
Broader concepts:
Related employment categories:
Related consequences:
Frequently asked questions
Is non-renewal of a fixed-term contract treated as retrenchment?
No. Under the Industrial Relations Code, 2020, the non-renewal of a fixed-term contract upon the expiry of the fixed period does not constitute retrenchment. This means the employer is not required to give notice, pay retrenchment compensation, or seek government permission when a fixed-term contract simply expires.
Are fixed-term workers entitled to gratuity?
Yes. Under the Industrial Relations Code, 2020, a fixed-term worker is eligible for gratuity on a pro-rata basis if the period of service is one year or more. This is a significant relaxation from the normal five-year threshold under the Payment of Gratuity Act, 1972.
Can fixed-term contracts be renewed indefinitely?
The Industrial Relations Code, 2020 does not impose a statutory limit on the number of renewals or the total duration of fixed-term employment. However, courts have held that repeated renewals for the same work over extended periods may be treated as a sham device to deny permanent employment, and the worker may be entitled to regularisation.
This entry is part of the Veritect Indian Legal Glossary, a comprehensive reference of Indian legal terminology grounded in statutory text and judicial interpretation.
Last updated: 2026-03-27. Veritect provides this content for informational purposes and does not constitute legal advice.