1 MARCH 2024

Navigating Contract Employment: A Guide for NGOs to Mitigate Permanency Claims by Contract-Based Workers


The social sector in India faces certain unique challenges pertaining to compliance of labour laws. One of the challenges is the dominant practice of social-sector hiring in India is hiring (full-time) staff on a contract basis and extending the contract periodically. This  practise mainly stems from long-term funding constraints and tax compliances restricting administrative expenses. However, this poses a risk of such employees/ contract-based workers claiming permanent employment. 

Judicial Precedents on Regularisation of Contract Based Workers. 

The courts in India have rambled with numerous cases regarding regularization of employees for a long time.

The Supreme Court in India in the case of Jacob M. Puthuparambil and others v. Kerala Water Authority and others (AIR 1990 SC 2228) held that “employees who are serving on the establishment for long spells and have the requisite qualifications for the job should not be thrown out but their services should be regularised as far as possible”. 

Two years later, the Supreme Court of India in the case of Director, Institute of Management Development, UP v. Smt. Pushpa Srivastava (AIR 1992 SC 2070) held that “where the appointment is purely on ad-hoc basis and is contractual and by efflux of time, the appointment comes to an end, the person holding such post can have no right to continue in the postThis is so even when the person is continued from time to time on ad hoc basis for more than a year. He cannot claim regularisation in service on the basis that he was appointed on ad-hoc basis for more than a year.” However, it may be noted that Supreme Court of India in the instant case directed the management of the company in question to consider whether regularisation of services was possible.

More recently, in Saroj Gupta v. State of Madhya Pradesh 2023 SCC Online MP 1683, the Supreme Court held that “claiming regularization on the basis of past performance and long service is not proper because the order of appointment is very specific that the appointment of the petitioner was purely on temporary basis and coterminous with the project”.

NGOs can continue to hire contract employees, particularly, fixed term employees (FTEs) without the risk of facing a regularisation claim. However, in certain cases, the courts in India have directed employers to consider regularization of employment of such FTEs, if the FTEs are utilized over a prolonged period of time by the employer.

Guide To NGOs To Minimize Risks Of Temporary workers/ Contractors Claiming Permanency:

1.      Employment Contracts

Ensure that employment contracts clearly specify the terms of the engagement, including the duration, nature of employment (FTE or project-based) and any conditions related to renewal or termination.

2.      Define Scope of Work

Clearly define the scope of work and the specific projects or tasks the employee is hired for. This can help in establishing that the employment is tied to a specific and temporary need.

3.      Include Relationship/Independent contractor clause

This clause is very important to differentiate between regular and non-regular employees. The clause should categorically state that the relationship of the parties does not constitute as employer-employee relationship and that the consultant/FTE will not receive any employee benefits that may be extended to its own employees. 

4.      Use Fixed-Term Contracts appropriately

Use fixed-term contracts only when there is a genuine temporary need or project. Fixed term contracts should not be used as a camouflage and executed only to avoid providing the benefits available to regular employees as per the law. 

5.      Renewal Clauses

If the organization anticipate the need for ongoing work but are unsure of the duration, include clear renewal clauses in contracts. However, renewing a contract multiple times may be perceived as an ongoing employment relationship. Therefore, limit the number of contract renewals or extensions to prevent the perception of an ongoing and permanent arrangement. 

6.      Payment against Invoices

Unlike employees who will be paid salaries, FTEs and contract-based workers are not entitled to salaries. It is important that the contract envisages raising of invoices by the FTEs and contract-based workers, so that the claim that this relationship constitutes as a regular employment does not arise.  

7.      Document Decisions

Keep records of hiring decisions, terminations, renewals etc. This will serve as evidence in the event of legal disputes. 

Not-for-profit organisations are expected to comply with several employment laws, as regards their full-time employees. Several of these laws are invoked if the not-for-profit organisation crosses a particular threshold number of full time employees. Hence it is important to watch out for the total number on the payroll.

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