Misuse of temporary contracts in Pakistan’s textile and garment industry
Temporary employment contracts and third-party labor arrangements in Pakistan are intended to meet short-term or seasonal labor needs. Over time, however, suppliers have widely adopted these arrangements for roles that should be permanent as a cost-management strategy that reduces the employer’s obligations to workers.
This shift has created a “two-tiered” workforce in many supplier facilities, where contract workers perform core manufacturing functions alongside permanent employees, but with significantly fewer rights, benefits, and protections.
Background
Pakistani courts, including the Supreme Court, have consistently held that workers engaged continuously in core business functions cannot be denied permanent status based solely on contractual classification.
In a landmark 2013 ruling, the Supreme Court clarified that while a direct employment relationship generally does not exist between a principal employer and workers engaged through a contractor, an employer–employee relationship does exist if the principal company retains control over the manner, method, and execution of the work.
The court further affirmed that workers integrated into a company’s operations—working on its premises, under its supervision, and contributing directly or indirectly to core activities—are legally employees of that company, regardless of their contractual label. Subsequent Supreme Court rulings between 2019 and 2022 have reinforced this “substance over form“ doctrine, validating actual working relationships rather than written contract titles.
The National Industrial Relations Commission (NIRC) has similarly challenged third-party arrangements where suppliers retain operational control over workers while attempting to avoid formal employment responsibilities.
While outsourcing remains lawful when applied to genuinely independent and non-core services, suppliers’ misuse of contracting to disguise employment relationships presents significant legal and compliance risks for suppliers and sourcing brands.
Legal perspectives in Sindh and Punjab
Following Pakistan’s 18th Constitutional Amendment in 2010, individual provinces became responsible for labor regulation oversight and management, creating regulatory differences between Sindh and Punjab.
Sindh Region
Sindh provides explicit statutory restrictions on contract labor under the Sindh Terms of Employment (Standing Orders) Act of 2015, which entails:
- Temporary workers may only be engaged for defined, short-term needs not exceeding nine months;
- Third-party agency arrangements are prohibited for core production and permanent operational roles; and
- Workers performing ongoing, core functions are legally entitled to full employment rights, including statutory benefits, freedom of association, and collective bargaining.
Punjab Region
Punjab’s provincial framework allows for a broader use of contract labor, permitting third-party staffing arrangements. However, employers remain subject to judicial limits. While Punjab law does not state an explicit statutory time limit on contract duration, judicial bodies enforce the nationwide “substance over form” rule. Where workers perform continuous, core functions under supplier supervision, they retain the legal right to claim permanent status.
Regardless of contractual classification, all workers must receive statutory protections, including access to:
- Health and safety standards (Factories Act, 1934);
- Employees’ Old-Age Benefits Institution (EOBI)/pension registration;
- Punjab Employees Social Security Institution (PESSI) contributions; and
- Sindh Employees Social Security Institution (SESSI).
Unlike Sindh, Punjab law lacks explicit statutory caps on fixed-term contracts or a direct ban on third-party contract labor for permanent functions. Consequently, contract labor abuse in Punjab is less likely to be addressed solely through provincial labor inspections.
FLA standards and recommendations
This regulatory gap highlights why our Fair Labor Standards are critical. FLA members must hold suppliers to a higher threshold than local law where local regulations fail to protect fundamental worker rights.
The misuse of contract labor violates the FLA Workplace Code of Conduct, which states suppliers must not (1) use temporary or third-party contract workers to fill ongoing, core operational needs; or (2) rely on successive, short-term contracts as a standard practice to bypass permanent status.
The use of contract labor may be appropriate for genuinely temporary activities or non-core functions within a supplier’s operations. However, the use of contract labor to support ongoing production needs, replace regular employment relationships, or avoid legally required employment obligations may create significant legal, compliance, and reputational risks for suppliers and brands.
In this issue brief, we make four recommendations for brands sourcing from Pakistan. We also list four areas that audits should include.