researched and written by Khutejatulkubra M Patil
An employment contract is a contractual document that defines the responsibilities and rights of both the employee and the employer.
A contract of employment is a bilateral agreement based on an offer, acceptance, consideration, competent parties, legal object, and free consent. An employment contract is entered into for a certain period of time in exchange for service and compensation. There are numerous rules that control the relationship between the employer and the employee, each of which is significant in its own right.
There is no standard contract. Instead, the terms and provisions vary depending on the company’s business, the position offered, and the internal policies and procedures.
India’s labour law governs every employment contract made with a company based in the country. According to Indian regulations, it is not required for an employer to provide a newly recruited employee with either a written contract of employment or an official written declaration.
It is common for employment contracts to have some essential clauses, despite the fact that there are numerous variants. Some of the most common terms in an employment contract are listed below.
There are two types of employment agreements:
1. Collective Agreements (CA): Collective bargaining agreement (CBA) is a contract between an employer and a union that represents the employees that is legally binding. Wages, working hours, and other employment-related issues were extensively negotiated between the parties in order to arrive at the CBA’s provisions.
2. Individual employment agreements (IEA): A contract of employment agreed into by one employer and one employee who is not bound by a collective agreement that binds the employer.
Important Clauses of an Employment Agreement:
1. Title of Position Offered: The contact should highlight the employee’s key responsibilities, as well as the job description given in the employee’s offer letter. The employer should explicitly state in the employment contract the department or person the employee will report to. This category includes things like job title, responsibilities, and tasks.
2. Confidentiality Clause / Non – Disclosure Obligations: It prohibits the employee from exposing sensitive information to any other party without the employer’s prior approval. A non-disclosure agreement prevents an employee from disclosing sensitive or valuable company information. By signing the non-disclosure agreement, the employee agrees that disclosing or abusing the company’s secrets would result in a breach of the contract. The Indian Penal Code and the Information Technology Act of 2000 both provide for criminal prosecution and imprisonment or fine (or both) as penalties for violating confidentiality and disclosure restrictions.
3. Non-Compete clause: A non-compete provision is contract provision that prohibits an employee from competing with his or her former employer. This provision prohibits an ex-employee from utilising vital knowledge such as company strategy, client information, and so on in connection to his previous job. Restrictive covenants protect both the company and the employer during the employee’s employment time and even after the employee’s employment period expires.
This clause prevents an employee from competing against his or her former employer for a certain time period after he or she has disassociated himself with the company. A restrictive covenant must be drafted carefully to avoid restricting the employee’s freedom of movement. It should also be drafted in such a way that it doesn’t impose undue pressure on the employee.
Certain variables, such as the extent of the geographical region, the length of time for applying such post-employment limitations, the type of information being safeguarded, and so on, must be considered.
4. Non-solicitation covenants: This is often included in non-compete agreements or non-disclosure agreements. This clause forbids an ex-employee from interacting with or soliciting the clients or customers of his previous employer. It also forbids the employee from asking his co-workers to leave the employment, such as by attempting to recruit them away from the organisation. It prevents an employee from to the benefit of the organization’s clients or customers after he leaves.
5. Termination: The termination clause is a vital part of a contract of employment that states that the employee can terminate their employment relationship by providing a certain amount of notice. This contract usually includes details related to the termination period and the obligations of the employer. A termination clause specifies the requirements and obligations that must be fulfilled by both the employer and the employee upon termination of employment. Every employee has an implicit provision in their employment contract that they will serve a suitable termination notice.
The relationship between an employee and the employer is governed by the Labour Law of India, 1947, which is known as the Industrial Disputes Act. This act specifies the procedures to be followed when workers are terminated or retrenched from their jobs, as well as the compensation that must be paid.
6. Jurisdiction Clause: Sometimes, a contractual dispute can arise out of a disagreement. In such cases, some parties prefer to resolve the issue through arbitration instead of going through the judiciary. A jurisdiction clause clearly states that the forum or court that will resolves the dispute will have the right to deal with it. An employer and employee can resolve a legal disagreement over their employment contract by agreeing to a jurisdiction provision in their contract, which defines which court or forum will have jurisdiction over the issue.
7. Governing clause: In an employment contract, a governing law provision specifies the parties’ choice of law. The rules regulating employment differ from state to state, so it’s a good idea to specify which laws will govern the contract in advance. By specifying which set of laws shall be applied to settle disputes between the parties to the contract, this provision helps to avoid initial misunderstanding.
8. Dispute Resolution / Arbitration Clause: A grievance between an employer and an employee in an employment relationship is a complaint made by one side against the other, which should be resolved in the workplace either in a formal or informal manner. There are three possibilities for resolving disagreements. If there are minor concerns or disagreements at the lower levels of management, the corporation may establish an internal policy to deal with and resolve them as a first step. More serious conflicts will be handled through arbitration or by identifying a certain jurisdiction in which all legal claims must be submitted and litigated.
9. Ownership Clause: The idea behind an ownership agreement is straightforward: Anything you create while working for the firm is owned by the company. When an employee creates a game-changing product, procedure, or idea, things get a lot difficult. Even if the corporation produces billions of dollars as a result of the employee’s efforts, the employee is only entitled to the remuneration specified in the employment contract. These rights for employers can even include intellectual property that hasn’t been completely realised.
10. Disability and Death: When an employee dies or becomes disabled, prominent companies with a focus on employee relations often help the family of the deceased by offering monetary compensation or even career possibilities to the surviving spouse or children.
11. Remuneration Clause: The remuneration clause must include a reference to the amount to be paid to the employee for providing services. According to Indian remuneration legislation such as the Equal Pay for Equal Work (Remuneration) Act, the Minimum Wages Act, and others, this phrase must be included by advocates. International conventions such as the Equal Remuneration Convention must also be followed.
12. Reimbursement of Expenses: Employees may incur expenditures while going about their daily work. These expenses are necessary if the company is to accomplish its objectives. This involves holding a business dinner, making phone calls to company clients, and being financially responsible for all of the aforementioned expenditures. This clause ensures that the employee is being reimbursed for this expenditure.
13. Probationary Clause: Employers may benefit from including a period of probation to assess if a candidate is suited for employment. As part of a probationary period, an employer is allowed to terminate an employee’s employment without giving prior notice or giving any reason. However, in order for this clause to be enforceable, it must meet the minimum notice period required by employment standards legislation during that time period.
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Other clauses:
1. Appointment: If the employee accepts the job offer, a formal employment contract must be drafted before the person may be officially hired. There should be a statement of when the employee was hired or when their job began. The employee must remember that he is commencing anew and that the employment rights he acquired during his previous job are no longer relevant. This regulation, however, does not apply if an employer buys the entire business and keeps the existing personnel.
2. Payment Terms: The gross pay provided to the employee should be specified in the employment contract. Any tax deductions, insurance deductions, or other deductions from the employee’s pay should be noted. The contract should also specify when the employer is expected to make the payment, such as the day the payment is due.
3. Vacation and leaves: A contract should state how many vacation days the employee will get throughout the course of their work, as well as any limitations. A termination clause should also indicate whether or not an employee may carry over any unused vacation days to the next year or get any severance money in exchange for these unused days upon leaving the company.
4. Retirement: When a person reaches the normal retirement age, they are automatically terminated from their jobs. Instead of include a language in an employee’s employment contract, most companies choose to design a separate retirement policy for them. In instances where employees determine when to retire, the retirement policy guarantees that the justified retirement age is not necessary.
5. Pension: Statutory employment contracts include a pension provision for the employer’s employees in the event of a mandatory termination when they reach the standard retirement age. This provides information about the company’s upcoming pension plan. A clause in the employment agreement must state whether the company does not offer pension benefits.
6. Working hours: The normal working hours must be specified in the contract or agreement. To guarantee adherence with the Factories Act of 1948, the working hours must be adhered to.
7. Work Place: The agreement should specify the location of the employee’s reporting point for the start of his or her work. In the time of pandemic where employees are allowed to work from home, the employment agreement must include the clause whether the employed is appointed to work from home or office.
8. Validity of the contract: The basic rule is that a contract or agreement for employment is valid for the time being. The job will continue until either the employee resigns or the company fires them. To terminate an employee, an employer must have good cause. If the agreement is still in effect, then the employee has a stable or long-term work. A fixed-term contract or agreement specifies the start and end dates of the employee’s service, which are agreed upon in advance by both parties. In other words, the length of time the services will be provided will be specified.
9. Golden Parachute: There is a “golden parachute” when a company is acquired by another and senior executives lose their jobs as a result of the merger or acquisition Employees who lose their jobs due to a takeover will get a pay out or perk as compensation.
