Employment Contracts in India

Employment contracts are important documents for employees to have a better understanding of their role and responsibilities and the company’s expectations. A written draft of such a contract is vital to specify the employee’s responsibilities and the employer’s liabilities. Considering that the specific details of different contracts may vary for different companies, you need to thoroughly go through an employment contract before signing it.

This draft will help understand the key features of an employment contract, which will help you learn the exact expectations of your employer before you sign up for a role at their organization.

What is an Employment Contract?

• Employment contract is a written agreement between an employer and an employee citing the terms and conditions of the employment that binds both the parties.
• It defines parameters like the role and responsibilities of the employee, scope of work, probation, notice period, terms of salary, etc., which are quite significant terms when it comes to employment.
• The policies of a company/establishment/organization including but not limited to Time and Leave Policy, Protection of Sexual Harassment, Data Privacy Policy, Anti-Corruption Policy, Travel Expenses & General Expenses Reimbursement Policy, etc. are generally considered to be a part/annexure to the Employment Contract and the employee is bound by them.

Importance of Employment Contracts

 

The main purpose of employment contracts is to provide job security to the employee while providing a safety net to the employer too, in case of low productivity issues. It clearly spells out the rights of each party involved and protects various assets of the company that the employee is granted access to while working for a company. This article will dive into the various aspects associated with employment contracts and give you a comprehensive idea of the same to ensure you know what to look for before signing your next employment contract.

Types of Employment Contracts

There is a wide range of employment contracts, which are used in different instances depending upon the type of employment. Here are a few key types of contract:

Full-time Contract

This is the most commonly used type of employment contract offered to permanent employees hired for full-time. It contains all the vital information that an employee must know about and adhere to while working for the organization.

Part-time Contract

These are offered to employees that are employed to work part-time, for example, for half a day. These employees are known as part-time employees and are hired to work for a much shorter duration every day as compared to the full-time employees. Such contracts usually don’t include the benefits and bonuses offered to full-time employees.

Freelance Contract

These contracts are given to people that are hired to work on specific projects. Such contracts mainly cover the project details and act as a security for freelancers that ensures they won’t randomly lose the opportunity or have to suffer from delayed payment issues.

Fixed-term Contract

Individuals that work for a specific term or for a certain project or assignment are hired under the fixed-term contract.

Consultancy Agreement/Contract for Services

When a company wishes to hire someone that will not be working for them, they need a consultant agreement. Self-employed individuals always need a consultancy agreement whenever they want to partner with any organization for a project/assignment or a specific period.

Zero-Hour Worker Contracts

Under this contract, the organization is not responsible for providing a specific number of working hours to an employee, while the employee is not required to work solely for a particular employer.

Note: Zero-hour worker contracts are relatively uncommon in India. However, they are often used in sectors where there is a high demand for flexible workers, such as the hospitality and retail industries.

Pros of Employment Contracts

A few advantages of employment contracts are:

• Defines roles, responsibilities and perks: Clearly defines the roles, responsibilities and perks for each employee hired, eliminating any potential for confusion or conflicts related to the same in the future.
• Stability: The employer and employee are well-informed about what to expect from the other party, which gives a sense of stability to both parties.
• Protection for both employer and employee: Rights of both, employer and employee are protected through an employment contract. While it prevents an employee from sharing business details anywhere and from leaving to work for a competitor, it also ensures the employer doesn’t misuse their authority and harm any individual’s employment.
• Legal contract: As the draft is a legal documentation, any party that violates it is liable to face consequences and penalties.

Cons of Employment Contracts

• Fixed terms and lack of flexibility: As the contract states fixed terms of employment, once the contract has been signed, it can rarely be changed or modified in any way. This can be one of its biggest drawbacks as it doesn’t consider the changes in the circumstances that an employee encounters over time.
• Potential to be biased with employees that lack negotiating ability: The contract is usually drafted by the employer, giving them somewhat of an unfair advantage over employees that aren’t particularly good at negotiating the terms of employment. This results in them having to work as per whatever the employer decides and creates significantly biased power dynamics at the workplace.

Important Clauses of Employment Contracts

While we have listed some clauses commonly found in contracts of employment, different employers may have different expectations from their employees and may add unique clauses that define their expectations. Employees must thoroughly go through the contract before signing it to understand what the employer expects of them and avoid any conflicts regarding the same in the future.

Some clauses stated in an Employment Contract are:

Description of Role/Scope of Work

This clause states the designation/position at which the employee is employed, in an organisation. It defines the main responsibilities and the tasks which an employee would be performing at the organisation. The employer should draft this clause carefully as the description of job is of utmost importance which defines the boundaries of work.

Fiduciary Responsibilities of an Employee

A fiduciary duty is the obligation of an employee that they have to act in another party's best interest. The said clause includes terms such as that the employee should not take up any independent professional assignment, safekeeping the accessories provided by the company such as mobile phone, laptop, etc.

Confidential Information, Non-Circumvention and Non-Solicitation

An employee is entrusted with the trade-secrets, financial data, operating data, technologies, finances and costs, marketing, external and internal transactions of the company etc., which is basically confidential information. The employee should share the said information internally only on ‘need to know’ basis and must not under any circumstance share such information with other vendors, companies, clients, etc., as it is a property of the company.

Further, the employee should neither circumvent Company’s work with business associates, clients, and other third-party vendors.

Therefore, it is necessary to add the above-stated clause in an Employment Agreement to effectively protect the interests of the company.

Term, Tenure and Notice

The period for which the Agreement shall be valid and operational should be specifically stated. Further, other important things including the probation period which the employee must serve before becoming a permanent employee at the organization also must be specifically stated. At many organizations, there is no notice period during the probationary term, however this depends on needs and wants and may differ from company to company.

Remuneration

At a lot of organizations, remuneration is not a part of the employment contract as the salary is already mentioned in the offer letter provided by the Company. It is, however, advisable that the salary with proper break-up must be stated in the Employment Contract to avoid any inconsistencies.

Additional Points for Comprehensive Employment Contracts:

1.    Probationary Period Management

• Clearly stipulate the duration of the probationary period, elucidating conditions for potential extensions or conclusions.
• Articulate any distinctive requirements or performance benchmarks essential during the probationary tenure.

2.    Leave Guidelines

• Elaborate the company’s polices regarding various leave categories such as annual leave, sick leave etc.
• Illuminate the protocol for requesting and approving leaves along with any associated terms.

3.    Training and Professional Development Framework

• Specify if the employer provides training or development opportunities.
• Outline any arrangements regarding reimbursement for educational pursuits or professional development courses.

4.    Performance Appraisals

• Define the frequency and methodology for performance assessments.

5.    Dispute Resolution Mechanism

• Articulate the structured process for resolving disputes between the employer and employee, including potential recourse to arbitration or legal avenues.

6.    Data Protection Provision

• With compliances on data protection becoming critical for organizations, incorporating such a provision is crucial to mitigate legal risks, and safeguard both the employer and the employee interests.

7.    Grievance Handling Structure

• Define a formalized mechanism for employees to voice grievances, elucidating the process for addressing and redressing concerns within the organizational framework.

8.    Intellectual Property Ownership

• Clarify the ownership rights concerning intellectual property conceived during employment.
• Define rights held by both the employer and employee concerning patents, copyrights, and innovative creations.

9.    Force Majeure and Termination Provisions

• Include clauses addressing unforeseen circumstances (force majeure) and delineate the conditions under which either party may terminate the contract.

Specific Grounds for Termination

Specific grounds of termination include willful insubordination or disobedience; theft, fraud or dishonesty; willful damage to or loss of employer's goods; partaking of bribes or any illegal gratification, harassment of any form, etc.

Mistakes to avoid when drafting Employment Contracts

• Not being detail-oriented and specific about terms of employment.
• Lack of proper, efficient lines of communication for employees.
• Missing out details of how to modify the contract/terms of employment.
• Using complicated terms and jargons rather than simple English to define the terms of employment.
• Being biased to any one party, i.e., the employer or employee.

Conclusion

An employment contract is the legal binding that both the employer and employee must adhere to. Failing to do so may result in the defaulter having to face consequences and penalties, depending on the severity of the violation. It is imperative for employers to define all their expectations clearly in the contract of employment, while employees must follow the terms and conditions of employment once they have negotiated and signed the contract.

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