Making an Employment Agreement Contract in India

Aditya Pratap is a lawyer practising in Bombay High Court. He can be reached at aditya@adityapratap.com.

Need for Well-Drafted Employee Contracts:

Whenever any person is employed under someone on fixed remuneration or salary basis, it is very important for both the persons i.e. who are employed as well as the person who is employing that person to enter into formal written contact. Basically, it is an Employment Agreement through which both parties can enter into a written contract. It is extremely necessary for both parties to enter into a legally binding contract because in future if one side doesn’t do what they have agreed into the contract, the other side always will have the option to enforce the agreement in the court of law. It is written contract entered between the Employer and Employee or Employer and Worker which is binding for both Employer and Employee. Previously, the practice of entering into a written contract with respect to Employment agreement was never there. But these days, everybody is aware of their rights and they would prefer to have a written contract specifying these rights. Moreover, there are many risks of negligence which are possible, and the strong employment agreement will cover all such risks.

What is an Employment Agreement?

An Employment agreement is a Legally binding written contract between employees and employers or employers and workers for the purpose of laying out the rights, responsibilities, and obligations of both parties during the employment period. In simple words, it is a legally binding contract that establishes contractual relationship between employer and an employee with respect to employment.

A Strong Employment agreement is beneficial to both Employer as well as Employee as both the parties will be aware of their rights and obligations towards another. All employment agreements must include certain mandatory clauses. Minimum Employment conditions which are specifically not mentioned in the Employment Agreement are still legally binding, such as entitlement to annual leaves, minimum wages and fair treatment. Apart from that Employment Agreement should also specify the salary, timings, the duties of the employer and employee, and also protection of rights of Employers in form of Non-Compete Clause and protection of IPR’s which are extremely important with the viewpoint of Employer as well. Hence, from the above, it can be said that the Employment Agreement equally protects the rights of the Employer as well as Employee.

Sometimes some of the information Employer feels that it is quite secret and at the same time important to share with its employee for the growth of the business is unable to share same with an employee in fear of whistleblowing or leak of its trade secrets. In this case, the employer can also enter into a Non-Disclosure agreement with its employee apart from the Employment Agreement. Employment Agreement always helps the parties to understand their duties and privileges as an employer and employee. In India, an Employment Agreement is governed by the Indian Contract Act, 1872.

Typical Elements of an Employment Contract:

The key elements that Employment Agreement include are:
• Employees Salary
• Employees Benefits
• Work schedule
• Vacation allotment
• Restriction on confidential information
• Termination
• Performance Review
• Disciplinary procedures

Different Forms of Employment Agreements:

There are several different types of employment agreements, and it’s generally up to the discretion of the employer to decide which one to use. The following are some of the most commonly-used employee agreements and contracts.

At-Will Contracts:

An at-will contract is the most widely used employment agreement. In this type of agreement, the employer reserves the right to terminate the employee at any time (or, “at will”.) At the same time, the employee has also the right to quit the job for any reason he or she deems fit, as long as it’s not illegal.

Written Contracts:

A written employee agreement is the written contract between employer-employee and their rights, rules and obligations. With a written contract, the employer agrees to work for a specific period of time. The employer also agrees to retain the employee for a specific period of time. Other than that, the agreement is similar to an at-will contract, with the exception of termination, which is only allowed if the employee violates the terms of the agreement.

Oral Contracts:

Oral agreements are those agreements which are not formally filed or written as they’re based in verbal agreements between the employer and the employee. In general, oral agreements are more difficult to enforce, and any disciplinary action or employee dispute, for example, relies on evidence that’s not necessarily written down, which makes it much harder to prove a case for both parties.

Importance of having a Well-Drafted Employee Agreement:

A well-drafted employment agreement provides each party – the employer and employee – terms and conditions and much clarity to work which helps the employer and employee to develop their strong professional business relationship.

A good employment agreement enables both employee and employer to negotiate key terms in an employment arrangement, like wages, benefits, time off etc. An employment agreement can also be used in the event of a dispute between an employee and an employer. All each party has to do is to refer to the specific language in the employment agreement and act on that language to settle the dispute.

An employee can feel comfortable after signing employment agreement as they know exactly where they stand, what’s expected from them and what are their rights which gives them enough stability to work as well. Lastly, the presence of an employment agreement will provide the employer with greater control over the work being done by the employee subjected to the contract provisions.

Points of Caution while Preparing an Employee Contract:

Once employment terms are negotiated and set forth in an employment agreement, they’re set in stone in the employer’s eyes. That makes it difficult to renegotiate terms (like pay raises and bonuses) once they’re included in the agreement, thus limiting the employee’s flexibility.

If employees sign off on a contract that locks employee for a specific time period on the job (say, three years), it’s difficult to leave the job early, no matter how frustrated employee get on the job.

Under the legal provisions of the contract, an employer is obligated to act under a covenant of good faith and deal fairly with the employees as they enforce the original terms and conditions of the contract. This provision is an important protection for employees as it serves as a deterrent to prevent an employer from breaching the contract as acting in bad faith because of loss in business which could ultimately lead to more extensive legal damages under the law.

Conclusion and the Way Forward:

A well drafted employment agreement is the key to the lasting relationship between the employer and the employee because it is definitely enforceable in law hence if either party breaches any of the covenants present in that agreement, other party can sue in court. Thus, it’s always a good idea for both an employer and the employee to have a qualified employment law attorney/Lawyer to review the contract, or even assist in its drafting. A good attorney/lawyer can clean up any discrepancies and disputed language in even the most well-drafted employment agreements, giving peace of mind to both the employer and the employee.

Spread the word
Advocate Aditya Pratap
About Advocate Aditya Pratap 64 Articles
Aditya Pratap is a lawyer practising in Mumbai. He argues cases in the Bombay High Court, Sessions and Magistrate Courts, along with appearances before RERA, NCLT and the Family Court. For further information one may visit his website adityapratap.in or view his YouTube Channel to see his interviews. Questions can be emailed to him at aditya@adityapratap.com.