Home Contract All you need to know about an employment contract

All you need to know about an employment contract

April 12, 2022

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The article is written by Ansruta Debnath, a law student at National Law University Odisha. This article talks about the most important provisions that must be included in an employment contract, the advantages and disadvantages of forming the same and also includes a sample employment contract for your reference.

It has been published by Rachit Garg.

Table of Contents

Introduction

An employment contract is a written agreement between an employer and an employee that specifies the length of the employee’s employment. It can be implied, oral, or written, and it usually involves the employee signing a lengthy physical contract. The contract’s conditions are determined by what was agreed upon when the employee affirmed their willingness to work. It specifies the rights and responsibilities of both the employee and the employer.

It is important to review information on what to expect when you are asked to sign a contract and study the benefits and drawbacks of employment contracts. This article will give an overview of these parts of an employment contract to give you a comprehensive idea of the same.

The purpose of employment contracts

The primary reason for an employment contract is to provide job security to the employee and ensure that employers are also insulated from risks like lower productivity that can occur due to unclear working hours. These contracts also ensure that the involved parties will abide by the rules of the organization and there would be the availability of effective ways to resolve disputes in case the need arises.

Types of employment contracts

There exist a wide range of employment contracts. Some of them, inter alia, are as follows :

Full-time contract

This is the most comprehensive type of contract and is offered to permanent employees. They include all the important information that an employment contract should contain.

Part-time contract

These are offered to those employees who work, for example, for half a day. These employees are called part-time employees and work a lesser number of hours as compared to full-time employees. These generally don’t include benefits and bonuses.

Zero-hour contract

Employees that work intermittently or only when employment is available are offered zero-hour contracts. In a zero-hour agreement, an employer commits to offer work when it becomes available, either in writing or verbally, and an employee agrees to work such hours or be on call for availability reasons.

Casual contract

Employees who work on a seasonal or temporary basis are usually offered casual contracts. Employers generally stipulate in casual contracts that employees will only be paid for completed work and that the company is not compelled to supply a certain number of shifts or work hours. Furthermore, such contracts may indicate that employees are not obligated to accept any shifts or work hours that are provided.

Freelance contract

These contracts are offered to those people who are given a particular project to work on. Such contracts focus mainly on project details and protect the freelancers from losing out on timely payment of fees.

Union contract

Union contracts are standardised legal agreements that are usually offered to workers who join a local or national labour union. These contracts are frequently offered to members of specific trades who may work directly for the union or be hired by a private enterprise.

Fixed-term contract

Employees who only work for a limited amount of time or until they complete a specific assignment are given a fixed-term contract

At-will contract

An at-will agreement is a sort of employment contract that may appear to be a contract but does not provide employees with many benefits. At-will agreements often detail all of the same things that a contract does, but they rarely specify the length of work or provide certain rights. As a result, at-will agreements allow employees to leave occupations whenever they want and employers to terminate their employment without cause, making such agreements difficult to enforce in the event of a discrepancy.

Consultancy Agreement/ Contract for Services

When an organisation wants to hire someone who isn’t going to work for them, they usually use a consultant agreement. If a person is going to be self-employed, they will almost always need a consultancy agreement (contract for services). A contract for services is a common legal word that is not defined anywhere in the law. A contract of service, on the other hand, is described as an employment contract in employment and tax regulations.

Secondment

An employee is leased by his or her employer to another portion of the same organisation, another organisation within the group, or an external organisation under a secondment agreement. The individual is still employed by the original employer during the secondment period. He does not move his or her job to the host company or department.

Most important clauses of an employment contract

Job title and description

This clause provides you with, in detail, the nature of the work the employment contract is about. It is very important to specify this from the very beginning to ensure that both the employer and the employee are on the same page and there is consensus ad idem or ‘meeting of minds’ with respect to the duties and responsibilities of the employee.

Length of employment

This clause will specify the duration for which the employment will run. This clause can also include the provisions for renewal of employment if necessary. Renewals may be joint, one-time, etc. This section can also be sometimes called ‘schedule’. If the employee is not going to work continuously then it is important to specify the days they will be working and the time of said work to ensure maximum transparency.

Salary, bonuses and benefits

This is an extremely important clause that outlines the remuneration that the employee will receive because of the employment. Proper negotiation must be done before agreeing to this clause. Employees must also ensure that they are receiving bonuses that they deserve, through this clause. The compensation and benefits package included under this clause should have the annual salary of the hourly salary, raises, bonuses, incentives, health benefits, company stock options, retirement plans, signing bonuses and other benefits.

Overtime rules

There is an often ignored clause and is very important since no employee, especially in India, can avoid working overtime. So, they also deserve to be compensated for the same. Overtimes are generally provided at an hourly rate.

Holidays and leaves

Time-offs, leaves and holidays are crucial components of an employment contract. A comprehensive time-off policy should detail how time off is accrued when it can be used, and what employees must do to take advantage of those benefits. Holidays based on company policies and detailed information on paid leaves should also be mentioned within these clauses.

Communication channels

It is important to specify the person to whom an employee reports. This leads to efficiency and transparency through proper communication channels. These lines of communication should be properly established so that work can be done in a hassle-free manner.

Intellectual property clauses

Clauses that define to whom intellectual property developed during the employment belongs are needed in an employment contract. For example, a software engineer working for a firm will probably make some code that will be his creation. But, like in most employment contracts, that intellectual property will belong to the firm. Such provisions should be specified beforehand to prevent ambiguities in the future.

Confidentiality and privacy

The confidentiality clause specifies the circumstances in which employees must keep their anonymity. These conditions are critical since employees have access to the company’s trade secrets while working for them. The confidentiality agreement normally includes the legal consequences for an employee who divulges any confidential information.

Restrictive clauses

These clauses are those that come into effect after the termination of the job and have effects on the future jobs of the employee. The following are some examples of restrictive clauses:

Non-compete clause: This is a clause that prevents an employee from taking a job at the current company’s competitor for either a particular time period or in a certain geographical area.
Non-dealing clause: This clause prevents an employee from dealing with or contacting previous colleagues or employees.
Non-solicitation clause: This clause prevents a company employee from poaching that company’s clients when the former shifts to a new company.
Non-poaching clause: This is similar to the non-solicitation clause, except it refers to poaching ex-colleagues or employees of the previous company.

Termination and severance

These clauses will specify the criteria under which termination of the employee may take place. From the perspective of the employer, it is important to ensure the reputation of the company is not tarnished or negatively affected by the termination. So, the provisions giving severance packages should also be included.

Date and signature of parties involved

Signatures of the parties involved at the end of the agreement convert the latter into a legally binding contract and indicate the formal acceptance of the parties to the terms. The date is also important, which shows the time from when the contract started.

Pros of employment contracts

The advantages or pros of using an employment contract are as follows:

Clearly defined responsibilities and perks

The employment contract spells out the job’s responsibilities as well as the benefits that come with it. Employers can use it to set performance expectations for employees as well as reasons for terminating them.

Employers and employees are both protected

Both parties’ rights are protected under the employment contract. To prevent the employee from using sensitive information for personal advantage, the employer can put a non-compete or non-disclosure language in the employment contract. It can also keep them from leaving their positions and going to work for a competitor of yours.

Stability

Both the employee and the employer have a clear understanding of what to expect from their working relationship.

Legally binding

The employment contract is legally binding, and if the employee violates it, there will be penalties.

Attract employees

You can utilise an employment contract to entice candidates to work with you rather than the competition by promising job stability or other favourable provisions in the contract.

Cons of employment contracts

The cons or drawbacks of an employment contract are as follows:

Limited flexibility and fixed terms

Contracts by default are fixed that can rarely be changed once made and signed. This non-flexibility of contracts is its largest drawback as it fails to take into account the changing circumstances of employment.

Can be biased against employees who have less negotiating power in the beginning

Employment contracts are generally drafted by the employer giving them more power to put in terms to their linking. Future employees are also in a disadvantageous position as they would not be likely to resist to terms of a contract for a job they want. This creates a highly biased power dynamic and leads to prejudice against the employee for the benefit of the employer.

Things to include while drafting an employment contract

While drafting an employment contract, the following things need to be kept in mind:

Plain and lucid English should be used to ensure maximum transparency.
The contract should be as flexible as possible.
Contracts should not be too much inclined towards one party.
The most important clauses must be added to the contract.

Mistakes to avoid while drafting an employment contract

Not being specific or detail-oriented.
Not establishing proper and efficient lines of communication.
Not detailing how to make changes in the contract.

Sample of an employment contract

Sample employment contracts are widely available for the benefit of everyone who wants to draft an employment agreement for hiring employees. A point must be noted that these samples contain certain provisions which are a must for all consultation agreements. Apart from those, the contracts can be amended and sub-clauses added or removed to cater to individual needs.

The following is a sample of an employment contract-

EMPLOYMENT CONTRACT

This agreement lays down the terms of employment, agreed upon by the employer and employee. Whether stated explicitly in the agreement or not, both the employee and the employer have the duty of mutual confidence and trust, and to make only lawful and reasonable demands on each other.

__________________________________________________________

This EMPLOYMENT AGREEMENT (hereinafter, the “Agreement”) is entered into on this ___ day of ________, 20__,

BY AND BETWEEN

_____________, a private limited company incorporated under the Companies Act, 1956, having its registered office at______________(hereinafter referred to as the “Company” or “Employer”, which expression shall, unless repugnant to the meaning or context thereof, be deemed to include all permitted successors and assigns),

AND

_______________ son/daughter/wife of ___________ aged _____ years and residing at ______________________(hereinafter referred to as the “Employee”, which expression shall, unless repugnant to the meaning or context thereof, be deemed to include all permitted successors and assigns).

WHEREAS, the parties hereto desire to enter into this Agreement to define and set forth the terms and conditions of the employment of the Employee by the Company;

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, it is hereby covenanted and agreed by the Company and the Employee as follows:

ARTICLE 1: Interpretation

In this agreement the following terms shall have the following meanings:

1.1 Confidential information: Any trade secret or other information which is confidential or commercially sensitive and which is not in the public domain (other than through the wrongful disclosure by the Employee) and which belongs to any Group Company (whether stored or recorded in documentary or electronic form) and which (without limitation) relates to the business methods, management systems, marketing plans, strategic plans, finances, new or maturing business opportunities, marketing activities, processes, inventions, designs or similar of any Group Company, or to which any Group Company owes a duty of confidentiality to any third party and including in particular [insert specifically all named items of Confidential Information];

1.2 The Employment: The employment of the Employee by the Company in accordance with the terms of this Agreement;

1.3 Group Company: the Company, any company of which it is a Subsidiary (being a holding company of the Company) and any Subsidiaries of the Company or any holding company, from time to time;

1.4 Termination date: the date on which the Employment ceases.

ARTICLE 2: Position

2.1 Upon execution of this Agreement, the employee would be posted as the _______of the Company.

2.2 During the term period of this Agreement, the Company may change the employee’s above-mentioned post (or position) or location based on the Company’s production, operation or working requirements or according to the employee’s working capacities and performance, including but not limited to adjustments made to the employee’s job description or workplace, promotion, work transfer at the same level, and demotion, etc., or adjustments made to the employee’s responsibilities without any change to employee’s post (or position).

ARTICLE 3: Term and Probation Period

3.1 It is understood and agreed that the first ____ (_____) days of employment shall constitute a probationary period (“Probationary Period”) during which period the Employer may, in its absolute discretion, terminate the Employee’s employment, without assigning any reasons and without notice or cause.

3.2. After the end of the Probationary Period, the Employer may decide to confirm the Employment of the Employee, at its sole discretion.

3.3 After the end of the Probationary Period, this Agreement may be terminated in accordance with Clause 12 of this Agreement.

ARTICLE 4: Performance of Duties

4.1 The Employee agrees that during the Employment Period, he/she shall devote his/her full business time to the business affairs of the Company and shall perform the duties assigned to him/her faithfully and efficiently, and shall endeavour, to the best of his/her abilities to achieve the goals and adhere to the parameters set by the Company.

4.2 The Employee shall be responsible for ________________________

ARTICLE 5: Compensation

Subject to the following provisions of this Agreement, during the Employment Period, the Employee shall be compensated for his services as follows:

5.1 The Employee shall receive an annual salary, payable in monthly or more frequent instalments, as per the convenience of the Employer, an amount of________ per annum/ month, subject to such increases from time to time, as determined by the Employer. Such payments shall be subject to such normal statutory deductions by the Employer.

5.2 During the term of this Agreement, the Employee’s salary shall be paid by means of bank transfer, cheque, or any other method convenient to the Employer, and consented to by the Employee.

5.3 All reasonable expenses arising out of employment shall be reimbursed assuming that the same have been authorised prior to being incurred and with the provision of appropriate receipts.

ARTICLE 6: Obligations of the Employee

6.1 Upon execution of the agreement, the Employee shall not engage in any sort of theft, fraud, misrepresentation or any other illegal act neither in the employment space nor outside the premise of employment. If he/she shall do so, the Company shall not be liable for such an act done at its own risk.

6.2 The Employee further promises to never engage in any theft of the Employer’s property or attempt to defraud the Employer in any manner.

6.3 The Employee shall always ensure that his/her conduct is in accordance with all the rules, regulations and policies of the Company as notified from time to time.

6.4 The Employee shall not take up part-time or full-time employment or consultation with any other party or be involved in any other business during the term of his/her employment with the Company.

6.5 The Employee shall always ensure that his/her conduct is in accordance with all the rules, regulations and policies of the Company as notified from time to time, including but not limited to the Leave Policy and Sexual Harassment Policy.

6.6 The Employer hereby prohibits the Employee from engaging in any sexual harassment and the Employee promises to refrain from any form of sexual harassment during the course of employment in and around the premise of employment. If the Employee violates this term in the agreement, he shall be fully responsible for his/her actions and the Employer shall not be held responsible for any illegal acts committed at the discretion of the Employee.

ARTICLE 7: Leave Policy

7.1 The Employee is entitled to ____ (___) days of paid casual leaves in a year and ____(___) days of sick leave. In addition, the Employee will be entitled to _____ (__) public holidays mentioned under the Leave Policy of the Employer.

7.2 The Employee may not carry forward or encash any holiday to the next holiday year.

7.3 In the event that the Employee is absent from work due to sickness or injury, he/she will follow the Leave Policy and inform the designated person as soon as possible and will provide regular updates as to his/her recovery and as far as practicable will inform the designated person of the Employer of his/her expected date of return to work.

7.4 If the Employee is absent from work due to sickness or injury for more than three consecutive days he/she must submit to the Employer a self-certification form. If such absence lasts for more than seven consecutive days the Employee must obtain a medical certificate from his/her doctor and submit it to the employer.

7.5 For any period of absence due to sickness or injury the Employee will be paid statutory sick pay only, provided that he satisfies the relevant requirements. The Employee’s qualifying days for statutory sick pay purposes are Monday to Friday.

ARTICLE 8: Assignment

8.1 The Employee acknowledges that any work including without limitation inventions, designs, ideas, concepts, drawings, working notes, artistic works that the Employee may individually or jointly conceive or develop during the term of Employment are “works made for hire” and to the fullest extent permitted by law, Employee shall assign, and does hereby assign, to the Employer all of Employee’s right, title and interest in and to all Intellectual Property improved, developed, discovered or written in such works.

8.2 Employee shall, upon request of the Employer, execute, acknowledge, deliver and file any and all documents necessary or useful to vest in the Employer all of Employee’s right, title and interest in and to all such matters.

ARTICLE 9: Competing Businesses

During the Term of this Agreement and for a period of one (1) year after the termination of this Agreement, the Employee agrees not to engage in any employment, consulting, or other activity involving_______________ that competes with the business, proposed business or business interests of the Employer, without the Employer’s prior written consent.

ARTICLE 10: Confidentiality

10.1 The Employee acknowledges that, in the course of performing and fulfilling his duties hereunder, he may have access to and be entrusted with confidential information concerning the present and contemplated financial status and activities of the Employer, the disclosure of any of which confidential information to the competitors of the Employer would be highly detrimental to the interests of the Employer.

10.2 The Employee further acknowledges and agrees that the right to maintain the confidentiality of trade secrets, source code, website information, business plans or client information or other confidential or proprietary information, to enable the other party to such information constitutes a proprietary right which the Employer is entitled to protect.

10.3 Accordingly, the Employee covenants and agrees with the Employer that he will not, under any circumstance during the continuance of this agreement, disclose any such confidential information to any person, firm or corporation, nor shall he use the same, except as required in the normal course of his engagement hereunder, and even after the termination of employment, he shall not disclose or make use of the same or cause any of confidential information to be disclosed in any manner.

10.4 The Employer owns any intellectual property created by the Employee during the employment, or in relation to a certain field, and he shall thereon have all the necessary rights to retain it. After termination of employment, the Employee shall not impose any rights on the intellectual property created. Any source code, software or other intellectual property developed, including but not limited to website design or functionality that was created by the employee, during the course of employment under this Agreement, shall belong to the Employer.

ARTICLE 11: Remedies

If at any time the Employee violates to a material extent any of the covenants or agreements outlined in paragraphs 6 and 9, the Company shall have the right to terminate all of its obligations to make further payments under this Agreement. The Employee acknowledges that the Company would be irreparably injured by a violation of paragraph 6 or 9 and agrees that the Company shall be entitled to an injunction restraining the Employee from any actual or threatened breach of paragraph 6 or 9 or to any other appropriate equitable remedy without any bond or other security being required.

ARTICLE 12: Amendment and Termination

12.1 In case the Employer terminates the employment without just cause, in which case the Employer shall provide the Employee with advance notice of termination or compensation in lieu of notice equal to ___ (___) month(s).

12.2 The Employee may terminate his employment at any time by providing the Employer with at least ____ (___) month(s) advance notice of his intention to resign.

12.3 The Employee may terminate on the last day of the month in which the date of the Employee’s death occurs; or the date on which the Company gives notice to the Employee if such termination is for Cause or Disability.

12.4 For purposes of this Agreement, “Cause” means the Employee’s gross misconduct resulting in material damage to the Company, wilful insubordination or disobedience, theft, fraud or dishonesty, wilful damage or loss of Employer’s property, bribery and habitual lateness or absence, or any other willful and material breach of this Agreement.

ARTICLE 13: Restrictive Covenant

Following the termination of employment of the Employee by the Employer, with or without cause, or the voluntary withdrawal by the Employee from the Employer, the Employee shall, for a period of three years following the said termination or voluntary withdrawal, refrain from either directly or indirectly soliciting or attempting to solicit the business of any client or customer of the Employer for his own benefit or that of any third person or organisation, and shall refrain from either directly or indirectly attempting to obtain the withdrawal from the employment by the Employer of any other Employee of the Employer having regard to the same geographic and temporal restrictions. The Employee shall not directly or indirectly divulge any financial information relating to the Employer or any of its affiliates or clients to any person whatsoever.

ARTICLE 14: Notices

14.1 Any notice required to be given hereunder shall be deemed to have been properly given if delivered personally or sent by pre-paid registered mail as follows:

To the Employee: ______________________________
To the Employer: ______________________________

14.2 And if sent by registered mail shall be deemed to have been received on the 4th business day of uninterrupted postal service following the date of mailing. Either party may change its address for notice at any time, by giving notice in writing to the other party pursuant to the provisions of this agreement.

ARTICLE 15: Non-Assignment

The interests of the Employee under this Agreement are not subject to the claims of his creditors and may not be voluntarily or involuntarily assigned, alienated or encumbered.

ARTICLE 16: Successors

This agreement shall be assigned by the Employer to any successor employer and be binding upon the successor employer. The Employer shall ensure that the successor employer shall continue the provisions of this agreement as if it were the original party of the first part.

ARTICLE 17: Indemnification

The Employee shall indemnify the employer against any and all expenses, including amounts paid upon judgments, counsel fees, environmental penalties and fines, and amounts paid in settlement (before or after the suit is commenced), incurred by the employer in connection with his/her defence or settlement of any claim, action, suit or proceeding in which he/she is made a party or which may be asserted against his/her by reason of his/her employment or the performance of duties in this Agreement. Such indemnification shall be in addition to any other rights to which those indemnified may be entitled under any law, by-law, agreement, or otherwise.

ARTICLE 18 Modification

Any modification of this Agreement or additional obligation assumed by either party in connection with this Agreement shall be binding only if evidenced in writing and signed by each party or an authorised representative of each party.

ARTICLE 19: Severability

Each paragraph of this agreement shall be and remain separate from and independent of and severable from all and any other paragraphs herein except where otherwise indicated by the context of the agreement. The decision or declaration that one or more of the paragraphs are null and void shall have no effect on the remaining paragraphs of this agreement.

IN WITNESS WHEREOF, the Employee has hereunto set his hand, and the Company has caused these presents to be executed in its name and on its behalf, all as of the day and year first above written.

____________________ ___________________

(Employee) (The Employer)

Name: _________________ Represented By:

Designation: __________________

Conclusion

Thus, it is very clear for employees and employers to outline rights and duties through an employment contract. With the changing landscape of the service and labour industry, there is a marked need to move from strict to much more flexible agreements. At the same time, a balance must be struck, ensuring that both parties are equally benefited from the agreement.

References

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