This article is written by Hraday Pratap Singh, pursuing Certificate Course in Advanced Commercial Contract Drafting, Negotiation & Dispute Resolution from LawSikho.
This article has been published by Abanti Bose.
Table of Contents
Introduction
In any organisation, business deals happen on a regular basis out of which some are tightly roped into an agreement while few happen through handshake deals. These types of handshake deals might work for some organisations or people. However, without a solid consulting agreement in place, signed by both the parties, organisations and people entered the transaction and put themselves and businesses at risk. That’s why an Optimal Manpower Consultancy Agreement is required to be executed to cover the risks which might arise out of the dispute during the business.
In India, there is always a risk that a consultant can be deemed to be understood as an employee of the organisation as a classic case of misclassification. This misclassification is generally due to the error in determining the level of control and supervision exerted over by the organisation engaging the people. This is one of the most important risks involved while drafting a manpower consultancy agreement and any other general employment agreement. Most of the time the organisations and the manpower consultants underestimate the scope of the job to be covered under the consulting agreements. The aim of this article is to clearly illustrate the important clauses of the manpower consultancy agreement.
What is a manpower consultancy agreement?
A manpower consultant agreement is a kind of agreement that is executed between an organisation and a person looking out for a job. This agreement basically acts as an intermediary between a corporate looking to hire staff and the people looking forward to joining as a staff. The relationship established in the manpower consultancy agreement is that of a business relationship. Unlike a normal employment agreement, the relationship between the client and the consultant should be of an independent contractor. In comparison to an employee, the consultant will have more flexibility in completing the assigned tasks. The consultancy agreement is made between the company and the consultant. It outlines the scope of work to be performed by them and other terms and conditions related to their appointment in the company.
What are the concerns that need to be addressed while drafting a manpower consultancy agreement?
Few important concerns that need to be addressed while drafting a manpower consultancy agreement are to cover the aspect of what would happen if the client wants to add additional work mid-project. So, the agreement should be drafted in such a way that the additional scope of work can be added to the agreement if both the parties mutually agree on the same. There should always be an exit clause in a sense if the client decides to pull out from the job during the validity of the terms and conditions of the agreement. The clause should be drafted in such a manner that if the client wants to quit in the middle of the job, he can do the same upon fulfilling all the requirements along with them and if there is any breach, the damages can be claimed by the other party to the extent of the damage.
Another important issue that should be kept in mind while drafting the manpower consultancy agreement is that the draftee should keep in mind to distinguish between one-time setup services and ongoing services if any of the consultancy agreement.
Important clauses of a manpower consultancy agreement
An effective consulting contract needs few components to get the job done. A few of these components are strictly legal considerations, but most of them are critical to the day-to-day nature of your work with a client.
- Name of all the parties: In a consulting agreement, the drafter should list out all parties which are involved in the contract which must include their official names and locations.
- List of services which consultant would be required to provide to the client: Types of services which are being offered shall be distinguished from each other. The agreements should include and involve both an initial one-time project along with ongoing monthly services which need to be separated as well as any other service type within the contract. Therefore, without these differentiations, the agreement can run into problems wherein the client demands extra work or claims that he has not understood that they were agreeing to the ongoing work. If everything is clearly mentioned in the contract then in case a dispute arises in future, you can simply show the other party the terms of the agreement or contract and can get things cleared up.
- Specify all required contributions by the client: This clause is a very common and important part of running a service business which can be solved preemptively in the agreement by writing down all the important and required contributions and actions on the part of the client or the other party.
- Compensation and payment terms: Payment terms should be illustrated exhaustively so no dispute as to the payment arises in future.
- Termination clause: Every detail of grounds and procedure of termination should be clearly written in the contract preferably in the draftee’s favour.
- Ownership rights of material and information: Clients mostly understand the nature of the manpower consulting relationship, but no assumptions should be made beforehand. Different clients have different ideas about their ownership of the materials. This also extends to the ownership of materials created or used during the engagement of the corporate consultants.
Sensitive and proprietary information is mostly shared between the client and the company during a consulting engagement. This is therefore protected via a non-disclosure agreement/NDA, but if your engagement doesn’t call for a more advanced NDA, you can simply add a non-disclosure clause to the agreement.
- Limitation of liability clause: A “Limitation of Liability” clause is a very important clause that can help protect the parties from frivolous cases and lawsuits. If the nature of your services is such that it creates some sort of real potential for damages, it becomes important to mention this clause in a clear-cut manner to limit the liability.
- Terms for resolving and handling dispute: if you do decide to pursue legal action, you’ll want to cover all your bases and ensure that should you succeed in court, you will be compensated for every area that you have lost time and money in pursuit of the payment owed to you. Also, A strong alternate dispute resolution mechanism should be drafted to handle the dispute in a timely and effective manner rather than running into litigation which is a time consuming and expensive affair.
- Boilerplate clauses: These clauses are very important with respect to the completion of the agreement with all legal formalities. The boilerplate clause includes a severability clause, entire agreement clause, force majeure clause etc.
Significant case laws
Dhrangadhra Chemical Works v State of Saurashtra (1954 AIR 264), the Supreme Court of India has held that the test which determines and distinguishes an independent contractor from an employee is the right and extent of control of the employer over the manner in which the work is to be done.
In Lakshminarayan Ram Gopal & Sons Ltd v Government of Hyderabad, the various factors distinguishing an employee from a contractor were set out by the Supreme Court in:
• Generally, an employer can tell the employee what to do and how to do it.
• Generally, a contractor can be given instructions, but cannot be told how to carry them out.
• An employee is under more comprehensive control than a contractor. (1954 25 ITR 449 (SC).)
Ram Singh v Union Territory of Chandigarh (2004 1 CLR 81) the Supreme Court held that these factors to be considered shall include:
• Level of control over the worker.
• Integration of the worker within the employer’s business.
• The power to appoint and dismiss.
• The responsibility to pay remuneration and deduct social security contributions.
• The responsibility to organise work and supply equipment.
• The nature of the mutual obligations between the parties.
• The terms of the contract between the parties.
Conclusion
One important thing to note and remember while drafting the agreement is that a contract gives very limited protection if a legal action arises, therefore it’s a last resort and both parties should avoid it at every step. Consultancy agreement should be used to produce before the other party if they inevitably forget regarding the content as the other party can be very shrewd and can deviate from the terms which were decided earlier, so to avoid complexities, the clauses should be very crisp and clear. It’s very important to clearly communicate expectations to the other party to the contract.
It is important for a company to choose the right consultancy according to its need and it is sometimes difficult for companies to choose the right one but if it decides to engage the services of corporate consultants, they need to make sure that the transaction should be a two-way process and every possible way should be unearthed to make such a relationship successful. A company can get sure success out of the relationship with the corporate consultant only if it chooses one carefully and diligently. A manpower consultancy can recruit the correct and right talent for the company only if it understands the business and culture of that company.
References
- https://www.contractscounsel.com/t/us/consulting-agreement
- https://www.myadvo.in/blog/key-features-of-employment-agreements/
- https://www.casemine.com/judgement/in/5ac5e2ea4a932619d90378a1
- https://lexpeeps.in/case-analysis-lakshminarayan-ram-gopal-v-govt-of-hyderabad/
- https://www.the-laws.com/Encyclopedia/Browse/Case?CaseId=003002750100&CaseId=00300275010
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