This article is written by Arunesh Roy, pursuing a Diploma in Entrepreneurship Administration and Business Laws from LawSikho.com. Here he discusses “An evolutionary approach to Employment Contract and its relevance”.

Overview

A contract of employment is one of the important kind of agreement used across the industrial and corporate world to define and attribute various rights, responsibilities and covenants between various parties to employment. The contract is usually between an “Employer” and “Employee” and may be used across industries in various forms. The contract may be for short term or long term and maybe on a fixed salary/ wages or variable salary/wages and the like. The contract may differ across industries and various countries. But the basics of the contract remain the same. The need for the same has arisen out of the previously prevailing master-servant law, used before the 20th century. The contract of employment indicates a relationship of economic dependence social subordination. The need for the same arises due to the compulsion of various labour law compliances of the respective country. Hence the contract and its need to understand in detail.

Need of the contract and the force behind

“The typical relationship between an “employer” and an “employee” is a relation between a bringer of power and a person who is not a bringer of power. It is an act of submission, in its operation. It is factually a situation of subordination, however, the submission along with the subordination is normally obscured due to the illusion of the legal mind known as the “ Contract of Employment”. The object of labour law has been a countervailing force to offset the inequality of bargaining power which is inherent and inherent in the relationship of employment.

A “contract of employment” means a “Contract of service” A “contract of service” is different from a contract for the supply of services, wherein the former relates to a contract of direct employment between two parties, whereas the latter means a “Contract for the supply of services by a third party”. The purpose of the fine line is to attribute rights to people who work for others. This could be a varied right such as the right to a minimum and fair salary/wages, holiday pay, medical facilities and leave, fair dismissal, a written statement of the contract, the right to organize and participate in a union, right to work with a rival and so on. The hypothesis is that self-employed people should be able to take care of their affairs.

The jargon is complicated using multiple sorts of contract involving one person doing work for another. Instead of being considered an “employee”, the individual could be considered a “worker” or as having an “ employment relationship”  or a” professional” or a “ dependent entrepreneur” or a “ consultant “and so on. The approaches to the behaviour would vary from country to country, or place to place or region to region. The approach entirely depends upon the local labour laws also and upon the welfare practices prevailing in the region.  

Inclusions in an “Employment Contract”

An employment contract typically lays down various rights, responsibilities and obligations of both the “Employer” and the “Employee” most important of which are as follows:

Preliminary or Profile related clauses:

• Scope of Employment

This is the most important part of a contract. This the basis due to which the contract comes into existence and the contract continues if the scope is of relevance to both the parties. This is also normally the most lengthy and detailed part of the contract as it must be clear all the times as to the basis due to which the contract was entered. 

Much thought needs to be given in defining this clause as any discrepancy in this clause might lead to much loss of time and energy to both the parties. Both parties must be clear at all the times as to the scope defined and the needs of each other.

• Duties and Responsibilities

Contracts may list all general duties and responsibilities which is expected out of the desired profile. It may set the duties and responsibilities in detail. But the duties and responsibilities listed out will only be of a preliminary level and may be expected to change over a period. Further, the duties cannot be fixed forever. 

• Duration of Employment

The contract must specify the duration of the employment. It again will differ among various agreements and as per the needs of the agreement. The contract may be for a short term or a long term. In various cases, the contract may be for the ongoing period till retirement or till the need of the services. The duration may vary across various agreements and various industries/corporates and profiles.

• Schedule of employment

The contract may also specify the schedule of employment and may lay down the working hours of the job profile. Any employer may need to hire for various kind of profiles which might require various kind of schedules as required out of the profile. 

In operational profiles, people are required to operate on Sundays/ holidays and may need to respond at short notices.

• Salary/ Wages/Compensation  

This is also one of the most important aspects of the contract. This must cover the compensation to be paid off in lieu of services in detail. It will also define any commission or incentive which is a part of the contract. 

This aspect needs to be meticulously covered to ward off any kind of dispute/difference of opinion later. The details must be pre-agreed and discussed with the potential employee. Further, it must be carefully drafted so that local tax laws are taken care of while drafting such clauses to keep the taxes to the minimal.

• Notice period

This clause states the period of notice, a company/employee needs to provide in case either decide to part with the employment contract. This also ensures that the services out of the contract are not disrupted abruptly without any notice.

Standard Clauses

• Benefits of Employment

A good contract must lay out all the possible benefits of the employment including but not limited to: Medical Insurance, mobility services, working late hours benefits, superannuation and retirement benefits, Life insurance coverage, interest-free advance Salary facilities and a host of other perquisites. These again may vary across industries/ regions/ places.

• Confidentiality Clause

Few contracts may include confidentiality clause so that employees are clear in advance the limits of data sharing they might come across. This type of clause may differ across industry and is of more relevance in technological industries.

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Further, in various corporates, the employees may need to sign off a separate non-disclosure agreement.

• Communications

In case an employee needs to handle the role involving corporate communications, or in profiles which require third party dealing, the contract may include clauses that the company retains ownership and control over all such communications made by the resource.

• Non-Compete agreement clauses (NCC)

This clause may state that on leaving the services of the company, the employee would not be joining any other company or do any other activity which would put him or her in competition with the company.  Often the employees are needed to sign off a separate NCC agreement, but the same may also be included as part of employment contracts.

• Creation of Intellectual property clauses

The contract may include that any intellectual property created during the working tenure of the employee would be protected under the applicable laws and the employee must not use them for personal purposes or self-benefits.

• Code of conduct clauses

The contract may include various code of conduct for the employees which may specify various governing conditions for the employees within the company. The employees are bound to follow the code till the time they are working for the employer.

Termination/Dispute resolution/other clauses:

• Termination Clause

This is also one of the most important clauses of an employment contract. The contract must specify the conditions under which the contract would be terminated by the employer or by the employee. This would also include the age by which the employee would be retired from the services of the company.

• Minimum service guarantee/ agreement

Few industries/ corporates might bring in such types of clauses to make sure that the employees must serve a minimum period of service with them before leaving. This gives them long term benefits and assures that the services will be continued without disruption. This is majorly required in case of technology industries.

• Non-unionism clause

The contract might also state the conditions and the implications of forming a union while in employment. It might also state the limits of participation of the employee while being a part of the union.

• Dispute Resolution

An employment agreement must include a dispute resolution clause. Any disputes arising out of employment or during working hours must be settled as per the employment agreement. This may also include the conditions under which the dispute might be referred for arbitration or to the civil courts for resolution.

Synopsis

A written contract is a great way to clearly define the job, responsibilities, obligations and other benefits associated with the job. It not only prevents any type of muddle about the role to be performed but also leads to dispute resolution in case a need arises. It is necessary that all the clauses are gone through and well understood before the contract is signed off. There might be legal consequences in case of a breach.

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.