In this article, Pratyusha Kar pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, elaborates on Key features of Employment Contracts.
With the constant evolution of employee-employer relationship, there is a perpetual divergence in the character of disputes and the nature of conflicts. Naturally, both the employee and employer always pursue to safeguard their own interests. Therefore, to strike a reasonable balance in the interests of both the groups various acts and rules have been enacted. These employment laws are not merely restricted within the limits of workplace injustice and contract agreement but are having a broader ambit of employee-employer relationship as a whole.
Further with the advent of globalisation and convenience of modern technology, there had been a phenomenal change in the employee-employer interrelationship in India. The shifting in the economic policy from regulation to liberalization and access to multinational companies has changed the complete scenario. Unique cross-border zest has been tasted in the employment agreements with several restrictions and limitations. Under present day situation, the relationship has become so diverse, intricate and ambiguous that in the present article I shall restrict my discussion only focusing on India involving several facets of employment contracts in India.
What is Employment Contract in India?
Employment contract in India is a bilateral contract agreement involving service and remuneration on quid pro quo basis for a specific period of time. The services provided by the employee are purely based on social relationship between the employee and the employer and covering no other relationships. However, the Constitution of India and the Indian Contract Act 1872 have categorically held that in spite of agreement between the two the right to livelihood of the employee must be safeguarded.
Basic components of the Employment Contracts
The basic features of the employment contracts are based on the Indian Contract Act 1872 which include – ‘offer’ as per Section 2 (a) of the Indian Contract Act, ‘acceptance’ as per Section 2 (b) of the Indian Contract Act, ‘consideration’ as per Section 2 (d) of the Indian Contract Act, ‘competent parties’ as per Section 11 of the Indian Contract Act, ‘legal aspects’ as per Section 23 of the Indian Contract Act and ‘free consent’ as per Indian Contract Act.
In India usually the appointment letter signed by the employer and the employee acts as the general contract agreement. However, in the appointment letter itself or separate agreements containing some restrictive covenant clauses are usually signed between employer and the employee in India. Such covenant clauses are described here in under.
Confidentiality clause or non-disclosure of trade secret and confidential information clause are usually included in the appointment letter of the employee. This provides safety and security to the company. The employee here is not allowed to disclose any confidential information to a third party without taking permission from the employer. Normally such confidential agreements are executed separately. The IT Act 2000 and the IPC have the provision for criminal prosecution for breach of confidentiality. In Pyarelal Bhargava v State of Rajasthan (1963) case the accused employee removed some documents temporarily, passed it to his friend and substituted with other documents was accused of theft. Supreme Court held that as the intention was dishonest mere temporary removal of the documents would be considered as larceny under section 378 of the IPC.
In Abinav Gupta v State of Haryana (2008) case the accused before resigning from a company downloaded confidential documents from his company into his personal e-mail and handed it over to his new company after joining which was a competitor of the previous company. The person was held for hacking under Section 66 of the IT Act, under Section 420 of the IPC for dishonesty and under Section 406 of IPC for breach of trust.
However, in the absence of confidentiality clause in the employment agreement the employer has to depend exclusively on the judiciary and the common law rules and sometimes in absence of laid down rules under agreement clause it becomes difficult to ascertain which one is confidential and which one is not. Thus, it is better to incorporate it into the employment agreement.
Sometimes this clause is included under the head of confidentiality clause discussed earlier or under non-compete clause to be discussed just after but in many cases it is drafted as a different agreement. Under this clause an employee after leaving/resigning from the organisation is restricted to provide or solicit advice to a customer of the former organisation disregarding who has proposed. Under this clause the employee also agrees not to solicit advice to his fellow worker to resign from the job and attempting to arrange jobs for the colleagues somewhere else.
In Desiccant Rotors International Pvt. Ltd. v Bappaditya Sarkar & Anr. (2009) case the former manager of the company was restricted to solicit customers and suppliers of M/S Desiccant Rotors International. In Embee Software Pvt. Ltd. v Samir Kumar Shaw (2014) case Calcutta High Court held that mere retention of documents by an ex-employee never amounts to breach of secrecy but the solicitation acts of a former employee inhibiting clients of the former organisation could not be allowed.
Under non-compete clause of the agreement an employee is not permitted to work in a competing organisation for a period of six months to two years (it may vary form organisation to organisation) after termination of his job. Although Article 19(g) of the Indian Constitution administers right to practice any profession, trade or business but it is not an absolute right and restrictions can be imposed for the sake of public interest.
In Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd (1967) case the court held that non-compete clauses after termination of employment is not valid as per Section 27 of the Indian Contract act.
Present day employers usually organise trainings for their employees even before joining the organisation. The employees had to sign a contract bond that after completion of the training they must serve the organisation for a specific period. If they fail to serve the employer would look for compensation. However, under Indian context such clauses are not enforceable. The organisation may at least claim the actual expenditure incurred and not any penalty.
In Satyam Computer services Limited v Ladella Ravichander (2011) case an employee left the job suddenly and was charged to pay Rupees two lakhs in addition to stipend charges and additional expenditure meted out by the employer for his purpose as per the bond agreement he had entered into. The Andhra Pradesh High Court held that as the employee had not caused any damage to the organisation he should not be charged abnormally and fixed an amount of Rupees one lakh considering his job period and the actual cost incurred. In the Sicpa India Limited v Manas Pratim Deb (2011) case also same type of verdict was given by the Madras High Court.
Probationary period is the trial period before absorbing any employee into permanent status. In contract the employer must mention the period of probation. However, the employer may extend the period of probation if there is unsatisfactory performance.
Salary and payment terms
Details of the salary structure with statutory deductions and other deductions like tax, PF, insurance etc. should be mentioned in the contract.
The leaves, holidays, and vacation policy are to be stated clearly in the contract. The leaves may include casual leaves, medical leaves, earn or privilege leaves, special leaves etc. In vacation clause the number of vacations entitled to enjoy per year and the provision to carry forward the unused vacation in the forthcoming years should be there.
One of the most important clauses in the employment contract agreement is the termination clause. In termination clause usually the notice period (usually one month) from either side is usually mentioned. This clause should also include the terms of termination, responsibilities to be carried out by the employee and the employer, compensation, if any to be paid by the employer, penalty, if any to be provided by the employee due to short notice period.
Termination may be voluntary or involuntary. When an employee retires or resigns from the company, the termination is voluntary. On the other hand if an employer terminates its employee due to breach of contract, misconduct and other similar issues, the termination is involuntary. However, in present day employment contract some post-termination clauses are also incorporated particularly covenants as discussed earlier.
An employment agreement in India is a form of any other contracts with some specialties. The contracts of employment is usually an appointment letter issued by the employer containing a series of clauses as mentioned earlier like confidentiality, non-solicitation, non-compete, training bonds, probation period, salary and payment terms, leaves, termination etc. and the employee merely puts his signature on a duplicate copy of the same as a token of acceptance. But if the agreement is anti-competitive in nature and restricts the employee to practice his profession it is not only illegal but also immoral. Justifiable restrictions in the employment contracts are acceptable but excesses of it lead to legal complications.
 Net Lawman, An Indian perspective on employment agreements, https://www.netlawman.co.in/ia/an-indian-perspective-on-employment-agreements
 Indian Contract Act, 1872.
 Pyarelal Bhargava v State of Rajasthan (1963) AIR 1963 SC 1094.
 Abinav Gupta v State of Haryana (2008), CriLJ 4356.
 Desiccant Rotors International Pvt. Ltd. v Bappaditya Sarkar & Anr., (2009) Delhi HC, CS(OS) No.337/2008 (decided on July 14, 2009.
 Embee Software Pvt. Ltd. v Samir Kumar Shaw (2012) AIR 2012 Cal 141.
 Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd (1967) AIR 1967 SC 109.
 Satyam Computer services Limited v Ladella Ravichander (2011), MANU/AP/0416/2011.
 Sicpa India Limited v Manas Pratim Deb (2011), MANU/DE/6554/2011.