HOW TO DRAFT AN EMPLOYMENT CONTRACT?
So, you started your company, firm, shop or whatever. Also, you got some 10-15 people to work under you. Congrats for this feat but is that all? If you say yes, that is a bad assumption to make. For, you haven’t drawn up your employment contracts yet.
Employees might seem not a big part of your achievements. But once, the production belt start rolling, you will realize that they are the biggest concern in the factory. On one hand, their skills, wages, holidays and on the other hand, their demands, strikes and lockouts will certainly drive you crazy. So, its important to get the herd sorted out in the beginning itself, Shepherd! Hence, start drawing the employment contract now itself.
An employment contract is just like any other contract and is governed by the Indian Contract Act. The contract must be clear on what the employee’s needs to do in the job; benefits and obligations; remedies and recourses. The contract need not be culminated between each individual worker. It can be addressed collectively to the employees union too. Therefore, the essential ingredients of a contract must be fulfilled and there must a valid consensus between the parties. The only difference that in every other contract, both the parties are considered at an equal footing but in an employment contract, the law is more lenient to the side of the employees.
Nevertheless, it is the duty of the employer to find out the statutes that are applicable on his relationship with the employees. He must enquire whether the employees protected under any labour laws like Industrial Disputes Act or Factories Act? In that case, the contract must abide by the mandatory provisions of these legislations. The employer cannot evade his obligations in these legislations through contractual clauses.
1) THE MANDATORY CLAUSES IN THE CONTRACT
In the employment contract, there are some mandatory clauses that you should insert. The contract cannot be deemed complete without these clauses because it determines the vital conditions of employment of every employee.
• The name of the employer and employee, • the description of the work, • type of employment • payscale, • working hours, • place of work; • holidays; • dispute settlement methods
2)THE OPTIONAL CLAUSES
The optional clauses may be included at the will of the employer. Also, it need not be mentioned in the contract per se. The enumeration of it in the job offer; company handbook or other such places is sufficient. These optional clauses include the
• sick leave; • pension; • details of agreements with trade unions, if any; and • dismissal, grievance and disciplinary procedures. • Etc.
There is another category of clauses that has been quite controversial in the legal field recently. They are the restrictive covenants which may be included in a employment contract.
Incorporation and subsequent enforcement of ‘restrictive covenants’ such as confidentiality, nondisclosure and nonsolicitation in employment contracts, intended to restrict the employees from disseminating confidential and other important information exclusively available with an employer, are often contentious issues in India because such provisions seemingly conflict with Section 27 of the Contract Act. Section 27 provides against restricting any trade or business of the employee after the termination of his service with the employer. First of all, it doesn’t restrict the employer from restricting the employee during his term of employment. Hence, during the service, an employee maybe restricted by non-compete clause or non-solicit clause.
After the term of employment, the employer shall not place any absolute or partial restraint on the employee’s right to livelihood as constitutionally recognized. But, following the liberalization and the privatization, the nature of employment offered in the companies underwent a change. Jobs are not about the pile of mundane files on the table or the production of the articles through the conveyor belt. It has become a computation of productivity and investment. An employee is not selected but trained for the company. He, in fact, is not anymore a labourer but a ‘human resource.’
Hence, losing one employee inflicts a loss to the company’s investments too. It is for this reason that the courts have upheld the validity of the restrictive covenants
that are reasonable to the extent of protecting the company’s interests. It protects the proprietary rights of the employer i.e. the trade secrets or trade connections but it is not available if directed to prevent exercise of extra skill or knowledge acquired by the employer during the course of employment.
4) THE TERMINATION OF THE CONTRACT
Employment contract is basically a contract. Therefore, all the remedies against the termination by wrongful methods makes him entitled for damages and compensation for the breach of the contract.
An employee is entitled, on the wrongful dismissal, to the damages for loss of earning and other benefit he would be entitled to, had this employment been terminated according to contract and if no period is fixed for termination he is entitled to reasonable, and for loss of earning for such a period.
In any other case, damages are to be measured by the amount of remuneration which the employee has been prevented from earning by reason of wrongful dismissal including the value of any other benefit he is entitled by virtue of his contract.
An employer is also entitled to interest or reasonable compensation on the event he is not paid due salary. Moreover, if an employee fails to discharge his duties properly, he is obliged to indemnify his employer for loss.
Having said that, employment contract is just another contract but it becomes crucial in the employer-employee relationship depending on how it is drafted. Better get a good lawyer to draft the agreement. You never know when it will turn into a lifeguard while the proletariat strikes.