Libertatem Magazine - - Igniting Minds -

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.


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


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.


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.

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