Employment Agreement in India

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Employment Agreement is a formal signed agreement between an employer and an employee. It figures out the rights and obligations of both the parties which are involved. A contract of employment may be a reasonable contract employed in labor law to trait rights and duties between parties. The contract is between “employee” and an “employer”.

It is also characterized as a formal agreement that indicates the conditions of the connection between associated employee and employer together with remuneration and desires. An employment agreement is a written contract where the roles and responsibilities along with other key factors are documented. Such an understanding is authoritative and enforceable in the official court of law.

Requirement of Employment Agreement

Employment Agreement in India

An employment agreement can be drafted for any employee. In some of the organizations, employment agreements are replaced with appointment letters. However, in specific cases, it is smarter to execute a legitimate employment agreement. It helps in retaining the key employees. It is normally used at the time of hiring of:

  • Higher-level administration employees, as they have a significant task to carry out in the actual working of the business and also have access to crucial and sensitive information.
  • Short-term contract employees, to clearly set their work points along with the span of their employment.

Advantages of Employment Agreement

  • The agreement allows significant level of explicitness with respect to the details of the employment.
  • It helps both the parties to negotiate the terms under which they are eager to coordinate with each other
  • The agreement can be alluded to in the future if any kind of dispute arises during the course of employment
  • The written document can be utilized as proof if vital.
  • Employment agreement is significant for developing a positive conection between employer and employee.

Legal Employment Drafting

What are the components of an Employment Agreement?

Like any other basic agreement, this agreement also conjointly comprises of the basic essential features including acceptance, supply, legal object, free consent, competent parties etc.

  • Terms of Employment
    The most significant portion of any agreement is the one containing the terms and conditions identifying to any agreement. The terms characterize the idea of the agreement and its key highlights like notice period and so on. It is very essential to provide the date of commencement of employment. On the other hand, if the employee is a short-term employee, then the span of their employment and the conditions thereon shall be mentioned in the agreement. It is wise to finalize all the terms beforehand, as it helps in avoiding conflict and easy dispute resolution if need be.
  • Parties to the contract:
    Both the employer and the employee must sign the contract of employment.
  • Clause of Confidentiality:
    Instead of entering into a separate confidentiality agreement, it is advisable to enter the confidentiality/ non-disclosure clause in the employment agreement itself. This non-disclosure clause restricts the employees from sharing any confidential or strategically important information with any outside party.
    This will help safeguard the confidential information along with the client during the term of employment as well as after it. As non-disclosure clauses can be entered in the agreement restricting the employee from sharing relevant information even after they cease to be an effective employee of the employer. This will also help retain old clients, even if the employee leaves the company.
  • Place of work
    The place at which the employee should report to commence his/her service should be stated in the agreement.
  • Jurisdiction and Governing Laws:
    When a dispute arises out of an employment agreement or contract and for resolving such legal disputes one party may prefer to go in for an arbitration while other party may prefer to go in for judiciary to adjudicate the matter. By including Jurisdiction clause the parties to the contract may clearly specify the judicial court or forum which will have the right to resolve the legal dispute between the employer and employee in relation to the employment contract/agreement.A governing law clause in an employment contract sets out the choice of law of the parties to the contract.  Laws relating to employment vary from state to state and hence it is advisable to state the set of governing laws clearly in the contract.
  • Job description:
    The employment agreement/ contract should state the primary responsibility to be taken by the employee and it must also include the description of job stated in the offer letter delivered to the employee. The department and the person to whom the employee is to be trained under should be clearly mentioned in the agreement.
  • Probationary period and duration of such period:
    A probationary period may be agreed upon at the beginning of the contract of employment. The time limit for a probationary period shall not exceed six months. In a fixed term employment the probationary period shall not exceed half of the employment contract duration. During this period employee is paid normal remuneration .
  • Duties:
    A brief list of duties and obligations to be undertaken by the employee must be stated in the agreement.
  • Compensation and the method of payment:
    Compensation clause shall be clearly drafted. This clause should include all the information including salary and relative payments to be made along with all the benefits forwarded to the employee.
  • Working hours:
    The contract/ agreement must specify the regular working hours. The working hours must comply with the Factories Act 1948.
  • Annual Holiday and Holiday Pay:
    An employee is entitled to same remuneration for the period of holiday as when working. In addition to this he is also paid an holiday pay. This clause  should also state whether the employee can carry over any unused holidays into the next year or get any payment in lieu of such holidays on termination of the employment.
  • Period of notice:
    The notice period applicable in case of both employer and employee should be stated unambiguously in the contract of employment. This clause also includes the actions to be taken by either party in case the other fails to comply with it.
  • Termination Clause:
    If the employer has mentioned certain conditions in the termination clause under which they can let go the employee. Then it might limit the power of the employer to terminate any unproductive employee in any other case.

Procedure for Preparation of employment agreement

  • A well experienced lawyer from our team will contact you, and explain you the total process, and will understand the need of Employment Agreement by you.
  • Once the objectives of the same are clear, the lawyer shall draft a sample Employment Agreement accordingly.
  • The draft Employment Agreement shall be sent to you, for your review.
  • The whole process takes around 3-4 working days.

Conclusion

An Employment Agreement is a essential and a fundamental evidence which helps the business in binding employee and employer with each other. The Employment is a legal agreement similar to any other agreement. Hence, the agreement must be drafted cautiously according to the changing laws and business states of the country where the organization is operating.

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CA Pulkit Goyal, is a fellow member of the Institute of Chartered Accountants of India (ICAI) having 10 years of experience in the profession of Chartered Accountancy and thorough understanding of the corporate as well as non-corporate entities taxation system. His core area of practice is foreign company taxation which has given him an edge in analytical thinking & executing assignments with a unique perspective. He has worked as a consultant with professionally managed corporates. He has experience of writing in different areas and keep at pace with the latest changes and analyze the different implications of various provisions of the act.

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