An Employment Agreement is the foundation of a successful and legally sound working relationship between an employer and their employees. It outlines the terms and conditions of a job position.

This legally binding contract should clearly define:

• Compensation: Ensure clarity on salary, benefits, and other financial aspects
• Vacation time: Set expectations for time off 
• Work duties: Describe responsibilities and expectations
• Essential details: Cover everything from working hours to termination clauses

An Employment Agreement may also be known as a hiring contract, work contract, or job contract.

Employers, managers, and human resources staff should use an Employment Agreement when onboarding a new employee. This step ensures clarity and helps prevent potential misunderstandings. If an employer does not issue an Employment Agreement initially, the employee can request one anytime. 

Employees vs. independent contractors

Employment Agreements are meant for employees, who are individuals who work under their employer’s direction and control. They aren’t appropriate for hiring independent contractors or the self-employed, as these individuals typically:

• Are financially independent and set their own rates
• Operate with greater autonomy in how, when, and where they work
• Aren’t protected under the majority of employment laws designed for employees
• Aren’t recognised in the same way as employees under general civil law

Instead, an Independent Contractor Agreement is a better document to outline the relationship between a client and a contractor. 

While federal labour law in India doesn't mandate a written contract, it's important to be aware that certain states, including Karnataka, Kerala, Telangana, and Delhi, require some form of written terms of employment.

Even if the law doesn’t require a written contract, a working relationship involves a verbal agreement. However, relying solely on an unwritten understanding can leave room for ambiguity.

A well-drafted, written, and legally binding Employment Agreement offers many advantages:

• Ensures clarity: It ensures that you and your employee understand the terms of employment.
• Formalises the relationship: It provides a clear and official foundation for your working arrangement.
• Sets clear expectations and responsibilities: It outlines the expectations of both parties, minimising potential misunderstandings.
• Helps avoid future disputes: You can reduce the likelihood of disagreements later on by addressing key aspects upfront.
• Offers legal protection: It provides a legally sound framework that protects the interests of both the employer and the employee.

It's crucial to remember that, regardless of whether a written contract exists, employees in India are legally entitled to receive the minimum benefits and protections mandated by law.

There are many employee types in India, all with different entitlements. Their employment contracts will all have different terms. 

Indian residents can create their Employment Agreement with LawDepot’s step-by-step questionnaire and customised template. We will guide you through each step, prompting you to fill in all relevant information, including: 

1. Employment type (permanent, fixed-term, casual)
2. Start date of employment
3. Employment location
4. Employer details (name, address)
5. Employee details (name, address)
6. Job title and a clear description of duties
7. Details of any trial or probationary period
8. Compensation details, including salary or wages and pay frequency
9. Work hours, including daily and weekly expectations
10. Leave and vacation entitlements
11. Restrictive covenants (if applicable), such as confidentiality or non-solicitation clauses
12. Notice requirements for the termination of employment

While several regulations exist in India regarding employment, here's a look at some key pieces of legislation and the evolving framework:

The Industrial Disputes Act, 1947

The Industrial Disputes Act, 1947 impacts the termination clauses within your Employment Contracts. It includes measures to prevent and resolve employment disputes through negotiation, conciliation, or adjudication, promoting a stable and fair working environment.

The Factories Act, 1948

The Factories Act, 1948 applies only to factories. It dictates crucial terms related to working hours, overtime, safety protocols, and employee welfare. Your agreement must align with these statutory requirements to ensure compliance and protect employee rights.

State-specific regulations

Individual states and union territories in India often have specific rules and regulations that can directly affect the terms of your Employment Agreement. This could include variations in minimum wage, leave entitlements, and other conditions of employment that must be reflected in your contract.

It's also important to note that labour laws and their enforcement can vary significantly between different states and union territories within India.

Looking ahead, the Indian government has enacted four codes aimed at streamlining and modernising the existing labour laws. While these codes are currently enacted, they are not yet fully enforced nationwide:

• The Code on Wages, 2019 streamlines regulations concerning salary, allowances, and bonus payments, which are all fundamental components of any Employment Agreement. This aims to ensure clarity and prevent disputes related to compensation. 
• The Code on Social Security, 2020 consolidates laws related to social security, including but not limited to gratuity, compensation for work-related injuries and disabilities, health and maternity benefits, insurance, and provident funds.
• The Minimum Wages Act, 1948 specifies the allowable minimum wage for both skilled and unskilled workers in India.

Your employment agreement may include restrictive covenants or restraint of trade clauses to safeguard your legitimate business interests. These clauses define certain limitations on an employee's actions during and after employment with your organisation.

For India to consider a restrictive covenant valid and enforceable, it must generally be reasonable in duration and geographical scope. Indian law also mandates that such covenants not unduly harm local commerce or unfairly hinder an employee's future career prospects.

A court will only enforce a restrictive covenant if it is reasonable and genuinely necessary to protect your business.

Some examples of restrictive covenants include: 

Confidentiality clause

Prevents employees from sharing or using an employer’s confidential business information. This functions similar to a Confidentiality Agreement.

Non-solicitation clause

Prevents employees from soliciting or recruiting an employer’s clients, customers, or other employees.

You may need to adjust the terms of an employee's existing Employment Agreement, such as transitioning a full-time role to part-time or altering work hours or compensation.

Fundamental terms typically include:

• Wages: Any alteration to the agreed-upon salary or compensation structure.
• Work hours: Changes to the number of hours an employee is expected to work.
• Employment type: Modifications to the nature of employment, such as from full-time to part-time or permanent to temporary.

Any changes to the contract cannot result in terms below the legally mandated minimum standards for employee rights and benefits in India.

A Contract Addendum is the most effective way to implement changes to an existing Employment Contract without drafting an entirely new document. For an addendum to be legally valid, it must be signed by both the employer and the employee. This ensures a clear record of the agreed-upon changes.

When either the employer or the employee fails to uphold the terms outlined in the Employment Agreement, the other party typically can seek resolution. The consequences of a breach can vary depending on the seriousness of the violation.

Employee breach

Employee infractions can include frequent tardiness, failure to perform duties, and unauthorised absence from work.

An employer might initially issue a formal warning to encourage improvement. If the behaviour persists, the employer may proceed with an employment termination letter, formally ending the employment relationship.

More severe breaches of the Employment Agreement can warrant immediate termination. Examples of such grave misconduct include violating confidentiality policies, threatening or harassing colleagues, and theft or fraud. 

Employer breach

Employers also have a legal obligation to adhere to the terms of the Employment Agreement and applicable laws. Employer infractions can include:

• Maintaining unsafe workplace conditions
• Engaging in discrimination or harassment
• Wrongful termination of employment
• Failure to pay wages or benefits 
• Implementing illegal or unethical practices
• Any action that violates the legally mandated minimum entitlements or the terms of the
• Employment Contract itself

There are legal recourse opportunities for employer breaches. For instance, if an employer withholds an employee's rightfully earned wages, the employee can pursue legal action to recover the outstanding amount. This may involve the employer being required to pay damages, including the missing wages, and potentially covering legal fees incurred by the employee in pursuing the claim. 

Similarly to an employee facing potential termination for breaching their contract, employers can also face legal consequences for failing to meet their obligations. Employees in India facing disputes with their employers can seek assistance through mechanisms like Software Application for Monitoring and Disposal, Handling of Industrial Disputes/Claims/General Complaints (SAMADHAN), designed to facilitate resolving industrial disputes and grievances.

The Ministry of Labour and Employment operates an online portal called the National Career Service (NCS). The NCS allows workers to disclose workplace wage complications. Furthermore, the Ministry’s Labor Bureau features a platform called e-Shram Seva, which allows unorganised workers to register for social security benefits.

Lastly, the National Commission for Women or the State Women’s Commission allows victims of discrimination in the workplace due to gender or sexuality to file a complaint.

In India, the employer or the employee can terminate an employment contract, but following the proper procedures is essential.

Employee-initiated termination (resignation)

Employees who decide to leave their positions typically provide their employer with a resignation letter. The Employment Contract may specify a minimum notice period that the employee is required to serve before their departure.

Employer-initiated termination

Similarly, an employer can terminate the Employment Contract by issuing an Employment Termination Letter. Indian law also mandates that employers provide a minimum notice period to employees before termination.

Generally, if an employee has worked for the company for over 12 months, the notice period should be at least one month. However, it's crucial to know that state-specific laws can have different requirements for notice periods.

Mutual agreement

If the employer and the employee mutually agree to end the employment relationship, they can do so by formally terminating the contract. This involves a written agreement that records the end date of the original contract and confirms that both parties are released from their remaining obligations.

The employer and the employee must sign the termination agreement to ensure clarity and legal validity.