An employment contract is an agreement that discusses in detail the working
rapport of a company and an employee. It helps both parties to comprehend their
obligations and the stipulations of employment.
A good quality employment contract is valuable to both the employee and the
employer. It spells out the privileges and obligations of each party, protects
the job security of the employee and protects the employer from certain risks
such as the discharge of confidential employer information after the period of
employment ends. Some jurisdictions require employment contracts for particular
Most employment contracts have a specific term of employment. This assures
that employees have a secured position in the company as long as they do not
disobey the terms of the contract, and also permits employers to release the
employee at the ending of the term.
A good employment contract will accurately mention what acts can amount to
termination of the employee. This, in a way, helps both parties, because it
allows the employee to know which activities are allowed and which are
forbidden, thus rendering the possibility a serious breach less likely. The
labour law of the concernedjurisdiction should be crosschecked
to ensure that the terms of the contract do not disagree with legal
- Non-competition Covenants:
If the employee will have accessibility to confidential company information,
it is imperative from the employer's point of view to comprise a clause
preventing the employee from revealing this information to others. An
employer might also desire to prevent the employee from working for
competitors, although the labour laws of various jurisdictions differ on the
satisfactoriness of such a clause. In both cases, non-competing clauses are
typically binding on the employee for a certain time being after the
The duties of both the employer and the employee should be clearly
stipulated in the employment contract. This section should comprisean employee's job duties, salary, benefits, and any overtime bonus. The
employer's right to shift the employee to a better position should also be
- Dispute Resolution:
A good employment contract will indicate dispute resolution procedures that
reduce the time and expenditure of a courtroom battle. Arbitration
procedures offers lesser time and expense, although appeals from arbitration
decisions are usuallycomplicated, it is a more
preferred resolution method.
Essentials of Employment ContractsWhen a person drafts an employment contract, he/she shall ensure that these
particulars are present in the contract:
- Title of Contract:
When a company has to draft an Employment Contract, the company should begin
with giving a title to the Employment Contract. The title of the Employment
Contract need not give any details about the terms and conditions of the
Contract. In general, the title 'Employment Contract' is considered more
- State the Parties:
It is crucial that the name and identity of the parties to the Contract must
be mentioned in the contract explicitly. Generally, in the case of
Employment Contract, the parties comprise the name of the Company and the
name of the Employee. In addition, the locality of the Company must be
particularly written in the Contract.
- List Terms and Conditions:
The most important aspect in drafting an Employment Contract, are the
stipulations of the contract.By and
large, the bare minimum requirement of an Employment contract is salary, hours
of employment, and the severance packages provided in terms and conditions.
- Delineate Position Duties:
It ought to be kept in mind that the employee should not be astonished by
any new accountability or work, and the employer is getting what needs to be
done. For ensuring these things, it is vital to write an outline of things,
and it is important to write a detailed outline of the duties of the person
applying for such a position. A complete list should be prepared with the
Employment Contract for providing transparency about the tasks associated
with the position.
- Be Clear on Compensation:
The compensation facet of your contract must be unambiguous and direct. This
way, there will not be any perplexity or disagreement regarding the employee
is first or second retribution.
- Miscellaneous Clauses:
On the basis of the nature of the Company and the kind of business, the
company may consider adding other clauses in the contract which include, i) Non-Solicitation Clause- which bans the
employees from soliciting the customers from any particular geographical area
and taking them with him ii) Privacy- this clause says that the employee shall
not have expectations of confidentiality in the employer-issued devices. iii)
Probationary Clause- this clause provides the authority to an employer to remove
an employee within a particular period of time.
After the Company has finished drafting the Employment Contract, it is essential
to seek advice from an attorney to methodically review the contract. This way
can unpredictably lower the chances of facing litigation arising out of the
contract. The legal document should be combined with the prior oral or written
negotiations that took place between the parties.
Legal Validity of Employment Bond
Employment bonds are employment agreements, which comprise of a negative
covenant. In Indian Law, the employment agreements with negative covenants
reconsidered to be valid and legally enforceable if the parties agree to have
free consent, i.e. without fraud, coercion, undue influence, mistake and
misrepresentation. The Indian courts are of the opinion that in the event of a
breach of contract by the employee, the employer shall be allowed to recuperate
damages only if the employer bore a considerable amount of expenditure. Indian
law makes it compulsory the employment bonds be “reasonable” in order to be
The expression reasonable remains vagueas it is not defined in the
Indian law, and therefore the courts have given connotation to “reasonable”
depending upon the facts and circumstances of the cases. The suggestion which
has emerged till now is that state of affairs predetermined in the contract
should be vital to protect the attention of the employer and pay reimbursementto
the losses caused by the breach of contract. Additionally, the punishment or
compulsory employment period fixed should not be disproportionate.
Can one challenge the Enforceability of employment bond?
The legality of Employment bonds can be challenged based on Section27 of the
Indian Contract Act. Section 27 of the Indian Contract Act, 1872 imposes a
prohibition on any agreement in restraint of trade and profession.
As per the authority of Section 27, any terms and conditions of an employment
contract which directly or indirectly makes it compulsory for the employee to
provide service to the employer or puts a constriction on them joining the
competitor or other employer will not be not valid under the Indian law. The
employee has the complete right to leave the employment even if there has been
an agreement in the employment bond to serve the employer for a precise period
For an employment bond to be legitimate under Indian law, it has to be proved
that it is essential for the autonomy of trade. In a circumstance, where the
employer is able to establish that the employee is, joining the competitor to
reveal the trade secret then the court may issue an injunction order restricting
the employee from joining the competitor. If an agreement is challenged on the
basis of violating the provision relating to restraint of trade, the burden is
on the party supporting the contract to show that restraint is reasonably
essential to protect his interests.
Sushilaben Indravadan Gandhi & Anr. v. New India Assurance Company Limited
(SLP (CIVIL) NO: 1170 OF 2019)
Here, in this case, Dr Alpesh Gandhi, (the deceased) husband of the Appellant,
Mrs. Sushilaben Indravadan Gandhi had entered into a contract with the Rotary
Eye Institute on May 4, 1996, and the contract was titled as 'Contract for
Services as Honorary Ophthalmic Surgeon at Rotary Eye Institute'
i.e. the Institute, had taken up a Private Car B
policy from the New India Assurance Company Limited (the Respondent) wherein the Institute had paid
an extra premium or an endorsement of IMT-5 (the Insurance Policy). That
insurance policy further gave accidental personal coverage to unnamed passengers
other than the ones insured, his paid driver, cleaner or a person employed by
the insured and coming within the scope of Workman Compensation Act, 1923 to the
scale of 100% compensation in case of death. Due to the incautious and negligent
driving of the bus driver, the deceased while travelling in a mini-bus owned by
the Institute, suffered some serious injuries and eventually died.
Therefore, the Appellant filed a petition before the Motor Accidental Claim
Tribunal under Section 166 ofthe Motor Vehicles Act, 1988 against the
Respondent, the Institute as well as the driver of the mini-bus and claimed a
compensation of wherein the Tribunal held that the employment arrangement
between the deceased and the institute to be a 'Contract for Service&. Hence the
deceased was not an employee of the institute. Therefore, the for the
above-stated reason, the Tribunal directed the Respondent, the institute and the
driver of the mini-bus to pay a compensation of Rs. 37,63,100/- as well as
interest at the rate of 8% p.a.
Discontented by order of the Tribunal, an appeal
was filed by the Respondent before the High Court of Gujarat wherein the Court
relied upon the limitation of liability clause under the Insurance Policy which
discharged the Respondent from any liability to a third party since the death
has taken place in the course of the employment of such person.
Court was of the opinion that since the contract between the insurance company
and the dead person was a 'Contract of Service', the accountability of insurance
company towards the deceased was narrowed to the extent ofRs.50,
000/-.Thereafter, being upset by the decision of Gujarat High Court, the
Appellant filed an appeal before the Supreme Court for increasing the amount of
The Court referred tovarious judgments which and the tests laid
down to adapt the difference between a 'Contract for Service'
and a 'Contract of
. The Court diligently assessed precedents for this aspect and observed
that there were no established tests that can be practised and that each fact
would be examined for drawing a conclusion on this aspect. Furthermore, the
Court observed that the preliminary tests where an employer exercises control
over the person engaged could not be enforced in separation.
Niranjan Shankar Golikari v. Century Spinning & Mfg Co. Ltd
(1967 AIR 1098)
In this famous case, a foreign producer entered into a with a company
manufacturing tyre yarn, which expressed that the company would preserve the
secrecy of all technical information. In execution of the agreement, the company
signed a non-disclosure agreement with the appellant at the time of his
The Supreme Court of India identified the tests toregulate the
rationality of restrictive agreements in terms of Section 27 of the Contract
Act. Considering the above-stated facts, the agreement was held to be valid, and
the appellant was duly restrained from serving elsewhere for the duration of the
agreement. The Supreme Court held that there is an implied term in a contract of
employment that a previous employee may not make use of his previous employer's
trade secrets. Disregarding this exception, the employee is authorized to
utilize most of the knowledge and skill possessed by him.
The Court depended on
Lord Halsbury's Laws of England which held that as a general principle an
individual was authorized to implement his lawful trade or calling whenever he
wills, as well as the law, had resentment restrained against intervention with
trade even at the risk of intervention with freedom of contract, as it was a
public policy to combat all restraints upon freedom of individual action which
isdetrimental to interests of trade. This principle was based upon public
policy, which is an effectual concept that changes and evolves depending upon
time and needs.
Percept D'Mark (India) Pvt. Ltd. v. Zaheer Khan & Anr.
[Appeal (civil): 5573-5574
In this case, it was held by the Supreme Court that a restrictive contract
extending beyond its terms is void and non-enforceable. The Court further held
that the doctrine of restraint of trade does not apply during the continuation
of the contract of employment, and it is applied only when the contract comes to
an end. Moreover, it was observed that the doctrine of restraint of trade is not
constricted to contracts of employment but is also significant to all other
Gujarat Bottling v. Coca Cola
(1995 AIR 2372)
In this case, the Supreme Court distinguished that in the past, nations
frequently went to war for the conservation and improvement of their economic
interests, but things have changed with the passing time. Whereas during this
time of competition and high employee turnover rate, the employers generally try
to safeguard their trade secrets so as to direct to engage in the market,make
their employees sign contracts/agreements which limit their employees from
revealing the job profile, henceforward, competing with the same establishment
or workingwith the same competitors. Thus, such agreements entered between the
employer, and the employee should not hinder the growth of employees and secure
the interests of the employer.
The notion of the employment agreement is analogous to any other contract in
force. A comprehensive employment contract provides the significant duties and
responsibilities of the employee. The duties and responsibilities help him to
comprehendaccurately what his employer is expecting him to do.
objective of an employment contract is to avoidrevelation of information,
non-competition, non-solicitation as well as fortification of confidential
information, so it is always prudent to implement a written agreement of
employment between the employer and the employee.
The employee signs the
employment contract. An appointment letter is generally executed with a view to
cover the probation period of an employee until the time such employee is made
permanent in the organization by the employer.
Award Winning Article Is Written By: Kishan Dutt Kalaskar
- A Retired Judge and practising
advocate having an experience of 35+ years in handling different legal matters.
He has prepared and got published Head Notes for more than 10,000 Judgments of
the Supreme Court and High Courts in different Law Journals. From his experience
he wants to share this beneficial information for the individuals having any
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