What are the basic elements of employment contracts in India?

EMPLOYMENT CONTRACT – KNOW BEFORE YOU SIGN

The Employer-Employee-Relationship has evolved over the years. With employers safeguarding themselves from expenditure and litigation on the one hand and employees pushing for the best benefits on the other, the agreement between the employer and the employee has evolved too.

While earlier people talked of a pay package, today employees demand and employers pay much more than mere salary under a comprehensive agreement called the employee benefits agreement or employee benefit contract. Here’s a snapshot for freshers and those who have questions about this.

The law in India does not mandate an employment contract nor does it prohibit one.

What is the employment contract law?

This is what many ask. The question however is, does the law support employment contracts? Or is an employment contract required by law? Perhaps you’re wondering, is employment contract legally binding? In one word yes it is binding though not required by law – at least in India. In fact, your employment contract has a wide scope, well beyond the compensation for service and non-disclosure.

Skills every Graduate should have to climb the corporate ladder

In the simplest of terms, an employment contract is a legally binding agreement (a contract) regarding the service and payment on a fair basis. Other than this, the contract does not cover any other relationship between the employer and employee. In other words, it formalizes the relationship between employer and employee stating clearly what the employer is ready to do or pay in exchange for the employee’s services. It does not override the Constitution of India or the Indian Contract Act – both of which safeguard the fundamental rights of employees.

Here are the most basic rights that you should be aware of:

Right to Quit

You should have the right to quit at any time you wish. Some employers insert a “bond period” during which you cannot leave employment. Candidates often agree to the bond period – usually ranging between a year to 3 year and sometimes extending to 5 – only to regret the decision later when a better opportunity presents itself. Remember you have the right to say no.

Transferable Skills every employee should have to facilitate job change.

Notice Period

In fairness to both employers and employees a notice period allows employers time to fill the void and employees to find new employment. If you do decide to jump jobs, you can forego or pay a specified amount – usually equivalent to or a multiple of your salary – in exchange for not serving your notice period. You should ensure that the notice period or the amount demanded in exchange of non-compliance is reasonable.

Right to Security

You have a right to feel secure in all respects at your workplace. This means you should not be emotionally or physically abused, harassed, and should have financial stability in the form of provident fund, gratuity, and other retirement benefits. Most employers insert a caveat – or lock in – of a certain number of years in service before these benefits accrue. You should be aware of this lockin and / or caveat. Bear in mind that this is different from notice period. It simply means that if you leave during the lock in period, you will not be entitled to receive these benefits.

Leave

In India, employees are entitled to one day of earned leave for every 20 days of work and 1 month medical leave for every 18 months of work subject to submission of medical certificate. Other types of leaves include maternity leave for 180 days and paternity leave for 15 days. There is also a provision for special leave in certain circumstances such as permanent disability, leave for a woman adopting a child, maternity leave in case of miscarriage, and a few more. Leave rules are different for different countries so you should be aware of the laws of the country in which you reside.

In these days of emerging WFH, most employers allow employees to work from home for a certain period and under certain circumstances such as illness, accidents, care for infants or senior citizens and so on. You should look for such provisions and discuss them during salary negotiation or at the time of signing.

Dos and Don’ts for salary negotiation

Right to Non-Discrimination

The law requires employers to hire people from certain discriminated and minority sections of society. If you belong to one of those – or even if you don’t – you have a right to be treated as an equal – at par with other employees. There should be no discrimination either intended or explicit. This includes discrimination on the basis of gender, sexual preference, caste, color or creed and also LBGTQ. It also includes other forms of harassment. You should be aware of the grievance redress procedure within the organization in case you are subjected to such harassment.

Elements of the Employment Contract

The rights discussed above may also form a part of the employment contract. However, there are a few other elements of the employment bond or agreement that you should be aware of.

Data Protection

Employers these days are conscious of their responsibility to safeguard client data and other information they have on their database. With laws like the GDPR (General Data Protection Rule) being enacted around the globe, privacy and data security have become high priority issues. For this reason, many organizations prohibit use of personal devices within office premises. Some companies have an entry and exit protocol and other rules regarding use of office data. A specific clause may be included in your employment contract regarding misuse and theft of office data.

Non-Competitiveness

Usually when you leave one organization and join another you carry a load of knowledge with you. Employers often restrict the use of this knowledge and even restricting employment with competitors for a certain period. You are also not allowed to set up a competing business. While this may seem contrary to your constitutional right to freedom, it is customary for organizations to safeguard themselves against competition.

NDA – Non Disclosure Agreement

Just as businesses safeguard themselves against competition, they also safeguard their trade secrets by asking employees to sign a NDA. This may either be a separate agreement or a clause in your employment contract. Employers use this to safeguard their intellectual and other property. Basically it prohibits an employee from sharing sensitive information such as statistics, client data, strategy and so on outside the workplace while employed by the organization – and also for a certain period after they leave.

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Non Soliciting Restriction

This prevents an ex-employee from advising a client about the products and services of the employer. It also restricts an ex-employee from soliciting advice from a current employee of the organization. It is another way organizations protect themselves from competition and resultant loss.

Compensation and Benefits

This clause lists out the compensations – including salary – and benefits that the employer has promised the employee. It covers everything that is paid to the employee in exchange for his services including salary, insurance, reimbursements, gratuity, incentives, raises and so on.

Job Description or Scope of Work

The Scope of Work clause lists the activities included in the job profile of the employee. While it is not possible to sharply define every activity that an employee will perform, this clause does prevent frequent disputes and can also serve as a bargaining chip during Salary Negotiations.

Location

This describes the place where the employee will work. If the job involves travelling, employers may define the areas where you can travel for work. You may also want to restrict your travel time for personal reasons. Therefore, this issue may be discussed at the negotiation stage.

Training Probation and Work Schedule

This may also form a part of the contract. Many organizations these days offer on-going training to employees as also conduct mock drills. Some employers define a period of probation during which both the employer and employee may be free from commitment or committed to a limited extent. All these factors may be included in a single or separate clauses in your employment contract.

This just about covers what is commonly included in most contracts of employment. Specific clauses vary from one organization to another but if you are aware about these facts going in, you can better discuss your employment with your potential employers. Remember that even though not mandated by law, signing on the terms of employment is customary and enforceable by law under Section 27 of Indian Constitution Act. If you have any further questions in this regard, do let us know. Meanwhile join us on Facebook and stay tuned.

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