Legal Agreements

Sample Format Employment Agreement in India

What Is An Employment Agreement?

An Employment Agreement is basically a written contract between the Employer and the Employee. In general course of business, the relationship between the employer and employee is ‘at will’ in nature. This means that the employee has agreed to work for the employer willingly. He can quit or can be terminated by the employer for given reasons at any point in time.

An employment agreement is a written contract where the roles and responsibilities along with other key factors are documented. Such an agreement is binding and enforceable in the court of law.

When is an Employment Agreement Required?

An employment agreement can be incorporated for any employee. In general course of business, employment agreements are replaced with appointment letters. However, in certain cases, it is better to execute a proper employment agreement. It helps in retaining the key employees.

It’s typically used when bringing in

• Higher-level management employees, as they have an important role to play in the actual working of the business. And have access to crucial information.
• Short-term contract employees, to clearly set their work specifics along with the duration of their employment.

Components of an Employment Agreement

1. Terms of Employment

The most important part of any agreement is the one containing the terms and conditions relating to any agreement. The terms define the nature of the contract and its key features like notice period etc. It is very important to mention the date of commencement of employment. In case, the employee is a short-term employee, then the duration 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.

2. Role and Responsibilities of the Employee

Role of every employee in an organization should be clearly defined. This will eradicate ambiguity and as a result boost efficiency level among the employees.

It is important to list out all the responsibilities of the employee. The agreement shall clearly mention

• The position employee is hired for,
• All the essential job functions and duties
• Performance benchmarks etc.

While drafting the agreement it is to be kept in mind that the role of the employee is not limited to the ones stated in the contract. For this specific purpose, it is advisable to insert a clause stating about the additional duties that can be assigned from time to time.

3. Payment Compensation and other Benefits

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.

All the following mentioned clauses should form a part of the contract,

In terms of Salary:

• Basic compensation/ Salary
• Incentive programs
• Commission arrangements
• Expenses that can be reimbursed, allowances, etc.

In terms of Benefits:

• Health and professional liability insurance
• Bonuses
• Profit Sharing
• Vacation/ holiday
• Educational reimbursement
• Professional licenses & memberships etc 

4. 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.

5. The clause relating to Dispute Resolution

It is always recommended to include dispute resolution clause in any king of the agreement. This helps us avoid the unnecessary dragging on disputes and frictions between the parties involved. One must enter an arbitration clause in case any disputes arise along with the information relating to binding laws, the jurisdiction of proceedings, costing of such proceedings etc. 

6. Signing

Like any other contract, it is required that the employment agreement is duly signed by both employers as well as the employee to make it enforceable in the eyes of the law. Both Employer and employee are required to keep signed copies of such agreement with them.

What should not form a part of Employment Agreement

It is advisable to have a thorough agreement to be drafted. However, there are certain points which should not form part of such agreements. This is advisable as some clauses can backfire in a certain situation. Examples of few of such clauses are:

• Period of Employment: Until unless the agreement is for Contract employee or freelancers, it is advisable to not mention the job duration in the agreement. It can either;

1. Discourage the worker to give their 100% to the job and the employer will still be required to pay them until the expiry of such duration. or
2. It will be difficult for the employer to retain an excellent employee after the expiry of the said period.

• 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.