Employment Contracts In India

Employment Contracts In India


An employment contract which means it is a signed agreement between an employee and an employer or a labor union. It creates both the rights and duties of both parties: the worker and the company.

Analysis of the information on what to expect when you're asked to sign a contract and types of agreements that protect employees in the workplace, and the pros, and cons of employment contracts.

What Is an Employment Contract?

An employment contract is an agreement that covers the relationship of working between a company and an employee. It allows both parties to clearly understand their duties and the terms of employment. More specifically, an employment contract can involve: 

  • Salary or wages: Contracts will mention the salary, wage, or commission that has been agreed upon.

  • Schedule: In contract will also include the days and hours an employee is expected to work. 

  • Duration of employment: An employment contract will determine the length of time the employee agrees to work for the company. Sometimes, this might be an ongoing time. In other cases, it might be an agreement set for a particular duration. 

  • General responsibilities: Contracts can list the various duties and tasks a worker will be expected to fulfill during the time of working.

  • Confidentiality: Although you may have to sign a separate non-disclosure agreement some contracts also include a confidentiality statement. 

  • Benefits: A contract should outlay all promised benefits, including health insurance, 401k, vacation time, and any other perks that are part of the work or employment.

  • Future competition: Sometimes, a contract will also include a non-compete clause. It is an agreement that states that, upon leaving the company if the employee will not enter into jobs that will put them in competition with the company. Often, an employee will have to sign a separate Non-Compete Clause, but it might also be mentioned in the employment contract.

Advantages of the Employment Agreement

There are many advantages of employment of contract but some are mentioned below:

  • Helps in employing key and skilled employees for a long time. Employing good employees is very difficult due to competition or the present scenario. Fixing a minimum period for employment in the agreement will provide the security of the interest of the employer.

  • It also provides attractive packages and benefits and will refrain from forgiving the top employees who leave the company.

  • The main aim of making an employment agreement or contract is to guarantee a job to the employee and a worker certainty to the employer. By entering into employment agreements then the employees will be guaranteed job security.

  • The responsibilities and nature of the job will be given in detail in the agreement. It helps with better focus, performance, and accountability of the work granted.

  • It provides an encouraging working environment with employees with a clear set of purpose and structure in the company as the responsibilities of the job are stubborn and fixed in the agreement.

  • The legal connotations and penalties will make sure that both the employees and the employer will not cease to work before the period of the agreement or within the time frame which is mentioned in the contract.

Disadvantages of Employment Contract

There are many disadvantages as well but the disadvantages are given below:

  • Too many restrictions and clauses will create a relationship between the employer and the employee. The initiative to enhance and bring benefits to the company will be inadequate. The employee will be interested in completing the agreement period and leaving the company. 

  • Nondisclosure and Non-disparagement clauses are sometimes it is illegal when it is concerned with the welfare of the employee then employers can use these clauses to downsize information being shared on controversial matters of employees to a third party. Any grievances concerning the welfare of the employees cannot be shared or informed of any information to a third party.  

  • The employees cannot leave the employer without being given prior notice as agreed upon or after completing the agreement period. This hinders getting better opportunities after the termination of the agreement, or anything else they will have to face legal consequences for breach of the agreement or contract.

How to make or create an employment contract?

Employee Contracts should include some components which are as follows:

  • Add employment details: - Add the agreement to employer policies, rules & regulations. Some of these details can even mention the job description and the team or department with which the employee will work.

  • Mention position-related responsibilities: - In agreement gives the details about the position responsibilities. This section would particularly mention the employment role, title, and responsibilities followed by the candidates.

  • Compensation package: - In the agreement also mention the compensation package.  It must include the hourly rate or annual salary information and also mention the bonuses, or incentives offered to the employee by the employer.

  • Vacation contract: - In agreement provides vacation and PTO and also explains employee expectations regarding sick leaves, family emergencies, or unpaid leaves.

  • Employee benefits contract: - Agreement which gives the benefits to the employee and in which must explain what the compensation plan includes — dental, medical, eye care, etc. that is offered by the employer to the employee.

  • Performance reviews: - Agreement which provides monthly or quarterly reviews about the employee of the company and also involves framing an overview of the employee’s performance, work, punctuality, and honest feedback from the senior employees.

  • Termination: - Agreement which also mentions how the termination of work by the employee.  Next, enter the amount of notice each party is needed to give to terminate employment. 

  • Non-Competition: - Agreement in which that how to protect the company. This clause prevents the employee from engaging in any activities that directly or indirectly compete with the employer’s business.

A Contract of Employment: is it necessary?

Presently in India, the current labor laws do not strictly need that an employment contract is in writing, it is predominant market practice to have all terms and conditions of employment agreed upon and signed by both parties. Some States have particular legislation that necessitates a written contract to establish an employer-employee relationship. 


Radhika Punani
I am Radhika from Ambala city. I qualified LLM from Kurukshetra University and B.A.LLB from Maharishi Markandeshwar University

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