Employment contracts in India

An employment contract in India constitutes a legally binding agreement between an employer and an employee, outlining the terms and conditions of their professional relationship. This document serves as a written record, detailing the rights and obligations of both parties throughout the duration of the employment.

While employment contracts in India can be either written or oral, it is highly recommended to have a written agreement in place to prevent misunderstandings and potential disputes.

To ensure the contract's validity and compliance with Indian labor laws, it is prudent to draft the employment agreement with the assistance of a local expert. This is essential because employment conditions in India are governed by various laws, including the Industrial Disputes Act, the Shops & Establishment Act, Industrial laws, the Companies Act, and the Contract Act of 1872.

Additionally, there are specific laws regulating wages, remuneration, bonuses, and ensuring equal pay between genders. Collaboration with a local expert helps in aligning the contract with the legal requirements and safeguards the interests of both the employer and the employee.

Key components typically included in an employment contract

• Job description and responsibilities: The contract should clearly define the employee's role, job title, job description, and the scope of their responsibilities. This ensures both parties have a clear understanding of the employee's duties and expectations.
• Employment period: The contract should specify the duration of the employment period, whether it is a fixed-term contract, permanent employment, or probationary period. If it is a fixed-term contract, the contract should mention the start and end dates.
• Compensation and benefits: The contract should state the employee's salary or wage, payment frequency, and any other benefits they are entitled to, such as medical insurance, provident fund contributions, bonuses, or other allowances.
• Working hours: The contract should outline the employee's regular working hours, including the number of hours per day, days per week, and the standard work schedule. The below table summarizes the hours worked in a day and week with rest intervals, including meals for four metropolitan cities of India, according to the respective state-specific S&E Acts.

• Leave and holidays: The contract should specify the types of leave the employee is entitled to, such as annual leave, sick leave, and public holidays. It should also mention the procedure for applying for and availing of leave.
• Confidentiality and non-compete clause: To protect the employer's business interests, the contract may include clauses related to confidentiality, non-disclosure of sensitive information, and a non-compete clause to restrict the employee from joining competitors after leaving the company.
• Termination and notice period: The contract should outline the circumstances under which the employment may be terminated, the notice period required by either party, and the procedure for resignation or termination.
• Dispute resolution: The contract may include a clause for dispute resolution, specifying the method (such as arbitration or mediation) to resolve any conflicts or disagreements that may arise during the course of employment.
• Code of conduct and policies: The contract may refer to the company's 'Code of Conduct' and other relevant policies that the employee is expected to adhere to.
• Statutory compliance: The employment contract should mention that both the employer and employee will comply with applicable labour laws and regulations in India.
• It is essential for both parties to carefully review and understand the terms of the employment contract before signing.

Types of employment contracts

Employment contracts vary based on the duration of employment, nature of work, and the terms and conditions agreed upon by both parties. Below are the common types of employment contracts used in India:

• Permanent employment contract: A permanent employment contract, also known as a regular or continuous contract, is the most common type of contract used in India. It establishes an indefinite employment relationship between the employer and the employee, with no fixed end date. Permanent employees enjoy job security and are entitled to various statutory benefits like provident fund, gratuity, and other employee welfare schemes.
• Fixed-term employment contract: A fixed-term employment contract is for a specific duration, and the employment relationship automatically terminates at the end of the agreed-upon period. These contracts are used for temporary or project-based work where the employer has a foreseeable end date for the employment. Fixed-term employees are entitled to certain benefits, depending on the duration of the contract.
• Temporary employment contract: Temporary employment contracts are similar to fixed-term contracts but are usually shorter in duration. Employers hire temporary employees to meet short-term staffing needs or to address temporary spikes in workload. Temporary employees are engaged for a specific period or until the completion of a specific task.
• Casual employment contract: Casual employment contracts are used for casual or irregular work arrangements, where the employee is not on a regular or fixed schedule. Casual employees are called in as needed by the employer and may not have guaranteed working hours. They are typically used to meet seasonal or fluctuating work demands.
• Apprenticeship contract: An apprenticeship contract is used to formalize an arrangement where an individual undergoes a structured training program to learn a trade or skill under the guidance of a skilled worker or mentor.

Is it illegal not to provide an employment contract

The Indian labor laws, including the Industrial Employment (Standing Orders) Act, 1946 and the Shops and Establishments Acts of various states, may prescribe the need for written contracts or appointment letters. Failure to provide a written contract or appointment letter can result in legal consequences for the employer, including fines and penalties.

It's important for both employers and employees to be aware of their rights and responsibilities regarding employment contracts in their specific jurisdiction.

An employment contract comes into force as soon as someone starts working for you, so essentially, a contract exists irrespective of any documentation.

What you must provide by law, to all employees and workers from Day 1, is a written statement documenting the key terms that have been agreed, such as pay and working hours.

If you don't, the person can apply to an employment tribunal for a declaration of what the terms are and if the tribunal upholds that claim in combination with another one, for example unfair dismissal, they could get compensation of 2-4 weeks' pay (subject to the statutory maximum weekly payment).