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Employment Contracts

By: Arundathi Mandyam 

In India, there is not much light thrown on the agreements which bind the Employer-Employee relationship. There have always been issues regarding the relationship between the Employer and the Employee, to which resolve is found only through legal discussions. The laws hold within themselves various areas in their scope which not only discusses the contractual relation of an Employer and his Employee but also other various clauses. In this article we will discuss all the contracts an employer and employee are bound by and the various other clauses that are covered under.

Contract as defined in the Indian Contract Act, 1872 is a contract of employment for the exchange of remuneration for a period of time. Employment contract is a form of contract recognized by court as the social relationship of the employer and employee as opposed to other contracts.

Like any other contract in India, Employment contract too contains Offer, Acceptance, Consideration, Competent Parties, Legal Object and Free Consent as the essentials of the contract.

As the complexities increase in the field of employment, the various matters such as breach of fiduciary responsibilities, corporate law non-compliance, corporate defamation took distinction between White Collar jobs (deals with the administration and board) and the Blue Collar Jobs (which deal with the manual labor.)

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The employment related issues can be grouped as under,

  1. Pre-Hire
  2. During Employment
  • Termination
  1. Post- Termination
  • PRE-HIRE

As the title suggests, any dispute which arises before the hiring of the employee amounts to Pre-Hire disputes between the Employer and the Employee. This kind of disputes arises when an employee falsely represents himself and fraudulently tries to win a position in the employment. When the employer learns about the fraud of the employee he loses trust and there will not be a friendly relation between the employer and the employee hence giving rise to dispute. This dispute can only be resolved through litigation and not through any other medium.

From the employer’s end the dispute arises when the employer takes back the notice of offer from the employee before the employer starts his employment.

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  • DURING EMPLOYMENT

The dispute arising out of the misconduct of the employee or dissatisfactory performance in the employment is the dispute during the employment. These disputes are classified under two heads, they are:  (a) Employment Related Disputes and (b) Disputes Relating to Restrictive Covenants during Employment.

Employment related Disputes cover under them the misconduct of the employees, disciplinary actions of the employees to guard the interest of the organization, under performance, breach of terms, insider trading, and criminal indulgence and so on.

Restrictive Covenants during Employment which are non-compete result dispute between the employer and employee whereas Restrictive Covenants during Employment which are non-disclosure do not.

  • TERMINATION

Basically there are two types of Termination- Voluntary Termination and Involuntary Termination.

There are lesser chances of disputes when in case of termination (in the form of resignation or retirement) by the employee. Dispute arises when an employer involuntarily terminates the contract of employment with the employee on the basis of the misconduct or indiscipline of the employee. In such cases, the matters shall be resolved in the courts and the burden of proof to prove the misconduct of the employee and evidence for his termination of the employee lies on the employer.

  • POST-TERMINATION

Modern day employment contracts give place to restrictive covenants restraining employees from joining new employment even after the termination of the previous employment. This gives rise to the dispute between the employer and the employee post the termination.

These disputes too shall resort in the courts and nowhere else.

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STATUS OF RESTRICTIVE COVENANTS IN INDIA

In India, the employment contract of restrictive covenants which is operative post the termination of the employee is unenforceable and void. It is against the public policy since it is prohibited by the law of the Indian Courts.

In Pepsi food Ltd and Ors Vs. Bharat Coca-Cola Holdings Pvt. Ltd and Ors[1] (1991) it has been held that, “post termination restraint on an employee is in violation of Section 27 of the Indian Contract Act, 1872. A contract containing such a clause is unenforceable, void and against public policy and since it is prohibited by law it cannot be allowed by the Courts injunction. If such injunction was to be granted, it would directly curtail the freedom of employees for improving their future prospects by changing their employment and such a right cannot be restricted by an injunction. It would almost be a situation of “economic terrorism creating a situation alike to that of bonded labor”.

POSSIBLE WAYS TO ENFORCE RESTRICTIVE COVENANTS[2]

  1. Serving the employee with a legal notice.
  2. Seeking enforcement of undertaking or encashment of cheque based on clauses of the agreement.
  3. Initiating civil suit seeking injunction or specific performance of contract as well as damages.
  4. While damages are a remedy that an employer may seek for the breach of confidential agreements, the same requires trial and evidence. Therefore the employer would only require injunction under the Civil Procedure Code, 1908 at the interim stage or initial if they apprehend that premature departure of an employee could cause injury to the employer.
  5. Filing suit for declaration that the acts of the employee amount to tortious interference in the business of the employer and injunction therefrom.

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MISCELENEOUS

MINIMUM REQUIREMENTS

Employment Contracts in India are generally considered to be of unlimited term contracts, I.e. the Contracts that are valid until the termination or superannuation unless specifically specified as a fixed term contract. While Labour legislations do not need agreements in writing it is a predominant market practice to have all terms and conditions of the employment agreed and signed by both the employer and the employee.

FIXED TERM CONTRACTS

Until recently government of India, Had not given a go to all the sectors of the government to make permanent employees. Only the apparel manufacturing sector had the advantage of making their employees permanent workers.

TRIAL PERIODS

It is permitted by Indian law to place new employees on a trial or probation period. The Industrial Employment Standing Order envisages a 3 month to 6 month probation period which is also followed by other sectors which do not fall under the IESO Act. This Probation works best in the Industrial and Technology oriented sectors in India.

NOTICE PERIODS

In terms of labor legislation in India, “workmen” who have undertaken the least of 1 year of employment of continuous service are entitled to a notice period of 1 month or equivalent wages in lieu thereof. In addition, the employer is required to pay retrenchment compensation to the workmen. However no retrenchment or notice period is required if the employee is being dismissed for misconduct from the employee end.

CONCLUSION

The concept of Employment contract is like any other Contract. The Comprehensive Employment contract provides for the key duties and responsibilities of the employee that help him understand his job better. The main objective of an Employee Contract is to prevent disclosure of information, non-solicitation, non-competition, as well as protection of confidential information so it is always advisable to have an executed written form of Employment Contract. In practice, the employer signs the letter of appointment with the proposed employee prior entering into the contract. An appointment letter is executed in order to cover the probation period of the said employee till that employee is made permanent in the employment.

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[1] Suneeth Katharki and Mini Kapoor, India: Employment contracts- Enforcement of Restrictive Covenants under Various Jurisdictions, INDUS LAW (April 26,2016) https://www.mondaq.com/india/employee-rights-labour-relations/486496/employment-contracts–enforcement-of-restrictive-covenants-under-various-jurisdictions#:~:text=In%20India%2C%20an%20employment%20contract%20containing%20restrictive%20covenants,it%20cannot%20be%20allowed%20by%20the%20Indian%20courts.

[2] Archita Mohapatra, Preetha Soman, Ajay Singh Solanki and Vikram Shroff, Employment Contracts in India- Enforceability of Restrictive Covenants, Pg.No 14 (2019)

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E-Commerce Contracts and the clauses covered under it

By: Alok Rao

Introduction: –
E-commerce is a form of business model, or segments of a larger business model, enabling a company or person to conduct business on an electronic network, typically the Internet. However, there is no specific meaning of the term e-commerce, which is usually used to denote a form of doing business by electronic means rather than by conventional physical means. E-commerce questioned companies’ traditional system trading with customers, putting together diverse business models that empowered consumers.

The most popular business models facilitated by e-commerce are:

  1. B2B: Business to Business (B2B) explains trade transactions between different companies, allowing foreign companies to develop new partnerships with other companies. As between the manufacturer and the wholesaler, or between the wholesaler and the retailer.
  2. B2C: Business to Consumer (B2C) defines companies’ operations providing end customers with goods and/or services. There has always been a direct interaction between companies and customers, but with e-commerce, the traction has been gained in such transactions.
  3. C2C: Business to Consumer (C2C) includes electronically facilitated transactions between consumers through third parties. Traditionally, customers have had interactions with other consumers, but only a handful of these practises have been of a commercial sort.
  4. C2B: Customer to Business (C2B) involves customers supplying goods/services to businesses and generating value for the company.
  5. B2B2C: This is an alternative to the B2C model, and there is an external intermediary sector in this form of the model to assist the first business transaction with the end customer. For example, Flipkart is one of the popular e-commerce portals and offers a stage for customers to buy a wide variety of items, such as books, music, CDs, etc.

As a result, the e-commerce world may appear uncomplicated and economical; there are several legal considerations that an e-commerce company must seriously consider and bear in mind before beginning and while carrying out its operations.

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E-commerce law in India: –

Information Technology Act, 2000
The first ever e-commerce legislation passed by India’s Government was the Information Technology (IT) Act 2000. It was an act to give effect to the UNCITRAL Model Law on Electronic Commerce, 1996. On 30 January 1997, the General Assembly of the United Nations adopted a resolution commending the Model Law on Electronic Commerce for favourable consideration by the Member States as a Model Law as they pass or amend their rules, given the need for uniformity of the law applicable to alternatives to paper-based methods of communication and storage of information.

The IT Act’s primary purpose was to include legal recognition of transactions carried out through electronic data exchange and other electronic means of communication, generally referred to as electronic commerce (e-commerce). The IT Act 2000 facilitates e-commerce and e-government in the region. It includes guidelines on the legal recognition of electronic records and digital signatures rules for the allocation of e-records, the process and manner of reception, the time and place of dispatch and the receipt of electronic documents. The Act also sets out a legal system which sets out penalties for various cyber offences and crimes. Significantly, under the Act, the Certification Authority is the focal point around which this Act revolves, as most of the provisions relate to the Regulation of Certification Authorities, i.e., the appointment of a CA Controller, the licensing of CAs and the recognition of international CAs. It has also punished crimes such as hacking, damage to the source code of the machine, publication of information that is obscene in electronic form, violation of confidentiality and privacy, and fraudulent granting and use of digital signatures. It also provides civil liability, i.e., cyber contraventions and criminal infringements, fines, the establishment of the Adjudicating Authority and the Cyber Regulatory Appeal Tribunals.

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The relevant provisions of the Indian Panel Code, 1860, the Indian Evidence Act, 1872, the Banker’s Book Evidence Act, 1891 and the Reserve Bank of India Act, 1934 were also amended to resolve the related issues.

Information Technology (Amendment) Act, 2008
India incorporated the Information Technology (Amendment) Act, 2008 to apply the UNCITRAL Model Law on Electronic Signatures, 2001 in India. The IT Act of 2000 was modified to make it technologically neutral and accepted electronic signatures over-restrictive digital signatures. The Act incorporated several amendments, such as implementing the principle of e-signature, the modification of the definition of intermediary, etc. Also, the State asserted unique powers to monitor websites in order, on the one hand, to protect the privacy and, on the other hand, to control potential misuse leading to tax evasion. It is important to note that this Act acknowledged the legal validity and enforceability of digital signatures and electronic records for the first time in India and concentrated on protected digital signatures and secure electronic documents. These reforms were implemented to reduce the occurrence of electronic forgeries and promote e-commerce transactions.

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Legal Validity of Electronic Transactions in India: –
There are numerous legal concerns related to the formation and legality of electronic transactions, such as online contracts and compliance issues, which are dealt with below.
Formation of an E-Contract
The most popular types of e-contracts are clickwrap, search wrap and shrink wrap contracts. The terms and conditions of such agreements shall be made available to the contracting party in a manner which is substantially different from the standard paper contracts. By clicking on the wrap contract, the party’s affirmative approval is made by checking the ‘I agree’ tab with a scroll box that allows the acceptance party to access the terms and conditions.
In the case of a browser wrap arrangement, the website’s mere use (or browsing) makes the terms binding on the contracting party.
In a Shrink-wrap agreement, the contracting party can read the terms and conditions only after opening the box inside which the product (usually a licence) is packed. Such contracts are important in the context of e-commerce, primarily because of the form of products associated with shrink-wrap agreements.

Online Contract Validity
The Indian Contract Act, 1872, regulates all e-contracts in India, inter alia, mandate specific pre-requisites for a valid contract, such as free consent and legal consideration. The concern to be considered is how the Indian Contract Act’s specifications can be met with e-contracts. Also, the Information Technology Act, 2000 (‘IT Act’) enhances the legitimacy of e-contracts.
According to the Indian Contract Act, 1872, some of the essential specifications of a legal contract are as follows:

  • The agreement should be entered into with the free consent of the parties.
  • The agreement should be considered lawfully.
  • The parties should have the authority to enter into contracts.
  • The purpose of the contract is to be lawful.
  • Terms and conditions associated with the e-commerce platform are of the utmost importance in ensuring that the e-commerce agreement meets a legal contract’s specifications.

Unless expressly forbidden, clickwrap agreements would be enforceable and legal if the provisions of a valid contract set out in the Indian Contract Act of 1872 were met.

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There is no provision under the Indian Contract Act that written contracts be physically signed. However, the unique statuses do include the criteria for signature. Furthermore, the very essence of e-commerce is that it is virtually impossible to verify the age of someone who is trading online and who presents problems and liabilities to e-commerce platforms because the situation under Indian law is that a minor is not qualified to enter into a contract and that such an agreement is not enforceable against a minor.
In India, any instrument under which rights are produced or transferred must be stamped. The stamping of the instrument also depends on relevant stamp duty legislation passed by different states in India.

Standard Type of Online Contracts is not appropriate.
There is no well-developed case law in India as to whether the traditional type of online agreements is unwise. However, Indian courts have previously dealt with cases where contract terms, including common form contracts, have been negotiated between parties in unequal negotiating positions. Specific provisions of the Contract Act deal with unenforceable agreements, such as when public policy is opposed to considering the contract or subject-matter of the contract. The agreement itself cannot be valid in such situations.
The courts may place the individual’s responsibility in the leading position to show that the contract was not caused by undue influence.
In the case of ‘LIC India Vs. Consumer Education & Research Centre’
L.I.C. Of India & Anr vs Consumer Education & Research Centre & Ors. Etc. 1995 SCC (5) 482, the Hon’ble Apex Court of India interpreted the insurance policy issued by India’s Life Insurance Corporation by adding certain public interest elements. The court observed that ” in dotted line contracts there would be no occasion for the weaker party to bargain as to assume to have equal bargaining power. He has either to accept or leave the service or goods in terms of the dotted line contract. His option would be either to accept the unreasonable or unfair terms or forgo the service forever.”

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It is essential to provide well-thought-out terms that shape online contracts to ensure that there is an ample opportunity for consumers to familiarise themselves with the terms of such agreements. In addition to the above, there is also a range of other legal, tax and regulatory concerns, in particular Security Issues, Consumer Protection Issues, Intellectual Property Issues, Content Control, Intermediate Liability, Jurisdictional Issues and Tax Issues, which need to be taken into account when dealing with e-commerce transactions.

Conclusion: –
Rapid growth in e-commerce has generated the need for vibrant and efficient regulatory frameworks to reinforce the legal framework crucial to the success of e-commerce in India. It has always been argued that poor cybersecurity laws in India and the lack of a proper regulatory system for e-commerce are why both Indians and the e-commerce industry face so many challenges in enjoying a consumer-friendly and business-friendly e-commerce climate in India. India does not have any dedicated e-commerce regulatory legislation other than the IT Act that governs India’s e-commerce and transactions. Therefore, the government should create a legal structure for e-commerce so that domestic and foreign trade in India will flourish so that fundamental rights such as privacy, intellectual property, the prevention of fraud, consumer protection, and so on are taken care of. The legal community in India needs the required expertise to direct entrepreneurs, customers, and even courts. The rapidly evolving market module can comply with existing legislation usually applicable to business transactions in standard modules. Simultaneously, it should ensure that the benefits of technology are unhindered by the judicious evolution of law by the learned interpretation of the court, and there is still a consensus that specialized law governing and controlling some aspects of e-commerce is an obligation and an exclusive requirement.

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