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,
- Pre-Hire
- During Employment
- Termination
- 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]
- Serving the employee with a legal notice.
- Seeking enforcement of undertaking or encashment of cheque based on clauses of the agreement.
- Initiating civil suit seeking injunction or specific performance of contract as well as damages.
- 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.
- 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)