Employment Agreement

What is an Employment Agreement?

The Employment Agreement is a legally binding contract that outlines the terms and conditions of employment between an employer and an employee. It serves as a crucial document when a business brings a new employee on board. It is designed to be flexible and can be tailored to suit different employment arrangements, including full-time, part-time, and fixed-term employment.

In many cases, once an employer chooses to take on a new employee, the parties want to get started without delay. Therefore, the employer may wish to provide the employee with a letter that spells out some key terms more briefly. Employers may wish to use an Offer Letter for Employment which summarises the key clauses in these situations and then follow it up with a more detailed Employment Agreement.

The Employment Agreement is intended for employees and is not appropriate for use by contractors. Instead, contractors should utilize the Service Agreement specifically tailored to their needs.

What is the difference between an Employment Agreement and a Service Agreement?

The distinction between a Service Agreement and an employment agreement mainly depended on the type of person hired for the work. A Service Agreement allows a service provider to be engaged as a contractor, while an employment agreement facilitates the hiring of the service provider as an employee, availing the provision of benefits under the applicable labour laws.

Key factors differentiating the two include the level of control, the capacity to work with other clients, the autonomy in providing services through self-owned equipment, and the provision of sub-delegation.

It's important to note that utilizing a Service Agreement alone does not automatically convert an employee into a contractor.

The courts typically assess the entire arrangement to determine the nature of the engagement, considering whether the service provider operates independently as a business or functions within the business akin to an employee. For more in-depth information, a comprehensive blog on the disparities between an employee and an independent contractor can be checked.

Is it mandatory to have an Employment Agreement?

No, it is not mandatory to have an Employment Agreement. However, a well-drafted Employment Agreement protects both the Employer and Employee from any potential disputes, ensures clarity on several matters and puts both parties on the same page.

What must an Employment Agreement contain?

An Employment must include the following major clauses apart from the general clause mentioned in a general agreement:

• Description of the employment: description of the work to be performed by the employee including position and responsibilities.
• Work Details: including the details such as start date, work location, schedules, etc.
• Compensation and benefits: including salary package, insurance, bonuses, etc.
• Inventions: who owes the inventions by the employee before and after joining the employment.
• Termination of employment: how the agreement may be terminated.

Apart from the above mandatory clauses, the following optional clauses can be considered to protect the business:

• Non-Solicitation clause: Restrict the employee from soliciting or canvassing the employer's clients during or for a certain period after the termination of the employment.
• Non-Compete Clause: Limit the scope of the employee from starting or competing in a similar business of the employer during and for a certain period after the termination of the employment.

What can be the duration of an Employment Agreement?

There is no specified period for an Employment Agreement. The period will be as mentioned under the Employment Agreement, such as for a fixed period, a period till the completion of a certain project, or for an indefinite period.

What has to be done once the Employment Agreement is ready?

Once prepared the Employment Agreement should be printed on non-judicial stamp paper or e-stamp paper, and signed by both the employer and the employee. The value of the stamp paper would depend on the state in which it is executed. Each state in India has provisions in respect of the amount of stamp duty payable on such agreements. Information regarding the stamp duty payable can be found on the State government websites.

Once all parties have signed, both the employer and the employee should keep a signed copy of the Employment Agreement. To do this, two different copies can be signed, or if only one copy is signed, it can be photocopied and then distributed between the parties.

Which documents should be attached to the Employment Agreement?

Even though the Employment Agreement covers the major clauses regarding the employment. If the employer has the following policies or documents, it is better to attach a copy along with the Employment Agreement:

• Employee handbook
• Non-Disclosure Agreement
• Other policies include the POSH Policy, Remote Work Policy, Social Media Policy, etc.
• ESOP Agreement, if the stock option is provided to the employee.

Can an Employment Agreement be terminated?

Yes, an Employment Agreement can be terminated. The Employment Agreement is mainly terminated on the following grounds:

• Mutual agreement between both parties
• A material breach of contract by one party such as non-payment, or compromise of key confidential information to third parties.
• Termination without cause by serving the notice period mentioned in the Employment Agreement by either employer or employee.

The employer can terminate the Employment Agreement by serving a Letter of Termination of Employment to the Employee in accordance with the applicable laws and Employment agreement. The employee can resign from the employment by serving a Letter of Resignation from the Employment to the employer as per the applicable laws and Employment Agreement.

What are the laws applicable to the Employment Agreement?

The employment may be subject to the terms and conditions of the applicable Shops and Establishments Act or Factories Act,1948 depending on the nature of the activity carried on by the employer. Each state in India has its own Shops and Establishments Act which lays down certain terms regarding working hours, overtime, notice period etc.

The general provisions under the Indian Contract Act, 1872 will also be applicable for the Employment Agreement.

How to modify the template?

You fill out a form. The document is created before your eyes as you respond to the questions.

At the end, you receive it in Word and PDF formats. You can modify it and reuse it.