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An Employment Agreement is the foundational legal document governing the relationship between an employer and an employee. It clearly sets out the rights, responsibilities, and obligations of both parties during the course of employment. By defining expectations, duties, and terms of engagement, this agreement ensures smooth employee management and reduces the risk of disputes. Regardless of the role—be it entry-level staff or the CEO—having a well-drafted Employment Agreement provides consistency, clarity, and legal protection for both the organization and its employees.
Key Elements of an Employment Agreement
An Employment Agreement should clearly outline the terms and conditions of employment, ensuring transparency and mutual understanding. The most common elements included are:
Job Description of the Employee – Roles, responsibilities, and reporting structure.
Term of Employment – Duration of engagement, including probationary period if applicable.
Employee Benefits – Health insurance, retirement plans, bonuses, and other perks.
Remuneration/Compensation – Salary structure, payment mode, and deductions.
Leave Policy – Annual leave, sick leave, and other entitlements.
Grounds for Termination – Conditions under which employment can be ended, notice period, and procedures.
Protection of Confidential Information – Non-disclosure obligations regarding sensitive company data.
Ownership of Intellectual Property – Clarifying rights over inventions, ideas, or work created during employment.
Note: For individuals hired on a contractual basis for a specific period or project, a Service Agreement is drafted instead of a standard Employment Agreement.
This structured approach ensures legal clarity, protects organizational interests, and sets clear expectations for employees.
Position in Law
While the term “Employment Agreement” is not specifically mentioned in the Indian Contract Act, 1872, employment contracts are recognized under general contract law. According to Section 27 of the Act, any agreement that restrains a person from practicing a lawful profession, trade, or business is considered void to the extent of the restriction. However, reasonable restrictions—such as non-compete clauses or confidentiality obligations—are generally enforceable if they protect legitimate business interests.
Employment rights and policies—such as leave entitlements, working hours, and maternity benefits—are primarily governed by the Shops and Establishment Act of the respective state. Additional legislation regulating employment includes:
Factories Act, 1948 – Working conditions and safety of employees in factories.
Maternity Benefit Act, 1961 – Rights and benefits for pregnant employees.
Payment of Gratuity Act, 1972 – Provision for gratuity payments to employees on termination or retirement.
An Employment Agreement outlines essential details such as compensation, working hours, job responsibilities, and the employee’s duties and obligations. For an employee, understanding their compensation is crucial, and this clarity can only be achieved through a well-structured Employment Agreement.
An Employment Agreement might contain a dispute resolution clause, outlining various methods for resolving conflicts. The parties are free to select any approach, with arbitration being a favored alternative to lengthy court proceedings. When both parties are clear about how disputes will be handled, it helps avoid future conflicts on the matter.
Employment Agreements often contain a confidentiality clause to protect the organization’s sensitive information from being disclosed to external parties. This ensures that employees are prohibited from sharing any confidential details they encounter during their employment. Moreover, since the employer generally owns any intellectual property created by the employee during their time with the company, a clause addressing intellectual property ownership is also a standard inclusion. These clauses are crucial in safeguarding the company’s proprietary assets and information.
Employment Agreements might also feature restrictive covenants like non-compete and non-solicitation clauses. These provisions are put in place to protect the organization’s business interests even after the employee departs. A non-compete clause prevents the employee from joining or starting a competing business with similar ideas, while a non-solicitation clause prohibits the employee from enticing the company’s clients, employees, distributors, or service providers to leave and join them. Such clauses are essential for protecting the company’s relationships and proprietary knowledge after employment ends.
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The first draft shall be sent to you for your review.*If you feel you require any changes then you can contact the Professional and he/she shall make the changes.
*2 amendments/iteration are included in the original drafting charges.
An Employment Agreement needs not to be mandatorily notarized by a public notary, but stamp duty has to be paid on the same. Stamp duty rates can be checked in Schedule of the applicable Stamp Act as it differs from state to state.
Call us at: 9414883452 or Email us : contact@submitreturn.com
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