Employment Agreement

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Drafting of Employment Agreement

An Employment Agreement is the primary legal document that defines the relationship between the employer and the employee. It outlines the rights, duties, and obligations of both parties throughout the period of employment. This agreement is essential for effective employee management, as it provides clarity on expectations, responsibilities, and terms of engagement. Regardless of the position—whether at the junior-most level or as the CEO—every employee should be governed by a well-drafted Employment Agreement to ensure consistency and legal protection for both sides.

Elements of Employment Agreement

An Employment Agreement should clearly define the terms and conditions of employment. The most common elements discussed in the Employment Agreement are:

Job Description of the Employee
Term of the Employment
Employee benefits
Remuneration/compensation to the Employee
Leave Policy
Grounds for termination
Protection of Confidential information
Ownership of Intellectual Property
Dispute Resolution
Governing laws and jurisdiction
Any other provisions deemed to be relevant to the Employer.

In the case of individuals hired on contractual basis for a limited period of time such as candidates hired for specific projects Service Agreement is drafted instead of Employment Agreement.

Position in Law

Although the term “Employment Agreement” is not explicitly mentioned in the Indian Contract Act, 1872, employment contracts are still legally recognized under general contract law. As per Section 27 of the Act, any agreement that restrains an individual from practicing a lawful profession, trade, or business is void to the extent of such restraint. However, reasonable restrictions, especially those related to employment, may be legally enforceable.

Employment-related policies such as leave entitlements, maternity benefits, and working hours are primarily governed by the applicable Shops and Establishment Act of each state. In addition, several other key laws regulate different aspects of employment, including the Factories Act, 1948, Maternity Benefit Act, 1961, and the Payment of Gratuity Act, 1972.

Drafting an Employment Agreement is simple and efficient with submitreturn thanks to a team of experienced lawyers who ensure timely delivery and complete customer satisfaction. The entire process is conducted online, supported by regular communication and professional guidance. We serve clients across major cities like Mumbai, Delhi, Bangalore, Pune, Ahmedabad, and Hyderabad, as well as in smaller towns, offering nationwide accessibility and legal expertise.

Significance of Employment Agreement

Clarity upon terms of employment

An Employment Agreement provides clear and detailed information about the provisions like remuneration, working hours, job description, duties, and obligations of the Employee. An Employee would want to be clear about his compensation/remuneration, which is only possible if you have a well-drafted Employment Agreement.

Protection of trade secrets

An Employment Agreement may include a dispute resolution clause, outlining how any disagreements between the employer and employee will be addressed. Parties are free to choose the method of resolution, with arbitration being a commonly preferred option due to its efficiency and avoidance of lengthy court proceedings. Clearly defining the dispute resolution mechanism in the agreement helps prevent confusion or conflict later, ensuring a smoother resolution process if issues arise.

Protection of trade secrets

Employment Agreements commonly include a confidentiality clause to protect the organization’s sensitive information from being disclosed to third parties. This clause ensures that the employee agrees not to share any confidential information accessed during their employment with anyone outside the organization. Additionally, since the employer typically retains ownership of any intellectual property created or developed by the employee during the term of employment, a clause related to Intellectual Property ownership is also a standard and essential part of such agreements. These clauses help safeguard the company’s assets and proprietary information.

Restrictive Covenants

Employment Agreements may also include restrictive covenants such as non-compete and non-solicitation clauses. These provisions are designed to protect the organization’s business interests even after the employee leaves. A non-compete clause restricts the employee from joining a competing business or starting one based on similar ideas, while a non-solicitation clause prevents the employee from encouraging the company’s clients, employees, distributors, or service providers to leave and join them. These clauses help safeguard the company’s relationships and proprietary knowledge post-employment.

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Procedure to get the legal drafting done

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Explore FAQs for Employment Agreement

Frequently Asked Questions

Is Employment Agreement legally valid in India?

Employment Agreement is legally valid and binding if it has reasonable restrictions upon the Employee. Unreasonable clauses and restrictive covenants render that portion of the Agreement invalid.

Is it mandatory to notarise the Employment Agreement?

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.

What is the difference between a contractor and an employee, and why is this important?

A contractor is hired for fixed-term projects, and the Agreement governing the relationship is Service Agreement. In contrast, an employee is hired for full time, and the Agreement governing the relationship is Employment Agreement. A contractor is paid fees for which he needs to raise invoices, whereas the employee is paid a fixed salary.

Can I stop my employee from working for somebody else?

Yes, an Employer has the right to the services of the Employee on an exclusive basis. It can be clearly stated in the Agreement that the Employee cannot provide his services to someone else during the continuation of Agreement.

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