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Employment Agreement
The only legal document between an employer and an employee, and the one that decides what either can insist on. From the most junior hire to the CEO, everyone is an employee.
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- A consultation on the clauses that safeguard your rights as an employer
- Two rounds of amendments included in the drafting charges
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What an employment agreement is
The sole legal document between employer and employee, setting out what each owes the other for as long as the employment lasts.
An employment agreement lays out the rights, duties and obligations of both parties during the employment period. It is a crucial document in managing people, because it is the only place those obligations exist in a form either side can point at. From the most junior level to the chief executive, everyone is an employee, and managing employees efficiently means having one.
Where an individual is hired on a contractual basis for a limited period, someone brought in for a specific project, a service agreement is drafted instead. That is a different document governing a different relationship, and using an employment agreement for a contractor is one of the commonest drafting errors there is.
"Employment agreement" and "employment contract" are two names for the same document. Nothing about the law or the drafting differs between them.
- Between
- Employer and employee
- Also called
- Employment contract
- The same document
- Legally valid
- Yes
- If the restrictions in it are reasonable
- Restrictive clauses
- Section 27 limits them
- Void to the extent they restrain a lawful trade
- Leave and hours
- Shops and Establishments Act
- Of the state you employ in
- Notarisation
- Not required
- Stamp duty
- Payable
- At the rate set by the state
- First draft
- 3 working days
Why employers choose LegalWiz.in
- Experienced lawyers who draft employment agreements every week
- A consultation on the clauses that safeguard you as an employer
- The whole process managed online, with regular communication throughout
- Two rounds of amendments included in the original charges
- Clients in every major Indian city, and in the smaller towns too
What the agreement covers
The elements every employment agreement should define.
- The job description and the term of the employment
- Remuneration, and the employee benefits that go with it
- The leave policy that applies
- The grounds on which the employment may be terminated
- Protection of confidential information
- Ownership of intellectual property created during the employment
- Dispute resolution, and the governing law and jurisdiction
Anything else the employer needs can be added. The seven above are the ones that cause a problem when they are missing.
The law behind it
It is not named in the Contract Act
The Indian Contract Act does not mention employment agreements as such. They are ordinary contracts, and they succeed or fail on ordinary contract principles.
Section 27 limits what you may restrain
An agreement that restrains someone from carrying on a lawful profession, trade or business is void to the extent of the restraint. A restriction has to be reasonable to be permitted at all, which is why non-compete clauses are drafted narrowly.
The state decides leave and hours
Leave, maternity leave, working hours and the rest are governed by the Shops and Establishments Act of the state the establishment sits in, not by the agreement.
And several central Acts apply on top
The Factories Act 1948, the Maternity Benefit Act 1961 and the Payment of Gratuity Act 1972 among them. An agreement cannot contract out of any of them.
What a well-drafted agreement buys you
Clarity on the terms of employment
Remuneration, working hours, job description, duties and obligations, stated in one place. An employee wanting to be clear about their compensation is only possible where there is a well-drafted agreement to be clear from.
A route out of a dispute
The agreement may name how disputes are resolved. Arbitration is a common choice and is preferred to lengthy litigation, but only if it was agreed in advance.
Protection of trade secrets
A confidentiality clause stops an employee disclosing what they were exposed to during the employment. An IP clause records that what they built during it belongs to the employer.
Restrictive covenants that hold
Non-compete and non-solicitation clauses stop a departing employee joining a competitor on the same idea or taking colleagues, clients and distributors with them, provided the restraint is reasonable.
Where the agreement sits among the HR documents
Four documents, four moments in a hire. This is the one that carries the terms; the other three announce, confirm and close the employment.
| Attribute | Employment agreement | Offer letter | Appointment letter | Relieving letter |
|---|---|---|---|---|
| Where it falls in the hiring | ||||
| On joiningSigned on or around the joining date, with the rest of the HR formalities, before the employee is assigned any work. | After selectionOnce the candidate has cleared every round and the employer has decided to hire them, but before anything has been accepted. | After acceptanceAfter the offer has been accepted. It is usually handed over on the first day of joining. | On the last dayAfter the resignation has been accepted and the notice period has been served, on the final day of the employment. | |
| The employerPrepared by the employer and executed by both parties. | The employerUsually the HR function, on the letterhead. | The employerDrafted on the company letterhead and authorised by the HR manager or employer. | The employerOn the company letterhead, signed and authorised by the employer. | |
| BothIt is a contract, so both parties execute it. | Both, to acceptThe candidate signs to accept. Until then it binds nobody, and either side may withdraw. | BothThe employee signs a copy and returns it to the employer, which is what records that the terms were received. | The employer onlyIt is a confirmation issued to the employee rather than an agreement with them. | |
| What is in it | ||||
| The full termsRoles and duties, remuneration, probation, confidentiality, intellectual property, non-compete and how either side may end the engagement. | The offerDesignation, remuneration, reporting manager, joining date, paid leave, and the documents to be produced on joining. | The appointmentThe position, the salary and benefits, the company policies that apply, and the other terms of the employment. | That you have leftThat the resignation was accepted and the employee has been relieved of their duties and responsibilities. | |
| YesA legally binding agreement, enforceable in a court, and either party may seek a remedy for a breach of it. | Not until acceptedThe company may withdraw it at any point before acceptance, on reasonable grounds, and the candidate may decline it. | Part of the termsIt records the terms of the employment and is relied on as evidence of them. For a smaller employer it is often the only written terms there are. | NoA confirmation of a fact. It creates no obligation on either side. | |
| RarelyIt is usually confidential and is not normally shown to a subsequent employer, though its notice period governs when the employee may leave. | RarelyIt is superseded by the appointment letter. | SometimesAsked for as proof of the designation and the terms held at the previous employer. | UsuallyCommonly asked for at the point of joining, as proof that the previous employment was ended properly and no notice period is outstanding. | |
| Next step | Get started | Know more | Know more | Know more |
Swipe the table sideways, Employment agreement stays in view. Open any attribute to read the detail behind all 4 answers.
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Get an employment agreement drafted in 3 easy steps
Three working days from the questionnaire to the first draft in your inbox.
Step 01
Follow a quick process
- Pick the package that suits you
- Spend less than 10 minutes on our online questionnaire
- Pay through a secured gateway
Step 02
Our experts take over
- A relationship manager is assigned to you
- Day 1: discussion, and collection of the basic information
- A consultation on the clauses that safeguard your rights as an employer
- Day 2: the document is drafted by the professionals
Step 03
Start binding your employees with it
- Day 3: the first draft is sent to you for review
- Ask the professional for any changes you want and they will make them
- Two amendments are included in the original drafting charges
Three working days, subject to government processing time where any applies.
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Explore FAQs for employment agreements
Still have a question? Our team is happy to help, at no charge and with no obligation to buy anything.
Is an employment agreement legally valid in India?
Yes, and binding, where the restrictions it places on the employee are reasonable. Unreasonable clauses and restrictive covenants render that portion of the agreement invalid, not the whole document, only the part that goes too far.
Is it mandatory to notarise it?
No. It does not have to be notarised by a public notary, but stamp duty has to be paid on it. The rate is in the schedule to the applicable Stamp Act and differs from state to state.
What is the difference between a contractor and an employee?
A contractor is hired for fixed-term projects and the relationship is governed by a service agreement. An employee is hired full time and the relationship is governed by an employment agreement.
A contractor is paid fees against invoices they raise; an employee is paid a fixed salary. Getting this wrong means using the wrong document for the relationship you actually have.
Can I stop my employee working for somebody else?
Yes. An employer has the right to the employee’s services on an exclusive basis, and the agreement can state clearly that the employee may not provide services to anyone else while it continues.
A restraint that extends beyond the end of the employment is a different question, and is where section 27 of the Contract Act starts to bite.
How long does the drafting take?
The first draft is with you in three working days from the questionnaire being completed. Two rounds of amendments after that are included in the original charges.
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