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Employment Contract
The document that sets the boundaries both sides work inside. Get it right and a workplace dispute is settled by reading it; get it wrong and there is nothing to read.
- Intellectual property created on the job assigned to the company
- Confidentiality, non-compete and non-solicitation drafted to be enforceable
- Probation and notice period written to match how you actually hire
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- A master contract you can reuse by changing the commercial terms
- Reviewed and amended after you have read the draft
- Drafted by experienced lawyers for your business, not a downloaded format
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What an employment contract is
The written terms an employer and an employee work to, and the document a dispute is resolved against.
Of all the HR documents an organisation keeps, the employment contract is the one that does the most work. It is a legal document that helps both the employer and the employee set the boundaries within which they are expected to work with each other: the guidelines, rules, duties and obligations that define the relationship.
It sets out the position of responsibility the employee will hold, their remuneration, the term of the engagement, how it may be ended, and the other provisions the employer needs. Where a workplace dispute arises, both sides can review the terms and arrive at a settlement rather than arguing about what was agreed.
"Employment contract" and "employment agreement" describe the same document. The site has a page for each because both are searched for; nothing about the drafting or the law differs between them.
- Between
- Employer and employee
- Signed
- On joining
- With the rest of the HR formalities
- Required by law
- No
- Almost universal in practice
- Legally binding
- Yes
- Enforceable in a court
- Probation
- Usually 3 to 6 months
- Notary
- Not required
- Stamp duty
- Set by the state
- Where it is executed on stamp paper
- Also called
- Employment agreement
- The same document
Why employers choose LegalWiz.in
- Experienced lawyers who draft these for employers every week
- A consultation on the clauses that protect you as an employer
- Drafted so a restrictive clause is reasonable enough to hold up
- The whole engagement administered and conducted online
- Customers in every geographic location in India
What the drafting covers
All we need from you is the name of your organisation and the commercial terms you want in the contract.
- A consultation call on the clauses that matter for how you employ
- A contract drafted from scratch by an experienced lawyer
- A master version you can reuse across employees by changing a few commercials
- Restrictive clauses drafted to be reasonable, and therefore enforceable
- Amendments after you have read the draft
What having one actually buys you
The employee knows where they stand
Rights and obligations are explicit from day one, available leave and increment eligibility included, rather than discovered a year in.
Your IP and confidential information stay yours
The organisation’s intellectual property is protected from infringement and its confidential information from disclosure, because the contract says who owns what.
Disputes get shorter
Both sides review the terms and settle on them. Without a contract the same argument is about what was said in an interview.
It is evidence
Verbal terms are difficult to record and harder to prove. A signed contract is admissible in a court of law.
What an employment contract should include
Seven provisions. The first three are in every contract; the last four are the ones a downloaded template usually gets wrong.
General terms and conditions
The roles and responsibilities the employee is expected to discharge, the date of joining, the designation, the annual remuneration, and the working days and hours.
Probationary period
A period, usually three to six months, in which either side may end the engagement forthwith if the fit is not right. Without it, an employer who wants to part company in month two is serving a full notice period.
Cost to company
The clause employees read first. It should state the mode and manner of payment, the deductions to be made, and what actually reaches the employee’s hands.
Intellectual property rights
An employee may create new ideas and inventions during their tenure. Define ownership beforehand. An organisation normally retains rights over everything developed under its employment, but only if the contract says so.
Non-compete and non-solicitation
Protects the organisation from an employee starting a competing business immediately after leaving, and from them taking clients or colleagues with them. It has to be reasonable in scope and duration to be permitted at all.
Termination
When and how either party may end the contract, with and without cause, and the notice period that applies. This is the clause most often left vague and most often needed.
Confidentiality
What counts as confidential, and the circumstances in which it may be disclosed. Where the exposure is significant, a separate non-disclosure agreement with the employee is worth having as well.
Where the contract sits among the HR documents
The offer letter, the appointment letter, the contract and the relieving letter are four documents issued at four different moments. Employers routinely issue two of them and assume they have all four.
| Attribute | Employment contract | 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 contract stays in view. Open any attribute to read the detail behind all 4 answers.
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Do all companies have an employment contract?
No, and no law requires one. It is advisable to have one all the same, to define the rights and duties of both parties and avoid conflicts later.
When is an employment contract signed?
Usually on the joining date. Completing the HR formalities before the employee is assigned to their desk is the normal practice, and it is easier than chasing a signature afterwards.
Is it mandatory for an employee to sign one?
Not by law. In practice an organisation will not take on an employee who refuses, which makes it a mandatory formality of the hiring rather than a legal one.
Is it binding, and what happens on a breach?
Yes. An employment contract is a legally binding agreement and is enforceable in a court of law. Where either side breaches its terms, the other may approach the relevant court or forum for a resolution.
Does it need a notary or stamp paper?
It does not need to be notarised. It may be printed on stamp paper, and where it is, the stamp duty payable depends on the state you are in.
Do I need a lawyer to draft one?
A contract becomes legally binding once it is signed, so it is worth having a lawyer draft or review the terms. The restrictive clauses in particular, non-compete, non-solicitation and IP assignment, are the ones a court will read narrowly if they are drafted too widely.
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