All that you must know before you sign your employment contract

UNDERSTANDING YOUR JOB OFFER

Representational image: edar from Pixabay

Amit, working in an IT company, suddenly found that the perks he had been promised with his job offer had suddenly been withdrawn. When he enquired, he was told that the company’s HR policies had changed. While signing on the dotted line, Amit had not read his employment agreement carefully and failed to notice the clause which entitled the company to change its HR policies from time to time.

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There are zillions of employees like Amit, who do not read their employment contract carefully and affix their signature based only on the figures of remuneration in the document. However, it is extremely important for all job seekers to understand the mechanics of an employment agreement, in order to claim one’s rights.

An employment contract governs the terms and conditions of employment.  Following are some of the key clauses that one should carefully study and understand before accepting an offer of employment:

Designation and Duties

An employee must, before accepting an offer of employment, know clearly the designation offered and the duties he/she should be performing.

An employment contract, typically, also contains a statement saying, “Your duties may be changed according to the needs of the organization” or “You may be expected to take up additional duties from time to time”.  This means that an employee may not always be performing the duties mentioned in his employment contract, their scope may change or he may be given additional responsibilities.

To the extent possible, employees should be clear on what they are willing to do and where to draw the line when asked to take on additional or different kinds of work.

Salary/Remuneration

Salary or remuneration to be paid should be clearly explained in the contract along with the mode and currency of payment. If any additional benefits make up a part of the CTC or Cost to Company, the same should also be included.

The CTC needs to be clearly defined so that an employee knows what he will actually get in hand. Many think the figure mentioned in their letter would be the amount they receive in hand. More often than not, however, the take-home salary is considerably lower. Employees should insist on a clear break up of the different elements of the salary package when they are made the job offer.

Duration

Some employment contracts may be for a fixed duration. Such contracts should clearly mention the duration of the contract. A fixed-term employment contract essentially means that the employment would subsist for the period of the contract only. For instance, if a fixed duration employment contract is for a period of three years, the employment would automatically end after the said three years have elapsed.

Ideally, a provision for extension of contract should be part of the agreement. Though, a fixed contract expires on the completion of the stated period, typically, an advance notice, preferably of 30 days, intimating the employee that his contract is coming to an end should be given.  If the contract contains a renewal or extension clause, then the employee may ask for an extension.

However, please note that such an extension is not the employee’s right. He may merely make a request for the same.  Similarly, if the contract contains the requirement of an advance notice to be given, then that obligation rests on the company; otherwise the company may choose to provide or not provide advance notice.

Social security

Social security benefits such as EPF contributions are statute-mandated and should be referred to in the employment agreement. Typically, these are subject to company policies and should be reflected as such in the employment agreement. Employees should check that such mandatory deductions are actually deposited with the relevant authorities. Websites now allow employees to check whether this is being done.

HR Policies

Typically, signature on an employment contract makes employees subject to HR policies of the company. These are the standard policies of the company which inter alia govern your working conditions, rules against harassment or discrimination, social welfare benefits etc. Typically, these policies will be available on the company’s website or internal portal. You can also ask your human resources department for a copy of the same.

Please note that the clause which makes you subject to the Company’s HR policy typically contains a statement saying that the employee is subject to the company’s policies as applicable from time to time. This means, that the company’s policies may change and the employee, as long as he is in the employ of the company would be subject to whatever policies may be in force at any point of time.

Termination/Resignation

Typically, an employment contract contains provision for two types of termination: a) Termination simpliciter and b) termination for fault.

While the former entitles, both parties to terminate the contract by mutual consent upon giving a stipulated number of days’ prior notice, the latter is triggered when the employee engages in any misconduct. It is pertinent to know that one may be terminated with immediate effect upon engaging in any misconduct.

Apart from the above, there are other clauses which some employer include, which employees should check for. Like:

  • Employment Bond: Typically, an employment bond mandates the employee to serve the company for a fixed period before he/she can resign. If the employee decides to resign before this period has expired, she needs to pay a certain pre-determined sum of money to get “released” from the bond.

The courts have not outright held employment bonds to be unenforceable. Typically, courts expect such bonds to be reasonable and in certain cases (Sicpa India Limited v Shri Manas Pratim Deb) has awarded a reasonable compensation to the employer for the expenses spent on training of the employee.

  • Non-compete clause: This clause prevents an employee from working for an entity competing with the business of the employer either during or after the termination of employment.

While courts have held that non-compete clause during the course of employment is justified, its application and enforceability post termination of employment contract has elicited divergent opinions. In Gujarat Bottling Company Ltd and Ors. v. Coca Cola Co. and Ors.1995 (5) SCC 545 the court held a non-compete clause unenforceable as it would have the effect of taking away one’s means of livelihood.

In Niranjan Shankar Golikari it was held that if a fixed term employment contract subsists, then the non-compete clause may be enforced during the remaining duration of the contract but not beyond the same. It also said that a non-compete clause needs to be reasonable. Hence, all employment contracts, especially the ones entered with higher management personnel, may contain such clauses, but their enforceability still remains a slippery slope.

  • Confidentiality Clause: A confidentiality clause is also typically included in an employment agreement. These clauses which prevent the employees from disclosing confidential information such as trade secrets or proprietary information to third parties are commonly found in the IT sector. These are generally enforceable; however, sometimes, employers disguise a non-compete restriction in the garb of a confidentiality clause (as in M/S Stellar information Technology Private Limited v. Mr. Rakesh Kumar & Ors). Such clauses have been held to be void.
  • Morals Clause: A morals clause or a good conduct clause, is generally included in senior level management employees’ contracts. As the reputation of a company is linked to the reputation of its employees, especially those who are at a higher level and are in the public eye, companies tend to include this clause. Violation of this clause may lead to suit for breach or damages.
  • Garden Leave Clause: This clause entitles the employer to mandate that the employee must not come to work or perform any of his functions post resignation. This is typically done, so as to prevent any confidential proprietary information of the company from being accessed and taken by the leaving employee.

 Typically, employees at higher levels are subject to garden leave clause. This may require the employee to provide a longer resignation notice period.  Bombay High Court in the decision of V.F.S. Global Services Private Limited vs. Suprit Roy [(2008)3 Mah LJ 266] held that Garden Leave clause after the termination of employment contract is unenforceable.

  • Injuries caused during the course of employment: For certain categories of people, statutory protections have been enacted to protect them against injury during the course of employment. These typically cover workers employed in construction, plantations, factories etc. For those who are not covered under statutory protection, a clause may be built in the contract regarding the same. However, such clauses are usually not included in employment contracts.

The HR policies of the company may cover this issue and employees are advised to go through them. If no provisions pertaining to the same are contained either in the contract or in the policies, and the employee is not protected under the law, then a suit for negligence may be filed against the employer.

Also, please note that the employment contract may contain language which would elicit consent from the employee for the dangers that are associated with the job. Make sure to check if the word is qualified. For instance, the qualification, “reasonable risks,” may protect you.

When one signs an employment contract it is important to check if all the essential clauses are there. Any post-termination restrictive covenants should also be looked out for. All details such as salary, designation, duties, place of posting etc. should be provided for in the contract. As an employment agreement is rarely open to detailed negotiation, an employee should always check if all his/her rights are protected under the same.