Introduction Drafting an Employee Contract is a necessary task to be performed at the time of hiring someone to work for you. An Employment Contract is a Contract that legally defines the relationship between the Employer and Employee. Both the Employer and the Employee are required to put their signatures on the agreed terms of the Contract and… Read More »


Drafting an Employee Contract is a necessary task to be performed at the time of hiring someone to work for you. An Employment Contract is a Contract that legally defines the relationship between the Employer and Employee. Both the Employer and the Employee are required to put their signatures on the agreed terms of the Contract and only after doing so, the employer can start working under the Employer.

A detailed and well-drafted Employment Contract becomes very much necessary when it comes to the resolution of the dispute associated with the salary, resignation, termination, etc. The Employment Contract also helps in clarifying the terms and conditions of the specific tasks to be performed and the wages to be given for performing such specific tasks. The signed Employment Contract can replace the prior verbal agreement between the Employer and the Employee.

The Employment Contract can be signed between the Employer and the Employee in various types of employment including full time/part-time and the term of the Contract. The Employment Contract may include the terms relating to the duties, salary, benefits, leaves, confidentiality as well as other key terms.

Importance of Employment Contract

Some of the most common advantages of signing an Employment Contract before start working are that it protects the Interest of the employer and the employee. The Contract also helps in setting expectations and list down laws of Employment.

The Employment Contract is important as it spells out the Right and Obligations of the employer and the employee. Another important reason for signing the Employment Contract is that it ensures the security of the job of employees and also ensures the protection of the employer from the release of confidential information of the Company.


Most of the Employment Contracts which are drafted in a very good manner contains the provision for a definite term of employment. The benefit of having a definite term for employment is that it protects the employee from the termination of the job unless the employee violates the terms of the Contract.

It also allows the employer to remove the employee at the end of the term of employment in such jurisdictions where the law prohibits employers from removing their employees. However, the thing which must be kept in mind is to carefully negotiate the term of employment at the signing of a contract.


The Employment Contract is also important in the sense that it clearly defines the specific duties of the parties to the Contract i.e., employee and employer. This provision of the Employment Contract also deals with the salary, benefits, and incentives which can be provided in case of extra work taken from the employee.

The employment contract also provides for the transfer of an employee from one position to the other i.e., Promotion and Demotion. However, once the position of the employee is changed then the required amendments shall be made in the Employment Contract.[1]


Employment Contract it very much important because it specifically provides for the offenses which can lead to the termination of employment. Employment Contract also helps both the parties because it helps the employee to know about the specific activities required to be avoided and non-avoidance of such activities may lead to a breach of the Contract.

This provision is important because it reduces the chances of an employee breaching the terms of employment. However, the labour law consultant of such jurisdiction must be consulted at the time of formation of Contract to ensure that there is no contradiction between the terms of the employment and the labour law of such jurisdiction.

Dispute Resolution

One of the most important benefits of the Employment Contract is that it provides for the pre-determined procedure for the Dispute Resolution which further helps in reducing the wastage of time and the courtroom expenses, which the parties are generally not able to afford.[2]

Even though the Contract reduces the expenses in resolving the dispute by providing for alternate dispute resolution but appeals from arbitration decisions are expensive. However, some jurisdictions specially instituted the employment dispute resolution tribunals and the resolution clause becomes not necessary.

Non-Competition Covenants

Another important benefit is that it provides security to the confidential information of the company by providing power to the employer to insert a clause in the contract which prevents the release of information. Also, some employer may prohibit their employers from working with their competitors but the legality of such clause differs in each jurisdiction.

Things to be kept in mind while drafting an Employment Contract

Some of the important things which must be kept in mind at the time of drafting an Employment Contract are as follows:

  1. Determination of purpose of hiring: The one of the most basic thing which must be kept in mind at the initial stage of drafting an Employment Contract is to determine the requirement of hiring an employee for the job. Some of the most common reasons for hiring a new employee for the jobs are expanding business, non-availability of enough staff to perform long term tasks or the organization needs a temporary employee for filling the position of someone on maternity or paternity leave.
  1. Identifying of Needs: The next important step is to identify the needs of the Corporation. This identification process can be initiated with the help of introspection and looking at the objective and vision of the Company or Corporation. Analysis of the data and the workflows which determine the efficiency and profitability of the Staff.
  1. Prepare a Job Description: The Job Description in terms of the process of making an Employment Contract means an in-depth explanation about the position for which an employee is required to be hired. The advantage of preparing a job description that it provides a good idea about what skills are required in the applicants for position identified by the Company. Some of the main things which must be included in the job description are job title, day-to-day responsibilities, skills required, educational requirements, wage rates as well as the hours or schedule.
  1. Documentation of Policies: Another important thing that must be kept in mind at the time of drafting an Employment Contract is that the company needs written policies and procedures that coalesce workplace guidelines, rules laid out by the government, and the principles of the overall business. The policy of each company depends upon its own business model. It is important to complete four simple tasks for making the employee agreement competent, which are: i) preparation of policy statement guidelines; ii) drafting of welcome kit; iii) writing of organizational and policy manuals and iv) composition of a safety policy statement.
  1. Identification of Proprietary Information: These types of information are not generally available to the public which includes patents, trade secrets, or some other financial data. These types of information are solely available to the company only. In case the new employee is going to work with this data then it becomes important for the individual and the company by making a list that identifies what this information may be.

Some of the common examples of the information are secret formulas, production methods, marketing processes, salary structures, client lists, details of the contract, etc. Legal Specialists do not recommend drafting a separate Non-Disclosure Agreement (NDA). The NDA document outlines what the employee can do with this information and what repercussions could happen should they violate the agreement.[3]

  1. Consult with an Employment Lawyer: The last component which must be kept in mind is that unless the company possesses an in-house attorney, the company aims at hiring a new employee should consult and take the services of a lawyer with specialization in the employment law or labor law. Investing money is a worthwhile investment because the opinion of a lawyer about the terms, words, and structure of the contract is really important because of the reasons explained in the previous chapter of the Article.

These are the following components which must be kept in mind at the time of drafting the Employment Contract:

  • Title of Contract: Whenever a company aims at drafting an Employment Contract, the company should begin with providing a title to the Employment Contract. The title of the Employment Contract does not need to explain anything about the terms and conditions of the Contract. Generally the title ‘Employment Contract’ is considered sufficient.
  • State the Parties: It is very much important that the name and identity of the parties to the Contract should be mentioned in the Contract. Generally, in the case of Employment Contract, the parties will be the name of the Company and the name of the Employee. Also, the location of the Company must be specifically stated in the Contract.
  • List Terms and Conditions: One of the most important thing which must be kept in mind at the time of drafting an Employment Contract are the terms and conditions of the contract. Generally, the minimum required terms and conditions are provided by the federal or local government which basically involves salary, hours of employment, and the severance packages. The terms and conditions other than the basic labor laws include the other job responsibilities, the specified tasks to be performed, dress code, benefits, and leaves, etc.
  • Outline Position Duties: It must be kept in mind that the employee should not be surprised by any new responsibility or work and the employer is getting what needs to be done. For ensuring these things, it is important to write an outline of the duties of the person applying for such a position. A comprehensive list should be prepared with the Employment Contract for providing clarity about the responsibilities associated with the position.
  • Be Clear on Compensation: The compensation aspect of your contract must be clear and direct. This way, there will not be any confusion or confrontation regarding the employee’s first or second paycheque.
  • Add Other Clauses: Depending upon the Company and the type of business, the company may consider adding other clauses in the contract which includes, i) Non-Solicitation Clause- which bans the employees from soliciting the customers from any specific geographical area and employees from leaving the country; ii) Privacy- this clause provides that the employee should have not expectations of privacy in the employer-issued devices; iii) Probationary Clause- this clause provides the power to an employer to remove an employee within a specific period of time and other terms as well.
  • Use These Contract Terms: Some of the terms should be included by the employer in the Employment Contract which includes the effective date, type of employment, termination, notice, dispute process, severability, and the applicable law.

After the Company has completed drafting the Employment Contract it is important to consult an attorney to thoroughly review the contract. This way can surprisingly lower the chances of facing litigation over the issue which may arise out of the contract. The Employment Contract should include Boilerplate text which is the standardized language and can be found in different legal documents. The legal document should be combined with the previous oral or written discussions that took place between the parties.

Legal Validity and Conclusion

According to Indian Law, the employment contract with the negative covenant is valid and enforceable under the law if the parties have given their free consent to the contract. The meaning of free consent means consent free from undue influence, fraud, coercion, mistake, or misrepresentation.[4] The Indian Courts through their various decisions have held that in case of breach of contract by the employee, the employer will be entitled to recover the damages caused to him due to the expenditure borne by him.

Consent is said to be free when it is not caused by— (1) coercion, or (2) undue influence, or (3) fraud, or (4) misrepresentation, or (5) mistake. Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation, or mistake.[5] Coercion, Undue Influence, Fraud, and Misrepresentation have been defined under sections 15, 16, 17, and 18 of the Indian Contract Act 1872 respectively.

One more important factor which may raise a question about the legality of the Contract is the Unconscionability of the Contract i.e., the terms of the contract must not be such that it may prejudicially affect the rights and interests of one of the parties to the contract. Also, it is important for an employment contract to be considered valid that both parties should in a position to negotiate about the terms and conditions of the contract.

Reasonability is also a necessity for making the employment contract valid under Indian Law. The meaning of the word Is not defined anywhere under the Indian Law with regard to the Employment Contract and the courts have given meaning to this term in various cases depending upon the facts and circumstances of each case.

Another thing which can raise a question on the legality of the contract under the Indian Law is the exorbitant compulsory employment period.[6]

Once the Employment Contract is finalized between the employee and the employer then it is necessary for both the parties to carefully read over the terms of the contract.

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[1] David Carnes, ‘Why it is important to have Employment Contracts?’, Biz Fluent (26th September 2017).

[2] ibid.

[3] Andrew Moran, ‘How to Write an Employment Contract’, Career Addict (26th September 2019).

[4] Indian Contract Act 1987, section 14.

[5] Indian Contract Act 1987, section 14.

[6] Amartya Bag, ‘Are employment bonds legal in India or not?’, I Pleaders (2nd December 2014).

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Updated On 15 Oct 2021 9:22 AM GMT
Mitul Singh Thakur

Mitul Singh Thakur

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