Employment Agreements and Appointment Letters – Why Terms of Service Are Best Down in Black and White

We are writing this article to elaborate, both to the employer and the employee, the need under Indian laws to have an employment agreement in writing at their workplaces.

At the outset, it is important to understand that Indian laws specifically take care of the interests of one section of the employees, viz. the ‘workmen’. A workman has been defined under the Industrial Disputes Act, 1947 as any employee who carries out:

  • Skilled;
  • Unskilled;
  • Operational;
  • Manual;
  • Clerical; or,
  • Supervisory work; however, persons performing supervisory work and either (i) earning above INR 10,000 per month, or (ii) exercising functions mainly of a managerial nature do not fall within the category of a workman.

Most labour laws in India are workman-centric and concentrate on governing the basic terms and conditions of their employment, including terms of their dismissal and disciplinary proceedings. However, it is always a good idea to incorporate these and certain additional terms, if necessary, in a written appointment letter or employment issued to such an employee.

Since sufficient laws are in place protecting the rights of a workman, care needs to be taken by the employer in ensuring that the terms stated in the appointment letter do not conflict with the provisions of law while preparing the appointment letter/employment agreement for the Workmen. For example it may be relevant to note that a termination simplicitor (termination of employment by issuing a written notice without assigning any reasons) cannot be enforced against a workman under certain circumstances.

All other employees fall, by default, in a category commonly referred to as the ‘managerial category’. The terms of their employment (including appointment, remuneration, dismissal and other obligations of both parties) are, not being specifically detailed under law, contractual in nature and it is therefore vital that they be detailed out in a separate agreement between the employer and employee in as comprehensive a manner as possible.

In light of the fact that Indian law permits a great degree of freedom to contracting parties to agree on the terms of their relationship and considering that Indian courts are required to interpret contracts during litigation in case terms are not detailed, it is of utmost importance for the employer as well as the employee (whether a workman or a manager) to record the terms of the employee’s service in writing. The parties must also ensure that the terms of the contract do not contradict the provisions of any law.

Another reason for recommending that such a document be executed between the employer and the employee is to ensure that both the parties at the time of appointment (and thereafter) are clearly aware of the rights, obligations and liabilities that each party is exposed  to vis-a-vis the other party as long as such a relationship subsists. A written contract has thus the advantage of certainty and a detailed contract can be instrumental in avoiding ambiguity between the parties, avoiding the incidence of conflict in the relationship of employment.

Further, there is a statutory obligation on the employer under various Shops and Commercial Establishment laws of different states in India to issue an appointment letter or an employment agreement to its employees, clearly detailing out the terms and conditions on which the employee will be employed in the company.

Accordingly, it is in the best interests of both the employer and the employee that a document which comprehensively details the terms and conditions of the employee’s appointment in the Company be executed in writing between them.

Disclaimer: As already stated above this article is aimed at bringing to the notice of the readers the importance of entering into employment agreements. The above information / suggestions / guidelines / tips are generic in nature and should not be acted upon unless a professionally qualified legal consultant has examined the requirements of the relationship and has advised that some of the above terms may be made applicable to a proposed relationship of employment.

 Further we shall not be held responsible or liable for any losses or damages (direct, indirect, punitive, incidental, special, consequential damages or any damages whatsoever including, without limitation, damages for loss of use, data or profits and irrespective of whether it is based on contract, tort, negligence, strict liability or otherwise, even if we have been advised of the possibility of damages) caused to any person or entity on account of such person or entity acting upon the information provided in this article without seeking the advice of a professional legal consultant. The information provided is “as is,” and “as available”.

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