Insights from Around the Globe: Key Elements in Indian Employment Contracts

Interlegal Permanent Officer

Interlegal Permanent Officer


In our quest to understand the intricacies of employment contracts in various jurisdictions, we reached out to professionals across the globe. Our Indian member, Sheena Ogra from Ahlawat & Associates, emphasizes the importance of well-crafted employment contracts in India, outlines crucial clauses, and focuses on clarity in terms of employment duration, termination conditions, and governing law.

In India, labour and employment laws are governed by both central as well as the state legislations. In addition to the rights and obligations stipulated under the applicable laws in India, inter-se rights between the employer and the employee are also governed contractually. As a result, having well drafted employment contracts are crucial for safeguarding the interests of each party to the contract.

In this article we will be enumerating some of the common clauses that are typically included in an employment contract:

  1. Place of Work: It provides jurisdictional clarity to both the employer and the employee and outlines the benefits and obligations if relocation of employee becomes necessary due to business requirements.
  2. Designation and Roles and Responsibilities: It forms a basis for performance evaluation of the employees and allows for effective communication and accountability between the employer and the employee.
  3. Probation: The state specific employment laws in India do not explicitly define the term probation, however, the state laws do indirectly provide probation to be a period where no prior written notice is required for termination of employment. This period usually ranges from 3(three) to 6(six) months. Companies usually keep a probation period to assess the performance of an employee and it also allows the employees to decide whether they want to grow within the organization.   
  4. Remuneration and Benefits: This provision protects the interests of both the employer and the employee as in some instances the benefits being provided to the employee by the employer are linked to the achievement of certain targets by the employee. From an employee’s point of view, it allows them a clear understanding of their salary structure and how and when they would receive those payments.
  5. Working Hours and Leaves: Providing clarity on leave entitlements and work timings is essential to protect the interests of both the parties. Moreover, the applicable state laws in India allow for contractually agreed benefits to prevail in case they are better than those provided under the state laws.
  6. Confidential Information: During the course of employment, employees have access to confidential information about the company. Therefore, to restrict the employees from disseminating the confidential information to any unauthorized parties, such restrictive covenants are of paramount importance.   
  7. Data Protection: With compliances on data protection becoming critical for organizations, inclusion of such a provision is crucial to mitigate legal risks, and safeguard both the employer and the employee interests.
  8. Intellectual Property Rights: With respect to intellectual property including inventions, designs, and software, etc, created during employment, inclusion of this provision provides clarity and reduces ambiguity in terms of ownership rights.
  9. Representations and Warranties: The said provision safeguards the employer by ensuring that the employee provides accurate information and agrees not to engage in activities which may tarnish the reputation of the company. In case the information furnished is false, the employer has legal grounds to terminate the employee and seek appropriate remedies in the court of law.
  10. Term: It provides clarity to both the employer and the employee about the duration of the employment, whether it’s a fixed term or an open-ended employment.
  11. Termination: Indian law does not recognize “at-will employment”. The termination clause outlines conditions for contract termination with requisite notice periods to be served and provides for immediate termination for gross misconduct or violation of company policies. This provides employees with time to secure new jobs and enables employers to find replacements seamlessly, ensuring uninterrupted workflow.
  12. Governing Law and Jurisdiction: It is essential to outline this provision to avoid any ambiguity or conflict at the time of dispute with respect to applicability of laws and jurisdiction.

To conclude, a well drafted employment contract is essential to avoid disputes arising due to ambiguity and may also include restrictive covenants such as non-compete and non-solicitation to further clarify the rights and obligations of each party.

The insight shared by our Indian member allows us to gain a greater understanding of the importance of an effective employment contract which not only ensures compliance with legal requirements, but also prevents conflict, and provides clarity regarding workplace rights and obligations.

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