Employment Contract - What Is The Meaning Of Employment Contract And Its Importance
9-11 minutes
An employment contract is an official agreement or term of hire issued by an employer to new candidates hired. This agreement contains the set of terms and conditions of the new employee''s employment.
In this growing employee-centric landscape, employment contracts play a significant role. Terms & conditions, language, requirements, and every other necessary detail included in the employment contract are slowly evolving.
Let''s explore everything necessary about employment contract forms.
What is a Contract of Employment in India?
A contract of employment in India is an agreement between an employer and an employee.
This agreement majorly includes:
- Terms and conditions of the term of employment
- Job responsibilities that the employee has to take care of, including roles and duties
- Compensation regulations involving salary structure, appraisals, and extra perks
- Time and attendance regulations covering the standard working hours, policies on comp-off, holidays, etc.
- Exit policy, including F&F settlement along with conditions of termination
This letter of agreement is provided to all new joiners during the on-boarding process by the HR department.
Why Is an Employment Contract Important? | Employment Contract Benefits
Employee contracts have become the cornerstone of the employee-employer relationship in the present times. Some of the major employment contract benefits are:
Relationship Bridge
This agreement somehow pre-sets the tone of the employee-employer relationship as it helps both parties with ''expectations''—employer-defined obligations, roles, and responsibilities—while employees agree over them, thereby avoiding any confusion during the term of employment.
Dispute Resolution
Since the employment contract stipulates everything related to the employment term, it helps in dispute resolution and establishes a framework to provide a basis for legal discourse in case of breach.
Compliance with Laws
In an era when people want to work in an organization that is successfully fulfilling government''s statutory obligations, employment contracts are a testimony of that mindset. It ensures employees that their organization is statutory compliant and legally sound.
Employee Branding
Employment contracts reflect professionalism in the organization. This agreement promotes accountability, satisfaction, and experience of employees, hence used as employee branding.
Termination Guidelines
Notice period, F&F settlement, terms and conditions of termination, PIP policy, and other details are mentioned in the employment contract. This information is essential for the employee while leaving the organization.
Ready to Use Employee Contract Template
This agreement, made on the ____ day of the month of ____, year 20____, is between [name of company] and [employee''s name] of [city, state]. This document binds an agreement of employment between the two and shall act and be carried out in accordance with the laws of [state or district].
WHEREAS the Employer wishes to obtain the services of the Employee, and the Employee wishes to render such services, these terms and conditions are set forth.
IN WITNESS WHEREOF, the parties hereto have executed this agreement effective as of the day and year first above written.
Position
As a [job title], the Employee is responsible for performing all the essential job functions and duties. At times, the Employer might as well include other duties within the reasonable scope of the Employee''s work.
Compensation
The Employee shall receive a wage of $_______ [per hour/per annum] for services rendered and shall be subject to a[n] [quarterly/annual] performance review. All payments shall be less deducting mandatory employment deductions inclusive of State & Federal Taxes, Social Security, and Medicare.
Benefits
The Employee is eligible to participate in any of the benefit plans provided by the Employer. The Employer has the following benefit plans in effect at the moment [insert benefits here, if any]. The Employee shall have no right to those benefits until the probationary period is served in full.
Probationary Period
Understand that the first ____ of employment is a probationary period. During this time, the Employee shall not be entitled to any paid time off or other benefits. During this period, the Employer also reserves the right to terminate employment at its sole discretion and at any time without advance notice.
Paid Time Off
Upon completion of the probationary period, the Employee shall be entitled to the following paid time off:
- Vacation time [number of vacation days]
- [Number of sick days/personal days]
- An employee can take bereavement leave if needed.
Paid time off policies can be revised at any time at the company''s discretion.
Termination
It is the intention of both parties to form a long and mutually profitable relationship. But this relationship can be terminated by either party at any time provided [length of time] written notice is delivered to the other party.
The Employee agrees to return any Employer property upon termination.
Non-Competition and Confidentiality
As an Employee, you will have access to confidential information that is the property of the Employer. You are not allowed to disclose such information outside the scope of the Company.
During the continuance of the Employment, you will not in any capacity perform work for another Employer that is associated with or is competitive in any way with the Company. You will fully disclose to your Employer any other Employment relationships that you have, and you will be permitted to seek other employment provided that it does not detract from your ability to fulfill your duties and you are not assisting another organization in competing with the employer. It is also hereby acknowledged that should your employment be terminated, you will not solicit any business from any of the Employer''s clients for a minimum period of [time frame].
Entire Agreement
This agreement constitutes the entire understanding between the two parties and any prior written or oral agreement is void against this agreement. This particular agreement may only be modified at any time, provided with the written consent of both the Employer and the Employee.
Legal Authorization
The Employee certifies that he or she is fully legal to work in [country name] and can provide legal documentation for that. This shall be procured by the Employer for legal records.
Severability
The parties hereby agree that in the event any part of this agreement is held to be invalid or unenforceable, the same shall be struck from this record and the remainder of the provisions hereof shall remain in full force and effect.
Jurisdiction
This agreement shall be governed by, construed, and enforced in accordance with the laws of [state, province, or territory].
In witness and accord whereof, the Employer has duly executed this contract by way of authorization by official company agents and with the consent of the Employee, hereby in writing.
Employee Signature
Date
Company Official Signature
Date
When Should You Ask for an Employment Contract?
Typically employees get their employment contracts during the joining. If you never received an employee contract at that time, you can request an employment contract in case of the following:
- Job promotion
- Change in roles and responsibilities
- Legal updates in the organization or by the government
- Post 5 years of experience
- PIP policy
Many times, employees hesitate to ask about a breach of contract. But if you are a genuine HR professional, it''s your responsibility to answer them beforehand.
Two of the questions you should answer to your employees must be:
Can I break my employment contract?
Breaking the employment contract can have certain consequences but employees can breach it in case of:
- Delay in payouts
- Uninformed changes in terms and conditions
- Failure to deliver promised benefits
- Unforeseen conditions such as COVID, or any other emergency conditions
- Short-term employment opportunities
What if I violate the employment contract?
If you repeatedly violate the employment contract without valid reasons such as the completion of the notice period, the delivery of promised compensation, and all the conditions mentioned and to the left, it can cause situations of serious consequences, including:
- Legal implications
- Loss of entitlements
- Delay in Full and Final settlements
- Employment termination
Termination of an employment contract depends on the terms and conditions as defined by employers:
- Duration of contracts
- Legal considerations
- Contractual terms
- Circumstances involved in termination
- Conflict resolution protocol
Summing Up
Employment contracts clearly define roles and responsibilities right from the start of the employment term for employees. It aims to offer stability and ensure the safety of both parties. Though it offers little flexibility, is legally binding, and is subject to change through negotiation, it strengthens the employee-employer relationship.