How an employment agreement would come to the rescue in times of legal tussles with employees

How an employment agreement would come to the rescue in times of legal tussles with employees

Wednesday April 13, 2016,

5 min Read

The real assets of any company or firm, be it a startup or a well-established one, are its employees, and therefore it is extremely important for every company to have a professionally drafted 'Employment Agreement' signed with its employees, because it is this agreement which clearly stipulates and documents all the terms of employment and the rights and liabilities of both parties and is considered an enforceable contract by the Indian courts.


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  • The disputes occurring between the company and its employees can be broadly classified into three categories:
  1. Pre-joining – This occurs when employees accept the offer letter and employment agreement but then refuse to join employment and report for work for any reason whatsoever. This scenario leads to undue hardship and loss to the company which spent time and resources in conducting interviews, selecting the right candidate and planning its future work allotment based on this candidate accepting its employment offer.
  2. During the course of employment – These disputes occur during the time the employee is actually employed with the company. These disputes basically arise due to a mismatch of expectations of responsibilities and rights from either the company or its employees or both.

Example 1: The company may consider it within its right to transfer its employees to any location or to send them for any outstation conferences or work. However, the employee may resist this and refuse these. In such a scenario it is the employment agreement that plays the all-important role, because it must contain a well-drafted specific clause allowing the company to transfer its employees to any location or to ask them to travel anywhere in relation to the company’s work.

Example 2: Companies often face the problem of employees suddenly terminating their employment and setting up a rival business in the same geographical area. Companies can protect themselves against this situation by having a professionally drafted employment agreement in place which has a specific clause that restricts the employee from setting up or having any interests in any business competing with the company, so long as the restrictions are reasonable by way of geographical and time parameters as held by the courts of India.

  1. Termination of Employment – These disputes occur when either the company or employee wants to terminate the employment. The most common problem that companies face is employees absconding from work without serving any notice period. This jeopardises the entire work schedule and project deadlines of the company and sets a bad precedent for other employees in future. Therefore, it is important to have a professionally drafted employment agreement which clearly stipulates the notice period or a definite amount of money to be paid in lieu of the same. Moreover, the agreement should clearly stipulate the procedure and terms of termination of employment by either party.
  • Remedies available to the company in case of breach of the employment agreement by the employee:
  1. Sue for specific performance of the contract – This mean the company can take the employee to court and file a suit for getting the employee to perform his specific obligations under the contract. This is usually done when the damage caused by the breach is such that it cannot be rectified by monetary compensation.
  2. Sue for damages – This means the company can take the employee to court and file a suit for getting the employee to pay money to the company in lieu of the damage caused by the breach of contract by the employee. In case a mutually-agreed specific amount was mentioned in the agreement then it would be liquidated damages. If there was no such specific amount specified in the agreement, then the damages would need to be ascertained in line with proper valuation and procedures and must be seen as reasonable by the court.
  • A professionally well-drafted employment agreement therefore serves three major purposes:
  1. It may ensure that both the employer as well as the employee are clear on the terms of employment, to prevent major disputes between them.
  2. Even if a dispute occurs, this agreement serves to resolve the dispute because all terms of employment are clearly mentioned in it.
  3. Finally, in the worst case scenario, if the unsolved dispute reaches the court, then this agreement ensures a clear solution because all terms of employment are clearly documented in writing and are applicable to both parties so far as it holds up to the prevailing laws.

To conclude, we can authoritively state that the absence of a well drafted employment agreement can lead to messy legal issues later on. In India, most companies lack awareness regarding the importance of this agreement and dangerously function either without a written one or with a poorly drafted agreement. This eventually, in many cases, propels them to disputes with their employees that quite often land up at the courtroom. Therefore, a professionally-drafted employment agreement is a must-have for every company right from the start.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)