Updated: Jul 15
Do you have that quintessential employment agreement prepared and signed with your employees? Are your employment contracts in place? Do you have all the contractual clauses which are required to protect your business in place? As a startup founder, finding time to draft or review employment contracts, may not be an easy task. With pitches to be made to investors, client-meetings and a company to run, tasks such as having employment agreements with all your employees may have taken a backseat. Utilize these 21 days, to ensure that you have a standard employment agreement template in place, which you sign with all your employees. Most startups function on offer letters. Offer letters capture very basic terms, whereas an employment agreement is a detailed contract with all protections built in. For instance, clauses such as confidentiality, IP protection, termination (especially for misconduct) etc. protect an employer against any misgiving of the employee. Let us look at the important clauses (from an employer’s perspective) that need to put in an employment agreement:
Description of work/Duties of an employee
It is important to highlight a general description of the work that the employee would be expected to perform in the employment agreement. This is because, application of labour laws in India, depend upon an employee being classified as a workman or a non-workman, which is typically ascertained based on the role being performed by the employee.
Intellectual property protection
Intellectual property of the company needs to be protected and a clause specific to the same, needs to be included in the employment agreement. Typically, such a clause would state that all work produced in the course of employment by the employee would be the intellectual property of the employer.
Though, a separate Non-Disclosure Agreement or an NDA may be signed with the employee in order to maintain confidentiality of information he/she accesses during their employment, a confidentiality clause in the employment agreement provides additional protection against unauthorized disclosure of confidential information. Make sure, to define all information which the employee accesses (written and oral) as confidential.
A non-compete clause prevents an employee of yours to join a competitor after he/she leaves your company for a stipulated period of time. Please note, that such a clause is very difficult to enforce. However, if your employee was in a position where he had access to certain proprietary information, you may be able to enforce the clause. Also, if the employee is working on a fixed term basis and leaves before the duration of the employment is over to join a competitor, this clause may be enforced for the rest of the balance term. For example, if A has a one-year employment contract with you and he leaves after 8 months to join your competitor, you can enforce this clause and prevent him from doing so for the remaining 4 months, but not post that.
Non-solicitation clause on the other hand prevents an ex-employee from soliciting the current employees or clients of the company. Its enforceability has depended largely on the facts of the case. However, the generally accepted rule as held in the case of Embee Software is that if the solicitation takes such an active form that it induces the company’s customers to break their existing contracts or prevents them from entering into contracts with the company, then such solicitation would not be permitted.
Appraisals, leaves and working conditions
An employment agreement typically makes an employee subject to the employee policies or employee handbook of the company. Appraisals, leaves and working conditions such as timings, working days etc. are all mentioned in the employee handbook. Please note that, leaves should additionally be subject to the relevant applicable law.
Having a well-drafted termination clause is of prime importance. The clause should include two types of termination:
Termination without cause: Termination without assigning any reason with a prior notice period is something which may be included here.
Termination with cause: Termination with cause includes all those cases, where the employee is fired on account of some misconduct on his part. An enquiry should be held before such termination. There is no need for a notice period.
Please note, that an employee and a consultant are different. A consultant is typically not covered under labour laws and instead of an employment agreement, a consultancy agreement should be signed with them. Such consultancy agreement should clearly state that no employer-employee relationship is being established between the company and the consultant.
An employment agreement can be both physically and e-signed. You can also send a reviewed and drafted employment agreement for signing by your employees and get this work done during the lockdown.