What is an Employment Contract?
An employment contract is an agreement between an employer and an employee that establishes their employment relationship.
A written employment contract lays down the relationship between the employer and employee and sets down a clear description of the relationship between an employer and an employee.
Difference between an Offer Letter and an Employment Contract
A hiring company sends an offer letter to a candidate stating the terms and conditions of their hiring, such as job description and responsibilities, which the candidate should sign as a way of accepting the offer.
An offer letter generally contains basic employment details such as remuneration, job title and job description. It is primarily focused on the terms of hiring, whereas an employment contract stipulates the future course of employment along with detailed employment provisions.
Most importantly, an offer letter does not create an employer-employment relationship but rather is just an offer to a person in writing to join an organisation and is not binding.
As the name suggests, an offer letter is a letter and is accepted at the will of the candidate, whereas an employment contract creates contractual obligations.
An offer letter is generally used for a job title, whereas an employment contract, as mentioned above, develops a contractual relationship. Hence employers can also use employment contracts for freelance contracts, temporary positions, employment limited only for specific projects etc.
Contents of an Employment Contract
- An employment contract starts with the basic details such as the title of the contract, being an employment contract, along with the name and address of the employer and the details of the employee.
Note – Since it’s a contract, it is to be made by mutual consent.
- Details of the company’s business and a statement specifying the company’s wish to employ such the given person as an employee.
- After that comes details of the term of the contract. The contract term specifies the duration of the employment, and the contract is valid for the period mentioned.
- The employee’s duties during the employment term are mentioned. The employee should accept his responsibilities and other terms and conditions mentioned.
- The details of remuneration should be described precisely. The remuneration can be in the form of a salary, fees or a specific amount, along with details of employee benefits such as insurance, fringe benefits, retirement plans, paid holidays etc. The deductions from such remuneration are also to be specified. If an employee is paid on an hourly basis, the amount to be paid per hour.
- A confidentiality clause should be inserted which states that the employee cannot disclose to any outsider the details of the company’s business, such as details of the company’s customers, stakeholders, trade strategies and any confidential information of the company. Employees should acknowledge that violating this provision can lead to termination of employment.
- The employment contract may contain a non-compete clause, which states that the employee cannot engage with any of the employer’s competitors for the period specified upon the termination of employment.
- Details regarding the reimbursement of expenses to the employee. A specification as to which expenses would be allowed as reimbursement and which won’t be. It should specify that the employee can reimburse travel expenses borne by him for the company’s work upon submission of the receipts of the payments.
- The employee should confirm that they are a person competent to a contract and is under no other such contractual obligation that can hamper his work as an employee of the company.
- The contract should state that no changes in the employment agreement shall be made, except in writing and upon mutual consent.
- If a part of this contract is invalid, the rest of it could be acceptable to the best interests of the parties.
- The employment contract should be drafted in line with the Indian Contract Act, 1932 and any other law such as employment laws or labour laws as applicable.
- Both the employer and employee must sign the employment contract along with the date on which they sign it.
As far as the contract is concerned, it is advisable that due care is taken to draft it and should be read carefully before signing. All the clauses should be well-detailed to avoid confusion between the parties.