5 Must have in employment agreement
Employment agreement, most commonly known as appointment / contract letter is an important document which sets the rule of employment between Company and Employee. It is important from either party perspective to have clear and adequate clause in the letter. Employment agreement could be referred in future for many reasons. It is referred at the time of employee separation, termination, breach of any important clause, transfer, notice period etc.
Hence, employer should ensure that appointment letter consists of all required employment related clauses to avoid future trouble. Employee should also read the employment agreement carefully before signing. Employee should clarify doubts before signing.
Although, an appointment / contract letter consists of many clauses depending upon industry and company but below are 5 clauses which are key element of an employment agreement.
COMPENSATION OFFERED
NOTICE PERIOD
TERMINATION / DISMISSAL
CONFIDENTIALITY CLAUSE
DEPUTE RE-DRESSAL
You can download various sample format copy of contract letters by searching on our HR Forum. www.hrsuccesstalk.com/forum.
COMPENSATION OFFERED
Compensation is an important part of employment hence it should be clearly stated. It is better to have an annexure which describe each component like Gross salary, In-Hand, Company contributions, reimbursements and performance linked incentive/ bonus.
There should be a mention of special terms and conditions wherever required. E.g. If Medical reimbursement is to be paid on quarterly basis or performance bonus on annual basis depending upon company profitability then it should be clearly mentioned in the letter.
Don’t forget to mention about insurance schemes taken for employee benefits in the letter.
NOTICE PERIOD
Notice period is the duration to be served by either party before separation or exiting out of employment. Notice period for either party should be same and cannot be different. Employee and employer should give same number of days as notice period in case of separation.
In some agreements, employer keeps lesser number of days while asking a person to leave wherein employee needs to serve more number of days while resigning from the company. In case notice period duration during probation period is different, then it should be mentioned in the agreement.
Sample draft of this clause is as below:
“Your services may be terminated at any time by either side during the period of probation by giving notice period of 30 days or payment in lieu thereof. After confirmation, your services can be terminated by either side by giving, to the other party 90 days notice or payment in lieu thereof. Notice period payment will be calculated on gross salary.
On account of your resignation, the company reserves the sole right to advise you on whether or not to serve the applicable notice period. In case company allows to you, not to serve notice period then neither you nor company will be required to pay any amount on account of notice period. You can be relieved immediately with company discretion.
You agree that the Company shall not be obliged to entertain any forthwith resignation with notice period payment in lieu of notice. In case the Company deems it necessary, you agree without reservation to serve out your written notice period in full.
In case you tender your resignation with immediate effect and choose not to serve out the notice period even when the Company deems it necessary, the Company shall be entitled to claim penal and consequential damages due to your sudden absence as well as notice period payment from you, in addition to actual damages caused on account of your sudden withdrawal from reporting to office.
In all cases, it shall be mandatory for you to give a proper handover to the designated person / officers of the Company within the period of completion of your notice of resignation, failing which the Company shall be entitled to institute proceedings as per law.”
TERMINATION / DISMISSAL
This section of contract specifies various situation in which employee can be asked to leave without any notice period. Such conditions are as below.
“The company shall have the right to terminate your services without any notice and / or compensation in the following situations:
Major misconduct or disobedience of written instructions given by the reporting officer or higher management., Breach of company’s policy, Breach of security, Unsatisfactory performance, Misrepresentation or giving false statements about personal/professional background or suppression of relevant facts during the selection process or at the time of joining, Involvement in criminal offence, Involvement to breach any policy, Violation of the terms of employment and undertaking given at the time of joining or thereafter, or violation of the service agreement, Medically or mentally unfit, Loss of confidence, Abetting or inciting
Others to disobedience or misconduct, Conflict of interests with Company’s business interests, Five days of unapproved or uninformed absenteeism from duty.”
CONFIDENTIALITY CLAUSE
In today’s world where employees have access to company important information in digital form, confidentiality clause in employment agreement is the first step to prevent the theft. Employee should be aware that company vital information cannot be shared outside. Employee should seek permission from management before doing so.
Employee should also be educated about the same on the day of joining. Rather, I would suggest that separate detailed confidentiality agreement should be signed by employee.
Sample draft of confidentiality clause is as below:
“You shall always maintain a high standard degree of secrecy and keep as confidential the records, documents and such other information relating to the business of the Company which may be known to you or confided in you by any means and shall use the same only in a duly authorized manner in the interest of the company. You shall not divulge any information, secret, formula, correspondence, agreement or working procedures relating to the business of the Company to any unauthorized person connected or unconnected with the Company and shall not remove the copies for immediate or future use to any other place.”
DEPUTE RE DRESSAL
It is one of section which is mostly ignored while drafting the agreement. The jurisdiction clause is important from employee perspective. Normally, companies keep their company location for jurisdiction in case of any dispute.
Sample draft of this clause is as below:
In case of any dispute with respect to this contract or with respect to anything done or omitted to be done by you under this contract, the same shall be exclusively tried and adjudicated upon by the courts in New Delhi, India. The jurisdiction of all other courts is hereby expressly barred.
Readers-Please do share your views on any other important point which you think should be there in employment agreement.