Minimum requirements
The OSH Code mandates the issuance of an appointment letter to all employees, and employers should accordingly take steps to capture all terms and conditions of employment in an employment contract/letter agreed and signed by both parties i.e. the employer and employee. Additionally, certain States have specific legislations that necessitate a written contract in order to establish an employer-employee relationship. Given this, it is strongly recommended that all employment contracts be in writing, whether as a simple appointment letter or a fully detailed contract, setting out relevant terms and conditions agreed to between the employer and employee. Employment contracts are governed by the Contract Act; accordingly, provisions stipulated therein with respect to parties being competent to contract, consideration, and validity, would be applicable to employment contracts as well.
Employment contracts in India are generally considered to be ‘unlimited term’ contracts, (i.e. contracts that are valid until termination or superannuation, unless specifically identified as a ‘fixed term’ contract). Some of the common provisions included in an employment contract are: i) location, description and title of the job; ii) date of commencement, duration (whether fixed term or unlimited term) and type (whether part-time or full-time) of the job; iii) details of any probationary period; iv) leave entitlement; v) salary details and other benefits; vi) terms governing termination of employment; vii) restrictive covenants; and viii) governing law and dispute resolution.
As discussed above, it is important to note that for workers, some employment terms and certain service conditions can only be changed with 21 days’ prior written notice. If any worker challenges the proposed changes before the labour authorities during this period, it is likely that the said change will be suspended, pending resolution of the dispute.
Fixed-term/Open-ended Contracts
Fixed-term employment contracts are permitted in India, as long as the employer is employing the person for a short-term requirement across sectors. In the context of fixed-term employment contracts, the Indian judiciary has consistently held that successive fixed-term contracts cannot be used as a substitute for employing the person on a ‘permanent’ or ‘unlimited term’ basis and that fixed-term employment is not to be used in job roles or functions that are permanent in nature, as far as the particular employer or industry is concerned. Fixed-term employment contracts may be signed directly between the employer and employee. Expiry of a fixed term contract is not considered ‘retrenchment’ under the provisions of the IR Code and consequently compliances pertaining to retrenchment are not applicable.
Fixed-term employment has been provided statutory recognition under the Labour Codes. As per the Social Security Code fixed term employees are entitled to benefits on par with permanent employees and entitled to gratuity upon the completion of 1 year of service.
Probationary Period
Indian law permits new employees to be placed on a trial or ‘probation’ period. Such period is meant to provide employers the opportunity to assess the abilities and suitability of the employee at the organisation; and hence, by definition, allow the employer greater freedom to terminate employment if the employee is found unsuitable during the probation period. Applicable sector-specific model standing orders framed under the IR Code provide for a probation period (up to 6 months). The general market trend in India is to have a probation period ranging between 3 and 5 months, especially in the technology and services sectors.
During the probation period, the employer will usually have the right to terminate employment of the probationary employee without providing any notice; however, this would be subject to the stipulations of the concerned S&E legislation as well. At the end of the probation period, the employee may be ‘confirmed’ as a permanent employee or dismissed. Terms with respect to an employee’s probation period should be adequately captured under their employment contract/appointment letter.
Notice Period
In terms of Indian labour legislation, ‘workers’ who have undertaken at least 1 year of continuous service are entitled to a notice period of 1 month, or equivalent wages in lieu thereof. In addition, the employer would be required to pay ‘retrenchment compensation’ to the worker, which is calculated at the rate of 15 days’ average pay for every completed year of service or any part thereof in excess of 6 months. However, no notice period (or payment in lieu thereof) or payment of retrenchment compensation is required in the case of workers dismissed for misconduct, provided the employer conducts an internal inquiry prior to such dismissal.
Additionally, any notice period prescribed under the relevant S&E Acts, as well any requirements under the relevant employment contract in this regard would have to be taken into account. Given that India does not recognise the employment at-will doctrine, judicial precedents have held that termination of employment without providing any prior notice would render the contract of employment as an ‘unconscionable bargain’, and hence illegal.
