An employer-employee relationship is established, and the terms and conditions of employment are laid out in a legally binding contract known as an employment agreement. Although the Shops & Establishment Acts (“S&E Acts”) of a few Indian states, including Karnataka, mandate that an employer shall issue an appointment letter, neither the employment agreements nor the issuance of appointment letters is expressly required by the labour laws. Typically, employers will write employment/appointment letters and complete employment contracts that explicitly state the terms and conditions of the employment. Important clauses of an Employment Agreement are as below:
- Roles and Responsibilities
It is important to make sure that the employer and the employee are on the same page with regard to what is expected from the employee. All the roles and responsibilities of the employees shall be expressly defined by the employer and clearly written in the employment agreement.
- Non-Disclosure and Confidentiality of the information
Employment Agreement typically includes a confidentiality clause to protect the employer’s proprietary information from the employee disclosure to or dissemination to third parties without authorization. An employee is required by this clause to take precautions to ensure that the information of the employer is kept confidential and is not disclosed to others, unless doing so is required by applicable law. This provision safeguards the employer’s proprietary and confidential information and prohibits the employee from disclosing such information to any third party. These conditions might also stipulate that employee’s hand over all of their employer’s confidential documents and information when their employment ends.
A prohibition was imposed by the Delhi High Court in Burlington Home Shopping Pvt. Ltd. vs. Rajnish Chibber on the use of the client/customer list on any business, including the mail order business, which was included in the petitioner’s database.[1]
The defendant in Diljeet Titus v. Mr. Alfred A. Adebare and Others was an employee of the plaintiff’s company. The plaintiff’s client list and important confidential business information, including several proprietary drafts, were taken by the defendant after he was fired from his position as an attorney. The defendant argued that because he worked on the specific data while employed, he was the owner of the data and had copyright over it. The Delhi High Court rejected the defendant’s argument and determined that the plaintiff owned the information, which was unlawfully taken from the plaintiff, and which the defendant was prohibited from using. It should be noted that while the defendant was prohibited from using such confidential information, the Delhi High Court did not prevent the defendant from offering a comparable service.[2]
Penalties for confidentiality breaches and unauthorized disclosure are provided by the provisions of the Indian Penal Code, 1860, and the Information Technology Act, 2000. With regard to the employee’s breach of confidentiality and disclosure, employers may also pursue remedies under Sections 66 (hacking), 43 (damaging computer systems), 65 (tampering with computer source documents), and 66E (punishment for violation of privacy policy) of the Information Technology Act, 2000.
- Non-Solicitation
To prevent current or former employees from engaging in any business activities that would be against the interests of the employer, non-solicitation clause is often incorporated into employment agreements. This clause limits and forbids employees from interacting with coworkers or clients/customers of the employer for personal gain, either while they are employed or after they leave their positions. This provision is included to safeguard the employer’s commercial interests.
In the case of Embee Software Private Limited vs. Samir Kumar Shaw the Calcutta High Court ruled that “acts of soliciting committed by former employees take such active form that it induces the customers of the former employer to break their contract with the former employer and enter into a contract with the former employee, or prevents other persons from entering into contracts with the former employer, cannot be permitted”.[3]
- Non-Compete
In an employment contract, a non-compete clause is included to ensure that employees are prohibited from starting competing businesses both while they are employed and after their employment has ended. According to Section 27 of the Indian Contracts Act of 1872, “Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.” Additionally, every citizen of India has the freedom to engage in any profession, trade, or business, according to Article 19 (g) of the Indian Constitution. However, employers typically include this provision in employment contracts to safeguard the company’s trade secrets and confidential information. The question of how restrictions can be imposed on employees after their employment has ended arises because it is widely accepted that employees may be prohibited from starting businesses or engaging in activities that compete with the company’s operations while they are still employed.
The CEO of the company, Mr. Kumar Apurva, was prohibited by the court in Kumar Apurva v. Valuefirst Digital Media Pvt. Ltd. from engaging in any activity that is in competition with the company as well as from soliciting, interfering with, disturbing, or attempting to disturb the relationship between the company or subsidiary and third parties, including any customers or suppliers of the company or subsidiary.[4]
In Ozone Spa Pvt. Ltd. vs. Pure Fitness & Ors., the court barred the defendants from starting, operating, or establishing any rival businesses in any location that is within 4 kilometers of the plaintiff’s premises. However, Section 27 states that all agreements restricting the practice of any profession are void if they are made with the intent to defraud, mislead, or cause irreparable harm to the employer, trade, or business. Therefore, reasonable restrictions are allowed and do not invalidate the contract.[5]
As a result, the employers typically impose reasonable limitations on this clause to ensure the protection of both the company’s and the employee’s interests.
- Term and Termination
The nature of the establishment, its location, and the category of employees, are all relevant considerations when it comes to India’s labor laws regarding termination. The Industrial Disputes Act of 1947 governs the dismissal of employees, and the S&E Acts of the relevant states govern the dismissal of non-employees. The length of the notice period to be given upon termination of employment and the severance payments that would be due to an employee upon termination are set forth in the state-specific S&E Acts.
By tendering his or her resignation, an employee may voluntarily end the Agreement. The clause specifically states the conditions and obligations that must be met by both the employer and the employee upon termination, as well as the length of notice that the employee must provide upon termination. A breach of the terms of the agreement, a false representation, fraud, misconduct, a failure to perform obligations and duties, among other things, may be grounds for such a termination of employment. A domestic investigation using natural justice principles should be conducted before any such termination. The employer will be required to complete a full and final settlement by paying the employee all statutory and contractual obligations.
Conclusion
Given the foregoing, it is advised that employment agreements be made between the employer and the employee and contain clauses outlining the terms and conditions of employment, both for the duration of employment as well as after termination of employment. The roles and responsibilities of the employees are outlined in employment agreements, giving the employees a clear understanding of what is expected of him or her both during the employment relationship and after it has ended. Most importantly, an employment agreement protects the company by including provisions like confidentiality, non-compete, and non-solicitation. These restrictive covenants are crucial in protecting against unauthorized information disclosure, the solicitation of existing employees, and clients, and the establishment of any rival businesses that might harm the employer’s business. Typically, employers will give probationary employees an appointment letter to cover the duration of their employment, and once they are hired permanently, they will enter into an employment agreement with them.
REFERENCES:
[1] 61 (1995) DLT 6.
[2] 2006 (32) PTC 609 (Del).
[3] 2012(3)CHN250.
[4] 2015 SCC Online Del 8360.
[5] 2015 222 DLT 372.
Author: Adyasha Das, Symbiosis Law School, Hyderabad
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