Labour & Employment

While Indian law does not mandate a written employment agreement for all categories of employees, operating without one is a significant risk. A written agreement establishes the terms of employment including role, compensation, notice period, confidentiality obligations, IP assignment, non-compete and non-solicitation terms, and grounds for termination. Without a written agreement, disputes over terms of employment become a matter of oral evidence, which is expensive and uncertain to litigate. For employees who will have access to confidential information, client relationships, or company IP, a written agreement with protective clauses is essential. We draft employment agreements tailored to the role and the level of access and responsibility.

Post-employment non-compete clauses are generally unenforceable in India. Section 27 of the Indian Contract Act renders void any agreement that restrains a person from exercising a lawful profession, trade, or business. Indian courts have consistently held that post-termination non-compete restrictions are unenforceable, even if they are limited in duration, geography, or scope. However, non-solicitation clauses (restricting the employee from soliciting the employer’s clients or employees) are more likely to be upheld if they are reasonable. During the term of employment, non-compete obligations are enforceable as part of the employment relationship. The practical approach is to rely on strong confidentiality, IP assignment, and non-solicitation clauses rather than non-competes.

Termination obligations depend on the category of the employee. For workmen (as defined under the Industrial Disputes Act, 1947, which is being replaced by the Industrial Relations Code), retrenchment requires one month’s notice or wages in lieu, compensation of 15 days’ wages for every completed year of service, and in establishments with 100 or more workers, prior government permission. For managerial and non-workmen employees, termination is governed primarily by the employment agreement. At a minimum, you must comply with the contractual notice period, settle all dues including accrued leave, gratuity (if applicable under the Payment of Gratuity Act), and any contractual severance. Wrongful termination claims can result in reinstatement, back wages, and damages.

The distinction is critical because it determines the applicability of labour laws, tax obligations, and IP ownership. An employee works under a contract of service, is subject to the employer’s control and supervision, and is entitled to statutory benefits including PF, ESI, gratuity, and leave. An independent contractor works under a contract for services, controls how the work is performed, and is not entitled to employee benefits. The label used in the agreement is not determinative. Courts look at the substance of the relationship, including the degree of control, integration into the business, exclusivity, and economic dependence. Misclassifying an employee as a contractor exposes the company to back-claims for statutory benefits, tax liabilities, and penalties.

An employee handbook consolidates the company’s workplace policies and serves as a reference for both employees and management. At a minimum, it should cover the code of conduct and ethics, leave policy, attendance and working hours, anti-harassment and POSH policy (mandatory under the Sexual Harassment of Women at Workplace Act, 2013), grievance redressal mechanism, disciplinary procedure, IT and acceptable use policy, confidentiality and data handling obligations, social media policy, and separation and exit procedures. The handbook should be acknowledged by each employee in writing. For companies handling personal data, the handbook should also incorporate data protection obligations applicable to employees. We draft handbooks that are legally compliant and operationally practical.