Dec 24,2018 | 12 min read

Essentials of a contract of employment from the perspective of an employer

Essentials of a contract of employment from the perspective of an employer

A contract of employment is a type of contract, which determines the rights, and liabilities of an employee, it therefore creates a legal obligation. These rights and liabilities are vital towards a harmonious employer-employee relationship. Employees are conferred a right to an elaborative description in writing, listing their entitlements and compensation. Compensation can include anything from Salary, bonuses, benefits, vacation days, housing allowance and provident fund. Therefore an employment contract should set out the exact details as to the terms and condition in order for the employee to get a clear gist regarding the employment. 

Some examples of recurring uses of terms that are commonly included in an employment contract are listed as follows:

  • Date of Appointment (Acceptance of employment, office/ location of employment)
  • Probation (a period where the skills of the employee are tested before his employment is confirmed)
  • Term/ Tenure.
  • Job description/ Responsibilities.
  • Monetary compensation (basic pay, added incentives, provident fund, gratuity).
  • Any deductions if included.
  • Clause for termination without cause, resignation, termination for cause).
  • In case of demise or disability occur during employment.
  • Clause mandating the number of hours of work required.
  • Whether a non-disclosure agreement is necessary.
  • In a case of dispute, clause containing the law which will apply, territorial jurisdiction and arbitration.

Although there are certain disadvantages of working with an employment contract such as the loss of flexibility within the working arrangement. It can often restrain the ability of either the employer or employee to renegotiate the exiting terms of employment. It also becomes difficult for the employee to change employment during the tenure set forth in the contract. 

However some of the benefits of an employment contract from the perspective of the employer are as follows:

Preventing Termination of employment at will:

From the perspective of the employer, by engaging an employment contract, the employer can retain the best employees by adding certain terms into the contract in order to limit the reasons that an employee from leaving the company. Therefore an employee is required to give a prior notice to the employer for termination of the employment.

Protecting Confidentiality:

Another plus point of having an employment contract is when the company is dealing with secrets or such, when this happens a confidentiality clause will be added into the contract that will prevent employees from disclosing company secrets or client lists. Some employees are required to sign non-disclosure agreements even if it is not mentioned in the employment contract.

Setting work Standards:

An employment contract can also give the employer control over how the employees work. This is done by listing out specific standards that are expected from the employees. Inability to perform such standards can also give the employer the power to terminate the employment thereby maintaining the overall work ethics.

Providing arbitration:

There are certain instances where disputes arise between the employer and employee. A clause for arbitration can save both time and litigation expenses for both parties.

An employment contract is therefore a very important legal document in relation to the initial stages of employment. Both parties i.e. the employer and employee should have a proper understanding about the terms and conditions clear from any ambiguity or doubts.


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Nishant Nigam

Head, Commercial Litigation and Employment Laws, Chamber of Nigam & Nigam