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Appointment Letter and Employment Agreement


An appointment letter is a formal document that is sent by a company to a candidate who has been selected for a job position. It confirms the candidate's employment and outlines the basic terms and conditions of the job offer, such as the job title, salary, and start date. An appointment letter is a legally binding contract.

 

An employment agreement or a contract, on the other hand, is a legally binding contract between an employer and an employee. It outlines all of the terms and conditions of employment, including the employee's job title, salary, benefits, and termination rights. Employment agreements are typically more detailed and comprehensive than appointment letters.


Appointment letters are more common than employment agreements, especially for entry-level positions. Employment agreements are more common for senior-level positions, positions in regulated industries, and positions that involve sensitive information.

An Appointment letter / employment contract is:

A non-binding agreement.
 Just a form of communication.
A checklist for HR departments.
A legally binding contract.



Important Terms in an Employment Agreement

Following are the few important terms in an Employment agreement:


1. Parties:

An employment agreement is a contract between an employer and an employee. Both parties must sign the agreement for it to be valid.

 

2. Effective Date:

The effective date of an employment agreement is the date on which the agreement becomes legally binding on both parties. 

 

3. Work Timings & Location:

Employment agreements should clearly state the employee's work hours and office hours. Employers should clearly state the employee's primary office or work location in the employment agreement.


4. Employee’s roles and responsibilities

An employment contract does more than just specify the employee's compensation. It also outlines their roles and responsibilities. This is one of the most important clauses in an employment contract, as it protects the interests of both the employee and the employer in the event of any future disputes.


5. Probationary Period: 

A probationary period is a trial period at the beginning of an employment contract that allows both the employer and the employee to assess whether the candidate and the job is a good fit or not. Probationary periods typically last for 3-6 months, but the exact duration can vary depending on the employer's HR policies. During the probationary period, either party can terminate the contract with written notice which is generally a shorter notice period. After the probation period, the employers confirms the full time employment.

Example:

Employee’s probation period shall be <number> months, starting from the first day of employment. In the event that Employee fails to pass the probation period, Company may terminate this Agreement immediately by giving a notice to the Employee.


6. Leave Policy:

Employment contracts typically outline the basic leave policy, such as the different types of paid and unpaid leave available, sick leave, and yearly leave. The details of the leave policy are generally covered in more detail in the company's HR policies.

 

7. Notice Period:

Employment contracts typically include a notice period clause, which requires both the employer and employee to give notice before terminating the contract. The notice period gives the other party time to prepare for the employee's departure or find a replacement. Notice periods can vary from company to company, but they typically last for 30-90 days. 

Failing to adhere to this can be seen as a breach of contract, allowing the employer to take legal action against the departing employee. Further, Employees may be required to pay a financial penalty for not adhering to the notice period. This could involve forfeiting a portion of their salary or benefits. Also note that, practically, on mutual consent, the notice period can also be squeezed or reduced which may not be considered as a breach of contract.


Example:

While on probation, this appointment may be terminated by either side by giving one months’ notice, or one months’ salary in lieu of notice period.

After the confirmation, this appointment may be terminated by either side by giving three months’ notice or three months’ salary in lieu of notice period.

Should you resign after confirmation, the Company will have the option to accept your resignation either with immediate effect, and pay you three months'’ salary in lieu of notice period or accept it effective any day up to the end of the notice period and pay you salary for the remaining period from the acceptance of resignation till the end of the notice period. 

 

8. Non-Solicitation and Non-compete

Non-compete and non-solicitation clauses are used by employers to prevent employees from competing with the company or soliciting the company's customers or employees for a certain period of time after employment. These clauses are becoming increasingly popular in India due to increased competition, but their legal enforceability has been questioned.

 

9. Remuneration:

The employment contract must specify the employee's gross salary and a breakdown of their total compensation, including any additional benefits such as allowances or bonuses. The parties must also agree on the payment method.


10. Confidentiality

Employment contracts typically include a confidentiality clause to protect the employer's confidential information, such as records, databases, and trade secrets. Some employers may also require employees to sign a separate non-disclosure agreement (NDA), especially if the employee will have access to highly sensitive information. 


Example:

You will not, at any time, without the consent of the Company disclose or divulge or make public except under legal obligation, any information regarding Company’s affairs of administration or research carried out, whether the same may be confided to you or become known to you, in the course of your service or otherwise.

11. Intellectual property (IP) rights

Employment contracts typically include an intellectual property clause to clarify the ownership rights of any intellectual property created by the employee during their employment. Generally, all intellectual property rights are owned by the employer, but this can be negotiated between the parties.


IP includes Trademarks, patents and copyrights. For example, a Tech employee may have created a software or a product for the company while in employment, while leaving the company, he or she cannot claim that the software or the product belongs to them. Its a company property.

 

12. Termination:

Employment contracts typically include a termination clause that outlines the grounds on which either party can terminate the contract. This clause is important because it protects the interests of both the employer and the employee by clarifying the expectations and consequences of termination.


Example:

During the initial 6 months of employment i.e. probation period, the Company will have the ability to terminate your employment without any notice or payment in lieu thereof. However, employee may terminate this agreement by giving 30 days notice period.
After the completion of six months, the Employee or /the Company shall have a right to terminate the employment giving 60 days’ notice or payment in lieu thereof.

13. Dispute Resolution

Employment contacts typically include a dispute resolution clause, often referred to as an arbitration clause. This clause outlines the steps that the parties must take to resolve any disputes arising out of the employment contract, such as mediation or arbitration.


It is important to note that these are just some of the clauses that you may want to include in your contract. The specific clauses that you include will vary depending on the specific needs of your organization. It is therefore advisable to consult with an employment lawyer to develop a employment contract that is tailored to your specific needs.
It is also important to note that the enforceability of these clauses may vary depending on the laws of the jurisdiction where the employment contract is signed.

 

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Issue of Appointment Letter or Employment Agreement

To ensure accuracy and compliance with company policies and labor laws, the appointment letter/Employment Agreement should be reviewed and approved by relevant stakeholders, such as HR, legal, finance and the hiring manager.


Ideally, these should be printed on a Company Letter Head and issued to the employee. It is advisable to create two copies, one for the Employee and another for the employer for the company's record.


Signature of Both Parties is vital element of the Employment agreement, By signing both the parties give consent for acceptance of the terms and condition of employment agreement. By signing the documents both parties will be liable for outcomes of the agreement in case of breach of agreement. One may also consider paying the relevant stamp duty applicable on the employment contract.


Section 17 of the Indian Stamp Act, 1899 states that “All instruments chargeable with duty and executed by any person in India shall be stamped before or at the time of execution” and Section 2(14) of the same act defines “Instrument” as “every document by which any right or liability is, or purports to be, created, transferred, limited, extended, extinguished or recorded”. Thus, going by the provisions of the Indian Stamp Act, 1899 it can be concluded that it will be legally favorable to choose to pay a right amount of Stamp Duty, which differs from state to state, on Employment Agreement to maintain its legal validity.




What is a probationary period?

A trial period at the beginning of an employment contract that allows both the employer and the employee to assess whether the job is a good fit.
A period of time during which the employee is not eligible for any benefits.
A period of time during which the employee is not subject to the terms of the employment agreement.
A period of time during which the employee is required to complete additional training.

What is a notice period?

The period of time that the employer or the employee must give notice before terminating their employment.
The period of time that a third party must give notice to the company.
The period of time that the employee is required to work after the effective date of termination.
The period of time that the employer is required to pay the employee after the effective date of termination.

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