Libertatem Magazine

Contract of Employment: Meaning, Ingredients and Salient Clauses

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Meaning of Contract of Employment 

A contract of Employment is the contract of the employment conditions, entered by the employer and an employee. The agreement can be made orally or in writing and also includes both the express and implied terms. The employer and the employee are free to negotiate and agree on the terms and conditions of the employment, however, the terms and condition should not be violative of any provision of the Employment Ordinance. If there is any provision in the contract, which purports to extinguish or reduce any right, benefit or protection, provided to the employee by the Employment Ordinance, shall be void.

Having said that, the employment contract has implied or express terms, and sometimes not everything is on paper. There are implied terms in the contract, which need to be acted upon in good faith by the employer as well as by the employee. They should honour the provisions of the contract. The employer should not terminate the contract for other reasons. Also, as a matter of fact, the employee also needs to act in good faith. Fidelity means that the employee will serve his employer with all his loyalty. In the contract of employment, the parties are expected to act in good faith and fidelity.

The relationship between employer and employee flows from the collective agreements, rules of right, personal agreements etc. There is a diversity of contents of employment contracts. These contents can be grouped into different kinds of contract such as –

The first type of contract is a hierarchical structure of labour. The important feature of this model is that they are full-time and non-temporary contracts, centring on the trade-off. The impact of such a model on labour was that the concept of ‘contract of employment’, which were taken for the welfare into employment law, diminished the categories of differentiation between workers, between wage earners and salary earners, staff workers and white-collar workers etc.

In labour law, the contract of employment is also known as a bond of subordination which is established between employer and employee. These contracts are subject to standard labour law.

Having said that the contract of employment manages the relationship between employer and employee, work in exchange for consideration is the essential component in the contract of employment.  One of the important principles of free labour in the modern work contract is the idea that the labourer should sell his labour and not himself. The idea has been developed on the ground of distinction between human beings and things. Human beings, by the virtue of the fact that they are human, should be treated with consideration and respect. Thus, to have some dignity towards human nature, it is legitimate to fix the price of labour and not the human himself. When a person agrees to enter into an employment contract, he has the legitimate expectations of having remuneration for his work and is making a commitment to exchange work or his labour in exchange for remuneration.

Before the employment begins the employer must provide the information related to the conditions of employment under which he is needed to perform his work.

  • Wages or remuneration (including the rate of wages, allowances for overtime whether calculated by the piece of job, hour, day, week, or anything otherwise.)
  • Time period
  • Length of notice required for the termination of his contract.
  • If the employee is entitled to end year payment or proportion and payment period.

Traditional Approach in India

In India, there are traditional restrictive covenants in an employment agreement that contain the following provisions

  • Confidentiality agreements, wherein the employees were asked to promise, not to reveal confidential information acquired in the course of employment, after the termination of that employment contract.
  • Non-Competition agreements, wherein the employees promise not to start a competing business or work for a competitor for a given period after departing.
  • Non-solicitation agreements, in which the employees are asked not to solicit the employer’s client or employees for a particular period of time after the termination of the contract.

The validity of such a contract is governed under section 27 of the Indian Contract Act, which is considered to be imported from Field’s Draft Code for New York and was based on the old English doctrine of restraint of trade. Section  27 provides that every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind is to that extent void. The result of such provision is that courts have expressed hostility to contractual provisions that limit employees’ conduct after the termination of employment contract and therefore are regarded as restrictive covenants. The court is hostile to these restrictive agreements because

  • It deprives employee’s ability to earn a living.
  • it Is anti-competitive
  • There is unequal bargaining power to employers.
  • They do not promote the general principles of free labour

Taking the instance of Brahmaputra Tea Co. v Scarth, the stipulation in the contract which prohibited the defendants from cultivating tea for a period of five years from the date of termination of the agreement was held to be void. The clauses which were restrictive in nature, in the contract were held to be non-enforceable. The landmark judgment of Niranjan Shanker Golikari v. The Century Spinning Co. case makes one of the most important decisions on the doctrine of restraint of trade as applicable to employment contracts in India.

The position in India makes it clear that the employers are not entitled to protect themselves against the competition on the part of the employee, after the termination of employment contract. However, in the employment contract, two grounds were provided, first one is trade secrets and business connections. In the case of Niranjan Shanker Golikari v. The Century Spinning Co., the court made it very clear that “any restraint of trade for the protection of trade secrets is reasonable if restricted to time, nature of employment and area”. It said that the restraint is valid if it has the legitimate interest of the employer.


The contract of employment is essential for the smooth working between the employer and employee and should not be contrary to the principles of free labour. The employer must not put unreasonable terms and conditions in the contract, and the contract should not be violative of the labour laws of the country. The employee at the same time must be loyal towards his work and employer so that the essence of the contract remains. is now on Telegram. Follow us for regular legal updates and judgments from the Court. Follow us on Google NewsInstagramLinkedInFacebook & Twitter. You can also subscribe to our Weekly Email Updates. You can also contribute stories like this and help us spread awareness for a better society. Submit Your Post Now.

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