Matter for ARBITER For October 2007 issue

LAW ON NEGATIVE COVENANTS IN EMPLOYMENT CONTRACT

Dr. R. Krishna Murthy Any agreement between two parties becomes a contract if it is made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and is not expressly declared to be void under Section 10 of the Indian Contract Act, 1872. The Indian Contract Act governs the way we enter into a contract, execute a contract, and implement the provisions of a contract and effects of breach of a contract. A person is free to contract on any terms he chooses. The Contract Act consists of limiting factors subject to which contract may be entered into, executed and breach enforced. The Act provides a framework of rules and regulations, which govern formation and performance of contract. The rights and duties of parties as also terms of agreement are decided by the contracting parties themselves. The court of law acts to enforce agreement, in case of nonperformance. Valid Contract The appointment letter is an employment contract. It is considered as a contract under the Indian Contract Act. A valid contract creates legal rights for both parties and as long as the contract is for a lawful consideration, it is enforceable. It is binding on both the parties and unless the contract was entered into for an unlawful object or consideration or the contract is expressly declared to be void, the contract can be enforced or compensation/damages for breach of contract can be obtained through Civil Court. It must be noted that contract need not be in writing, unless there is specific provision in law that the contract should be in writing. For example a contract of sale of immovable property must be in writing, stamped and registered. Similarly, Contracts, which need registration, should be in writing. The Indian contract Act also recognises a contract that is not made in writing. Also if, it can be established by witnesses, even an oral dismissal order has been held to be a valid order. A 1

Muslim uttering the word Talaq, thrice would be divorcing his wife. The power of the spoken word cannot be underestimated. Enforcement of Contract How is the employment contract arrived at? An individual is, either approached by a prospective employer, or somebody on his behalf, expressing interest in his services. Alternatively, an individual may seek employment with another employer. How does the appointment letter take on a character of an agreement and what are the essential ingredients of the contract? It is essential for an organisation to know that the appointment letter that is drafted does not contain provisions that make the contract bad in law. How does a contract become bad in law? If the contract contains provisions, which are against the law, public interest or one-sided, the contract can be repudiated by the other party and when the enforcement of the contract is sought, the contract is challenged on these grounds. In such circumstances, the party who has gone to court under the provisions of the Act to enforce the contract is confronted by this reality that the contract is bad in law and cannot be enforced. It is in this aspect we consider the negative covenants in the employment contract. Very few individuals pay attention to the legal provisions in the employment contract. What is it that catches the eye in the employment contract? The Name of the Company where a person is joining employment is the most important thing and one looks to the letter head and this gives a reassurance to the individual that the place he has chosen for the employment is the one he wanted to work for. The second important thing a person looks at is his designation. Thereafter, he looks at the salary package and gives a glance to the terms and conditions of employment. He just signs on the dotted lines, if the offer of employment is on the terms discussed. There are many individuals who have joined an employer without getting the terms and conditions of offer in writing. After joining, the individual realises that he is not getting what he was promised. Many individuals have paid the price for a hasty job switch without clarity on the terms and conditions of the offer. At senior levels, this can become a problem. He cannot also change the job easily.

Ambiguous or Illegal Provisions However, once an employee accepts the terms and conditions of the employment, there is a presumption that it is a valid contract and is binding on the individual. There are many aspects of the contract that we routinely take for granted, but some of the provisions contained in the contract of employment are ambiguous at best or downright illegal. The enforceability of the contract under such circumstances becomes impossible. A one-sided contract is one in which the employer derives rights from the contract, but the same or similar right is deprived to the other party. It must be remembered that a contract is between two adult contracting parties and if any one of them is encumbered or constrained and not a free party, he may challenge the contract on the ground that it is one-sided and not entered into voluntarily. He did not have a choice and the employer used his position to push through the one sided contract. The provisions of the contract would thus come under the judicial scanner and such contracts have been held to be void or illegal. Some examples: The appointment order provides that the services of the employee can be terminated without notice or without assigning any reason whatsoever but the employee cannot leave the employment without notice. The contract provides that the employee cannot seek employment elsewhere during the tenure of the contract and for three years (or such other period) after leaving the employment of the company. No consideration is paid by the company for the forcible non-employment of the individual after the tenure of employment with the company. The contract provides that the employee will not join the competitor. Here is a specific example of a contract that was struck down as Bad in Law by the Andhra Pradesh High Court in Bakelite Hylam v/s S.J. Hasan (1985 I LLJ 438) Notwithstanding anything contained in these rules, no Gratuity will be paid on the termination of service due to misconduct or on resignation in order to avoid such termination or if any member acts prejudicially against the interest of the company either during the service with the company or engages himself without prior consent in writing from the company in any such activity within a period of 3

three years from retirement or retrenchment or termination of employment with the company on any ground. The above clause was held to be void under S. 27 of the Indian Contract Act, which provides as under: S. 27. Every agreement by which anyone is restrained from exercising a lawful profession or trade or business of any kind, is to that extent void. Exception 1: One who sells goodwill of a business with a buyer to refrain from carrying on a similar business, within specified local limits so long as the buyer, or any person deriving title to the goodwill from him, carries on a like business therein provided that such limits appear to the Court reasonable, regard being had to the nature of business. Non-Compete Clauses Generic non-compete provisions incorporated in the employment contract may not be valid for reasons outlined above. However, where the employee has been a recipient of specific training and inputs that have been given, an employer may have reasonable clauses that ensure that the Intellectual Property and business interests are not jeopardised by the employee. No employee can be kept as a Bonded Labour. Hence Bonds and the employment contract will have to stand up to legal scrutiny. However, where a person has been the beneficiary of specialised training and these very inputs are what the competitor wants, the company can certainly put reasonable restrictions on an individuals right so that he does not cause jeopardy to the organisation. The right of an employee to move on to another employment from time to time is a right that will be protected by the Court, as it is his right to livelihood. However, reasonable restrictions can flow from some benefits that have been conferred on an employee. Reasonable Restraint The Supreme Court of India in Niranjan Shankar Golikari v/s The Century Spinning and Manufacturing Company Ltd. (1967 I LLJ 740) observed that restraints or negative covenants in the appointment or contract may be valid if they

are reasonable. A restraint upon freedom of contract must be shown to be reasonably necessary for the purpose of freedom of trade. The court held that a person may be restrained from carrying on his trade by reason of an agreement voluntarily entered into by him with that object. In such a case the general principle of freedom of trade must be applied with due regard to the principle that public policy required for men of full age and understanding the utmost freedom of contract and that it is public policy to allow a trader to dispose of his business to successor by whom it may be efficiently carried on and to afford to an employer an unrestricted choice of able assistance and the opportunity to instruct them in his trade and its secrets without fear of their becoming his competitors. Where an agreement is challenged on the ground of its being a restraint on trade, the onus is upon the party supporting the contract to show that the restraint is reasonably necessary to protect his interests. Once, this onus is discharged, the onus of showing that the restrain is nevertheless injurious to the public is upon the party attacking the contract. The non-compete clauses are generally attacked on the grounds that the said agreement constitute a restrain on trade and was therefore opposed to public policy. The Supreme Court referred to what constitutes restraint of trade as summarised in Halsburys Laws of England (3rd Edition), Volume 38 at page 15 and onwards. It is a general principle of the Common Law that a person is entitled to exercise his lawful trade or calling as and when he wills and the law has always regarded zealously any interference with trade, even at the risk of interference with freedom of contract, as it is public policy to oppose all restraints upon liberty of individual action which are injurious to the interests of the State. This principle is not confined to restraint of trade in the ordinary meaning of the word trade and includes restraints on the right of being employed. The Court takes a far stricter view of the covenants between the master and servant than it does of similar covenants between vendor and purchaser or in partnership agreements. An employer, for instance, is not entitled to protect himself against competition on the part of an employee after the employment has ceased but a purchaser of a business is entitled to protect himself against competition per se on the part of the vendor. This principle is based on the footing that an employer has no legitimate interest in preventing an employee after he leaves his service from entering the service of a competitor merely on the ground that he is a competitor. (Kores Manufacturing Co. Ltd. v/s Kolak Manufacturing Co. Ltd. ([1959] Ch. 108,126)

Restraint on Joining Competitor Madras High Court says No Way! The Madras High Court in Polaris Software Lab.v/s Suren Khiwadkar (2004 I LLJ 323) has rejected the right of the company to restrain the employee from working with a competitor, also in the software industry. The right to ban working with a competitor for two years was rejected. This is a recent judgement. A single judge of the three judge bench of the Supreme Court, Justice Sen in Superintendence Company of India Pvt. Ltd. v/s Krishnan Murgai way back in 1981 itself had held that A service covenant extended beyond the termination of service is void (1981 I LLJ 121). The Division Bench of the Delhi High Court of Chief Justice V. S. Deshpande and Mr. Justice Harish Chandra in Krishnan Murgai v/s Superintendence Company of India Pvt. Ltd. reversed the injunction granted by the civil court against the employee from working with a competing firm on the ground that the restrictive covenants in the employment contract were a restraint on trade and violative of Section 27 of the Indian Contract Act. Drafting Non-competition Provisions It is now a common practice in the letter of appointment to include some clauses, which may be called Non-competition and non-solicitation clauses. Noncompetition clauses generally provide that an employee will not join a competitor in the same business for a specific period of time and within a certain geographical area. Such clauses are restrictive covenants in the restraint of trade. When interpreting the validity of a non-competition clause, the court will start from the premise that the restriction is unenforceable as being contrary to public policy. An employer wishing to justify the reasonableness of such a clause must do so based on the length of time the employee will be restricted, the geographical area concerned and its overall reasonableness. For that reason, an employer should consider the careful drafting of a non-competition provision when an employee commences employment. Adopting a broad-brush approach or simply inserting a standard clause in the contract of employment will almost certainly result in the clause being declared unenforceable by a court. At the time of hire, the employer should consider the scope and duties of the employee, as well as the harm to the employer if the employee left. Specifically, the employer should consider whether there is confidential information or 6

intellectual property (i.e., trade secrets), which would cause harm to the employer if it fell into the hands of a competitor. The employer should also consider the circumstances of the employee, that is, whether he or she is a senior employee; whether the job of the employee is specialized; and whether the position is unique. The more senior the employee and the more specialized the job, the greater the prospect of enforcing the clause. Getting a Restraint Order For a non-compete clause to be upheld by the court, there must be a very specific provision of trade secrets, intellectual property, unique ideas and discoveries, which may be patented and which have come into the possession of the employee by virtue of his position or being privy to the work of secret nature being undertaken by the employer. The restraint must be focussed and specific to the area of research and an employer may even name the competitors who are the threats to his business and joining which may entail the specific restraining order. In such circumstances, where the restraint is not generic, but specific to the inputs or skills or knowledge the individual possessed because of his working with the employer and he is attempting to use these precise skills to pursue his livelihood, the chances of getting a restraint order is very high. In India, the cases pertaining to Star India Pvt. Ltd. v/s Laxmiraj Seetharam Nayak (2003 (3) Bom CR 563); Gujarat Bottling Co. Ltd. v/s Coca Cola Co., and Jet Airways (I) Ltd. v/s Jan Peter Ravi Karnik 2000(4) BCR 487 are decisions which will influence the Court in consideration of grant of relief to any injunction against an employee from competing or joining any competitor. Poaching Having cleared the understanding pertaining to the status of non-compete clause, the provisions pertaining to non-solicit clauses will also be required to be viewed in the perspective of balancing the right of an individual to seek better value for his skills and talents versus that of the employer to protect his flock. General injunctions against non-poaching by the competitor may not be granted as such 7

clauses may be viewed against public interest. However, where the individuals are the beneficiaries of specific ideas/skills/training that they have acquired by working with the employer, the employer may get a specific restraining order, pertaining to these employees. The Supreme Court of Justices, J. M. Shelat and R. S. Bachavat, in the Golikari case, referred to earlier, considered the refusal of the employer to accept the resignation of the employee and who wanted to work with a competitor in the same line of business, for which he was specifically trained and in respect of which he had signed a non-compete clause. The injunction sought for against divulging secrets would not fall foul of Section 27 of the Indian Contract Act and held the confidentiality clause was not too wide or unreasonable for protection of interests of the respondent company. Validity of Bonds There is a general perception that if an employee is compelled to sign a bond, he would be averse to leaving the employment because a bond and the amount required to be paid would be a deterrent. Notwithstanding the signing of bonds on stamped paper, the employee violates the bond and seeks alternative employment. The employer then attempts to get an injunction against the employee for violation of the bond. Penalty or Liquidated Damages? The settled view because of the decision of the Supreme Court in the case of Fateh Chand v. Balkisan Dass is that the question of payment demanded from the employee is in the nature of penalty or by way of liquidated damages for the training received. In the case of penalty, the Contract Act prohibits any penalty, and such a suit must be under the law of Torts. However, liquidated damages, on breach of the contract is governed by the provisions of Section 74 of the Indian Contract Act and what is payable in case of such a breach is only reasonable compensation. The essence of penalty is a payment or money stipulated as in terrorism of the offending party, while the essence of liquidated damages is a genuine covenanted predestinate of the damages to be sustained on the breach of the covenant. Normally, when the amount payable is either disproportionately more than the actual damage suffered on the breach or remains the same irrespective of the

varying damages which may be suffered due to breach of different covenants, the amount so payable partake the nature of penalty. The Supreme Court in Fateh Chand observed: In assessing damages, the Court has, subject to the limit of penalty stipulated, jurisdiction to award such compensation as it deems reasonable having regard to all the circumstances of the case. The jurisdiction of the Court to award compensation in case of breach of contract is unqualified, except as to the maximum stipulated but compensation has to be reasonable and that imposes upon the Court duty to award compensation according to settled principles. The Section undoubtedly says that the aggrieved party is entitled to receive compensation from the party, who has broken the contract, whether or not actual damage or loss, is proved, to have been caused by the breach. Thereby, it merely dispenses with proof of actual loss or damages; it does not justify the award of compensation when in consequence of the breach no legal injury at all has resulted because compensation for breach of contract can be awarded to make good loss or damage which naturally arose in the usual course of things or which the parties knew when they made the contract to be likely to result from the breach. (See Subir Ghosh v/s Indian Iron & Steel Co. 1977 II LLJ 120). Impact of a Void Clause in the Contract Does the Contract Become Invalid? The Supreme Court of India has held in Shin Satellite Public Co. v/s Jain Studios Ltd. that the proper test for deciding the validity or otherwise of an agreement or an order is sustainable severity and not textual divisibility. The Supreme Court said that it is the duty of the court to sever and separate the trivial or technical parts by retaining the main or substantial part and by giving effect to the latter if it is legal, lawful and otherwise enforceable. In such cases, the court must consider the question whether the parties could have agreed on the valid terms of the agreement had they known that the other terms were invalid or unlawful. If the answer to the said question is in the affirmative, the doctrine of severability would apply and the valid terms of the agreement could be enforced, ignoring invalid terms. To hold otherwise would be to expose the covenanter to the almost inevitable risk of litigation which in nine cases out of ten he is very ill able to afford, should he venture on his own opinion as to how far the restraint upon him would be held by the court to be reasonable, while it may give to the

covanantee the full benefit of unreasonable provisions if the covenanter is unable to face litigation. OTHER CONDITIONS Other important conditions in the employment contract that need attention and should be taken into consideration are as follows Service of Communication: One of the major problems encountered by companies, particularly in the IT and ITes Industry is the problem of employee turnover. Individuals just quit their jobs and do not come to collect their dues. When individuals abscond and do not report for duty for a long time, it becomes a serious issue for the company. Letters sent to him come back. It is at this stage the importance of a good appointment letter comes in which specifies the address for communication. At the time of joining, if an employee furnishes his e-mail id as his personal address and accepts the delivery of communication at that address, it will be deemed to be personal service. Then it will be beneficial to the company inasmuch as it will mean confirmation by him of his address. A person may change his physical address. But many of them continue to retain their person e-mail id and a communication that may be sent to a person by e-mail is also a valid service of communication. The letter of appointment should also provide for intimation of change in address within a week of the change, and yet, these clauses are observed more in the breach. However, if the company has the e-mail id, a person may not be at home, but can receive the communications and many terminations have become possible because the e-mail id of the individual was known. Termination during probation and after probation: Does the employment clause provide for termination with notice or without notice during the probation period? It may become necessary to terminate somebody during the probation period itself for incompetence or not working as per the requirements of the company. But many of the employment contracts are silent on the rights of the parties. Non-Disclosure/Fraudulent credentials: In many cases, employment is given on the basis of the testimony at the interview. An individual often misrepresents his position in the company and the salary or remuneration that he is drawing. Once the offer of employment is made and he starts working, the company attempts to verify the credentials. In many situations, it emerges that the period for which he worked is erroneous or the position in which the person worked is much junior or the salary, which he was drawing was much lesser than 10

what he has declared that he was drawing. The experience certificate furnished may turn out to be fraudulent. Even the qualifications furnished turn out to be false in some cases. This situation creates some practical difficulties for the company. The verification process in some of these cases is long drawn, particularly when the person is from a different state. On the strength of working in the company and the pay sheet, the individual gets a job in some other establishment. In such situations, the contract becomes voidable at the option of the employer and he can take steps to terminate the employee for fraud. In many cases, the employee stops coming to work on his own when the fraud is discovered. Termination for Fraud or Misconduct versus a termination on grounds of loss of confidence: While termination for a fraud or misconduct is generally without notice and is seen as a punishment, it is generally a requirement of law that the principles of natural justice are followed. In many cases, companies take the view that the person concerned is employed in supervisory or managerial responsibilities and there is no need to undertake the procedure usually followed for workmen under the provisions of the Industrial Employment Standing Orders. While termination is generally stigmatic, a discharge on grounds of loss of confidence is generally not stigmatic and the person also receives a notice or notice pay in lieu of notice. It has been found that many of the managerial and supervisory employees take recourse to the judicial proceedings; either under the MRTU & PULP Act in Maharashtra or under the provisions of the Shops and Establishments Act, by making a complaint to the authority for non-payment of dues and salaries, overtime, etc. and this creates some nuisance for the employer. In respect of managerial and supervisory employees, it may not be necessary to categorise a termination as one on grounds of loss of confidence. It may be appropriate to issue a simple letter of termination by providing appropriate notice as provided for in the employment contract. Is the Notice Pay clearly defined? In many cases, the notice pay is ambiguous. Some companies consider only Basic wages and Dearness Allowance, if any, as Notice Pay. Unless, the contract defines it clearly, pay would in its generic meaning embrace allowances also. Suspension Pending Enquiry: In some cases of misconduct, a persons presence may be injurious to the work or security of the establishment. In case of the person being asked to stay away from work, is he entitled to salary or 11

not? The contract is not very clear on this. Where there is no mention of this in the contract, the employee can claim full wages as he is willing to come to work and the employer is asking him not to come to work. There must be a specific provision enabling the employer to keep the person away from work and also pay a subsistence allowance, if he is not permitted to work elsewhere during the period till the investigations are complete. Just because a person is employed in managerial capacity, does not mean that the company can do anything and it will be accepted. The actions of the company in many cases fail when they come up for judicial scrutiny. Companies would do well to pay attention to this aspect. Are Increments automatic or linked to performance? Incentives and Performance linked payments: Stoppage of increment is considered a punishment and unless the appointment letter is clear that increments are not automatic and will be dependent on performance, non-payment of the wages/components can be contested. In some companies, parts of the monies are realisable only on accomplishment of performance targets. These Incentive Schemes are poorly drafted, and leave a lot of scope for dispute, and particularly at the time of resignation, they create a lot of problems for the company. Employees also claim incentive payments for the period they have worked and these claims have merit as the pay structure has been worked out in such a manner that it is performance linked. Individuals who have performed and achieved targets, for which some payments are due, claim the payment as per the company announcements. However, just because the employee has quit the employment, the company denies the payment and puts the individual through hardships. These payments can be realised with costs, but the company hopes that the individual will not file a case in court and incur additional expenses to claim some benefits. One person filing a claim emboldens others. In the present environment, many organisations link the pay to performance. Such a linkage must explicitly provide in the contract that the payments will not be made if performance is not achieved. In designing the wage structure, care must be taken to ensure that the individual qualifies to receive at least a little over the minimum wages. This is a statutory requirement. The payment cannot be nil salary on grounds of non-accomplishment of the minimum stipulated levels of performance. It is also important to examine whether the contract stipulates that performance and achievement of the standards/targets/requirements are a condition of employment. 12

For failure to achieve the required levels of performance, a contract could provide for termination without notice. However, in such cases, the principles of natural justice need to be followed and wherever an individual is not coming up to the performance requirements, there must be a process for bringing to his attention and an opportunity given to him to improve the performance. If this is not done, and the termination is effected without following the principles of natural justice, it may lead to the termination being bad in law. While civil courts cannot order reinstatement or give relief to the employee by way of back wages, the individual can sue for damages and costs. Absconding cases/Termination for deliberate refusal to perform: One of the major problem that is plaguing the IT and ITes industry is the problem of employee turnover and a problem where the employee simply walks away from the job. While actions taken in this front such as termination on the grounds of abandonment of employment do not provide much risks as the employee himself is not interested in reporting for duties, the law in the matter of desertion from the job, particularly for workmen is in favour of the employees. While absence from the work in an unauthorised manner would constitute misconduct, the punishment of termination for an employee for unauthorised absence is viewed to be too harsh, particularly when the past record of the employee is spotless. Some of the employees also take recourse to working with another employer and if not confirmed, come back to the old job. Of course, taking employment elsewhere when he is already employed amounts to misconduct. For this the person may be terminated. But this information is never available in a timely manner to take action. The employee also submits a medical certificate or cooks up some story as to why he was incommunicado and then the process for the organisation becomes uncertain about the course of action to be followed. Many of the jobs on which the employee works, are prestigious and the company does lose face if a person walks out of the job. The contract should have clauses that provide for termination, in the event of an employee walking out of the job (desertion of post). The clause should provide an appeal and should be effective in securing termination. In genuine cases, the individual can be taken back because the clause provides an appeal against the termination order. This is a serious problem and needs an innovative approach to fix it. Another issue that is also related to this matter is the unwillingness of the employee to pay any money for walking out of the job. He is aware that if he resigns, he may have to shell out some payments to the company. So, he adopts a 13

non-cooperative attitude and refuses to work with his heart and mind in the job. He downright refuses to work and creates a lot of problems with colleagues and the company is compelled to terminate him. SOME MORE ISSUES Transfer as a condition of service: It is important for an employer to have transfer as a condition of service. Many appointment letters do not specifically empower the company to transfer a person to any location. In an era of globalisation, where borders are shrinking, it is essential to have a relook at the standard clauses and provide for a quick severance if an employee who is transferred does not report for duty at the transferred location, say within 7 days of the date when he was required to report for duties at the transferred location. In an era of Mergers and Acquisitions does your contract provide for mobility of the employee seamlessly? It is important for the appointment letter to clearly specify that the services of the employee are freely mobile between the companys branches, offices and also group companies, existing and likely to come into existence after the appointment of the person has taken place. In an era where mergers, acquisitions are taking place, an employee may state that he is not required to work in any other company as he is contracted to work only with the company with which he has entered into an employment contract. Sending him out to any other company would not be valid and against the employment contract, if it is not so specified. In such circumstances, the employee may be required to be terminated but with due notice. However, he may be terminated without notice or notice pay in lieu thereof, if he refuses to work with such a company where the appointment letter already provided for such a clause. In case of Disputes in the Contract of Employment, what remedies can be prescribed? The letter of appointment often does not specify the manner in which any disputes may be resolved. It would be advantageous to provide that any dispute between the parties would be referred to an individual for Arbitration under the provisions of the Arbitration and Conciliation Act, 1996 as it is a speedy and quick way of disposing of cases unlike applications in the Civil Courts or the High Court, where traditionally any dispute is referred to. A decision of an Arbitrator is also enforceable and the manner of enforcing remedies in the contract is speedier in Arbitration. Companies need to provide a clause for Arbitration rather than adjudication of their disputes in the employment contract, as it would be beneficial to the business interests.

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(Pecuniary jurisdiction in the City of Mumbai: Civil disputes up to the monetary value of Rs. 10,000 are before the small causes court, from Rs.10,000 to Rs.50,000 before the City Civil Court and for disputes where the monetary claim is beyond Rs. 50,000/= the matter has to be filed before the High Court. The backlog of cases is so high that if the matter is admitted in the High Court, it will come up for hearing after 10-15 years. Justice delayed is justice denied. This is another important reason why the employment contract must provide for arbitration of disputes rather than adjudication.) Acknowledgement of receipt of Company Property and its value: Many of the senior executives working in the company receive from the company property of the company to assist them in the discharge of their duties. The company may provide the individuals, with Laptops, pen drives, portable hard disks, printers, scanners, etc. They may also be given a mobile. At the senior level, the company may also provide them with vehicles, company residence, furnishings, equipment, etc. At the time of termination of employment, the person concerned is required to hand over the company property. Where a person absconds, if there is proof that the employee has received company property, he may be liable for criminal charges for not returning the company property. A case filed against the individual, where proper documentation exists, brings about full and final settlement instantly with all the dues of the company being paid up. Where acknowledgement of the company property is not proper and it is disputed, recovery of the company property becomes very difficult. Retirement Age, premature retirement and abandonment of employment: The contract of employment should provide a retirement age. Where no retirement age is provided, the employee may claim that he is employed for life. While the provisions of the Standing Orders Act do apply to establishments engaging more than 50 workmen, there have been cases where the court has upheld the right of a person to work beyond the normal age of retirement where the contract does not provide for retirement. While all employment contracts provide that the appointment order is subject to the person being found medically fit, rarely the contract provides that the employment is subject to the individual retaining medical fitness and the services being liable to be terminated if the persons health leads to his absence for a defined period or exceeds a specified period in the year. An employer may certainly state that the contract could be determined if the person is unable to be present for work for a period of say 240 days in a year or the contract being determined by the company on the opinion of a company appointed doctor certifying that the employee is unfit for employment or will not be able to work as per the requirements of the employer on health grounds. 15

Such clauses are necessary as ill health and unavailability of an individual on grounds of illness can play havoc with work commitments and schedules. While a person surely requires care and assistance from the company for recouping from an illness as well as towards major medical expenditure, where a person cannot work properly because of his health condition, there should be a humane and proper way in which the mutual needs are addressed in the interests of the organisation. Thought should be given to this aspect, which is an exception rather than the norm. But the uncertainty in employment should not adversely impact organisational performance. Territorial Jurisdiction: Often employers put up a plea that the disputes will be subject to the territorial jurisdiction of the city and then when the employee raises a dispute at a different location, they refuse to accept the jurisdiction of the local court. The employee has a right to file a case where he is ordinarily resident and the jurisdiction of the courts cannot be ousted by any contract. Even managerial employees now take recourse to the provisions of the Shops and Establishment Act, where the definition of employees, does not exclude them to take up issues pertaining to their dues and even payment of overtime for all the extra hours of work they have put in. Managements need to take cognisance of the law and put up systems that do not expose their vulnerability. The swipe cards have records created that are then summoned and this is very conclusive and clear proof that the employee has worked. Denying the claim can lead to other problems within the organisation being exposed. The Supreme Court of India in Executive Committee of Vaish Degree College v/s Laksh Narain (1976) 2 SCC 58 had held that a contract of personal service cannot ordinarily be specifically enforced and a court normally would not give a declaration that the contract subsists and the employee, even after having been removed from service can be deemed to be in service against the will and consent of the employer. However, this rule is subject to three well-recognised exemptions: (i) where a public servant is sought to be removed from services in contravention of the provisions of Article 311 of the Constitution of India.(The manner in which the services of a Government servant could be terminated)

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(ii) (iii)

where a worker is sought to be reinstated on being dismissed under the Industrial law where a statutory body acts in breach or violation of mandatory provisions of the statute

An employer needs to understand that the Constitution of India also provides individual, fundamental rights and the Supreme Court and the High Courts jurisdiction can be invoked where the Fundamental Rights of a person are adversely affected. The right to a livelihood is a fundamental right. Article 14, which speaks of the Right to Equality states that there shall be Equality before Law and the State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India. The Supreme Court observed that Article 14 has a pervasive, processual potency and versatile quality, equalitarian in its soul and allergic to discriminatory dictates. Equality is the anti-thesis of arbitrariness where no opportunity is given or any enquiry is held. Actions of the employer that fly on the face of this article will be held to be illegal and unconstitutional. Article 21 of the Constitution gives the right to life, which includes the right to Live with Dignity. The Article states that no person shall be deprived of his life or personal liberty except according to procedure established by law. The employment contract is an adjunct to a relationship. A relationship that has gone sour or bad is best terminated and there is no contract that would be able to bring back the life that has gone out of the body by the force of law. The operation was successful, but the patient died, is a word of no comfort to the family of the patient under the hands of a skilful surgeon. To make employees work and give their best requires a relationship and the contract merely formalises an informal relationship. An employer, who takes recourse to the contract when an employee is unwilling, has already reached the end of the tether and the relationship is doomed. But a good contract can help the employer in securing his interests and also scoring brownie point in the courts of law, should the employment contract be tested on the anvil of legality. The victory will be pyrrhic, for if the employee is not interested in serving the employer, the victory in the court of law is the only fig leaf the employer has. Sometimes, it is necessary as it serves as a deterrent to the other employees, who then take the 17

contract of employment more seriously. It is for this reason, the employment contract has a lot of significance and the employers need to ensure that their contract meets not only the requirements of law but also of the business and serves their interest well. Drafting of the employment contract, therefore, has to incorporate these observations that have emerged from the experience of different companies. *****
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