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FAQs

FAQ's

A curated and categorised database of common questions regarding the law.




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1 What are the different type of employment contracts permitted (permanent contracts, short term contracts, temporary workers, etc.)?

Employers and Employees are free to agree to any length of contract either for a fixed term or an indefinite term, terminable on notice as stipulated in the contract. If the contract is not for a fixed term and does not state the period of notice required, the contract can be terminated by giving reasonable notice.
2 Is short term employment legally possible? Is there any limitation regarding the period of such employment?

Yes, short term employment is legally permissible. There is no restriction on employment on a series of short term contracts. However, someone employed on a series of or a single short term contract on a specified term for a period of 240 days of more may nevertheless establish continuity of employment, and if employed in the same job under these circumstances might plead that the job is of a permanent nature thus rending the company liable to permanently employing that person or going through the retrenchment procedure involving various government authorities.
3 Can there be part time employment contracts?

Yes. A contract of employment can be for any number of hours a week on a part time basis.
4 Can employees be hired for an indefinite time period but bound to the execution and completion of a given work project or study?

Yes. A contract could be stated to be for the duration of a particular project and to end on its completion. The contract would need to be clear on the definition of the term completion. It is also possible to bind the employee to the concerned project until completion or take suitable action against the employee in case of default.
5 How is a managing director or a high level executive hired?

As per Indian Law, the Managing Director of a company has been defined as a Director who has been entrusted with substantial powers of management, and who exercises his powers subject to superintendence, control and direction of the Company's Board of Directors. (Sec 2(26)-Companies Act, 1956). Sec 197A also states that there cannot be a Managing Director and a Manager in the same company where a Manager is defined as an individual who has the management of the whole or substantially the whole of the affairs of the company and he must be subject to superintendence, control and direction of the Company's Board of Directors. (Sec 2(24)-Companies Act, 1956). High level executives with designations such as President/Vice President may fall under this definition.
A Managing Director can be appointed in one of 5 ways:
i) Agreement with the company
ii) Resolution passed by the company in a general meeting
iii) Resolution passed by the Board of Directors
iv) Memorandum of Association
v) Articles of Association

A Manager may be appointed by the Board for such term or remuneration as it may think fit.
However, a person has to necessarily be a Director of the company to be a Managing Director and there can be more than one Managing Director. A manager need not be a director of the company.
Sec 317. No Managing Director can be appointed for a term exceeding 5 years but the term may be renewed.
Sec 267. No person can be appointed as Managing Director who
i) is an undischarged insolvent
ii) has suspended payment to his creditors
iii) has been convicted by court of an offense involving moral turpitude

In practice, contractual terms of Managing Directors or High Level Executives are likely to be individually negotiated rather than standard terms applying to other groups of employees.

For employees who are also directors, the Companies Act 1956 prohibits certain benefits such as loans and lays down guidelines for remuneration and reimbursement of certain expenses.
6 Can employees be hired through employment agencies (leased employees)?
* Is there any limitation regarding the period of employment for agency employees?
* Is there any limitation as to function and duties that agency employees can perform?
* How are a corporates interests best protected from claims by agency employees?


Yes, employees can be hired through employment agencies. Employment agencies can either:
a) Introduce staff who will then become employees of the hirer and be paid directly by the hirer
b) Supply staff who are employees of the agency for a fee to the agency
Staff in category (a) will be in the same position as any other employee of the hirer once introduced by the agency
Staff in category (b) (leased employees) are not under any limitation on terms of period of employment and functions and duties. However, under the Contract Labor (Regulation and Abolition) Act, 1970, in case of notification by the appropriate government, certain areas of work have to necessarily be performed by permanent employees of the company and cannot be outsourced.
If the corporate does not wish to take on the person as its employee, it is recommended that:
a) The contract with the agency should clearly elucidate that the relationship exists with the agency only and not with any individual
b) All payments should be made to the agency and not to the individual
c) Correspondence should be addressed to the agency and not directly to the individual
d) The individual should be employed by the agency. The corporate should acquire proof of this on it's files
e) The contract should only mention the nature and volume of service provided and not state details of the kind and number of employees performing the service.
f) The employees of the agency should not on record, be under the supervision and control of the hirers employees e.g. bills, vouchers, etc. should not be signed off. Ideally, a supervisor provided by the agency under indirect control of the hirer should be part of the contract.

It is also recommended that the corporate ensures that the agency meets all statutory labor law requirements with regard to the individuals supplied as in case of non-compliance, the corporate is likely to be held liable equally with the agency.

7 What legal requirements must be met in drafting the employment agreement (job description, wages, notice period, employee obligations, etc.)?

The contract of employment does not have to be in writing under Indian Law. However, it is preferable to lay down in writing the terms of employment for although these are not conclusive evidence of the terms of employment, they are a strong indicator of the same. The particulars of employment which should be set out in a contract of employment are:
1)The name of the employer
2) The name of the employee
3) Date of beginning of employment
4) The scale or rate of remuneration
5) The intervals at which remuneration is paid
6) Terms and conditions relating to the hours of work
7) The employee's job title or a brief description of work for which the employee is employed
8) The place of work
9) The length of notice both parties are required to give for termination of contract
10) The term of employment (if fixed term) and statement of age of superannuation
11) Mention of any collective agreements which affect the terms and conditions of employment
12) Terms of leave and other benefits which the employees in that cadre are normally entitled
13) Liability of the employee to transfer of a permanent or temporary nature to any of the company's branches or subsidiaries in India or overseas
14) Any disciplinary rules and reference to a code of conduct, lapse of which will render an employee liable to disciplinary action
15) Probationary period if any
16) Confidentiality clauses
8 Are there any other agreements between the employer and employee which govern the employment relationship besides the employment agreement (e.g. company regulations/rules or union contracts) ?

The employer may lay down reasonable rules for conduct at work. In case of an industrial establishment employing 100 or more workmen on any day of the preceding twelve months, as per The Industrial Employment (Standing Orders) Act, the employer is required to define with sufficient precision, the conditions of employment and to make the said conditions known to workmen employed with them. These standing orders have to be registered with the appropriate authorities. Agreements between an employer and a trade union will also influence the employment relationship by incorporation in the terms of employment or laying down of a procedural agreement e.g. disciplinary procedure etc.
9 Are there any categories of discrimination that are prohibited? How are the anti-discrimination bans enforced?

Discrimination in employment in relation to terms of employment in India is restricted to the principle of equal pay for equal work under the Equal Remuneration Act, 1976 which requires equal pay and contractual benefits for men and women doing work rated as equivalent or work of equal value. There are as yet, no employment statutes prohibiting discrimination on grounds of race, religion, etc although these are fundamental principles in the constitution.
10 If the applicant is not a citizen, what requirements must be met before the person can be employed?

If the applicant is not a citizen, the employer is required to make an application to the Ministry of Home Affairs with a copy of the appointment letter for the issue of a work permit. He is then to register with the Foreigner’s Regional Registration Office and obtain an endorsement on his passport.
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