Service Contracts

Service contracts should be meticulously drafted with the same level of detail and clarity as other legal agreements. The terms of employment must be definitively fixed and explicitly articulated, leaving no room for presumptions. These contracts should encompass both affirmative obligations (detailing the acts and duties to be performed) and negative covenants (imposing restrictions on the actions of the employee during and/or after the term of employment).

It is therefore necessary to make provision for:

1.???? Exact designation of the employee with brief description, so as to distinguish if the employee falls or does not within the definition of 'workman' as provided in labours laws or say, Industrial Disputes Act;

2.???? The time or period of employment;

3.???? The remuneration and other pre requisites, if any, including pay, allowances, commission, rent free house, conveyance, etc.;

4.???? duties of employment;

5.???? powers of the employee;

6.???? leave and the terms on which it will be granted;

7.???? modes and grounds of determining the employment during the term; and

8.???? restrictive covenants.

The terms of a service contract should be as explicit as possible and should be easily intelligible to a lay man. Unlike other agreements and legal documents which need not contain matters presumed or implied by law, it is better in such an agreement to specify even such matters and all other matters so as to make it a complete code, embodying the rights and duties of each party.

In respect of Government service, normally no formal contract is executed and only an appointment order is issued and the terms of service are thereafter governed by statutory rules and Government order. The same is the position of statutory corporations as employers. Service under government' or a statutory corporation2 is primarily a matter of status, even though its origin be contractual, and the employer generally has the statutory power to alter the conditions of service unilaterally though subject to certain limitations.

However, contractual employment on special terms is also permissible, vide Article 310 (2) of the Constitution. In such a contract, there is no objection to refer to any rules of service governing the particular class of service and referring to them as governing relations between the parties on any particular point, instead of repeating them in the form of covenants, because such rules are well known to all Government servants and are well understood by them, e.g., we may say that the employee will in all respects be bound by the Manual of Government Orders and rules relating to the conduct of Government servants; or the employee will be allowed travelling allowance at the rates admissible to a Government servant of the second class under Fundamental and Subsidiary Rules contained in volume II of the Financial Handbook.

An interesting illustration of contractual appointment in Government service is furnished by a case in which the State Government permitted the Ministers to appoint persons of their choice in their respective establishments. The order for appointment provided that it shall be temporary, co-terminus with the tenure of the concerned Minister. Following election new Government took over and their services were terminated. The Supreme Court upheld the contention of the State to the effect that the appointment was purely contractual co-terminus with the tenure of the Ministers establishment at whose choice and instance they were appointed. The employees could not be deemed to be temporary Government servants within the meaning of the Service Rule.

Period of Service

This may be definite or indefinite. If no period is fixed or an indefinite period is stated, e.g., "so long as the parties respectively please", the contract is terminable by a reasonable notice on either side. What is a reasonable notice varying in different cases, according to the character of the employment and the general custom, from 15 days to six months. When no term is fixed it is always proper to provide for determination by notice. In such a case, and also in case option of determination is reserved during the term, the period of notice should be settled and expressed in the agreement. It is not permissible, where the employer is Government or a statutory corporation or other instrumentality of the State, to provide for termination of services of a permanent employee by a mere notice without formal inquiry into the charges against him.

Tenure means a term during which an office is held. Once a person is appointed to a tenure post, his appointment commences when he joins and it ends on completion of the tenure unless curtailed on justifiable grounds. Such a person does not superannuate."

Remuneration

This may be a fixed monthly salary, or fees or commission, or salary as well as fees or commission. Sometimes in business firms, employees are allowed a share in the profits in addition to a fixed salary. All these should be clearly provided.

Leave Conditions and grounds on which, and the period for which leave may be granted as well as allowance payable during leave should be stated. In the case of Government servants engaged on contract, the leave rules applicable to permanent Government Servants in general may be applied but as there are different rules for different classes of Government Servants those applicable should be clearly referred to, or if they are not lengthy, they may be embodied in the agreement in the form of a covenant.

Agreements in Restraint of Trade

When drafting a restrictive covenant, it is a necessity to ensure that they are not illegal. Agreements in restraint of trade are void under Sec. 27, Contract Act, and should not be inserted in an agreement. However, any covenant that the employee, during the course of employment, shall not directly or indirectly promote or help in any similar business will be lawful. It will be deemed to be in the interest of the employer and not a restraint on trade or business. A covenant that the employee shall not join any firm of the employer's competitors or run a similar business of his own directly or indirectly for a period of two years at the place of his last posting after he leaves the company was interpreted to mean that it did not cover a case of termination of service by the employer as it was confined to the employee's voluntarily leaving the company. In view of this construction, the majority did not think it necessary to consider the validity of this partial restraint of trade, but the concurring judgment of A.P. Sen, J. discussed the law on the subject and held that as the agreement in question was not a "goodwill of business" type of contract, it did not fall within Exception I to Sec. 27 and was therefore void.

What is the Effect of Labour Laws?

In the process of complete rationalization of Labour Laws in India, all earlier Labour acts have now been repealed by framing the relevant provisions of existing laws into four labour codes which are:

(1) Code of Wages, 2019

(2) Code on Social Security, 2020

(3) Occupational Safety, Health and Working Conditions Code, 2020

(4) Industrial Relations Code, 2020.

Section 9A of Industrial Disputes Act provides how an employer shall effect change in the condition of service of a workman.

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This article is strictly for Educational Use and to bring about Legal Awareness and shall not amount to legal advice.

Indian Conveyancer- Mogha