First job as contract employment? From termination to limited benefits, things to be cognizant of

• In employment contracts, it is customary to include a 30-day notice period, providing both the employer and the employee with a reasonable timeframe for transitions.
  
• In certain cases, there could be a lock in period which needs to be kept in mind while invoking notice period clauses.
  
• The termination of employment is governed as per terms and conditions of the employment contract signed at the time of joining the organisation.
  

While permanent employment is still a thing, many companies have gone the way of hiring employees on contracts. Such contracts specify details like job responsibilities, compensation, benefits, and termination clauses.

Employment contracts have become common because employers do not want to commit to employees for a long duration and instead draw up a contract for a specified period, after which the contract needs to be renewed. Moreover, non-renewal of a contract means termination of employment, but is not necessarily a layoff.

Since a contract is drafted in legal terms, it is important that an employee understands what he is getting into when signing on a contract. This is more important for GenZ who may be in their first jobs and thus may be less aware of how contracts work. We break it down for you.

Main aspects of job contract to be aware of

“While entering into a contract for employment it is essential that employees are aware of the purpose and the period for which their services are hired. Special attention should be paid to the terms and conditions that are being specified in the contract and whether they align with their ideal work experience,” says Kartika Sharma, advocate, Delhi High Court.

Sharma elaborates on the key aspects that need to be kept in mind in a contract.

Purpose: The Contract should specify the purpose of employment, key roles of the employee, details of the project for which the employee is hired.

Fixed duration: The duration of the contact can be for months or years and once the contract is terminated the employer and employee can consider renewing or extending the employment contract as per the requirement of the project or purpose for which the contract is entered into.

Limited benefits: The employee entering into contractual employment shall also be aware of the fact that such contracts do not specify long-term benefits such as health insurance, or retirement benefits that are often available to the permanent employees.

Flexibility: The GenZ employees are aware of the multiple opportunities available and with the facility of working from home they can take on other ventures as well. However, this should be specified in the contract that their employer doesn’t restrict them from working on other projects with different employers.

How the notice period works

“In employment contracts, it is customary to include a 30-day notice period, providing both the employer and the employee with a reasonable timeframe for transitions,” says Rudra Srivastava, partner, Singhania & Partners, a law firm.

Additionally, the contract should specify that monthly payments are expected to be settled within seven days from the end of each month. These provisions contribute to a well-defined and fair framework for the notice period and timely compensation.

In certain cases, there could be a lock in period which needs to be kept in mind while invoking notice period clauses.

“The contract will specify the amount that will be paid/deducted from the employee if he is leaving/asked to leave during the lock in period. Further, the contract will specify the due date of payment along with deductions, overtime, bonuses, if any,” says Manmeet Kaur, Partner, Karanjawala & Co, a full service dispute resolution firm.

Termination of contract before contract period is over

The employment contracts can be terminated before the contract period is over, depending on the terms outlined in the contract. The contract itself usually includes provisions that specify under what conditions either the employer or the employee can terminate the agreement before its stated expiration.

Common reasons for early termination may include breaches of contract, mutual agreement, or specific clauses addressing termination with or without cause. It's essential for both parties to understand these terms before signing the contract.

Legal recourse if contract is not honoured

“When an employer breaches a contract, employees have two options: compel the employer to fulfil the contract, ensuring related payments; or seek the competent court determination that the contract is void due to the employer's actions,” says Advocate Rohan Rai, Associate Partner, RR LEGAL PARTNERS , a law firm.

Choosing between the two depends on factors like potential entitlements without contractual constraints and an evaluation of litigation costs and risks. The court's decision would dictate the employee's entitlements based on contract enforcement or common law and relevant statutes, considering specific circumstances.

“Where there are clauses in the employment contract regarding mandatory arbitration or dispute resolution then it is enforceable and the dispute between the employer and employee needs to be addressed in the manner provided by the contract,” says Rai.

Thus, understanding an employment contract before signing is crucial as it clarifies job expectations, compensation, benefits, and termination conditions. It ensures alignment with personal and professional goals while avoiding potential legal and financial issues.