Employment agreement — the one definition that decides your remedies, the 240-day rule, and the month’s notice most Delhi employees never claim

Offer letter, appointment letter, employment agreement

Three documents, used interchangeably, doing three different jobs. Which one you have decides how much of your arrangement is actually written down anywhere.

The pattern we see most often is a company that grew past the point where a two-page appointment letter was adequate and never noticed. The letter says nothing about who owns the work, nothing about client lists, nothing about what happens to the laptop and the passwords, and nothing about how a dispute gets resolved. None of that matters until somebody leaves badly — and then all of it matters at once.

Section 2(s) — are you a workman?

This is the question almost nobody asks at the start and everybody asks at the end, because it decides the forum, the remedy and often the outcome.

Three things follow from that wording and each of them surprises somebody.

• The designation does not decide it. Courts look at the dominant nature of the duties actually performed. A person titled “Assistant Manager” who supervised nobody, hired nobody, sanctioned nothing and had no discretion has repeatedly been held to be a workman.
• Supervisory work is included, up to a point. Supervisors are workmen unless they draw above the prescribed wage or their functions are mainly managerial.
• A written contract cannot contract you out of it. The definition applies to persons employed, whether the terms are express or implied. A clause saying “the employee shall not be treated as a workman” does not change what the employee did.

If you are a workman, the Industrial Disputes Act opens up: retrenchment conditions, reinstatement as a possible remedy, and a conciliation and adjudication route. If you are not, your claim is essentially contractual, and the remedies are the ones the contract and the general law give you. Which is why this is the first question worth answering honestly, on either side of the table.

Section 25F — what a retrenchment requires

For workmen with a year behind them, the Act sets out conditions that have to be satisfied before the termination, not afterwards.

Read the phrase “at the time of retrenchment” in clause (b). The compensation is not something to be settled later in the full and final. It is a condition of the termination being lawful. And clause (a) requires the notice to state the reasons, which is why a bare one-line letter often fails even when the money was paid.

The arithmetic in clause (b) also rewards part-years generously: any part of a year in excess of six months counts as a completed year. Six years and seven months is seven years for this purpose.

Section 25B — the 240-day rule

Everything in Section 25F turns on “continuous service for not less than one year”, and the Act defines that in a way that does not require a clean calendar year.

Two practical consequences. For employees: a break in service, or a period on leave, does not automatically reset the clock, and the days counted are days you were available under that employer rather than merely days you were at a desk. For employers: terminating at the eleven-month mark to avoid the threshold is a visible pattern, and the 240-day test is not the same as a twelve-month calendar.

Delhi’s one-month notice

Employees in Delhi offices, shops and commercial establishments have a notice entitlement that has nothing to do with their contract and that most of them have never heard of.

Three points worth holding on to. First, the threshold is three months, not a year, so it reaches far more people than Section 25F does. Second, the exception requires a charge of misconduct supported by evidence recorded at an enquiry — an enquiry, not an accusation, and certainly not a phone call on a Friday evening. Third, it applies to establishments covered by the Act, which in Delhi covers most ordinary offices, shops and commercial establishments.

Order an employment agreement — free, pay after work

Employee or contractor — the 2020 test

Companies increasingly engage people as consultants, retainers or freelancers, and the arrangement is often perfectly genuine. It becomes a problem when the paperwork says contractor and the reality says employee, because the statutory consequences follow the reality.

If a genuine contractor arrangement is what you want, the paperwork should match it — a consultancy agreement or a freelance agreement with deliverables, invoices and independence, not an employment contract with the word “consultant” pasted over it. We draft both, and we will say plainly which one your facts actually support.

The statutory floor, in one table

These obligations attach because the establishment or the employee qualifies, not because the contract grants them. Thresholds and figures are revised from time to time, so we confirm the current position for your establishment rather than printing numbers that go stale.

Gratuity — five years, and when five years do not apply

Gratuity is the entitlement people plan around and misunderstand most.

That final sentence is the one families are never told. Where an employee dies in service, or is disabled, the five-year qualification does not apply at all, and the amount is payable to the nominee or the heirs. Section 4(2) sets the rate at fifteen days’ wages for every completed year of service, and Section 4(3) caps the total at the figure in force, which has been raised by notification over the years.

The five-year period is itself counted using a continuous-service test that, like Section 25B, works on days actually worked rather than on a clean calendar. Employees who left at four years and eight or ten months are worth checking carefully rather than writing off.

When gratuity can be forfeited

Employers sometimes treat gratuity as discretionary. It is not, and the grounds for withholding it are specific.

Note the structure. The first limb is capped at the actual loss — it is compensation, not punishment. The second limb requires the services to have been terminated for that conduct, which means the employer has to have run the process and reached that conclusion, not merely alleged it during the exit. An employee who resigned and is then accused on the way out is in a very different position from one who was dismissed after an enquiry.

The POSH obligation every employer forgets

This one catches small and medium employers constantly, and it is a standing obligation rather than something to arrange when a complaint arrives.

Section 19 sets out the employer’s duties, which include providing a safe working environment, displaying the penal consequences, organising awareness programmes and assisting a complainant. Section 26 provides a penalty for failing to constitute the Committee or comply with the Act, and repeated contravention can affect the employer’s licences and registrations.

The point for an employment agreement is narrower but real: the contract and the joining kit should reference the policy, the employee should acknowledge receiving it, and the Committee should exist before anybody needs it. All three are inexpensive. None of them can be done retrospectively.

Maternity benefit and the crèche

The 2017 amendment to the Maternity Benefit Act, 1961 substantially enlarged the entitlement, and small employers are frequently still working from the old position.

• Twenty-six weeks of paid maternity leave for a woman with fewer than two surviving children; twelve weeks where she already has two or more.
• Eligibility under Section 5(2): she must have actually worked for the employer for not less than eighty days in the twelve months immediately preceding her expected date of delivery.
• Adoption and commissioning mothers have their own entitlement under the amended Act.
• Crèche facility under Section 11A for establishments with fifty or more employees, with the mother allowed visits during the day.
• Work from home after the leave period, where the nature of the work permits it and the employer and employee agree on the terms.

For the contract, the drafting point is simply not to write something that contradicts this. A leave clause that offers less than the statutory entitlement does not reduce the entitlement; it just tells a tribunal that the employer did not know the law.

Probation — what it is and what it is not

Probation is a creature of contract, not of statute. There is no law that sets its length or that suspends employment rights during it, and that second half is where the misunderstanding sits.

What probation ordinarily does is give both sides a shorter notice period and a defined point at which the arrangement is confirmed or ended. What it does not do is put the employee outside the statutory floor. Shops and establishments notice provisions generally turn on a period of continuous employment rather than on confirmation, and a probationer accrues service for the purpose of tests that are counted in days.

Two drafting points worth insisting on. State what happens if nobody says anything at the end of the probation period — automatic confirmation is far cleaner than an indefinite probation that an employer forgets to close. And state the maximum extension, so probation cannot be renewed indefinitely as a way of keeping notice short.

Notice periods, buyouts and what can be recovered

A notice period binds both sides. What is often mis-stated is what an employer can actually recover when an employee does not serve it.

Section 74 of the Contract Act provides that where a sum is named in the contract as payable on breach, the party complaining is entitled to receive reasonable compensation not exceeding the amount so named. The named figure is therefore a ceiling. In the ordinary case an employer recovers the salary for the unserved period, which is a real loss it can point to, rather than a multiple of it.

Several other things people are told about notice periods are worth testing:

• “We will not give you a relieving letter.” Withholding documents to compel performance is a different matter from recovering money, and it is a weak position for an employer who has been paid the notice amount.
• “Your leave balance cannot be adjusted against notice.” Whether it can depends on the contract and the policy. If you want the option, it has to be written in.
• “Garden leave counts as notice.” Only if the contract says so. Without a clause, an employer who sends somebody home is usually still paying.
• Unequal notice periods. Three months from the employee and one month from the employer is common and is worth negotiating at the offer stage, when you have leverage, rather than at the exit, when you have none.

After you leave — what survives

Clauses that operate after the employment ends fall into three groups and they are treated very differently.

The full treatment — Section 27 and its exception, the leading judgments, and why the Indian position differs sharply from the American one people read about online — is in our NDA and non-compete guide. There is no purpose in repeating it here. The drafting takeaway is that an employer who wants real protection should invest the clause in confidentiality and non-solicitation rather than in a restraint that will not hold.

Intellectual property and moonlighting

Two clauses that were once an afterthought and are now among the most fought-over.

On intellectual property, a usable clause does four things: it assigns rights in work created in the course of employment; it defines what “in the course of employment” means for this role; it carves out what the employee brings with them or creates on their own time with their own resources; and it obliges the employee to execute whatever further documents an assignment or a registration requires. The fourth is the one that gets left out, and it is the one that matters when a filing has to be made two years after the person has left.

On dual employment, there is no general prohibition on holding two jobs for most private-sector employees, though specific statutes restrict it in particular settings. In the ordinary case it is a matter of contract. A clause that bans all outside activity is usually wider than the employer needs and harder to defend; a clause that requires written disclosure of outside work and prohibits work that competes or uses company resources is narrower and far more likely to be respected.

Writing the termination clause honestly

Most contracts devote a paragraph to joining and a line to leaving, which is exactly the wrong way round. A termination clause that has been thought about should answer all of these.

• Notice on each side, in days, and whether payment in lieu is at the company’s option or the employee’s.
• What happens during the notice period — duties, access, garden leave.
• Termination for misconduct: what counts, and that it follows an enquiry in which the employee is heard.
• Return of property — devices, documents, cards, keys, data — and by when.
• What is paid in the full and final settlement and by what date.
• Which documents will be issued on exit: relieving letter, experience certificate, statutory forms.
• Which clauses survive termination, listed by number rather than left to argument.
• Governing law and where a dispute will be heard.

The clauses a real agreement contains

• Parties and commencement — exact legal name of the employer, the date employment begins, and whether earlier service is recognised.
• Role, reporting and place of work — including whether the employee can be transferred, and where.
• Remuneration — the structure, not just the total; what is fixed, what is variable, and precisely how the variable is earned and when it is paid.
• Deductions — what may lawfully be deducted, and the authority for it.
• Hours, leave and holidays, consistent with the applicable establishments law.
• Probation and confirmation, with the automatic outcome stated.
• Confidentiality, with a definition that covers the data this role actually touches.
• Intellectual property, with the further-assurance obligation.
• Non-solicitation, bounded in time and scope.
• Policies — which ones apply, where they are, and whether the employer may change them.
• Termination, as set out above.
• Dispute resolution, governing law and jurisdiction.
• Annexures — salary structure, job description, confidentiality schedule — attached and initialled, not merely mentioned.

Stamping, signing and annexures

An employment agreement is a chargeable instrument, and the duty on it is small — which is precisely why skipping it is such an unnecessary risk. An instrument that is not duly stamped cannot be admitted in evidence or acted upon, so the contract you rely on becomes the contract you cannot produce. The rules and the penalty are in our e-stamp paper guide; we stamp it correctly as part of the drafting.

Registration is not required. Notarisation is not legally necessary, though some employers use notarisation for bonds and undertakings signed alongside.

What matters far more than either is mundane: both parties sign every page, both keep an executed copy, and every annexure referred to in the contract is actually attached and initialled. An agreement that refers to “the salary structure set out in Annexure A” with no Annexure A is a gap that will be read against whoever drafted it.

If the exit goes wrong

Most exits are fine. The ones that are not tend to follow the same shape, and the same sequence works.

• Write it down while it is fresh. Joining date, last working day, what was agreed, what is unpaid, what was said and by whom. Memory degrades and email survives.
• Make a written demand with a deadline. A dated letter setting out the amount and a reasonable date creates the record that everything after it depends on.
• Work out whether you are a workman. It decides the forum and the remedy, and it is the first thing an advocate will ask.
• Check the statutory entitlements separately from the contract. Notice under the establishments Act, retrenchment compensation, gratuity, provident fund — these are not waived by a settlement clause an employee was asked to sign on the last day.
• Then escalate. A legal notice is the usual next step. Where the matter needs an advocate, our directory is free to search and we take no commission.

Where these go wrong

• A letter where a contract was needed. No confidentiality, no intellectual property, no non-solicitation — discovered on the day somebody leaves for a competitor.
• Assuming the designation settles whether someone is a workman. It does not; the duties do.
• Treating retrenchment compensation as part of the full and final. Section 25F requires it at the time of retrenchment, as a condition.
• Terminating at eleven months. The test is 240 days in the preceding twelve months, not a calendar year.
• Dismissing for misconduct without an enquiry. Both the Delhi Act’s exception and gratuity forfeiture depend on a process actually having been followed.
• Forgetting that the five-year gratuity rule does not apply on death or disablement. Families lose money to this more than to anything else in this area.
• No Internal Committee. A standing statutory obligation at ten employees, with a penalty for non-compliance.
• A non-compete instead of a confidentiality clause. The enforceable protection is the one most contracts under-invest in.
• Unequal notice periods accepted at the offer stage. The moment to negotiate is before joining, not while resigning.
• Annexures referred to but never attached. The gap is read against the drafter, which is almost always the employer.

Time and cost

A standard employment agreement is drafted in 1 – 2 days. What takes the time is not the typing but the questions beforehand: what this person will actually do, what they will have access to, whether the arrangement is employment at all, and which statutory obligations the establishment already carries.

We draft for both sides — companies putting a proper contract in place, and employees who want to know what they are about to sign before they sign it. We will tell you plainly when a clause is one-sided, including when it is one-sided in your favour and unlikely to hold. Nothing is payable in advance.