Minimum Requirements
While the current labour laws in India do not strictly require that an employment contract be in writing, it is predominant market practice (with very rare exceptions) to have all terms and conditions of employment agreed and signed by both parties. A few States however, have specific legislation that necessitate a written contract in order to establish an employer-employee relationship. From the perspective of certainty and enforceability, it is strongly recommended that all employment contracts be in writing, whether as a simple appointment letter or a fully detailed contract, setting out relevant terms and conditions agreed to between the employer and employee.
Fixed-term/Open-ended Contracts
Fixed-term employment contracts are permitted in India, as long as the employer is employing the person for a short-term requirement. The Government has recently stated that fixed-term contracts will be permitted across sectors; earlier, they were expressly permitted only in the apparel manufacturing sector. However, it is unlikely that employers will be able to convert existing permanent positions into fixed-term employment positions.
Trial Period
The general market trend in India is to have a probation period between 3 and 6 months, especially in the technology and services sectors. During the probation period, the employer will usually have the right to terminate the employment without providing any notice (subject to certain conditions). Terms with respect to an employee’s probation period should be adequately captured in his/her employment agreement/appointment letter.
Notice Period
Workmen who have undertaken at least 1 year of continuous service are entitled to a notice period of 1 month, or equivalent wages in lieu thereof. In addition, the employer would be required to pay ‘retrenchment compensation’ to the workman, which is calculated at the rate of 15 days’ wages for every completed year of service. Given that India does not recognise the employment at-will doctrine, judicial precedents have held that termination of employment without providing any prior notice would render the contract of employment as an ‘unconscionable bargain’, and hence illegal.